Court Opinion

ID: 5460697
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:35:27.547259+00
Date Added: 2024-06-11T08:32:42.459827
License: Public Domain

By the Court, Miller, J.
Upon the trial of this cause the plaintiff claimed to recover upon two grounds : First. That the defendant fraudulently and with the intent to defraud the plaintiff, represented to him that the ninety shares of stock of the La Crosse and Milwaukee Bail Boad Company which the defendant sold to him was legally issued and a valid stock issued upon subscriptions fully paid to the corpo*176ration. Second. That the defendant, for the purpose of fraudulently inducing the plaintiff to make an exchange of his land for the certificate of stock, falsely and fraudulently misrepresented to the plaintiff that the said corporation was in a sound, solvent and prosperous condition, with a large surplus on hand, and was in the receipt of a large income, and was ahle to pay from its income large dividends, which representations the defendant knew to be false, and of which fraud and falsity the plaintiff was ignorant, but that relying upon such representations being true and that the certificate was valid, he executed a deed of his real estate to the defendant and was thereby defrauded.
The plaintiff’s counsel at the close of the evidence claimed the right to go to the jury generally, and among other things, especially insisted that the question of fraudulent representations should be submitted to the jury, and that if there was any allegation of variance between the pleadings and proofs, the defendant should show that he was misled by such variance, to the satisfaction of the court. The court refused to submit the question to the jury, and nonsuited the plaintiff to which decision the plaintiff’s counsel excepted.
It is insisted by the defendant’s counsel that there was hut one cause of action stated in the complaint, and that the allegation of fraudulent misrepresentations, as to the soundness and solvency of the company, was but a continuation or amplification of the preceding averments. Conceding that the defendant is correct in this position, yet if there was any material variance between the pleadings and the proofs, as the defendant did not claim that he had been misled, under the liberal rules inaugurated under the code of procedure the court should have allowed an amendment of the complaint, in conformity with the facts claimed to have been established on the trial.
Even although in the second alleged cause of action it was averred that the plaintiff relied upon the fraudulent representations, as to the condition of the company and that the *177certificate was valid, I do not deem it absolutely essential that ■ both these allegations should be proved to be false. If it ap- jj peared satisfactorilyYhatthe former were false and made for |jj the purpose, of inducing the plaintiff to make the exchange H with the defendant, I think this would be sufficient to estab- j lish a cause of action, and that the latter averment might be rejected as surplusage.
Assuming that the pleadings were sufficient, or that they should have been amended, I am of the opinion that the court /j erred in granting the motion for a nonsuit and in refusing to submit to the jury the question of fraudulent representations f as to the soundness and solvency of the company, on account | of which the plaintiff claimed to recover. '
The proof upon the trial established that the plaintiff and the defendant had several conversations in reference to the stock of the La Crosse and Milwaukee Eail Eoad Company, ninety shares of which were finally exchanged by the defendant for the plaintiff's farm. At one time, being the first interview between them and some time prior to the exchange and sale, the defendant stated that the road was going to be the best road in the world; that it was in the hands of good business men; not a fancy man in the board; that it must pay large dividends and would be one of the best paying stocks in the world, and reimburse its cost in a few years. At a subsequent period, and immediately prior to the execution of the agreement made between the parties for the sale of the stock, he stated that it was going to be a very valuable stock and would pay from sixteen to twenty per cent dividends, and was worth more than Galena and Chicago rail road stock; that they estimated its earnings at §400,000 a year; that it would earn §500,000 a year, and that the month's earnings were at the rate of §400,000 in a year; that the earnings exceeded the estimates, and they were going to cease making stock dividends after July, and were to pay cash dividends from the earnings. That the road would be able to pay a cash dividend of five per cent on the first dav of *178January, 1857, and leave a large surplus. That the company was in a sound and prosperous condition, and that they had a large amount of assets on hand, even after building the first division of the road, to be applied towards building the second, and they did not mean to go on faster than they could realize from the assets, amounting to about six or seven hundred thousand dollars. He also represented that the firm of Chamberlin & Alden, of which he was a member, had received all the stock they were going to have on their contract.
In reference to the statements thus made by the defendant the evidence shows that the company turned out to be insolvent and worthless. In July or August, 1857, a little over one year after the contract was made and executed, their paper was protested. In May, 1859, their road was sold under one of the mortgages on it, and the company placed in the hands of a receiver. Its last dividend was paid in July, 1857, when the price of stock had run down to eleven and fifteen per cent in a hundred dollars. At the time of the commencement of the action, in May, 1858, the stock was worthless and of no value.
All these results may have occurred from subsequent financial disasters, without the knowledge or fault of the defendant ; but I think there was evidence from which it might be fairly inferred that the company, at the time of the representations, was not in the condition that the defendant represented it was, and that the defendant had knowledge of that condition. Among other facts developed upon the trial, it appeared that the company had made a contract with the defendant and his partner Chamberlin, by which they were to receive $200,000 more than was bid by one Cleaveland for the same job, and the company had agreed to turn out in payment stock to the amount of $60,000 at fifty per cent of its par value; and that this contract was given to them at this advanced and exorbitant rate because five of the directors were interested in it. Such a transaction did not show soundness and solvency, but tended to establish a degree pfi *179financial embarrassment and recklessness which, under ordinary circumstances, must end in irretrievable disaster, bankruptcy and ruin.
It also appeared that $150,000 of the capital stock assigned to the defendant to secure a loan of $50,000, was sold by him for $20,000, leaving a balance due him of $30,000. The evidence does not show at what precise time this loan was made and the stock disposed of, at so severe a loss; but whether before or subsequent to the transaction between the plaintiff and the defendant, the facts elicited in regard to it tend to establish the embarrassed financial condition and the hopeless insolvency of the company.
The representation as to the amount of the dividends to be realized is rebutted by proof that they were far less than the amount stated by the defendant.
The proof also shows that after the defendant made the representation that the road was in the hands of good business men, the defendant admitted that the directors were a set of rascals.
The statement made, that Chamberlin & Alden had received all the stock they were going to have, on their contract, is contradicted by testimony that in the preceding autumn they received $70,000 more of the stock, at seventy per cent. There are also other circumstances unnecessary to be stated at length, tending to show that the representations made by the defendant were false and untrue, and acts of the defendant which, unexplained, may be regarded as intended to deceive and defraud the plaintiff. There was an entire absence of evidence on the part of the defendant to show that they had a large amount of assets on hand after building the first division of the road, &c. and that they amounted to some six or seven hundred thousand dollars, and the general evidence in the case contradicts entirely this statement.
I think all of those matters bearing upon the question of fraudulent representations, were proper subjects for the consideration of the jury, to whom they should have been sub*180Blitted by the judge. They certainly had a bearing upon the question of intent on the part of the defendant to defraud the plaintiff.
: ■ Although the plaintiff was somewhat acquainted with the affairs of the company, by means of:information derived from other sources, he testifies that he relied upon the representations of; the defendant, in purchasing the stock. The defendant, as a. director of the company prior to his resignation for the purpose; of taking the contract, and as the general and fiscal agent of the company," was in a position to possess full knowledge of its character, its responsibility and financial condition. Even if the plaintiff had some general knowledge of the. standing of the company, it was perfectly natural that he should place reliance upon the statements of an individual who had been connected with its management, who was intimately identified with its interests, and who ought to have been acquainted with its financial affairs, as he had assumed to represent that it was sound and prosperous, and that it had assets on hand to a large amount to be applied towards building: another portion of the road, not then completed. Even although the plaintiff refused to sell this stock at a high price'at one time, he may have done so because he believed that the representations made were true. It was at least a question for the jury whether the plaintiff was governed in whole or in part by his own knowledge of the matter.
It-is said that the representations made by the defendant were- mere expressions of opinion, and were most of them made" long "before, and without any reference to the contract actually made. They were statements of facts, without any qualification or restriction to the effect that they were merely intended to express an opinion. • It is true, that some of the statements were made some time prior to the contract; but the principal representation immediately preceded it, and the agreement was made on the same day, and a very short time afterwards. ’ Whether they were .designed to influence and did influence the plaintiff, and whether they were made in *181reference to the contract, were also questions which properly belonged to the jury to decide, as the evidence stood' at the time.
[Albany General Term,
March 2, 1863.
As a new trial must be granted for the reasons I have given, it is not important to examine the other questions which arise. They are somewhat intricate and difficult, and I forego their discussion for the present.
My opinion is, that a new trial must be granted, with costs to abide the event.
Gould, Peckham and Miller, Justices.]