Court Opinion

ID: 6995247
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:32:03.989905+00
Date Added: 2024-06-11T16:09:45.187217
License: Public Domain

Mr. Justice Waterman, dissenting. If the only evidence in this case ivas that referred to in the opinion of the majority of the court, I should agree with the conclusion arrived at. The findings of the master are sufficient to sustain the decree entered by the Circuit Court. The question before us i$ whether the evidence justifies such findings. It appears that in 1885, appellant was the president of the Chicago Trust and Savings Bank, which bank had a capital of $200,000, of which appellant took $150,000, paying for it in cash; that in the fall of 1886 the stock was doubled, each stockholder being given two shares for the one he already held; that in 1886 appellant and some others conceived the idea of organizing a corporation whose business it should be to guarantee commercial paper; that appellant and others made an application to the secretary of state for a charter for a corporation authorized to guarantee commercial paper. The secretary of state refused to issue such charter, whereupon a corporation known as the Midland company Avas organized by appellant. The object in the certificate of organization of said corporation, being stated to be to secure information and furnish statements concerning the responsibility of persons and corporations, to conduct a merchandise commission business, and to contract in respect thereto. Appellant had before the organization of said Midland company, according to his own testimony, sold most of the stock thereof for $150 per share, being an adAance of $50 upon the par value. Appellee and about one hundred others were induced by appellant to subscribe their names to a paper reading as follows: “ The Midland company having been established, with a capital stock of $100,000, divided into 1,000 shares, we, the undersigned, hereby subscribe for and agree to purshase of D. H. Tolman the number of shares of stock of said company set opposite our respective names, paying therefor $150, and take delivery at the Chicago Trust and Savings Bank, May 5, 1888.” Appellee agreed to take said stock some time in April, 1888, and in the early part of May actually received from appellant certificates for ten shares of stock, giving to appellant his, appellee’s, check for $150 and nine notes, each for the sum $150, payable in from one to nine months from date, and bearing interest at the rate of eight per cent per annum. Appellant told appellee, in order to induce him to subscribe and take said stock, that the stock was worth $150 per share, and that the Midland company was organized for the purpose of guaranteeing commercial paper. The Midland company was organized in May, 1888. Appellant subscribed for $50,000 of the stock, Floyd E. Jennison for $20,000, Messrs. Douglass, Brown and Werner for $10,000 each, and the stock was issued in accordance with the subscriptions to the respective subscribers. This entire subscription was paid by appellant, and he, so far as Messrs. Jennison, Douglass, Brown and Werner were concerned, was the owner of all the stock, and appears always to have managed and controlled the Midland company entirely as he saw fit. Very shortly after it was organized the Midland company purchased from the Trust and Savings Bank, of which appellant was the president, $50,000 of its stock, paying $62,500 therefor; this stock was then paid up to the amount of about sixty per cent of its par value. Appellant seems to have sold, within two or three weeks, to about 125 different parties, nearly the entire stock of the Midland company, in lots of from five to ten shares each, for 0150 per share, such sales, as he himself testified, being made principally before the organization of the company; so that by the mere organization of the company he seems to have made a profit of about $50,000, selling all of the stock but about ten shares retained for himself, and, as is testified by the cashier of the Trust and Savings Bank and one of the directors of the Midland company, Mr. Jennison, appellant has, by purchasing and selling from time to time the stock of the Midland company, made a profit of from $150,000 to $200,000. The Midland company charged one per cent per month for guaranteeing commercial paper, and the only paper that it guaranteed, save in one or two instances, was that upon which loans were made either by appellant or by the Chicago Trust and Savings Bank. The Midland company for purposes best known to appellant declared several small dividends, but appears now not only to be insolvent but to have lost its entire capital. I quite agree with the opinion, in part expressed by the majority of the court, that appellee did not use that care and caution which a prudent man who did not rely entirely upon the truthfulness of the statements made by appellant, would have used in purchasing the stock of the Midland company. Appellee does not seem to have made inquiry of any person as to the truthfulness of the statements made to him by appellant. The reason for this is apparent. Appellee had business relations with appellant. Appellant well knew that appellee trusted and relied upon him as a prominent business man at the head of a large financial institution, as the prospective organizer, president and principal stockholder in another large financial institution about to be organized, and at the time appellee paid his money and gave his notes for the stock of the Midland company, already organized, so far as the receiving of authority to incorporate and the making of a complete subscription to the stock was concerned, and that appellant was in a position to know what the value of the stock of the Midland company was, and of necessity had a knowledge as to the value of such stock which no other person could obtain, except with the consent and by the assistance of appellant; appellee, therefore, in taking this stock, did as the ordinary business man, if he took the stock at all, would have done, viz., he took it relying upon the truth of what its president, organizer and principal stockholder said as to its value. That the stock of the Midland company was worth upon its organization, or when appellee purchased, a premium of §50 per share, I do not understand is contended by appellant. Appellant well knew in selling this stock to appellee that appellee was buying it relying entirely upon the truthfulness of his, appellant’s, statements as to its value, and the purposes for which it ivas organized, and he knew such statement was false. While it is undoubtedly true that as a rule statements by a vendor as to value are not representations, of a nature such that a vendee has a right to rely thereon, and can hold a vendor to make good the truth thereof, yet to this rule there are well recognized exceptions, as, in the sale of goods by an expert in respect to them and their value, representations made to one whom the vendor knows is not acquainted with the value of the article, and whom he is aware relies in purchasing upon the truthfulness of the story as to value told to him, is a representation which the vendor is bound to make good. So, too, where the vendee is wholly ignorant of the value of property and the vendor knows this, and also knows that the vendee is relying upon his, the vendor’s, representations as to value, and such representation is not a mere expression of opinion, but is made as a statement of fact, which statement the vendor knows to be untrue, such statement is a representation by which the vendor is bound. Pomeroy’s Eq. Juris., Secs. 878, 879; Pickard v. McCormick, 11 Mich. 68; Simar v. Canady, 53 N. Y., 298, 306; Henry v. Waldron, Supreme Court of Rhode Island, National Corporation Reporter, January 16, 1894, page 312; Allen v. Hart, 72 Ill. 104; McClellan v. Scott et al., 21 Wis. 81, 87; Maxsted v. Fowler, 53 N. W. Rep. 921; Griffin v. Farrier, 32 Minn. 474; Townsend v. Cowles, 31 Ala. 428; Derrick v. Lamar Ins. Co., 74 Ill. 405; Bigelow on Fraud, page 496; Haygarth v. Wearing, L. R., 12 Eq. Cas. 320; Stover v. Wood, 26 N. J. Equity, 417; Prewett v. Trimble, 17 South W. Rep. 356. As to the representations made by appellant concerning the purposes for which the Midland company was organized, this may be considered either as a statement of fact or as a statement of law. If meant as a statement of fact, it was untrue, because, to the knowledge of appellant, no permission or authority to guarantee commercial paper was contained in the authority to organize. If meant as a statement of law, and if appellant thought that under the authority granted by the State, the company would have power to guarantee commercial paper, still it was his duty in telling appellee the purpose for which said company was organized and the business it was to do, to tell him the entire truth, viz., that while appellant himself, as he claims, thought it could do such business, vet, the authorities of the State had distinctly refused to give him authority to organize a company, one of the objects of which was stated to be the guaranteeing of commercial paper. It is quite likely, if appellee had been told this, he might not have placed the implicit reliance he did upon appellant’s statement as to what business the Midland company was authorized to do and would engage in. Occupying the position and having the knowledge in this regard, which appellant did, it was his duty, when asking appellee to take stock, if he told him anything concerning the purpose for which the Midland company was organized and the business it would do, to tell him the entire truth. Moreland v. Atchison, 19 Tex. 303; Kerr on Fraud, page 90; Broadwell v. Broadwell, 1 Gil. 699. The circumstances attending the organization and sale of the stock of the Midland company were so peculiar, the business it did so anomalous, its career so profitable to appellant and disastrous to the more than a hundred individuals whom he induced to take small'amounts of its stock, its relations to the Chicago Trust and Savings Bank, of which appellant was the president and the largest stockholder, were so close, while, at the same time, from beginning to end, the management of this Midland company was so completely in the control of appellant, that I am led to the conclusion that the evidence sustains, for the most part, the conclusions of the master, and that the Midland company was organized and controlled by appellant, not for the benefit of its stockholders, but that appellant might, as he did, reap a rich harvest by dealing in its stock, and that the Chicago Trust and Savings Bank might make loans at usurious interest, thereby making great gain and losing nothing, so long as, in the exigencies of business, the assets of the Midland company were not exhausted by making good its guarantees, and that, by false and fraudulent representations, appellant induced appellee to purchase ten shares of the stock of said Midland company.