Court Opinion

ID: 6584257
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:41:02.685592+00
Date Added: 2024-06-11T15:57:24.524745
License: Public Domain

Baldwin, J.
The complaint charges the defendant with having made certain false and fraudulent statements to five individuals, who are named. Both of the defenses set up in the answer admit that the statements alleged were made; but say that they were made only to three of these individuals, and assert their truth. The second defense adds that one of the three then had an option to buy the defendant’s patents and business, and asked for the information; that the other two men named in the complaint united with them, at their request and solely upon their representations, in forming the plaintiff corporation and procuring the contract afterwards made between the parties; and that the defendant has fully performed the contract on his, part. The complaint also charges that the false and fraudulent representations declared on were afterwards repeated by the defendant to the plaintiff corporation, to induce it to execute the contract. This the first defense denies; but the second does not, and by this failure to meet a material allegation admits its truth. Practice Book, p. 16, Bule IV., § 4. It follows that the instruction given to the jury, that each of these defenses was the equivalent of the other, can constitute no ground of exception on the part of the defendant. It was too favorable to him. It allowed him to dispute what he had omitted to deny.
Each of the five individuals named in the complaint‘testified that the statements charged were made to them at a certain interview between them and the defendant. He testified that he did not remember what was then said, and there was no evidence to’ contradict what was sworn to by the others. Under these circumstances the trial judge committed no error in saying to the jury that, as he understood their testimony, it substantially supported, taken as a whole, the allegations of the complaint as to the statements in question. This left the question of their credibility to the jury, and *13simply directed the attention of the latter to the uncontradicted evidence on a material point.
The charge in relation to the proof adduced of the repetition of these statements, after the organization of the plaintiff company, to the same men as its directors, was also unexceptionable. It contained a recapitulation of what the main witnesses, and particularly the defendant, had said, and then expressed the opinion of the court that it appeared from this testimony to be undisputed that certain specified representations were made, but that it was for the jury to say whether these were in whole or in part in substantial conformity with those charged in the complaint.
It is one of the chief functions of the court, in every trial to the jury, to direct their attention to the important evidence which has been introduced, on the one side and the other, and to its bearing on the issues closed. In performing this office, the judge has always a right to express his opinion as to the weight as well as to the relevancy of any testimony, and it is often highly desirable that he should do so. State v. Fetterer, 65 Conn. 287, 291; Wheeler v. Thomas, 67 id. 577.
It is further urged that the court erred in referring to the statements of the defendant as representations; and that they should have been described as the expression of matters of opinion, merely. One of the issues before the jury was whether the defendant had told the directors what it was alleged that he had told them. If any of his remarks were mere expressions of opinion on which they had no right to rely, the averments in respect to them might have been made the subject of a motion to expunge, or a demurrer. No such objection was taken, nor was any point of this kind suggested in the requests for instructions to the jury submitted by the defendant. On the contrary, one of these was that they should be told that to justify a verdict on the ground of an actionable fraud, it must be found “ that the representations were made as alleged.” In substance, this was the instruction given.
A more serious question is raised by the exception to that part of the charge in which it was stated that the action could *14be maintained by proof of either set of representations,—those to the five individuals named, which it was alleged that the defendant made before the formation of the corporation, or those to the same men, after that event, in the capacity of its directors.
The plaintiff sues for an injury to its corporate interests. This could clearly be a result of false representations made to its managing agents. Could it also he due, and due alone, to false representations made to its promoters, in order to induce them to proceed to its organization, with a view of its making a contract with the party from whom the declarations came? The Superior Court was right in giving an affirmative answer to this question.
A private corporation is an association of individuals uniting for a common purpose. This purpose must be determined before the corporation comes into existence.' The plaintiff was formed for the sole purpose of engaging in business under the defendant’s patents and with the aid of his manufacturing plant and material. This was to be accomplished by a purchase from him. The purchaser was to be the new company, and the purchase price, a certain proportion of its shares and a sum in cash out of its treasury. The value of its shares would be measured by the oyerplus remaining after deducting that sum from the amount of the subscriptions to the capital stock, increased by whatever the patents and property might be worth that would be acquired under the contract.
A corporation comes into existence, as an artificial person, at a particular moment of time; but its rights and liabilities are largely dependent upon prior events. It springs out of a previous contract between its shareholders, which determines its objects and purposes. It takes advantage of subscriptions which they have made to its capital stock, in contemplation of its formation. It may also take advantage of offers which they have received from third parties to enter into contracts with it after it comes into being. Such offers, while made to individuals who have no authority to speak for. any but themselves, are made to be communicated by *15them to the corporation, when it is capable of acting, and of course to be communicated with such statements of the attending circumstances as may be necessary to put it in possession of all facts material to aid it in deciding whether or not to close with the proposal.
If, therefore, the defendant fraudulently told the five individuals named in the complaint what is there alleged, in order to induce them to form the plaintiff corporation and procure the execution by it of the contract which was the subject of their negotiation with him; and if thereupon, in reliance on his statements, they did the very things which his representations were designed to promote or secure; the fact that the last step—the execution of the contract—was, in form, the act of a party with which he never had any direct communication, cannot relieve him from responsibility for all the damage naturally resulting from his fraud. So far as concerns the individuals with whom his negotiations were conducted, each of them has his several action for whatever injury he can show. So far as concerns the corporation, it has also its action for whatever injury it can show. It would have been an idle ceremony for these five men, after becoming the sole shareholders and directors of the plaintiff, to recount to themselves, as such, the representations made to them as individuals, a few weeks before, in contemplation of their occupying this very position. Whatever had been thus said to them to influence the action of the projected corporation, was in legal effect known to the corporation, as soon as it was formed. For many purposes there is a practical identity of a corporation with its members; and where all of these are also directors and the only directors, the identity, so far as questions of notice are concerned, is almost absolute. Wood v. Wiley Construction Co., 56 Conn. 87, 96; Woodbridge v. Pratt and Whitney Co., 69 id. 304, 330.
If, before administration is taken out upon an insolvent estate, a creditor is approached by one who urges him to apply for the appointment of administrator, and offers, should he receive it, to sell to the estate what he claims to be a mortgage lien upon land of the intestate, at a large dis-> *16count, as to the foundation of which he makes false representations, could not the creditor, should he, deceived by these statements, take out letters of administration and buy in the incumbrance, recover for the estate whatever loss it might suffer from the fraud? His action would be supported by proof of the statements made to him individually, because they were made to be acted on by him as administrator. So, whether the defendant made the false representations alleged, to the plaintiff itself, or to others to induce them to organize the company and then to make the purchase in its behalf, is of no legal importance. In either event he is liable to it for the consequences to its interests which naturally flowed from his wrongful act.
The appellant complains of that part of the charge, in which the jury were told that if fraudulent representations are made to one who acts in reliance upon them, to his damage, he can maintain an action without adducing express evidence of an intent to deceive. The ground of objection is' that their attention was not called in this connection to the distinction between representations which are simply false, and those which are both false and fraudulent. The complaint alleged and the answer denied that the representations in question were of the latter character, and known to the defendant to be false when he made them. The jury had already been instructed that this was one of - the matters in issue, and it was unnecessary to burden the charge, at this point, with any further reference to the facts pleaded. The term “fraudulent representations ” imports of itself the commission of an active wrong in saying what was said; and. that it was necessary either to bring a scienter home to the defendant, or else a reckless disregard of consequences, or culpable omission to investigate, was fully explained in instructions subsequently given.
The seventh reason of appeal is founded upon the observation of the court that, in view of the testimony of Smith, Lee, Collins, Shannon and Lucas, that the contract was made in reliance on the representations, “ it is incumbent on the defendant to prove that the representations were not relied-*17upon. It is not enough for him to say that there were other representations or other circumstances which might have been the operative inducement. These representations claimed need not have been the sole inducement.”
The objection taken is not to what was thus said as to the burden of proof; but to the remark that the plaintiff would not be barred from a recovery although there were other representations or circumstances which might have been the operative inducement to the contract. It was of no consequence what else “might have been” the operative inducement to it, provided the jury found that the representations declared on were in fact, in the language of the charge, the “ very ground ” of the transaction, and a proximate, immediate and material cause. Sprague v. Taylor, 58 Conn. 542, 551.
The jury were correctly told that, in determining whether the representations set up in the pleadings were true, or believed by the defendant to be true, on reasonable grounds, they had a right to consider other representations relative to his patents and business, made by him at about the same time, to the same parties or some of them, which were not so set up, but had appeared in evidence. These constituted part of the negotiations preceding the contract, and threw light on the real character of the representations which were the subject of the action. Morehouse v. Northrop, 33 Conn. 380.
There was no error in the observation to the jury that, in determining the question of scienter, they ought to have little difficulty, since all the representations alleged, so far as they might find them proved, “ related to matters of fact of which the defendant had knowledge.” For a vendor of a patented improvement in machinery to say to an intending purchaser that it had been largely sold, and successfully applied in many mills, where the improved machinery was in successful operation and was a practical success; that there was a large demand for the invention; and that he was making the article and found it a good and profitable business, is to do more than state an opinion. Whatever opinion he communicates is so blended with the statement of the facts upon which *18it arises, that it becomes itself a statement of fact. He conld best tell whether his business was profitable, and his invention in demand; and these were points on which the execution of the contract turned. Opinions might differ as to what measure of profit might make a business profitable, or how many orders might suffice to constitute a large demand, but the conclusion arrived at was one as to the existence of a state of facts, and certainly “ related to matters of fact of which the defendant had knowledge.”
His counsel had submitted various requests for instructions to the jury, and among others this: “ Mere expressions of opinion or representations of the value of an article sold, are not actionable, if the subject of sale is open to the buyer’s observation.” In the latter part of the charge, the court alluded to them, and said: “ I will read you, with such modifications as I think proper, some of these requests.” That above quoted, among others, was then read.
It would have been better, had the court stated distinctly that the instruction thus requested and read, was given. To read a request is one thing; to charge as requested, quite another. Both parties, however, have argued the appeal upon the assumption that the instructions tendered by each, so far as they were read, were given, and it is therefore fair to presume that the jury so understood the charge; Upon this assumption, which we feel bound to make, the reason of appeal now under consideration would fail, even if, otherwise, it had had merits.
The defendant requested the court to instruct the jury that “ fraud consists of deception intentionally practiced to induce another to part with property or to surrender some legal right, and which accomplishes the end designed.”
This instruction was given, except that the word “ intentionally ” was omitted. The omission was proper under the circumstances of the case. The action was for false representations made to defraud the plaintiff; and the defendant, in other requests, had admitted, and the jury accordingly were instructed, that it was enough to support it to show that they were made either knowingly or recklessly, with an in *19tent to deceive, or under a belief of fhoir truth, for which there was no reasonable ground, and wiih ijiii.nl m i.since the plaintiff to act upon them. IVonptim/ ¡n^omplishcdby false statements is not excused by a giwmdjtess lx fid' in 1-heir truth on the part of the man who makes thus ; and amounts to legal fraud, if they are uttered to Induce, action on ¿te part of another, from which loss naturally results. In matters susceptible of actual knowledge, if thy party who has and is known to have the best means of knowledge, makes an affirmation contrary to the truth,' in order to secure some l>enefit to himself, the law treats him as stating that be knows that whereof he affirms, and so as guilty of a fraud, although he spoke in ignorance of the facts; because he asserts that he knows what he does not know. Chatham Furnace Co. v. Moffatt, 147 Mass. 403, 18 Northeastern Rep. 168.
These considerations also justify the refusal to comply with the defendant’s requests for instructions that “ there can be no fraud without dishonest intention,” and that “ to constitute actionable fraud, there must be misrepresentation knowingly made, that is to say, a concurrence of fraudulent intent and false representations.” The jury had already been told that if the defendant made representations which were false, believing them, on reasonable grounds, to be true, he was entitled to a verdict. Such a belief, based upon anything less, would be no justification for his assertions. Fraud in law is a broader term than fraud in fact.
The defendant requested an instruction that the plaintiff could not sue for representations made to itself, unless they were made after its organization certificate had been filed for record. Under our general laws for the formation of joint stock corporations, they are to hold their first meeting, at which they elect directors and may adopt by-laws, and must collect a considerable portion of the subscriptions to their capital, before such a certificate can be prepared. Until that paperis lodged (General Statutes, § 1947) in the proper recording offices, the corporation is forbidden to “ commence business ; ” but it has a qualified existence from the date of its first meeting. Canfield v. Gregory, 66 Conn. 9, 22. Rep*20resehtá lions made íb'thé plaintiff’s directors, after its firstmeeting, which we reacted upon after it was entitled to commence business and were made to induce such action, were a sufficient ground recovery.
The defendant patents covered by the contract of sale, embraced improvements in bobbin-gears, click-gears, pulleys, and split hub shaft gears. The court instructed the jury that it was no defense to action, if all of these improvements, except that in the split hub haft gear, were what they were represented to be. That was correct. The plaintiff was not except thatífi'íÍ.e^^SíÍíab shaft gear, were what they were represented! Tliaé' was correct. The plaintiff was not debarred ¿jornia fecSiuiy forgone fraudulent representation because it had alleged others which it failed to prove.
On the question of damages, however, we think the case was not properly put before the jury. The defendant had patent rights granted to it by him; and that its failure to manufacture the split hub gear successfully was due to defective workmanship and improper construction and application. The plaintiff’s evidence was also that it had made some bobbin-gears, and click-gears, and that they worked well; and it had filed an “answer to counter-claim,” admitting gross sales to the amount of $1,580, and that the defendant was entitled to an allowance on this account of one hundred and fifty-three dollars for royalties under the contract. introduced evidence to show that the plaintiff had made and sold a considerable number of gears and pulleys, under the
The court, in committing the cause to the jury, said that if the plaintiff had proved its case, it was entitled to recover for all the natural and reasonable consequences resulting from the defendant’s representations, adding: “ The plaintiff claims the five thousand dollars which it paid the defendant, and the rest of the capital of the company which it claims was wasted in this business as the direct result of these fraudulent representations. So that their claim for damages is five thousand dollars plus the rest of the capital which was lost in the business, as they say, or eight thousand dollars. Their claim From any amount you may find to be due you must deduct is that the contract was of no value and the business a failure. *21the one hundred and fifty-three dollars which under the contract is due from the plaintiff to the defendant for royalties. This is all the defendant claims should be deducted, as I understand. If you find that there were no fraudulent representations, and nothing is due the plaintiff whatever, judgment will be for the defendant to recover one hundred and fifty-three dollars. It is admitted the plaintiff owes to the defendant this amount for royalties due under the contract.” Attention had already been called to the defendant’s claim that the plaintiff had not made the split hub gear in the proper way. Subsequently the court gave an instruction, requested by the plaintiff, to the effect that iff they found in its favor, “ in determining the loss and damage, the jury are to consider the five thousand dollars paid to the defendant under the contract, and any further sum which the plaintiff expended in proceeding under the contract, and which resulted in a loss as the direct result of the false representations which induced it to make the contract and proceed under it in the business.”
A verdict was brought in after several hours’ deliberation, awarding the plaintiff |2,500 and costs. The court directed the clerk to hand it to him, and it was not read, except by him. He then returned the jury to a second consideration, with these remarks: “ In the verdict which you handed to the clerk, now in my hands, I find that you slate that you have found the issue for the plaintiff 5 so that the question is as to the amount to be recovered. Your having found the issue in favor of the plaintiff, means that you find the representations were made j that they were made to induce the making of the contract, as alleged j made falsely, and relied upon by the plaintiffs to their injury. The amount of money that was admittedly paid in under that contract was five thousand dollars. The claim was made before the jury that the recovery was for that and whatever the company lost or paid in under that contract (it paid the five thousand dollars) ; so that I must ask you to consider the matter further in regard to the question of damages.” In twenty minutes the jury returned, but before being interrogated as to an *22agreement, were further instructed that if the issue be found for the plaintiff, from any damages found in its favor there must be deducted the $153 due for royalties, and directed, in case this had not entered into their consideration, to retire again. They did retire, and, after twenty minutes more, came in with a verdict in the plaintiff’s favor for $5,001 and costs.
In the nine requests for instructions submitted by the defendant, there was none referring to any profit which the plaintiff might have received by the contract. The law of which he asked the benefit was only that pertaining to the right of action. Nor was any claim made by his counsel in argument that any deduction should be made from such damages as the plaintiff might have proved, except that of the $153 due for royalties. Under these circumstances the court was naturally led to the conclusion as to this point stated in the original charge. But whether any further deduction had been formally claimed or not, the jury could not properly award more than compensatory damages. If they were of opinion that the plaintiff was chargeable with gains under the contract which ought to be credited against its losses, then, although the defendant’s counsel had not alluded to the point, it was their right and duty to consider it in making up their verdict. That which they originally returned was rendered upon a charge to which there was no just exception. It represented their deliberate opinion, freely formed, as to the real extent of the losses which the plaintiff had sustained. In returning them to a second consideration, the court said, in effect, that he must ask them to consider the question of damages further, because it was admitted that $5,000 was paid under the contract. This was virtually telling them that having found the issues for the plaintiff, the admitted facts required them to give it at least $5,000, less the $153 due for royalties. Such was far from being the necessary conclusion from the evidence before them. They had a right to consider whether the plaintiff had used due care and skill in manufacture, due endeavors to market the goods, and due economy in the expenses of management *23.The defendant had introduced evidence tending to show that it had not. If not, he was not hound to pay such losses as might thus have resulted from its own fault.
The Superior Court regarded the original verdict for $2,500 as one of compromise. Verdicts are often and properly the result of mutual concessions. Without something of this kind, twelve men can hardly be expected to come to a unanimous conclusion upon any computation of unliquidated damages in an action of tort. For- the purpose of reaching an agreement, jurors, while they cannot rightly go contrary to their convictions, may and should, in forming those convictions, pay great regard to the opinions of their fellows. If the assessment of $2,500 in the plaintiff’s favor was reached by a compromise, this of itself would be no reason for refusing to accept it. But that it was so reached is a mere surmise of the trial judge. It came from the jury, entitled to-the benefit of the presumption that they had done their duty. We find nothing in the record to indicate that it did not represent an agreement fairly reached, on full consideration, by which in their judgment the cause was properly determined on the evidence before them.
On the other hand, the sudden change from $2,500 to $5,001 cannot be explained except upon the supposition that they felt bound to increase the damages to $5,000, at least, and this could only have been due to the remarks of the court, made on returning them to a second consideration. These remarks might naturally give them that impression, and a verdict rendered under such influences ought not to stand. That originally returned should have been accepted; and such course should now be taken, in redressing the error of the trial court, as may best tend to leave the cause in the condition which it would have occupied, had that error not intervened.- This can only be accomplished by setting aside the judgment, unless the plaintiff remits the excess of the second over the first verdict.
There is error, and a new trial is ordered, unless the plaintiff enters a remittitur of $2,501 of the amount of the judgment ; but if such remittitur be entered, the judgment shall *24thereupon, as to the residue, stand affirmed; the costs of this court to be taxed, in either event, in favor of the appellant.
In this opinion the other judges concurred.