Hatch v. Spooner — 37 N.Y. St. Rep. 151

Majority

p. 151

Walter B. Hatch, Resp’t, v. Ebenezer Spooner et al., App’lts.

(Supreme Court, General Term, First Department,

Filed March 13, 1891.)

Headnote

1. False Representations—Proof.

In an action to recover damages sustained by false representations inducing the purchase of stock of a corporation, it is not essential for plaintiff's recovery that he testify that he relied solely upon the representations. Such reliance may be inferred from all the circumstances of the transaction.

2. Same.

In such an action fraud must be established by evidence necessarily leading to that conclusion.

3. Same.

Where it appears that the defendants did not necessarily know the financial condition of the company; that their familiarity may have been only with the manufacturing branch of the business, and that the representations were necessarily matters of opinion, a verdict in favor of plaintiff cannot be sustained.

Appeal from judgment entered on verdict and from order denying motion for new trial.

L. E. Sexton, for app’lts; Thos. Bracken, for resp’t.

This action was brought to recover damages which the plaintiff claimed to have sustained by reason of certain representations made by the defendants to the plaintiff to induce the purchase of stock in a company, which representations were claimed to be false and fraudulent

The complaint alleges that in January, 1884, the defendants were owners and holders of the capital stock of a company called the Spooner Manufacturing Company, and that at this time the said company was insolvent and unable to pay its debts, which the defendants well knew, and for the purpose of obtaining money from the plaintiff represented and caused to be represented to him that the stock of the company was valuable stock, earning a good dividend, and that the same was a good stock to invest in, and was certain to return each year a net income of at least ten per cent on its capital stock, over and above all expenses.

■The complaint further alleges that the defendants agreed that in case he purchased stock in the company to the amount of $5,000 they would give him employment in the company; that the plaintiff, believing all the representations made by the defendants and relying thereon, purchased from them $5,000 of the stock of said company and entered into the employment of the company; that said representations were false, and upon the discovery of that fact the plaintiff tendered back the stock and demanded the return of his money, which was refused.

The defendants denied the representations, denied that the com

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pany was insolvent, and denied that the plaintiff was induced by such representations to buy any stock.

Upon the trial of the action it appeared that the defendants had general supervision of the manufacturing business of the corporation.

There was no evidence tending to show that their position in the corporation necersarily required them to have knowledge of the financial affairs of the corporation.

It also appeared, as testified to by the plaintiff’s father, that the plaintiff and defendants were related, and that they knew that the father of the plaintiff was desirous of procuring a situation for his son, the plaintiff; and they wrote to him in respect thereto. He came down to New York and saw the defendant, Ebenezer Spooner, at the factory of the corporation, and certain conversation was had in which the defendant stated that he had thought it over, and he thought perhaps they might make a place for the. plaintiff in that business. He said, however, he thought that plaintiff should buy $5,000 of the stock of the corporation at par and go to work and learn the business. The plaintiff’s father further testified that he said he wanted to know if it was all right and if it was going to pay himself and his boy; to which Spooner replied that he wanted he should understand it was a good business, well established, and kept two or three hundred employes working all the year, and its cash sales were from $500 to $700 a • day ; that it was a good business and paid; that it was a life business for his son and a start such as very few young men could get an offer of; that they really needed a little more money and if they had $5,000 he thought they could make more than they were then making. He claimed that they were making a very big thing and certainly paying ten per cent, and with this additional capital he thought it would pay more.

It is to be observed that the corporation had been at this time in existence but a short period.

Upon cross-examination he varied his testimony somewhat; The witness said that Spooner did not state how much profit they were then actually making, but that the boy would get ten percent for his money invested if he put it in there, and he thought if they added that $5,000 capital to the business they might make twenty per cent He further testified that he did not think they did say that it paid ten per cent, but that it was making that and could make more as soon as they could get more money, and he (witness) supposed that the profits up to that time were ten per cent; that they lid not tell him they had declared dividends on any stock at that- time and he did not ask.

He looked around the factory, and saw that they had a great deal of business and a large number of employes.

The plaintiff’s father returned home the next day and talked the matter over with his son, and a short time thereafter came down again, and saw both of the defendants, when the representations were repeated substantially to the same effect.' In a day or two the plaintiff’s father returned home, and after reporting his conversations with the defendants to his son, and talking the matter

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over, they concluded the offer was a good one, and the father gave the son the money with which to buy the necessary stock. The plaintiff came to Hew York, went directly to the factory of the company, paid his money to the treasurer of the company, received his certificate of stock, and entered into the employment of the company, where he remained some three and one-half years, with the exception of the time when he was at home ill. Soon after entering into the employment of the company he was made one of its directors, and attended its meetings; and it was only after he had left his position in the employment of the company that this action was commenced.

Evidence was offered on the part of the plaintiff tending to show that the company did not do a paying business, .and was not making ten per cent, as it was claimed was represented to plaintiff’s father, and by the father to the son.

Upon the termination of the plaintiff’s case a. motion to dismiss was made upon various grounds, among which were that there was no evidence that the defendants knew these statements, or any statements made by them, to be false, and that there was no evidence that these statements, or any of them, were made with intent to deceive, or did deceive the plaintiff; or that the plaintiff relied upon these statements.

Other points were raised, which it is not necessary to consider here. The motion was denied, and an exception taken, and the defendants introduced evidence upon their behalf tending to contradict the evidence on behalf of the plaintiff that these representations were made, and that any statements which the defendants made to the plaintiff’s father in regard to the condition of the company were known to the defendants to be false, or made with intent to deceive.

Upon the termination of the defendants’ case', the motion to dismiss was repeated. It was denied and an exception taken. The case was submitted to the jury, who found a verdict in favor ■of the plaintiff, and from the judgment thereupon entered and from the order denying a motion for a new trial this appeal is taken.

. It is claimed upon the part of the defendant that because the plaintiff nowhere testified that he relied solely upon these statements testified to by his father, the jury could not find a verdict in his favor.

We do not understand this position to be well taken. If from the nature of the transaction, the relation of the parties and the circumstances surrounding the transaction, it may fairly be presumed that the plaintiff relied upon the representations in entering into the transaction, and that they were the inducing cause, the mere fact that he has or has not sworn to the conclusion that .he relied upon the representations is of little moment In fact it is only of recent years that such questions were permitted.

But there is a more serious question, arising from the claim that there is no evidence before the court that the defendants knew the statements, or of them, made to be false.

p. 154

In the case of Morris v. Talcott, 96 N. Y., 100 , the court laid down this rule in respect to the nature of the proof of scienter in cases of the description of the one at bar. They say: “ The fraud charged against the defendant herein is of the nature of a crime, and cannot be presumed, but must be established by evidence. Henry v. Henry, 8 Barb., 592 ; Ward v. Center, 3 Johns., 281 ; Jackson v. King, 4 Cow., 207 . While it is true that it may be proved by circumstantial evidence and the inferences legitimately deducible therefrom, yet the defendant is entitled in a judicial consideration of the proofs to the application of the rule that the presumptions of the law are in favor of the innocence of the person accused. A party, therefore, relying upon the establishment of a cause of action, or a right to a remedy against another, based upon the alleged commission of a fraud by such person, must show affirmatively facts and circumstances necessarily tending to establish the probability of guilt in order to maintain his claim. When the evidence is capable of an interpretation which makes it equally as consistent with the innocence of the accused party as with his guilt, the meaning must be ascribed to it which accords with his innocence rather than that which imputes to him a criminal intent.”

Applying this principle to the case at bar there is no evidence which shows that the defendants necessarily knew the financial condition of this corporation or that they intended to convey to the plaintiff’s father the impression that they did. There is no evidence that they had anything to do with the financial affairs of the corporation, but rather that they had the superintendence of the manufacturing part of its business. And it further appears that the representations which they made to the plaintiff’s father must necessarily have been matters of opinion, because they were representations of what the business of the corporation would amount to and hence necessarily dependent upon future contingencies. If from the situation of these defendants the necessary inference could be drawn that they did know in regard to the financial affairs of the corporation, then, perhaps, a different rule might apply; but it appears that the whole of these representations were based upon their knowledge of the manufacturing department of this corporation, and there is no pretense that they knew, or represented that they knew, of its financial condition so that they could be said to have intended to convey the impression that they knew of their own knowledge whereof they spake. In cases of this description fraud must be established by evidence necessarily leading to that conclusion.

If an inference consistent with innocence may be deduced from the proofs such inference must be drawn as matter of law, and a jury cannot be permitted to speculate upon the question as-to whether fraud did or did not exist In the language of Morris v. Talcoit, the plaintiff must show affirmatively facts and circum-stances necessarily tending to establish the probability of guilt in order to maintain his action.

We think that the evidence in the case at bar fails to come up to this standard; and there is no evidence, even if the defendants

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made the representations to the full extent claimed by the plaintiff, upon which question there is grave doubt, that the defendants knew or had reason to believe them to be false.

, There is another question in regard to the variance between the pleadings and the proof; the complaint alleging that the stock was bought from the defendants, whereas the evidence seems to show that it was bought from the corporation.

While upon this appeal such a variance may be of no particular moment in view of the conclusion arrived at on the other points of the case, yet still it is a matter which may" need some consideration before a re-trial of this case is had.

Upon the whole case we are of opinion that there was no evidence which justified the jury in finding that the defendants made these representations knowing them to be false, and the judgment and order appealed from should, therefore, be reversed and a new trial ordered, with costs to the to abide the event

Daniels and O’Brien, J.J., concur.