Case ID: ad_141/html/0743-01.html
Source: Caselaw Access Project
Author: {"author": "Burr, J.: Woodward, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Howard Willets, Respondent, v. Henry W. Poor, Appellant, Impleaded with Mark R. Spelman and Henry V. Poor, Defendants.
    Second Department,
    December 30, 1910.
    Sale of bonds — false representations — evidence—knowledge obtained by vendor after sale — verdict which, may have been based on inadmissible testimony.
    In an action to rescind a sale of bonds to the plaintiff upon the ground that it was induced by false representations made by the defendant as to the financial condition of the corporation which issued them, it is error to admit in evidence financial reports showing the actual condition of the corporation if they were only brought to the knowledge of the defendant after the sale.
    A general verdict for the plaintiff cannot be sustained, even if such error be disregarded, on the theory that there is proof of oral misrepresentations made by the defendant, if in fact the making of the alleged oral misrepresentations is disputed by him and it is impossible to determine upon which alleged misrepresentation the jury based its. verdict owing to the fact that it made no specific findings on these questions.
    Woodward, J., and Hirschberg, P. J., dissented, with opinion.
    Appeal by the defendant, Henry W. Poor, from a judgment of the Supreme Court in favor of-the plaintiff, entered in the office of the clerk of the county of Westchester on the 4th day of January, 1910, upon the verdict of a jury, and also from, an order entered in said clerk’s office on the 10th day of January, 1910,'denying the defendants’ motion for a new trial made upon the minutes.
    
      Charles F. Brown, for the appellant.
    
      Charles K. Carpenter, for the respondent.
   Burr, J.:

Iu November, 1904, Henry W. Poor was. a member of a firm doing business in the city .of New York uudér the title of Henry W. Poor & Co. Mark R., Spelman and Henry Y. Poor were his copartners, but Henry W. Poor’s interest in said firm amounted to ninety per cent of. the entire capital stock thereof. There was also a firm doing business in the city of Boston under the same firm name., of which the said Henry W. Poor, Charles F. Cushman, Henry Y. Poor and Frederick A. Farrar were the members. In this firm Henry W. Poor had a one-third interest. Prior to the date above mentioned the Boston firm of Henry W. Poor & Co.,- in connection with another firm doing business in that city under the name of S. D. Boring. & Son, had purchased the entire authorized issue of bonds of the NevMon and Northwestern Bailroad Company of Iowa, and had disposed to otliei’ persons a considerable portion thereof. On the twenty-second of November the New York firm of Henry W. Poor & Co. agreed to sell to plaintiff 250 of ■ the bonds of the said road of the par value of $1,000 each, and on the second day of-December in the same year they were delivered to plaintiff, who paid for them the sum of $243,368.06. To enable them to -make delivery the New York firm ■ obtained from the Boston firm a sufficient amount of the said bonds at a price somewhat less than that paid by-plaintiff,. This action is brought to rescind the contract of sale to plaintiff' upon the ground of false representations made by defendant Henry W. Poor or by one Dennie M. Hare, which representations were the inducing cause to plaintiff of such purchase. The said Hare was in the employ of. the New York firm, and his relations to it were such-that a jury would be justified in finding that representations made by him to plaintiff with respect to the said bonds were within the scope of his authority, and binding upon the members of the said firm. The jury having found a verdict in favor of plaintiff for the sum-of $277,899.94, this appeal is taken by-the defendant Henry W. Poor from the judgment entered on such verdict and from an order denying a motion for a new trial.

The representations which it is claimed were made by or on behalf of defendants are of two kinds: First, written representations contained in a prospectus which was. issued some time in the latter part of the year 1903. by the Boston firm of Henry W. Poor & Co., and a copy of which was delivered by Hare -to plaintiff at the timé when negotiations were pending for the purchase and sale of said bonds; and, second, oral representations made by defendant Henry "W7 Poor, or Hare as his agent. It was conceded by plaintiff upon the trial -that when this prospectus .was issued it was.issued in good faith, and so far as the persons who subscribed to the same then'knew" the statements contained in it were true. But his present contention is that -in November, 1904, when the prospectus.was delivered to; plaintiff, defendant knew- -that sotoe of the statements therein contained, and which in November, 1903, were supposed to be true, were as matter of fact false, and particularly was this the case respecting some of the statements therein contained with regard- to the cost per mile of the construction of the road, the earnings of the road, and the extent and quality of mineral deposits in coal properties owned or con-. trolled by it. There was a sharp conflict of evidence whether. Poor did or did not make the statements which Hare testified that he did make, whether he authorized the delivery of the prospectus to plaintiff, or whether he knew that it had been delivered to him. In view of this sharp conflict it becomes our duty carefully to scrutinize the testimony that was admitted as bearing upon the issues in this action, to determine that no error was committed in connection therewith.

In order to prove that some of the statements contained in the prospectus were false at the time that plaintiff contends it ivas delivered to him, and to prove that defendant Henry W. Poor had information respecting the falsity thereof, plaintiff introduced in evidence certain reports made to the Railroad Commissioners of the State of Iowa under the provisions of a statute'of that State purporting to show the condition of the road. It was not claimed that Poor participated in making these reports, and his testimony that he never saw them until the time of the trial is not contra» dieted by any direct testimony. Plaintiff also introduced in evidence, with the same purpose and intent, certain monthly reports made by the officers of the company in Iowa to the firm of Henry W. Poor & Co. in Boston showing the condition of the road, its earnings and expenses, and showing that the road was being operated, at a loss, both in respect to its business as a common carrier and in connéction with its mining properties. These reports are referred to as Exhibits A-l- to A-25.and B-l to B-25. As to Exhibits A-l to A-25, being statements made by officers of the company in Iowa as to the earnings anyl expenses of the Newton and Northwestern Railroad Company from October, 1902, to October, 1904, tile court stated that they were simply received for the purpose of showing that defendant got notice of what the papers contained, not as establishing the contents of the papers themselves. No limitation was made as to the purpose or effect of Exhibits B-l to B-25, which were monthly reports of the sales, earnings and expenses of the Boone Coal and Mining Company, under which name the coal business of the road was being conducted. There is no direct evi■dence that defendant Poor, or either of • the members of the firm of Henry W. Poor & Co. in Hew York, ever saw these reports. Poor makes positive denial that he had seen them, and asserts that he never had any information respecting the contents thereof. It was sought to connect Poor with knowledge of such contents by the testimony of Frederick A. Farrar, who was at one time vice-president of the railroad company, and' who was a member of the Boston firm. In his attempt to show that Farrar received these reports and communicated the contents thereof to defendant Henry W. Poor, plaintiff called him as a witness. He testified: “ During the period of my being an officer of this road [and it appears that he became such officer in June, 1904], I was more or less in com-. m unication and correspondence with Mr. Henry W. Poor of Hew York with regard to the affairs Of this railroad. Q. Did you send to him copies of the reports that you received from the operating officers of the road ? A'. I do not think all of them, many of them. Q. Did you send him many of them ?. A. I don’t remember much about that personally.” He then testified that he was in the habit" of going to Hew York very- often, as often as once or twice a -month, and when there frequently discussed with Poor the .condition of this railroad, as- lie did other matters pertaining to their business. When asked specifically whether or not the information that came .to him in these reports was discussed with Mr. Poor he testified : “ I think very likely; T cannot remember definitely: I cannot say definitely whether it was or not. I cannot recall any conversation or the substance of any conversation with Mr. Poor on the subject of these reports or the infer-. matio'n contained in these reports.” Again lie testified that he discussed practically everything connected with the general condition of the road in a general way with Henry- W. Poor, as often as once or twice a month during the whole period that they were members of the firm in Boston. It might be urged with ■ much force that testimony so indefinite in character, in the face of Poor’s positive denial that the contents of these reports or the subject-matter of the statements contained in them had ever been brought to liis attention, failed to sustain the burden of proof devolved upon plaintiff to establish by a fair preponderance of evidence the facts material to his contention. But the further testimony of Farrai makes it perfectly clear that whatever conversation he did have with Poor on the subject of these reports and the contents thereof, was subsequent to the sale of these bonds. He testified : “ As -treasurer and as director, I received constantly during the period that I was an officer, reports from the operating officers of the road in Iowa. I received daily reports from them. I also received regular monthly statements. Q. * * "x" Did you receive those during the whole period of your being an officer ? A. Ho. Q. "Well, during what part of the period that you were an officer ? A. I should think we began to get our reports subsequent to the time of this meeting, when Meservey and the rest of them went out. Q. Subsequent to the stockholders’ meeting in June, 1905 ? A. That would be my recollection of the matter. Q. You received daily reports beginning witli the spring or early summer of 1905 ? A. I should say so, subsequent to these changes. Q. By changes you mean the election of Mr. Boring ?. A. Yes, and I think Mr. Meservey went out of the directory at that time.” Again he testifies : Mr. Boring and my- firm took over the active management of the property in July, 1905. I think that is the date.” Defendant not only objected to the admission of these papers in evidence as being incompetent, but at the close of the case expressly requested the court to instruct the jury that the defendants were not “ chargeable with knowledge of the facts contained in the reports made by the operating officers of said railroad company and sent to Henry W. Poor and Company of Boston and Boring and Son of Boston, and in evidence as Plaintiff’s Exhibits A-l to A-25 arid B-l to B-25.” As the only foundation for a finding of the jury that Poor had such knowledge is based upon the testimony of Farrar, the exception to the admission of these papers and to the refusal of the court to charge the jury as requested, was well taken, since, even if Farrar did communicate to Poor the whole of his knowledge based upon these reports, that knowledge was not obtained until some months subsequent to the sale of the bonds in question.

Respondent contends that the representations orally made by Poor, or by Hare, his agent, and particularly those representations made with reference to the pendency of negotiations.for the sale of the Newton and Northwestern Railroad Company to the Chicago, Rock Island and Pacific Railroad Company, and which plaintiff contends had terminated before he was approached with reference to the purchase of these bonds, would be sufficient of itself to sustain the verdict of the jury, entirely independent of any other false and fraudulent representations made in the case. The fact that any oral representations were.made by Poor, or by Hare with his express authority, and the extent of Poor’s knowledge in eon neetion therewith, was a disputed fact. The verdict. was a general one. In the absence of specific findings by the juryj it is. impossible for us to determine. ■ which of the ■ various representations alleged to be false and fraudulent the 'jury decided were false, and which of those established as false were untrue within the knowledge of the defendant.

We have not considered various other objections and exceptions urged by defendant, for the reason that the error above referred to we deem fatal to the maintenance of the judgment.

The judgment and order appealed from should be reversed and. a new. trial granted, costs to abide the event.

Thomas and Care, JJ., concurred; Woodward, J., read for affirmance,, with whom TIirschberg, P. J., concurred. .

Woodward, J.

(dissenting):

The plaintiff demands damages alleged to have resulted from certain fraudulent' representations made by the defendants which induced him to purchase certain bonds- issued bv the Newton and • Northwestern Railroad Company of the State of Iowa, of the par value of $250,000, for which the plaintiff paid the defendants the sum of $243,368.06. The facts as they appear from the evidence justified the jury in finding that the defendants placed a prospectus before the plaintiff for the purpose of inducing him to purchase the bonds, which prospectus was - made in 1903, but without date, iii which the affairs of the railroad company appeared to be in a very satisfactory condition, and one warranting the investment, while as a matter of fact the defendants were aware of the true conditions in 1904, at the time the prospectus was used, and they did not correspond in many of the essential details with the facts as stated in the prospectus. There was evidence in the case which tended to indicate that the prospectus was made and issued in good faith, and that there were no material misstatements of facts at the time it was made, but the evidence also shows that at the time the prospectus was made use of by the defendants it had been fully demonstrated that the anticipations of the railroad company were not to be realized, and these facts were brought home to the knowledge of the defendants ; at least, the evidence indicated that they had. the fullest possible opportunities for knowing the facts, and that they had been discussed among the members of the defendant’s banking concerns, of which he was a partner, both in New York and-in' Boston.

The principal questions arising on this appeal by the defendant Henry W. Poor relate to the charge of the court and the exclusion and reception of evidence. It is claimed, in the first point, that the court erred in admitting in evidence the reports of the Newton and Northwestern Railroad Company to the Railroad Commissioners of Iowa, and in refusing to charge the defendant’s request that “ the defendant Henry W. Poor is not chargeable with knowledge of the facts contained in said reports to the Railroad Commissioners by reason of being a director of said railroad company.” The court refused to charge “in any other manner than I have heretofore charged in that respect,” and to this the defendant excepted. The defendant Henry W. Poor was a director' of the Newton and Northwestern Railroad Company, and it was clearly competent, in establishing the fraudulent misrepresentations of the defendants, to show that the railroad company had made statements subsequent to the prospectus which went to show that the prospectus, at the time of its use in 1904, did not correctly represent the* known facts. The board of directors is the managing body of the corporation. It is called upon, in the case of railroad corporations in most of the States, to make a report of its condition at stated • intervals, and it would be strange if a report thus made under the requirements of the law could not be offered in evidence to show that one of the directors, in selling the securities of the railroad company, acted fraudulently. • It is very likely true that this is not the highest evidence, but it is clearly some evidence, and as fraud is generally established by a series of facts and, circumstances, rather than by direct evidence, .it is one of the eleménts which-it was proper for the jury to take into consideration. The court, I believe, had charged the law of the case upon this point-; it was not bound to charge the detailed requests of the defendant where it had already covered the point.

It is also suggested that the court erred in admitting in evidence the'so-ealled reports of business of the railroad company and of the coal earnings, and in denying the defendant’s motion to strike out such evidence from the record. I am unable to discover error in these rulings. The evidence disclosed that these reports were in the possession of one of defendant’s partners in the Boston firm; that some of them had been transmitted to the defendant :at his New York office, and that the Boston partner had dismissed these reports and the general condition of the railroad with the defendant Poor subsequent to the issuing of the prospectus' in question, and prior to its use in inducing the plaintiff to make the investment. Bringing directly home to the defendant Poor the knowledge of these reports and their discussion certainly had. a tendency to ■establish that he knew the representations of the prospectus to be false at the time they were made-use of to induce the .plaintiff to purchase.

It is likewise insisted that the court erred in refusing to withdraw the prospectus from the consideration of the jury, and in permitting the jury to base their verdict in any part upon a finding that any statement, contained in said .prospectus was false and untrue. It is doubtless true that the evidence did not disclose that there was any false statement in th.e prospectus as it was issued, but that did not make the prospectus incompetent evidence in this case, under the circumstances. The prospectus may not have contained any false statement of fact when made; it purported to be made up on the statements of others and upon estimates made by those who were in a position to know, but the element Of fraud entered into the transaction- when the defendant Poor, knowing that the estimates had not been realized and that the statements were not in harmony with .the then-known facts, made use of the same to induce the plaintiff to purchase the bonds. ' For instance, it was not, so far as we know, false to say that a certain engineer had estimated that there .was a.given amount of coal available in the mines owned by the.company, but.it would undoubtedly be a fraudulent misrepresentation on the part of the defendant to make use of that statement at a time when he knew that no such amount of coal could be produced, and it was upon this basis that the whole transaction savored of fraud and justified the jury in finding for the plaintiff. It was not error to retain the prospectus in evidence, because it was a necessary part of the case; it showed what had been represented, and the testimony disclosed that, at the time this prospectus was made use of, it could not have been done in good faith, for the defendant knew that its statements were not to- be realized.

I do not find reversible error in this case, and 'the judgment and order appealed from should be affirmed, with costs.

■ Hibschbeeg, P. J., concurred.

Judgment and order reversed and new trial granted, costs to abide the event.