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Hobart v. Hobart Estate Co. :: :: Supreme Court of California Decisions :: California Case Law :: California Law :: US Law :: Justia
Justia › US Law › Case Law › California Case Law › Cal. 2d › Volume 26 › Hobart v. Hobart Estate Co.
In 1933 plaintiff's father, owing $240,000 to Alice Lester, settled the debt by selling 6,000 shares at $40 per share to the guardianship estate, which thereby obtained control of the [26 Cal. 2d 421] company. As guardian, Greene had the right to vote the stock.
Greene sought and obtained permission of the superior court in the guardianship proceedings to buy the stock on behalf of the guardianship estate at $55 per share. It does not appear, however, that plaintiff knew who the actual purchaser was when the transaction was completed, and the documents executed at that time referred to the purchaser as the "nominee" of the law firm. Plaintiff received a payment [26 Cal. 2d 422] of $45,833.15, a sum approximately equivalent to $55 per share for the 833 1/3 shares. The receipt of this sum is also consistent with plaintiff's claim that he was paid $25 per share plus a lump sum of $25,000 for settlement of the contest. The transaction was not completed until January 16, 1936. Plaintiff remained in California for about three months. Thereafter he went to Europe, returning to New York in January, 1941, where, he testified, he received information from an unidentified person concerning the value of the holdings of the Hobart Estate Company. Two or three months later he came to San Francisco, consulted Aureguy and Harris, and obtained information which he testified was "excessively at variance" with the statements made to him by Greene relating to the value of the stock. The present action was filed in June, 1941.
The alleged representations were made during a series of four conferences with Greene concerning settlement of the will contest. Plaintiff was present at the fourth conference only, and at the others was represented by Aureguy and Harris, or by Aureguy alone. [26 Cal. 2d 423]
Plaintiff, Harris, Aureguy, and Greene were present at the fourth conference. Plaintiff had never before met Greene. With respect to this conference plaintiff and Aureguy testified in substance as follows: Aureguy started the conversation, saying that he had brought plaintiff to have Greene confirm what he had said at the prior conference. Aureguy asked Greene if it were essential that plaintiff part with his stock in order to settle the will contest. Greene replied: "Yes, most definitely." Plaintiff protested, saying he had wanted to establish a trust with the stock for his daughter. Greene, however, insisted there could be no settlement without the sale. Aureguy summarized what had been said at the prior conference with respect to the value of the stock, mentioning the figure given by Greene of $25,000 to settle the contest and the fact that Greene had a buyer who was willing to pay $25 per share, but no more, for the stock. Plaintiff [26 Cal. 2d 424] stated that he had thought the stock worth $100 or more per share. He asked how it could be worth only $25 when a year or so before it had been appraised at $40 in his father's estate. Greene replied that the appraisal of $40 was based upon the prior sale at that price by plaintiff's father to the estate of Alice Lester; that plaintiff's father was paid more than the stock was worth; and that the appraisal did not, therefore, represent the value of the stock. Greene said, "The stock is not worth over $25 a share."
Harris, called as a witness by plaintiff, testified that he had been employed by plaintiff in connection with the will contest, but not to sell the stock, and that the total sum of $45,833.15 received "was an over- all figure involving the settlement of all aspects of the case ... there were two phases: the stock aspect and the will contest ... and the contest could not be settled without the relinquishment of ... [plaintiff's] right to the stock ... the stock transaction was integrated with the will contest." With regard to the fourth conference, at which plaintiff was present, Harris testified that he could not recall all of the conversation, but said that Greene did discuss declining values, the depressed condition of things and painted a rather depressing picture of the affairs at that time. Harris had no recollection as to whether or not Greene gave any opinion of the value of the stock. [26 Cal. 2d 425]
Before discussing the sufficiency of the evidence to establish a cause of action for fraud, it should be noted that defendants do not dispute the actual falsity of the principal representations, if made. Greene alleged in his petition filed [26 Cal. 2d 426] in the guardianship proceedings in January, 1936, that the stock was reasonably worth $55 per share and he testified in the present action that it was worth $55 at the time of the transaction and that he then believed it to be worth that amount. He said it was not a fact that the assets were very bad or that the assets and liabilities were closely approaching each other. There was testimony by several witnesses as to the actual value of the assets and stock of the company at those times, and it is not claimed that the amount of damages awarded by the jury (necessarily based upon this testimony) was excessive.
Defendants insist that the testimony that the total sum paid consisted of $25,000 for the settlement of the will contest and only $25 per share for the stock is inconsistent with certain letters and documents prepared contemporaneously with the completion of the transaction and is therefore inherently improbable. They urge that these papers show beyond question that $55 was paid for the stock and nothing for the contest. The first of the letters was dated November 29, 1935, and was sent by plaintiff's attorney, Harris, to the attorney for Charles Crocker, pledgee of the stock, to inform Crocker of the proposed plan to sell the stock and settle the [26 Cal. 2d 427] will contest. It read, in part: "... it was agreed that in consideration of our client dismissing with prejudice the pending will contest and tendering a full and complete release in and with respect to any rights and/or claimed rights in and to said estate, and in addition transferring to the nominee of the representatives of the estate eight hundred and thirty-three and one-third (833-1/3) shares of stock of the Hobart Estate Company standing in the name of Walter S. Hobart, Jr., the representatives of the estate would pay therefor and in consideration thereof $55.00 a share for the said eight hundred and thirty-three and one-third (833-1/3) shares. In short, the settlement contemplated not only a dismissal of the will contest but also a complete relinquishment of all the right, title and interest of our client in and with reference to said shares of stock."
We cannot hold as a matter of law that the contemporaneous letters and documents relating to the form of the transaction compel a conclusion that the money plaintiff received [26 Cal. 2d 428] was solely for the stock and that no part of it was paid in settlement of the will contest. The letter from Harris to Crocker's attorney stated that plaintiff was to receive $55 per share in consideration of dismissing the will contest as well as for transfer of the stock. The letter from Harris to the law firm on January 14, 1936, recited the contest settlement as a part of the transaction. The jury could have inferred from these papers, together with the other evidence in the case, that at least some portion of the sum paid was based upon dismissal of the contest, and, in any event, they are reconcilable with plaintiff's version of the transaction. Although the letter containing the escrow instructions referred to a purchase of stock alone without mention of settlement of the contest, it is undisputed that one of the documents placed in escrow for delivery to the proponents of the will, was a dismissal and retraxit of the contest that was prepared by the law firm and required of plaintiff by Greene as a condition essential to completion of the transaction.
Furthermore, the form of the transaction, that is, its repeated description as a sale of the stock at $55 per share, was explained by plaintiff, Areguy, and Harris as a matter insisted upon by Greene. Plaintiff testified that Greene stated during the last conference that: "In selling the stock and the whole thing, of course, you realize that according to the trust that we drew up in your father's will it is absolutely impossible to pay you out of his estate. What we will do is this: I will contact my purchaser, and if he is willing to pay $25.00 a share, why, then, we will add to that $25,000 as settlement of the will contest, and we wish to make it in the form of a stock transaction which will then look as though you were being paid a nominal sum of $55.00 a share for your stock." According to Aureguy, Greene stated during one of the conversations that "to assuage the feelings of the family, and so there will be no scheming upon the fact with respect to the allegations" in the will contest, it would be necessary to pay the money in such a manner "that it will appear that the stock was sold for ... $55 a share." When Harris was asked if he remembered "the arrangements under which the whole thing was made to appear as though it were $55 a share for the stock," he testified that "to the best of my recollection ... the transaction could only be handled in that fashion ... there was considerable feeling, as I recall, as between certain members of the family, certain warring factions between the Hobarts and the Crockers, and others, and [26 Cal. 2d 429] my recollection is that the record under no condition could show or should show any payment directly in connection with this will contest. ..." When asked if the amount of the will contest was added on to what was being paid for the stock he replied: "One was integrated with the other," adding that he thought this fact was clearly shown in his letter of November 29, 1935, to Crocker's attorney. The jury, believing the testimony of plaintiff and Aureguy, could have inferred that Greene, in order to facilitate the transaction, insisted that it take the form of a sale of stock at $55 per share, although in fact $25 per share was paid for the stock and $25,000 for the settlement of the will contest.
[3] Defendants assert that if plaintiff's evidence relating to the form of the transaction is to be believed, plaintiff knowingly participated in a scheme which was calculated to enable an improper advantage to be taken of someone, in which event plaintiff would be in pari delicto with Greene and no court would aid plaintiff in escaping the consequences of his own wrongdoing. (Cf. American T. Co. v. California etc. Ins. Co. 15 Cal. 2d 42, 66 [98 P.2d 497], where this court stated it to be a general principle that "an agreement to defraud third persons is illegal and void.") Defendants also argue that for this reason the testimony of plaintiff and Aureguy is unworthy of belief. To show that Aureguy was aware of such a scheme defendants point to his testimony that it was his opinion that if the transaction were made to appear to be a sale at $55 a share, that would be "indulging in a little duplicity." Defendants also refer to plaintiff's testimony that he thought it was rather extraordinary the purchasers wanted to arrange it that way, but that it was their affair. Defendants urge that if this testimony was true plaintiff was put on notice of an intent to deceive someone and that he cannot now complain if he was the one who was deceived. In the present case, however, there was no contract to defraud a third person within the meaning of the American Trust Company case, and it is not established that Greene, to plaintiff's knowledge, contemplated defrauding the purchaser of the stock.
[2b] We have considered other portions of the record which defendants assert show that the testimony of plaintiff and Aureguy is incredible and unworthy of belief but we cannot say as a matter of law that the testimony contains [26 Cal. 2d 430] such evidentiary weakness or abnormality as to render it inherently improbable.
Most of the asserted qualifications were made during the second or third conference. They are as follows: Greene [26 Cal. 2d 431] told Aureguy that the only figure he was able to furnish with respect to the value, in the absence of a piece by piece appraisal of the assets of the company, was the sale by plaintiff's father to the Lester estate at $40 per share. Greene explained, however, that the price at which this sale was made "represents a figure vastly in advance of what the stock is worth." Greene also said that he had no way of determining values except by actual sales; that he was unable to determine the value of the stock because the only figure he ever had was the sale by plaintiff's father; that he had no way of definitely knowing what it was worth; that the stock was not generally dealt in and was worth "just what any person will pay for it or ... whatever Mr. Hobart can get for it"; that "the only way we can arrive at the value of a corporation of this character would be to sell the assets and divide the money." At the commencement of the fourth conference, which plaintiff attended, Aureguy repeated the substance of the prior conference with Greene, stating that Greene had informed him that to arrive at the value of the stock it would be necessary to sell all the assets.
Under some circumstances, at least, a positive representation of value may be treated as an assertion of an existing fact. In Willson v. Municipal Bond Co., 7 Cal. 2d 144, 151 [59 P.2d 974], the court said that "when a statement as to value is made as a positive affirmation of a fact, and is intended as such by the party making it, and such statement is false and is known to be false by the person making it, and such statement is relied upon by the person to whom it is made, then such false statement is actionable. The cases also indicate that where there is a reasonable doubt as to whether a particular statement is an expression of opinion or the affirmation of a fact, the determination rests with the trier of the facts." (See, also, Bedell Engineering Co. v. Rouse, [26 Cal. 2d 432] 57 Cal. App. 2d 734 [135 P.2d 404]; 37 C.J.S. 336-340; cf. Wells v. Lloyd, 6 Cal. 2d 70, 87 [56 P.2d 517]; Harris v. Miller, 196 Cal. 8, 13-14 [235 P. 981].)
The foregoing circumstances are sufficient to bring this case within the rule that where an officer or a director of a corporation has knowledge of special facts affecting the value of its stock, he cannot deal with a stockholder at arm's length but is under a duty to disclose such facts before making a [26 Cal. 2d 433] purchase or sale of the stock. This doctrine is explained in American T. Co. v. California etc. Ins. Co., 15 Cal. 2d 42, 57 [98 P.2d 497], where the conflicting views of the various jurisdictions on the existence of a fiduciary duty of a director toward stockholders are fully set forth. It was not necessary in that case to rely upon this doctrine, but its soundness is evident from the discussion therein. The contrary rule, which denies the existence of any fiduciary duty in the case of an officer having knowledge of special facts that enable him to profit at the expense of a shareholder by the use of information obtained in his official capacity, is not in accord with accepted principles of justice and must be rejected.
[9] On a further, though related, theory the statements attributed to Greene may be actionable. This court has held [26 Cal. 2d 434] that a false statement of opinion fraudulently made may form the basis of an action where the party making it possesses superior knowledge or special information regarding the subject matter of the representation. (Union F. Market v. Southern Cal. F. Market, 10 Cal. 2d 671, 676 [76 P.2d 503]; see 37 C.J.S. 336-340.)
[10] Defendants next claim that the evidence shows that plaintiff, Lachmund, and Aureguy made investigations of the value of the Hobart Estate Company's assets and stock, and they contend that one who has conducted an independent investigation must be deemed to have relied thereon rather than upon any representations made to him. (Cf. Carpenter v. Hamilton, 18 Cal. App. 2d 69 [62 P.2d 1397]; Blumenthal [26 Cal. 2d 435] v. Greenberg, 130 Cal. 384 [62 P. 599]; Colton v. Stanford, 82 Cal. 351 [23 P. 16, 16 Am.St.Rep. 137].) A defrauded person, however, is not barred from maintaining an action merely because he commenced an investigation if it was incomplete or abandoned before discovery of the falsity, particularly if the defendant has a superior knowledge of the facts, or if it is difficult for the plaintiff to ascertain all the facts or he is not competent to judge the facts without expert assistance. (See, for example, Shearer v. Cooper, 21 Cal. 2d 695, 702, 704 [134 P.2d 764]; French v. Freeman, 191 Cal. 579, 587-588 [217 P. 515]; Payne v. Clow, 114 Cal. App. 597, 600-601 [300 P. 138]; Willson v. Municipal Bond Co., 7 Cal. 2d 144, 151-152 [59 P.2d 974]; 37 C.J.S. 286-288.) Expert witnesses testified that in order to determine the value of the stock it would be necessary to make a complete examination and appraisal of all the assets of the company, which consisted of several city buildings, mining property, timber land, a public utility plant, and numerous other holdings. The evidence clearly shows that it was difficult to secure the information necessary to form an accurate estimate of the value, that Greene had superior knowledge concerning these facts, and that plaintiff was not competent without expert assistance to determine what the stock was worth. The evidence does not establish that Lachmund, Harris or Aureguy were qualified to give such assistance or that they attempted to advise plaintiff with respect thereto. Moreover, there was evidence that plaintiff did not make a complete investigation because of his reliance upon Greene's representations. (See Shearer v. Cooper, supra, 21 Cal. 2d 695, 704; Divani v. Donovan, 214 Cal. 447, 453 [6 P.2d 247].)
[11] Defendants contend that certain facts known to plaintiff should have aroused his suspicions and precluded his reliance upon the representations assertedly made by Greene. It appears that the proponents in the will contest took the deposition of Howard G. Stevenson, secretary of the company, and that Lachmund was present as attorney for plaintiff and inquired of Stevenson concerning the value of the company's assets and examined copies of the balance sheets of the company for the years 1932, 1933, and 1934, which listed all the assets and liabilities of the company. Defendants argue that having acquired this information through his attorney, plaintiff could not rely upon Greene's representations of value. According to Stevenson's deposition, [26 Cal. 2d 436] the valuations placed upon many of the principal corporate assets were carried on the books unchanged from as early as 1915 and did not reflect actual values or changes in value due to the depression. He said that some of the properties were worth the book value, some were worth only one-tenth of the book value and some were not worth anything. He further stated that a determination of the actual value would require reappraisal of the properties. There was testimony that Greene told Aureguy "that they were carrying on their books certain properties which were vastly in excess of the real value of the properties," and that during the conferences Greene pointed out that as a result of various factors such as the depression, the net worth was less than that shown by the financial statements of the company. According to the balance sheets, the book value of the stock was approximately $120 per share, whereas Greene testified he then believed the stock was worth but $55 a share. Greene further testified in substance that the assets were worth less than shown by the figures on the balance sheets. It is obvious that the balance sheets did not fairly represent the actual value of the corporate assets and that plaintiff had been so informed. It cannot therefore be said, as a matter of law, that plaintiff was prevented from accepting the representations of Greene as true because of the difference in the value of the stock as shown by the books and as represented by Greene.
Defendants contend that this action is barred by section 338 of the Code of Civil Procedure which provides a three-year period of limitations for commencement of: "An action for relief on the ground of fraud or mistake. The cause of action in such case not to be deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake." The conferences at which Greene is claimed to have made false representations were held in the latter part of 1935, and the transaction based thereon was completed in January, 1936. The present action, however, was not commenced until June, 1941, more than five years after the alleged fraud took place. [26 Cal. 2d 437]
The provision tolling operation of the statute until discovery of the fraud has long been treated as an exception and, accordingly, this court has held that if an action is brought more than three years after commission of the fraud, plaintiff has the burden of pleading and proving that he did not make the discovery until within three years prior to the filing of his complaint. (See Sublette v. Tinney (1858), 9 Cal. 423; Lady Washington C. Co. v. Wood, 113 Cal. 482 [45 P. 809]; Consolidated R. & P. Co. v. Scarborough, 216 Cal. 698 [16 P.2d 268]; Knapp v. Knapp, 15 Cal. 2d 237, 242 [100 P.2d 759].) Further, although negligence by the person defrauded is not a defense to a promptly brought action based upon intentional misrepresentation (see Seeger v. Odell, 18 Cal. 2d 409, 414 [115 P.2d 977, 136 A.L.R. 1291]), the cases construing section 338, subdivision 4, supra, have held that plaintiff must affirmatively excuse his failure to discover the fraud within three years after it took place, by establishing facts showing that he was not negligent in failing to make the discovery sooner and that he had no actual or presumptive knowledge of facts sufficient to put him on inquiry. (See Johnson v. Ehrgott, 1 Cal. 2d 136, 137 [34 P.2d 144]; Original Min. & Mill. Co. v. Casad, 210 Cal. 71, 74 [290 P. 456]; Del Campo v. Camarillo, 154 Cal. 647, 657 [98 P. 1049].)
Defendants assert that in addition to these requirements plaintiff must show that he made a diligent inquiry to discover whether or not he had been defrauded, and they argue that plaintiff failed to prove that earlier inquiry would not have revealed the falsity of the alleged representations. [12] It is not in every case, however, that a person is barred after three years by failure to pursue an available means of discovering possible fraud. The statute commences to run only after one has knowledge of facts sufficient to make a reasonably prudent person suspicious of fraud, thus putting him on inquiry. Section 19 of the Civil Code provides: "Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact." (Italics added.) Under this section it was held in Tarke v. Bingham, 123 Cal. 163 [55 P. 759], that the plaintiff was not barred by subdivision 4 of section 338 of the Code of Civil Procedure, since nothing had occurred "to excite his suspicion, or to put him upon inquiry." (123 Cal. at p. 166.) [26 Cal. 2d 438] The court said: "Where no duty is imposed by law upon a person to make inquiry, and where under the circumstances 'a prudent man' would not be put upon inquiry, the mere fact that means of knowledge are open to a plaintiff, and he has not availed himself of them, does not debar him from relief when thereafter he shall make actual discovery. The circumstances must be such that the inquiry becomes a duty, and the failure to make it a negligent omission." (Italics added.) Many other decisions have adopted this view. (See Mary Pickford Co. v. Bayly Bros., Inc., 12 Cal. 2d 501, 511 [86 P.2d 102]; Original Min. & Mill. Co. v. Casad, 210 Cal. 71, 76 [290 P. 456]; Prewitt v. Sunnymead Orchard Co., 189 Cal. 723, 730 [209 P. 995]; Victor Oil Co. v. Drum, 184 Cal. 226, 241 [193 P. 243]; Lady Washington C. Co. v. Wood, 113 Cal. 482 [45 P. 809]; West v. Great Western Power Co., 36 Cal. App. 2d 403, 406, et seq. [97 P.2d 1014]; Denson v. Pressey, 13 Cal. App. 2d 472 [57 P.2d 522]; Edwards v. Sergi, 137 Cal. App. 369 [30 P.2d 541]; cf. Smith v. Martin, 135 Cal. 247, 254-255 [67 P. 779].) [13] In many cases it has been said that means of knowledge are equivalent to knowledge. (See Shain v. Sresovich, 104 Cal. 402, 405 [38 P. 51]; People v. San Joaquin etc. Assn., 151 Cal. 797, 807 [91 P. 740]; Consolidated R. & P. Co. v. Scarborough, 216 Cal. 698, 701, et seq. [16 P.2d 268]; Knapp v. Knapp, 15 Cal. 2d 237, 242 [100 P.2d 759]; Bainbridge v. Stoner, 16 Cal. 2d 423, 430 [106 P.2d 423]; Merrill v. Los Angeles Cotton Mills, Inc., 120 Cal. App. 149, 158 [7 P.2d 329]; Daily Tel. Co. v. Long Beach Press Pub. Co., 133 Cal. App. 140, 143-147 [23 P.2d 833]; Wheaton v. Nolan, 3 Cal. App. 2d 401, 403 [39 P.2d 457]; Haley v. Santa Fe Land Imp. Co., 5 Cal. App. 2d 415, 420, 423 [42 P.2d 1078]; Vertex Inv. Co. v. Schwabacher, 57 Cal. App. 2d 406, 415-418 [134 P.2d 891]; Bryan v. Nicolas, 67 Cal. App. 2d 898 [155 P.2d 835]; cf. Truett v. Onderdonk, 120 Cal. 581, 589 [53 P. 26]; Phelps v. Grady, 168 Cal. 73, 79-80 [141 P. 926]; Malone v. Clise, 18 Cal. App. 2d 154, 157 [63 P.2d 321].) This is true, however, only where there is a duty to inquire, as where plaintiff is aware of facts which would make a reasonably prudent person suspicious. In the Lady Washington case, the court said (113 Cal. at p. 487) that "as the means of knowledge are equivalent to knowledge, if it appears that the plaintiff had notice or information of circumstances which would put him on an inquiry which, if followed, would lead to knowledge, or that the facts were [26 Cal. 2d 439] presumptively within his knowledge, he will be deemed to have had actual knowledge of these facts." (Italics added.)
[14] The record in this case contains a most complete presentation of all relevant circumstances that might have a bearing upon this question up to and including the completion of the transaction in January, 1936. Most of these factors have been discussed heretofore in connection with the sufficiency of the evidence to establish a cause of action for fraud. The problems there considered, however, did not directly concern ordinary negligence by plaintiff, since this would not be a defense to an action based upon intentional misrepresentation. (See Seeger v. Odell, 18 Cal. 2d 409, 414 [115 P.2d 977, 136 A.L.R. 1291].) Accordingly, we must now determine whether plaintiff has brought himself within the exception to the statute of limitations. [15a] Plaintiff's evidence, if believed, disclosed certain factors that may have tended to discourage the making of an exhaustive independent investigation, and we cannot hold, as a matter of law, that any of the circumstances known to plaintiff should have put a reasonably prudent man upon inquiry. The jury could have found that Greene's representations were of such a nature as to lull plaintiff into a sense of security or state of inaction,--an important factor to be considered in determining whether or not plaintiff was negligent in failing to investigate. (See, for example, Denson v. Pressey, 13 Cal. App. 2d 472, 476 [57 P.2d 522]; Edwards v. Sergi, 137 Cal. App. 369 [30 P.2d 541].)
Another pertinent factor is that there was a fiduciary relationship [26 Cal. 2d 440] between the parties at the time of the fraudulent representations. [16] Although the general rules relating to pleading and proof of facts excusing a late discovery of fraud remain applicable, it is recognized that in cases involving such a relationship facts which would ordinarily require investigation may not excite suspicion, and that the same degree of diligence is not required. In Rutherford v. Rideout Bank, 11 Cal. 2d 479, 486 [80 P.2d 978, 117 A.L.R. 383], it was said that because of such a relationship plaintiff could not be charged with lack of diligence even though an inquiry would have disclosed the true value of the property involved. (See, also, Bainbridge v. Stoner, 16 Cal. 2d 423, 430 [106 P.2d 423]; Knapp v. Knapp, 15 Cal. 2d 237, 242 [100 P.2d 759]; Lataillade v. Orena, 91 Cal. 565 [27 P. 924, 25 Am.St.Rep. 219]; Laraway v. First Nat. Bk. of La Verne, 39 Cal. App. 2d 718 [104 P.2d 95]; 12 Cal.Jur. 799; (1942) 30 Cal.L.Rev. 589, 591; cf. Marston v. Simpson, 54 Cal. 189; Edward Barron Estate Co. v. Woodruff Co., 163 Cal. 561, 575-577 [126 P. 351, 42 L.R.A.N.S. 125].) Defendants argue that the fiduciary relationship terminated when the sale was completed and that plaintiff was no longer entitled to the benefit of the rule. [17] The relationship, nevertheless, did exist at the time of the asserted fraud, and plaintiff was under no duty to make a complete search and re-examination of the entire transaction immediately after it took place merely because the fiduciary relationship between the parties was terminated thereby. Under these circumstances, it was for the jury to determine whether it was negligence for plaintiff, after completion of the transaction, to continue to rely upon the representations that were made while he was a stockholder.
[15b] Defendants contend, however, that certain facts indisputably known to plaintiff were sufficient to put him on inquiry. These contentions must be examined in the light of the rule announced in Northwestern P. C. Co. v. Atlantic P. C. Co., 174 Cal. 308, 312 [163 P. 47]. The court there said that when the facts are susceptible to opposing inferences, whether "a party has notice of 'circumstances sufficient to put a prudent man upon inquiry as to a particular fact,' and whether 'by prosecuting such inquiry, he might have learned such fact' (Civ. Code, § 19), are themselves questions of fact to be determined by the jury or the trial court." (See, also, West v. Great Western Power Co., 36 Cal. App. 2d 403, 411 [26 Cal. 2d 441] [97 P.2d 1014]; 20 Cal.Jur. 240.) The facts mentioned by defendants have been discussed and analyzed heretofore in connection with the contention that the evidence is insufficient to establish either actionable misrepresentation or plaintiff's reasonable reliance thereon, and we shall not repeat them here. Although the jury could properly have concluded that knowledge of these facts and others urged by defendants should have put a prudent man on inquiry, we are satisfied that none of the matters admittedly known to plaintiff up to and including the time of completion of the transaction compelled such a conclusion as a matter of law.
[18a] The evidence is clearly sufficient to support the implied finding of the jury that plaintiff learned nothing to arouse his suspicions during the period between the completion of the transaction and the alleged discovery of the fraud in 1941. The record shows that plaintiff went to Europe some time in 1936 and remained there until January of 1941, when he returned to New York. He testified that prior to that time he had no information, nor had anything come to his attention, that would make him suspect that he had been "overreached" in the transaction, or had not received the full value of his stock, or had been defrauded. Although absence from the locality would not toll the statute of limitations if it had already commenced to run (for example, if plaintiff had been put on inquiry by facts known to him prior to his trip to Europe), it was a relevant factor to be considered by the jury in explanation of the delay in discovery. (See Seeger v. Odell, 18 Cal. 2d 409, 418 [115 P.2d 977, 136 A.L.R. 1291]; cf. Teats v. Caldwell, 28 Cal. App. 206, 210 [151 P. 973].
[19] Defendants contend, next, that plaintiff has not established sufficient facts relating to the claimed actual discovery of the fraud in 1941. In addition to negativing notice of the fraud and excusing failure to discover it sooner, plaintiff must allege and prove facts showing the time and surrounding circumstances of the discovery and what the discovery was. (See Davis v. Rite-Lite Sales Co., 8 Cal. 2d 675, 681 [67 P.2d 1039]; Kelly v. Longan, 5 Cal. 2d 274, 276-277 [53 P.2d 971]; Consolidated R. & P. Co. v. Scarborough, 216 Cal. 698, 703 [16 P.2d 268]; Original Min. & Mill. Co. v. Casad, 210 Cal. 71, 72 [290 P. 456]; Victor Oil Co. v. Drum, 184 Cal. 226, 241 [193 P. 243].)
In applying this rule it is important to recognize the distinction [26 Cal. 2d 442] between cases where the plaintiff is under a duty to inquire and those in which he is not obliged to make any investigation until he has notice or knowledge of the happening of some incident or of some fact or facts sufficient to arouse the suspicions of a reasonable person. [20] Where there is a duty to investigate, the plaintiff may be charged with knowledge of the facts which would have been disclosed by an investigation; but where, as here, there is no prior duty to investigate, the statute does not run until he has notice or knowledge of facts sufficient to put a reasonable man on inquiry. [21] The rule that the plaintiff must show what information he has obtained, so that the court may determine whether or not the facts leading to the discovery of the fraud existed for more than three years prior to the commencement of the suit and could have been discovered by the exercise of ordinary diligence, is applicable only where the plaintiff was under a duty to make a diligent inquiry and he seeks to excuse his failure to discover the fraud by showing that the true facts were not then available or that the inquiry he did make was diligent, though unsuccessful. (See Consolidated R. & P. Co. v. Scarborough, 216 Cal. 698, 703-704 [16 P.2d 268]; cf. Phelps v. Grady, 168 Cal. 73, 77-78 [141 P. 926]; Wood v. Carpenter, 101 U.S. 135, 140 [25 L. Ed. 807]. [22] In the absence of a duty to make inquiry, as pointed out above, the statute does not run merely because the means of discovery were available, and plaintiff is not compelled to disprove that such means existed. He need only establish facts sufficient to show that he made an actual discovery of hitherto unknown information within three years before the filing of the action. In the Scarborough case, supra, the plaintiff merely showed that, after a lapse of more than the statutory period, an investigation was made which led to discovery of the fraud, but there was no showing of the reasons which prompted the investigation. As the court there pointed out (216 Cal. at p. 704), for all that appeared the plaintiff may have had prior knowledge of the suspicious facts, and there was no showing why an earlier investigation was not made. The requirement that plaintiff show what information he received or what suspicious facts came to his notice is imposed in order that the court may determine whether or not the discovery was made within the time alleged, that is, whether plaintiff actually learned something he did not know before. (Lady Washington C. Co. v. Wood, [26 Cal. 2d 443] 113 Cal. 482, 487 [45 P. 809]; Victor Oil Co. v. Drum, 184 Cal. 226, 241 [193 P. 243]; Galusha v. Fraser, 178 Cal. 653, 657 [174 P. 311].) In the Lady Washington case, at page 487, the court said that plaintiff must "show the times and the circumstances under which the facts constituting the fraud were brought to his knowledge, so that the court may determine whether the discovery of these facts was within the time alleged." (Italics added.)
[18b] Although the supporting evidence is less detailed than the allegations, it is sufficient to bring plaintiff within the rule above stated. He testified, in substance, that upon his return to New York in January, 1941, he received "some information ... or suggestion" from an unidentified person concerning the holdings of the Hobart Estate Company that was at variance with Greene's representations; that prior to that time he had no information, nor had anything come to his attention, that would make him suspicious that he had been defrauded; that as soon as he was able he came to San Francisco and consulted Aureguy, Harris and his present counsel; and that he then received information as to the nature and value of the company's holdings, and the status of encumbrances, that was excessively at variance with the statements made to him by Greene. Plaintiff offered no further evidence in support of the allegation regarding the conversation [26 Cal. 2d 444] in New York, and it is obvious from the record that his counsel did not ask him to state the details of the information received, fearing that a recital of what plaintiff learned might be inadmissible hearsay. fn. *
[24] The court instructed the jury that, "Where a representation is made of facts which are or may be assumed to be within the knowledge of the party making it, the knowledge of the receiving party concerning the real facts, which shall prevent his relying on and being misled by it, must be clearly and conclusively established by the evidence." The court then specifically applied the announced rule to the facts of the present case, stating: "Therefore, if you believe from the evidence that the defendant Greene did in fact make representations calculated to deceive the plaintiff and to induce him to part with his stock for less than its value, then he cannot excuse the deceit by showing that the plaintiff had opportunity to examine or sources of information which would have disclosed the true facts and the falsity of the representations, nor can he excuse himself by saying that the plaintiff had constructive notice of the true facts; but in order to so excuse himself it would have been necessary that the evidence clearly and conclusively establish that the plaintiff Hobart had actual knowledge of the real facts, which would prevent his [26 Cal. 2d 445] relying on and being misled by any representations of the defendant Greene."
We find no California statute or decision which requires that knowledge of facts that would prevent reliance must be established by conclusive or unanswerable evidence, and the instructions that such evidence is necessary were erroneous. The language used in these instructions was apparently taken from 3 Pomeroy, Equity Jurisprudence (5th ed. 1941), § 895, and it was quoted in the cases of Teague v. Hall, 171 Cal. 668, 670-671 [154 P. 851]; French v. Freeman, 191 Cal. 579, 586-587 [217 P. 515]; McMahon v. Grimes, 206 Cal. 526, 536-537 [275 P. 440]; West v. Great Western Power Co., 36 Cal. App. 2d 403, 413-414 [97 P.2d 1014]; and Hill v. Garvey, 56 Cal. App. 98, 105-106 [205 P. 61]. These decisions, however, were concerned with other principles of law set forth by Pomeroy, and the use of the word "conclusively" was not an issue and was not discussed. The cases, therefore, are not authority upon the question here involved, since it was not considered therein. (Maguire v. Hibernia S. & L. Soc., 23 Cal. 2d 719, 730 [146 P.2d 673, 151 A.L.R. 1062].)
Plaintiff cites numerous cases which hold that certain facts must be established by "clear and convincing" or "satisfactory" evidence. The use of these phrases, however, is not equivalent to a requirement of unanswerable evidence. [26 Cal. 2d 446] This court has said upon two occasions that where a deed purports to convey land absolutely, oral testimony that it was intended to be something entirely different, such as a mortgage or trust, must be "clear, convincing, and conclusive." (Sheehan v. Sullivan, 126 Cal. 189, 193 [58 P. 543]; Goodfellow v. Goodfellow, 219 Cal. 548, 554 [27 P.2d 898]; see, also, Miller v. Miller, 55 Cal. App. 2d 199, 205 [130 P.2d 438]; Stevens v. Fetterman, 76 Cal. App. 741, 753 [246 P. 102]; Smith v. Flynn, 64 Cal. App. 218, 220 [221 P. 384]; McGehee v. Curran, 49 Cal. App. 186, 198 [193 P. 277]; cf. Ford v. Ford, 44 Cal. App. 415, 418 [186 P. 164]; 12 Cal.Jur. 834.) Many other decisions, however, and in particular the more recent ones, have omitted the word "conclusive," employing instead such terms as "clear and convincing," "satisfactory," and "unequivocal," and it must now be regarded as settled that, whatever the proof necessary, it need not be "conclusive." (See Beeler v. American Trust Co., 24 Cal. 2d 1, 7, 8 [147 P.2d 583]; Stromerson v. Averill, 22 Cal. 2d 808, 815 [141 P.2d 732]; Chard v. O'Connell, 7 Cal. 2d 663, 665-666 [62 P.2d 369]; Carlson v. Robinson, 7 Cal. 2d 235, 236 [60 P.2d 426]; 12 Cal.Jur. 832; 17 Cal.Jur. 756-757; 25 Cal.Jur. 247-249; and cases cited therein.) Further, it should be noted that these decisions are concerned with certain specific matters that are totally unrelated to the problem here presented, and they do not in any way indicate the type of evidence necessary to show that a person claiming to have been defrauded knew of facts which would prevent his relying upon the representations made to him.
[25] The court also instructed the jury that: "If false representations were made to the plaintiff by the defendant Greene, and those representations were of a nature calculated to induce plaintiff to sell his stock for the sum of $25 per share, or any other sum, a presumption arises that the false [26 Cal. 2d 447] representations induced him to do so, and that he relied upon them in making the sale of the stock." The words "or any other sum" in this instruction are confusing in that they may have led the jury to believe plaintiff was entitled to recover although the contract was not to sell at $25 as claimed by plaintiff but at $55 per share, as asserted by defendants, or at some other figure. Also, although an inference of reliance may be drawn from false representations of a nature calculated to induce a sale, it is not true that a "presumption" arises therefrom.
[26] The jury was instructed further that: "The plaintiff had an absolute right to rely upon the expressed statements of an existing fact by the defendant Greene, the truth of which was known to Greene and unknown to him, and he was under no obligation to investigate and verify statements, to the truth of which the defendant with full means of knowledge had deliberately pledged his faith." The instruction as given was erroneous in that plaintiff did not have "an absolute right to rely" upon Greene's statements. Reliance must be justifiable, and if the jury believed that the "conduct of the plaintiff in the light of his own intelligence and information was manifestly unreasonable" he should be denied a recovery. (See Seeger v. Odell, 18 Cal. 2d 409, 414-415 [115 P.2d 977, 136 A.L.R. 1291].)
The testimony of plaintiff and his witnesses as to essential relevant matters is disputed by defendants and the evidence is subject to conflicting iniferences. Plaintiff's whole case rests upon his assertion that he agreed to settle the will contest [26 Cal. 2d 448] for $25,000 and sell his stock for $25 per share and that he was induced to enter into the transaction in reliance upon Greene's representation that the stock was not worth more than the agreed price of $25 a share. The evidence is conflicting both as to the terms of the agreement and as to whether the asserted representation was actually made. It is Greene's word against the word of plaintiff and Aureguy.
It is significant that Harris, who was then plaintiff's attorney and who was present when the terms were agreed upon and the representation was assertedly made, failed to corroborate plaintiff and Aureguy in these two vitally important particulars. The testimony of Harris is entirely silent with respect to plaintiff's story that the transaction was made upon the basis of the payment of $25,000 for settlement of the will contest and $25 per share for the stock. He testified merely that the settlement of the will contest was integrated with the sale of the stock and that this was shown by his letter to Crocker's attorney written shortly after the last conference with Greene. In this letter Harris stated it was agreed that in consideration of the dismissal of the will contest and the transfer of plaintiff's stock, the representatives of the estate would pay $55 a share for the 833 1/3 shares. The written instruments used in carrying out the agreement of the parties were to the same general effect. Although, as we have pointed out heretofore, these writings were not necessarily inconsistent with plaintiff's version of the transaction, oral testimony was required to explain the apparent discrepancy between the contemporaneous written instruments and what plaintiff claims constituted the agreement. The testimony of plaintiff and Aureguy that a specified sum was paid for the settlement of the will contest and a further fixed amount for the purchase of the stock was not supported by Harris. Nor did Harris corroborate the testimony of plaintiff and Aureguy that Greene represented the stock to be worth not more than $25 a share. This representation is the very heart of plaintiff's case, and although the extended discussion with Greene concerning it, as related by plaintiff and Aureguy, assertedly occurred in the presence of Harris, the latter testified he had no recollection that Greene gave any opinion as to the value of the stock. Thus plaintiff's version of the transaction, disputed by Greene, is not fully supported either by the contemporaneous [26 Cal. 2d 449] writings or by the testimony of his attorney.
Plaintiff seeks to hold defendant corporation on the theory [26 Cal. 2d 450] that Greene was its agent. There is no claim that there was any express authority from the corporation to make the alleged misrepresentations, and there is no evidence that Greene purported to act for the corporation in the transaction or that plaintiff believed that he was so acting. Plaintiff contends, however, that the corporation is nevertheless liable under the circumstances of this case.
[30] Plaintiff next contends that Greene as general manager was charged with the conduct of the business of the corporation, that he desired to get rid of plaintiff as a stockholder because he was a troublemaker, and that, accordingly, by facilitating the transaction, he acted in the interests of the corporation and hence within the scope of his agency. Actual authority may be implied as well as express and the implied powers of a general agent or manager are very broad, embracing authority to do all acts customarily connected with the business in which he is engaged. (See Los Angeles L. Co. v. Los Angeles, 106 Cal. 156, 161 [39 P. 533]; 1 Cal.Jur. 716; 2 Am.Jur. 70-73; (1934) 22 Cal.L.Rev. 392, 394; cf. Civ. Code, § 2319.) [31] It does not appear, however, that Greene was acting within the scope of his duties as general manager of the company in negotiating the purchase of the stock from plaintiff. The transaction was between two indidual shareholders, namely, plaintiff and Greene's principal, Alice Lester. Ordinarily, a corporation is not interested in a sale of stock by one shareholder to another and, in the absence of special circumstances, such transactions are not within [26 Cal. 2d 451] the implied authority of a general manager. (See Bisbee v. Midland Linseed Products Co., 19 F.2d 24, 27; cf. Rattray v. Wickersheim Implement Co., 36 Cal. App. 253, 256-257 [171 P. 964].) [32a] Any possible advantage to the corporation derived from elimination of plaintiff as a stockholder was but incidental to the sale between the two individual shareholders and does not render the corporation liable. [33] It cannot be said that the involuntary acceptance of the benefit, if any, justified the imposition of liability on the corporation on the theory of ratification, since any benefit from the sale was of such a nature that the corporation could not have rejected it. [32b] The company was not liable merely because Greene was its president and general manager. (See Rest., Agency, § 258, Comment b, where it is said: "Statements not connected with agent's employment. Except where the position occupied by an agent enables him to perpetrate a fraud, a principal is subject to liability for the deceit of an agent only in connection with matters entrusted to him. Misrepresentations concerning matters which are beyond the range of what the agent is employed to handle are no more effective to create liability against the principal than the agent's promises as to them.")
[34] Plaintiff contends, finally, that the corporation is liable because of the position in which it had placed Greene, who was apparently the only person who had knowledge and information as to the value of the stock and the factors on which the value depended. This contention is based on the doctrine of ostensible authority, which is defined as such authority "as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess" (Civ. Code, § 2317). Under this doctrine a principal is "bound by acts of his agent, under a merely ostensible authority, to those persons only who have in good faith, and without want of ordinary care, incurred a liability or parted with value, upon the faith thereof" (Civ. Code, § 2334). The California cases hold that, under sections 2317 and 2334, a plaintiff cannot recover on the basis of ostensible authority without a showing of facts sufficient to raise an estoppel (Hansen v. Burford, 212 Cal. 100 [297 P. 908]; Ernst v. Searle, 218 Cal. 233 [22 P.2d 715]; Van Buren v. Green, 120 Cal. App. 461 [7 P.2d 1079]; see, also, 22 Cal.L.Rev. 392, 395, [26 Cal. 2d 452] 396.) As said in Ernst v. Searle, 218 Cal., supra, at page 237, "its essential elements are representation by the principal, justifiable reliance thereon by the third party, and change of position or injury resulting from such reliance." (See, also, Rest., Agency, § 265.)
The case of Rutherford v. Rideout Bank, 11 Cal. 2d 479 [80 P.2d 978, 117 A.L.R. 383], is clearly distinguishable in that there the bank manager who was guilty of the fraudulent representations purported to be acting for the bank, plaintiff believed he was so acting and was authorized to do so, and, in addition, it was customary for the manager to make statements to customers upon matters such as those embraced by the representations.
I concur in the reversal of the judgments upon the grounds stated but cannot subscribe to all that is said in the majority opinion. In my opinion, the judgments should be reversed upon the further grounds: (1) that the evidence, as a matter of law, was insufficient to establish actionable [26 Cal. 2d 453] fraud and (2) that plaintiff's alleged cause of action, as a matter of law, was barred by the statute of limitations. I am of the view that the facts and the law relating to these further grounds for reversal were exhaustively and correctly discussed in the dissenting opinion written by Mr. Justice Knight at the time this case was pending in the District Court of Appeal, to which dissenting opinion reference is hereby made. (Hobart v. Hobart Estate Co. (Cal.App.), 148 P.2d 41, 59.)
FN *. Such evidence would have been admissible, not for the purpose of showing the truth of the statements made, but to establish the fact that the information was received. (Smith v. Whittier, 95 Cal. 279, 293-294 [30 P. 529]; see, Dunn v. Shamoon, 37 Cal. App. 2d 486, 491 [99 P.2d 1113]; Head v. Wilson, 36 Cal. App. 2d 244, 251 [97 P.2d 509]; 6 Wigmore on Evidence, (3d ed. 1940) § 1789, pp. 235-236.)