Case ID: ny-super-ct_52/html/0016-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—O’Gorman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

ANDREW S. TOCKERSON, Respondent, v. MYRON H. CHAPIN, Appellant.
    
      Action for damages for false representations on a sale—Oha/raeter of representations—what requisite to recovery.—Evidence—Worthlessness of corporate stoch, how shown.
    
    The worthlessness of stock is proved by a decree of sequestration of the property of the corporation, and when so proved, opinions of witnesses on the subject are inadmissible.
    In an action for damages for false representations on a sale, the representations must relate to some substantial circumstance going to the inducement or essence of the bargain, material to the subject of the negotiation and constituting the very basis of the contract. They must also relate to facts (not to opinions) bearing on the subject of the contract—not to those collateral and incidental thereto. They must also have a vital bearing and influence on the mind of the party in inducing- him to enter into the contract, and must be such as to affect the value of the thing purchased.
    In the case of a sale of shares of stock in a corporation, the plaintiff knew that the property of the company consisted of patent'-rights of an invention for cutting goods, and that the plan of the company was to dispose of royalties, sell shop-rights and machines, and that it had no other source of profit. A prospectus given to plaintiff referred to a certain loom, which it was stated did not belong to the company, but could be purchased from the manufacturers and would cost but little more than the ordinary one. The plaintiff was a machinist, and had made a personal examination of the machine for which the company owned the patent, and was satisfied with its performance. Eeld, th at representation s that the company had orders for 600 looms at $150 each (there being no representation that any profit could accrue to the company therefrom); that five cutting machines at $6,000 each had been ordered by certain named firms; and that a member of one of those firms was a largo stockholder in the company; there being no evidence that their falsity, if they were false, injuriously affected the value of the stock, did not possess the above requisites, and no cause of action for damages could arise out of their falsity.
    Before Sedgwick, Oh. J., and O’Gormax, J.
    
      Decided March 30, 1885.
    Appeal from a judgment in favor of the plaintiff and . against the defendant for $686.50, entered on the verdict of a jury.
    The facts sufficiently appear in the opinion.
    
      F. B. Van Vleck, attorney, and B. F. Blair, of counsel for appellant, cited:
    On the measure of damages, Hubbell v. Meigs, 50 N. Y. 480-491, and argued that under the rule there laid down, the court improperly excluded evidence offered on behalf of the defendant as to the value of the invention, of the patents, and of the stock at the time of tire sale of the stock, and subsequent thereto, and as to the amount of the capital stock. On the proposition that respondent having elected to affirm the contract, retain the stock and sue for damages, he could recover only “ such damages as he could prove,” Morgan v. Skidmore, 3 Abb. N. C. 106 ; arguing, among other things, “ It is no answer to say that it is difficult, if not impossible, to prove the actual value of the stock of a corporation in the absence of a market value. Plaintiff might have avoided the difficufty by rescinding the contract, returning the stock, and suing for the price paid, and that remedy would have been perfectly adequate. But he chose the other course and must accept its disadvantages.”
    
      Platt & Bowers, attorneys, and John M. Boioers, of counsel for respondent, argued
    The issues that the plaintiff has to maintain in an action of this kind, as was well stated in the charge of the court below, are as follows : (1). Did the defendant make the representations that he is alleged to have made % (2.) Did the plaintiff buy the stock in reliance on those representations % (3.) Were the representations false and fraudulent % (4.) Was the plaintiff damaged by those representations ? (Hubbell v. Meigs, 50 N. Y. 480 ; Miller v. Barber, 66 Ib. 558 ; Cazeaux v. Mali, 25 Barb. 578 ; approved, Bruff v. Mali, 36 N. Y. 206 ; Yates v. Alden, 41 Barb. 172 ; Wakeman v. Dalley, 44 Ib. 498 ; affirmed, 51 N. Y. 27 ; Painton v. Northern Central Ry., 83 Ib. 7 ; Mason v. Rapelyea, 66 Barb. 180). As to the effect of the decree of the order of sequestration, see Thompson Liability of Stockholders, 388 ; Brower v. Harbeck, 9 N. Y. 589 ; Ferry v. Bank of N. Y., 15 How. Pr. 445 ; §§ 1784 and 1793, Code).
   By the Court.—O’Gorman, J.

This is an action to recover $500 as damages, being the price of twenty shares of the stock of a corporation called the “Double Weaving & Cutting Company,” sold by defendant to the plaintiff.

This sale, the plaintiff claims to have been effected by means of false and fraudulent representations of defendant as to the value of said stock, which was at the time of the purchase, and at all times since then, wholly worthless. The price paid by the plaintiff was $25 for each share. The par value was $100 a share. The sale was made and the money paid on September 14, 1881.

The plaintiff’s evidence as to the making by the defendant of the representations as charged in the complaint, was contradicted by the defendant. Enough of testimony, however, was given on behalf of the plaintiff, if the jury believed it, to sustain his contention on that subject.

The learned trial judge charged the jury, at the request of appellant’s counsel, that the measure of damages was the difference between the price that plaintiff paid for the stock, and its actual value at or about the time when he ascertained that the representations were untrue ; and the jury gave damages for the full amount paid for the stock and interest, finding in effect that the stock was worthless. The evidence introduced by the plaintiff on that subject, was the record of a judgment obtained on July 18, 1883, in favor of the defendant in this action against the said company, for $794.42. On this judgment, execution was issued against the property of the corporation, and returned unsatisfied, followed by a decree of sequestration upon the property of the corporation, and the appointment of a receiver on August 10, 1883. The learned trial judge held that the worthlessness of the stock was proved by this decree, and refused to admit as evidence of value the opinions of witnesses on the subject. These rulings in themselves are correct. The decree of sequestration of the property of a corporation, under sections 1784 and 1793 of the Code, depended on record evidence of its complete inability to pay its debts, and in effect closed the career of the corporation, and its corporate life then came to an end (Eddy v. Co-operative, &c. Association, 3 Civ. Proc. 442).

Another question still remains to be considered, which was raised, although somewhat vaguely, by one of the defendant’s requests to charge. Assuming that the stock was worthless, as claimed by the plaintiff, what sufficient evidence is there that it would have had any value if the facts were as represented by the defendant, or that the non-existence of these facts in any degree, caused the stock to be worthless ? In other words, what evidence is there that plaintiff suffered any damage as the natural and legitimate consequence of the representations made by the defendant ? .

To maintain an action for obtaining money on fraudulent representations, it must be proved by the plaintiff that the person charged made the representations ; that they were false to his knowledge when made ; that the representations related to some substantial circumstance going to the inducement or essence of the bargain—material to the subject of the negotiation, and constituting the very basis of the contract. The representation must relate to facts, not to opinions, and to facts bearing on the subject of the contract, not do those merely collateral and incidental thereto, and the representation must have had a vital bearing and influence on the mind of the party, in inducing him to enter into the contract (Arthur v. Griswold, 55 N. Y. 400 ; Smith v. Countryman, 30 Id. 655).

The plaintiff here does not seek to rescind the contract of sale, nor does he offer to return the shares of stock purchased by him from the defendant. He affirms the contract, and claims to recover the damages resulting from the alleged fraud. In such a case, the recovery is restricted to such damages as he can prove (Morgan v. Skidmore, 3 Abb. N. C. 92). This proof, in my opinion, the plaintiff in the case at bar failed to supply. He was a machinist, and, before purchasing the stock in question, he made a personal examination of the cutting machine, for which the “Double Weaving & Cutting Company ” owned patents, and he was satisfied with its performance. He received from the' defendant a printed prospectus of the company, setting forth that it owned only these patents, and the cutting-machine tools, &c., at their place of business in South Fifth avenue. In the prospectus, reference was made-to a loom, which, it was there stated, did not belong to the company, but could be purchased from the manufacturer in Rhode Island, and would cost but little more than the ordinary loom.

One of the representations alleged to have been made by the defendant, inducing plaintiff to purchase the stock, was this : That the company had orders for five hundred looms at $150 each. The evidence to sustain this charge is insufficient. ■ But if this representation was true, it was immaterial, because7the company did not manufacture these looms, and did not hold out any prospect of any profit from the manufacture of these looms by others, and it is not alleged that defendant represented' that any such profit could accrue to the company therefrom.

The plaintiff testified that he understood the property owned by the company was the patent-right of the invention for cutting goods, and that the plan of the company was to dispose of royalties, sell shop-rights and machines, and that it had no other source of profits. If this representation was made, it could not have been the inducing cause of the plaintiff’s purchase of stock in the company, and there is no evidence that the stock would have been more valuable, if the representation was true, or less valuable because it was false.

The next representations alleged to have been made by defendant, and to be false, were that five cutting machines, at 85,000 each, had been ordered by certain firms named by the defendant, and that a member of one of these firms was a large stockholder in the company.

Assuming that these representations were made as alleged, and were untrue, there is no evidence that, by reason of their falsity, the value of the stock was injuriously affected. They were not material to the substance of the contract, but related to facts only collateral and incidental to it.

The burden of proving damage was on the plaintiff, and he failed to supply such proof. - It was not enough to leave the question to be determined without evidence, and only by the conjecture or surmise of the jury.

The judgment should be reversed, and a new trial ordered, with costs to abide the event.

Sedgwick, Ch. J., concurred.