Court Opinion

ID: 7898637
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:54:03.054117+00
Date Added: 2024-06-11T16:32:11.030647
License: Public Domain

Alvey, C. J.,
delivered the opinion of the Court.
This is an action for alleged deceit in the sale of certain shares of stock in a fertilizer company, in the City of Baltimore. The action was brought by the present appellant against the defendants, who were stockholders and officers managing the affairs of the corp'oration that issued the shares that were sold to the plaintiff.
The declaration contains two counts. The first alleges that the defendants, being desirous of obtaining addi*127tional capital, caused an advertisement to be published in the Baltimore Sun newspaper, in these terms: “Business Opportunities. A larger capital being required to meet the demands arising from an increase of business, a limited number of shares are offered for sale by a prosperous and well established fertilizer company. Any one wishing to make a safe and profitable investment, is requested to investigate; address Manufacturer, .179 Sun Office. ” And that the plaintiff', being desirous of investing money in a safe and profitable business, and acting upon the advertisement so published, had communication with the defendants in regard to the subject-matter of the same; and that the said defendants, being stockholders and interested in the company, “represented the business to be a most flourishing and profitable one, and stated that the investment of $5,000 would yield the plaintiff 20 per cent, income on his investment, and offered to permit the plaintiff to inspect their books to verify their representations.” That the plaintiff did undertake the examination of the books, to see for himself the true condition of the concern; but that he has since discovered that said books were misleading, in the manner in which they were kept, and that they did not show the true condition of the affairs of the concern; that all the books were not shown to the plaintiff, but that books were withheld from him which would have revealed the true condition of affairs, and enabled him to have guarded against the fraud and deception of the defendants; but, believing in the representations made by the defendants, and being misled by the books shown him, he invested $5,000 in the stock of said fertilizer company; and being subsequently employed as clerk to the company, and as such clerk having access to the books of the company, he discovered that he had been misinformed, and deceived by the false representations of the defendants, who well knew, at the time that such *128representations' were made, that they were false. And that, by reason of such fraud, misrepresentation and deceit, the plaintiff has been greatly wronged and injured.
The second count alleges that the defendants unlawfully conspired and combined together to induce the plaintiff to invest $5,000 in the stock of the Parks Guano Company, and that, in pursuance of such purpose, the defendants represented to the plaintiff that the company had a large and prosperous business, and that it was a safe and sure investment; whereas, such representations were, at the time made, false in fact, and were wilfully and fraudulently made to deceive the plaintiff, and whereby he was deceived and induced to invest $5,000 in the stock of the company, to his loss and injury.
The defendants pleaded not guilty, and also pleas of res adjudicata in respect to the stock issued to the defendants, and other things tried and determined in an equity proceeding specially referred to.
It appears from the record that, prior to July 1st, 1887, there had existed in the City of Baltimore a copartnership formed for conducting the guano and fertilizer business, under the firm name of Parks and Company. At the time of the dissolution of this partnership it was composed of James T. Parks, John Mauldin and Matthew P. Hubbard, three of the defendants in this case. About July 1st, 1887, the members of the firm, for- the purpose, as stated by them, of increasing the capital and enlarging the business, determined to convert the partnership into a joint stock corporation, with a capital of $100,000, to be divided into one thousand shares of $100 each. The corporation was formed under the provisions of the general incorporation law of the State, by the name of the Parks Guano Company, and was organized about the 1st of July, 1887. Of the capital stock two hundred and fifty shares were subscribed for, *129amounting, according to the par value of the shares, to $25,000. Parks, Mauldin and Hubbard, the members of the partnership of Parks & Co., each subscribed for fifty shares. The assets of the partnership of Parks & Co. were estimated and appraised, and turned over to the corporation, and on account of which three several certificates, as for paid up. shares, were issued for fifty shares each, one to Parks, Mauldin and Hubbard each, in payment for their respective interests in the partnership assets transferred to the corporation. The corporation proceeded in its operations, but desiring more capital than had been subscribed, the advertisement of the 4th of November, 1887, set out in the declaration, was inserted in the Baltimore Sun. After that the plaintiff applied for information, as to the condition and business prospects of the concern; and after making examination of the books of the company, the plaintiff himself being an expert bookkeeper and accountant, he took fifty shares of the stock — a part in December, 1887, and the remainder in January, 1888 — and paid the full par value therefor. Immediately upon becoming a stockholder he became an employe of the company, and remained such until its dissolution in May, 1889. Upon the dissolution of the company, the plaintiff agreed to become its liquidator, and was duly appointed to that position, at a salary of $900 per annum. As such liquidator, he collected about $20,000 of the assets of the corporation, and paid out, in discharge of its debts, about $16,000, leaving a surplus for distribution among the stockholders of near or about $4,000.
At this juncture of proceeding, the plaintiff filed a petition on the 11th of January, 1890, in the Circuit Court of Baltimore City, praying that Court to take jurisdiction of the trust, and to administer the same, and to direct distribution of the funds to those entitled thereto. In this petition there was no charge that the *130shares of stock held by the defendants had been issued fraudulently. The Court, according to the prayer of the petition, assumed jurisdiction of the trust. This petition of the plaintiff seems to have given rise to contest. Soon thereafter a petition, on behalf of the stockholders, was filed for the appointment of a receiver, and a receiver was accordingly appointed. In the course of settlement, an account was stated by the auditor, distributing the surplus fund, after payment of debts, among those claiming to be stockholders of the company; and distribution being 'made by the auditor to Parks, Mauldin and Hubbard, in respect to their shares-of stock, exceptions were taken by the plaintiff and others to such distributions, upon the specific ground that the issue of stock to those parties was fraudulent- and void, and that no distribution should be made to-such stock, in prejudice of the rights of other stockholders. These exceptions were answered, and testimony was taken on both sides of the issue thus formed;, and after hearing upon the facts, the exceptions were overruled, and the account was finally ratified. These facts are all shown by the record in the equity proceedings, produced as evidence in this cause.
On the trial below there was a good deal of testimony produced, and much of it of a very conflicting character, as to the representations that were made by the defendants to the plaintiff, in regard to the affairs and amount of available assets of the company, and its business prospects, and in regard to the extent of the disclosures made to the plaintiff in the course of his examination into the affairs of the company previous to his subscription for stock.
Both sides asked for instructions to the jury; and the jury were instructed by the Court, by granting some of the prayers offered by the plaintiff, and all those offered by the defendants. And, upon examination of the *131prayers granted, it appears that the whole case was amply embraced by the instructions given, and that the plaintiff' obtained the full benefit of all the law to which he was entitled to have applied to his case. The verdict and judgment being against him he has appealed.
The general principles upon which actions for deceit or fraudulent misrepresentations are maintainable have been very clearly stated by this Court in the cases of McAleer vs. Horsey, 35 Md., 439, and Buschman and Cook vs. Codd, 52 Md., 202. If a defendant knowingly tells a falsehood, or makes a positive representation of a fact as true, when he does not know it to be true, and has no reasouable grounds for believing in its truth, with an intent to induce, and does thereby induce the plaintiff to enter into a contract or incur liability, which, but for such misrepresentation, he would not have entered into or incurred, and the plaintiff is thereby damnified, a case of fraudulent deceit is established. It is not necessary in all cases to show that the defendant knew at the time that the representation made by him was false in fact. It is sufficient if the statement be made for a fraudulent purpose and without a bona fide belief in its truth by the defendant, with the intention of inducing the plaintiff to do an act, and that act is done, in reliance upon the truth of the representation, which turns out to be false, to the damage of the plaintiff. In such case an action for the damage sustained may be maintained. This was expressly decided in the case of Taylor vs. Ashton, 11 Mees. & W., 401, and which has been repeated in many subsequent cases. That was an action brought against the defendants, who were directors of a bank, for false and fraudulent representations alleged to have been made by them in a report which was published, stating in substance the flourishing state of the affairs of the bank. It was alleged by the plaintiff that the report was published by the defendants *132fraudulently, with the view to induce persons to buy shares; that the plaintiff bought shares upon the faith of the report, and that the statements contained therein were untrue to the knowledge of the defendants, and that the plaintiff had suffered damage thereby. Upon the facts of the case, after full discussion and careful consideration, it was held, that if a party makes an untrue representation to another for a fraudulent purpose, with the intent to induce the latter to do an act which he afterwards does to his prejudice, an action for deceit will lie; and that it is not necessary to show that the defendant knew the representation to be untrue in point of fact. It is only necessary to show that the defendant pretended to a knowledge which he must, according to principles of reason and good faith, have known that he did not possess at the time of the misrepresentation made. This principle was very clearly stated, and acted on, by this Court, in the case of Joice vs. Taylor, 6 Gill & John., 54, though not in an action for deceit. The instructions given in this case, by granting the first and third prayers of the plaintiff, and the third prayer of the defendants, when considered together, as it was proper to do, would seem to embrace the whole law of the case.
The belief of the defendants must have been in the truth of the representations as made by them, and that was a question of fact for the jury. But the representations to be material, must have been in respect of ascertainable facts, as distinguished from mere matters of opinion or speculation. A representation which merely amounts to .a statement of opinion, judgment,probability or expectation, or is vague and indefinite in its nature and terms, or is merely a loose, conjectural, or exaggerated statement, goes for naught, though it may not be true; for a party is not justified in placing reliance on such statement or representation. Such an *133indefinite or speculative representation should put the person to whom it is made upon inquiry; and if he chooses to put faith in such a statement, and abstains from inquiry, he can have no ground of complaint. Buschman and Cook vs. Codd. 52 Md., 202, and the cases there cited; Kerr on Fraud and Mistake, 82; Cooley on Torts, 483, 485.
The first prayer for instruction, offered by the plaintiff, was granted; but it was granted in connection with the third prayer of tire defendants. The second prayer of the plaintiff was rejected; but his third prayer was granted, and in the latter prayer he was given the benefit substantially of the proposition presented by the second prayer. He therefore had no ground of complaint because of the rejection of the second prayer as presented.
The plaintiff’s fourth prayer, in regard to the measure of damages, was granted; but his fifth and sixth prayers were rejected, and very properly so. They were properly rejected, if for no other reason, that they were not within the pleadings in this cause, and presented no substantive ground for recovery in this action. They proceeded upon the theory that because of the non-compliance by the corporation with certain provisions of the Code (Art. 23. secs. 61, 62, 13, 294,) in regard to receiving property for subscriptions to stock, and the making up and recording of certain semi-annual statements of the affairs of the company, and the agreement of the corporation to pay preferred dividends on stock, the plaintiff may have been misled to his prejudice. But clearly these omissions or neglects, if they existed, formed no substantive ground of recovery in this action for misrepresentation and deceit.
There was no error committed by the Court in granting the first prayer of the defendants. The questions as to the formation of the corporation, and the validity of the issue of the shares of stock thereof to the defend*134ants in this case, were distinctly raised by the exceptions of the plaintiff to the distributions made by the auditor to such shareholders, in the equity proceedings given in evidence; and the Court, by its rulings on those exceptions, overruling them and ratifying the auditor's distribution of the corporate fund, distinctly affirmed the legal existence of the corporation, and the validity of the shares of stock issued to the defendants, at least as among the shareholders. The plaintiff having thus raised the question, and litigated the matter in the equity proceeding, where the question was properly presented, as to the right of the defendants to receive distribution to their shares from the corporate funds, and the decision being against him, the well established principles of law preclude him from again raising the question in this case, of the validity of such shares of stock issued to the defendants. Beall vs. Pearre, 12 Md., 550, 566. And for the same reason that the. Court was required to grant the first prayer of the defendants, it was required .to grant the motion of the defendants to strike out the evidence offered by the plaintiff to show the fraudulent organization of the corporation of the Parks Guano Company, and the issue of the shares of stock therein to the defendants.
The defendants' second prayer was granted, but in that ,we perceive no error. By that prayer, the jury were instructed that there was no legally sufficient evidence to show that the defendants, in the formation of the corporation, and the issue of certificates of stock to the defendants, conspired together to deceive or defraud the plaintiff, as alleged in the declaration, and that the jury, therefore, were not at liberty to consider such question in arriving at their conclusion as to the liability of the defendants. There is a total absence of any legally sufficient evidence to establish a conspiracy in the issue of the stock of the corporation to the defend*135ants, as against the plaintiff. Moreover, it is a general rule, that a conspiracy cannot be made the subject of a civil action, unless something is done which, without the conspiracy, would give a right of action. The damage done is the gist of the action, not the conspiracy. When the mischief contemplated is accomplished, the conspiracy becomes important, as it may affect the means and measure of redress.- The party wronged may look beyond the actual participants in committing the injury, and join with them as defendants all who conspired to accomplish it; and the fact of conspiracy may aggravate the wrong; but the simple act of conspiracy does not furnish a substantive ground of action. Kimball vs. Harman, 34 Md., 407; Cotterell vs. Jones, 11 C. B., 713; Cooley on Torts, 125.
The third prayer of the defendants was granted in connection with the plaintiff’s first prayer; and in this we perceive no ground of objection. Upon the facts of the case, and the principles of law that we have stated, this third prayer of the defendants would seem to be entirely correct as an independent proposition; and if good as an independent proposition, it is not easy to perceive why it should be made bad by being coupled with the first prayer of the plaintiff, which was granted.
The fourth prayer of the defendants, we think, was also properly granted. By that prayer the jury were instructed that the plaintiff was not entitled to recover on account of any representation made by the defendants to the plaintiff that the stock of the company would pay as much as twenty per cent, dividend, or for any other expression of opinion concerning the future value or profit of the business to be carried on; and that such representations should be excluded by the jury as a basis of recovery. This, on the principles that we have already stated, and upon the authority of well decided cases, was a proper instruction. Gordon vs. Butler, 105 U. S., 553, 556-7.
*136(Decided 7th June, 1892.)
The fifth, sixth and seventh prayers of the defendants-were granted, and we do not understand that their correctness is seriously contested. They are plainly correct, and the Court committed no error in granting them.
Upon the whole case, we think the jury were fully and fairly instructed as to all the principles of law applicable to the case, and that the judgment of the Court below should be affirmed.

Judgment affirmed.