McGlynn v. Seymour — 14 N.Y. St. Rep. 707

Majority

p. 707

John McGlynn, App’lt, v. James M. Seymour, Resp’t.

(New York Court of Common Pleas,

Filed February 6, 1888.)

Headnote

1. Fraud—Deceit—Action eor damages for—Complaint—Suffciency of.

In an action for damages for deceit, the complaint alleged that the defendant, knowing that he did not own it, conveyed minning property to the company, that the company believing itself to be the owner of the property, issued certain certificates of stock, that the plaintiff, believing these certificates to be valuable bought some of them, that the certificates were intrinsically worthless, though an apparent but fictitious value was given to them by ‘‘wash "sales at the Mining Exchange which the defendant had made. Held, that these allegations would not supuort an action against the defendant for deceit.

2. Same—Liability of persons issuing prospectuses.

Persons issuing a prospectus are held liable for its statements to all who are induced by a reliance upon them to do the act that the prospectus invites.

p. 708

3. Same—What hecessaey to allege.

The statement in a complaint of a cause of action for damages for deceit or fraudulent representations is not complete unless it is alleged that the plaintiff was influenced in his action by them.

R. L. Harrison, for app’lt; R. W. Hanksworth, for resp’t.

As we read the complaint this is an action for deceit. We have searched in vain through its various, allegations—most of them upon information and belief—to»' find an averment of any substantive fact that the plaintiff, acting upon any representations made by the defendant to» him directly or indirectly, was influenced in his action in the purchase of stock of the “ South Pacific Mining Company.” Such fact should be affirmatively stated in order to bring this case within the line of authorities cited by the-counsel for the appellant.

Granted, for the sake of the argument, that the company was defrauded by the sale to it of property to which defendant had no title, what personal liability has he incurred to one, who in the ordinary course of business, purchased stock which he claims to have-been fraudulently issued?

If all the facts, instead of the conclusions drawn from them, had been stated in the complaint, it might appear that such conclusions were erroneous and no right off action existed.

Judge Van Hoesen has covered the whole ground of the» controversy in his decision, which it is unnecessary for us-to supplement.

The interlocutory judgment appealed from should be affirmed, with costs.

The following is the opinion of Van Hoesen, J., at special term.

The persons issuing a prospectus are held hable for its statements to all who are induced by a. reliance upon them to do the act that the prospectus invites This is upon the theory that the statements of the prospectus are representations addressed by its author to the public generally, and to those persons particularly who read the prospectus, take its suggestions, and accept the offers that it contains. It was the object of the plaintiff to bring this case within the rule applicable to prospectuses, but he has not succeeded. He does not allege that the defendant made any representations to him directly or indirectly, nor does he allege that the defendant intended that any representations made by him to other parties should be communicated to the public or- to the plaintiff Nor does he allege that he relied upon the representation made by

p. 709

the defendant to the South Pacific Mining Co., that he, the defendant, owned and had a right to convey the mining property in question. Nor is it apparent how the representations that the defendant made to the company respecting the ownership of the property should, in the natural and ordinary course of eventsj have led to the purchase by the plaintiff of certain shares of the stock of the company.

The only part of the complaint that requires notice are the allegations that the defendant, knowing that he did not own it, conveyed mining property to the company, that the company, believing itself to be the owner of the property, issued certain certificates of stock, that the plaintiff, believing those certificates to be valuable,_ bought some of them, that the" certificates were intrinsically worthless, though an apparent but fictitious value was given to them by ‘ ‘ wash ” sales at the Mining Exchange, which the defendant had made. These allegations cannot, in my opinion, support an action against the defendant. If they be true, the defendant defrauded the company, by selling to it property to which he had no title, but he did not have any transactions with the plaintiff, nor did he make any representations to him directly or through the medium of any other person or of any document. There is no foundation, therefore, for an action of deceit.

Norwill the allegation that the defendant caused “wash” sales to be made at the Mining Exchange sustain an action. A “wash” sale is, at most, an affirmation that the buyer is paying a certain price for a certain lot of stock. It is not an affirmation that the stock has any intrinsic value, that a company owns any property of value, or that the buyer will ever again bid the same price for the stock. It is made on account of persons who are anonymous. If a man buys stock because he is led, by “wash” sales, to believe that he can make a fortunate speculation, he cannot have an action of deceit against those who have made the “wash” sales. The sales, though fictitious, are not representations of any fact on which a man has a right to rely. They are, at most, false affirmations of an opinion as to value. Such affirmations are not regarded as statements of fact.

“Wash” sales are condemned, as they ought to be, because they are fictitious, but they are not false representations, made to the public in general, which give a right of action to any one who is led by them to take an erroneous view of market prices and to invest unprofitably in consequence.

Demurrer sustained, with leave to amend complaint on payment of usual costs within twenty days.