Boulden v. Stilwell

The plaintiff in this case complains that by means of certain false and fraudulent representations made to him by the defendants, he was induced to sell to Leroux, one of the defendants, certain stock held by the plaintiff in the Structural Iron and Steel Company of Baltimore City, whereby he has sustained damage.

The declaration, in substance, alleges that Stilwell was psesident, and Leroux vice-president and general manager of the company, each holding a large number of shares therein; that plaintiff was acting secretary and treasurer, holding two hundred and fifteen shares therein; that defendants, desiring to obtain from the plaintiff his said shares of stock at a less sum than their real value, entered into a conspiracy, fraudulent combination, and arrangement between them, by which defendant, Stilwell, should represent to the plaintiff that he had sold his shares of stock in said company to Leroux; that the company was losing money; that it was about to "fall down," meaning thereby that it was about to fail and become insolvent; that he, Stilwell, would not carry it financially much longer; that Leroux should represent to plaintiff that he had bought Stilwell's stock, which would give him a majority of the stock in the company, and would result in removing plaintiff from his employment in the company; that these representations were made to him by the defendants in pursuance of said conspiracy, and by reason thereof he was induced to sell and deliver his two hundred and fifteen shares of stock for $5,625, whereas they were of the value of $21,500, which value was then unknown to him, and of which he had no means of knowledge, though such true value was then known to defendants; that these representations were falsely and fraudulently made, with intent to deceive and defraud him, and did so deceive and defraud him, and that if the same had not been so made and relied on, he would not have sold his stock, and that by means of the premises he had sustained damage to the extent of $15,850.

The general issue plea was filed, and at the close of the plaintiff's testimony, the defendant moved the Court to strike out certain evidence which had been admitted subject to exception, which motion was granted, and thereupon the Court granted a prayer offered by the defendant, that there was no evidence legally sufficient to entitle the plaintiff to recover, and that the verdict must be for defendants. The single exception is to the granting of this motion and prayer, and in considering the instruction given, which will be first taken up, we are required to assume the truth of all the plaintiff's evidence, and all inferences fairly deducible from it.

The general principles which must control our judgment in this case, have been established in a series of cases in Maryland, the most important of which are, McAleer v. Horsey, 35 Md. 439;Buschman v. Codd, 52 Md. 202; Robertson v. Parks,76 Md. 118; Byrd v. Rautman, 85 Md. 414; Cahill v. Applegarth,98 Md. 493. When the decision in McAleer v. Horsey was rendered, it was there said that we then had for our guidance, no express decision of this Court upon several points involved, but that decision has ever since been regarded as a notable contribution to the learning upon this subject, and later cases have covered almost every point likely to arise in such actions. Most of these decisions have been made in cases where damages were claimed as the result of purchases induced by false and fraudulent representations, but there can be no good reason whysales, so induced, and resulting in damage, should not be governed by the same principles, and these have been so applied in this State in Byrd v. Rautman, supra.

In McAleer v. Horsey, JUDGE MILLER observed that "neither the common law, nor any code of human laws, seeks to enforce the rule of perfect morality declared by divine authority, which acknowledges as its one principle, the duty of doing to others as we would that others should do to us, and which, by consequence, absolutely excludes and prohibits all cunning and craft, or astuteness, practiced by any one for his own exclusive benefit. And it hence follows that a certain amount of selfish cunning passes unrecognized by Courts of justice, and that a man may procure to himself, in his dealings with others, some advantages to which he has no moral right, but to which he may succeed in establishing a perfect legal title." In determining, in each case, whether the fraud complained of is one which falls within the class above described, or within that other class which Courts of Justice will recognize and redress, "by stepping in and annulling what has been done, or rectifying the wrong by sustaining an action for the deceit," we must be governed by certain precedents and rules which have been established as the result of all the cases, and which in general terms may be stated as follows:

The foundation of the action is actual fraud, and nothing short of this will suffice. Consequently, a misrepresentation believed by the speaker to be true, though induced by his ignorance or negligence, will not sustain an action for deceit. There must be, either knowledge of the falsity of the representation, or such reckless indifference to truth in making it, as is held equivalent to actual knowledge. The fraud must be material, by which is meant that without it, the transaction would not have been made. It must be a statement of an alleged existing fact, or facts, and not merely of some future or contingent event, or an expression of opinion as to the subject of the statement. The party to whom it is made must rely upon its truth, and must have the right, as a person of ordinary business prudence, to rely upon it, "otherwise it is his own folly or fault, for the consequences of which he cannot ask relief of the law;" and finally there must be damage directly resulting from the fraud. Nearly all the Maryland cases, and a number of the leading English cases, have been carefully considered in the recent case of Cahill v. Applegarth, supra, and there is no occasion to review them here. Keeping in view the principles stated above, we will now briefly consider the testimony upon which this case was withdrawn from the jury.

In support of the averments of the narr. a summary of which we have given, the plaintiff testified that in June, 1900, while he was employed by the receivers of the Columbian Dry Dock and Iron Works Company, having been with that company for twenty-four years previously, Stilwell proposed to him to go with a company which he and Leroux were about to re-organize as the Structural Iron and Steel Company, and said, if he would go with them they would appoint him secretary and treasurer, at the same salary they received; "each one of the three also to share and share alike in all profits, emoluments, c.;" that he accepted the offer, and a written agreement was entered into between them covering the offer, and assuring him the position for five years at a salary of $50 per week; that he put $5,000 in the company, representing fifty shares of preferred stock at par, with which he received, as a bonus, 165 shares of common stock; that the company had quite a number of government contracts, and things went on pretty well until the spring of 1901, when Stilwell and Leroux had several quarrels in his presence, in which each threatened to get out the company, and which he then thought real quarrels, but which he afterwards learned were mock, or feigned quarrels intended to deceive and frighten him into getting out of the company; that in April, 1901, Stilwell told him that he was going to sell out to Leroux, that the company was going "to fall down," and that as he had gotten him into the company and was his friend, he did not want him to remain in a company that was going "to fall down," and handed him a letter, signed by himself, and addressed to plaintiff, informing him that he had sold his stock to Leroux on the terms stated in his proposition of April 12th, and he then repeated his advice to plaintiff to get out. Plaintiff then saw Leroux, who said he had agreed to buy Stilwell's stock, which would give him a controlling interest; that the business was not productive enough to pay three salaried officers, and that he intended to run it as a family company. He told plaintiff this was his last opportunity to accept his offer, and that in reliance upon these statements he accepted the offer, and got out, receiving from Leroux for his 215 shares of stock $5,650 in cash, of which, $5,000 was the par value of his 50 shares of preferred stock, and $650, was to compensate him for loss to that amount in the sale of some houses which he had sold to raise the money to pay for his stock when he took it, the 165 shares of common stock not being reckoned as of any value, and going with the 50 shares, as he had received it; that he subsequently learned that Stilwell never sold out to Leroux, but that he furnished Leroux the money paid him for his stock, and that after this sale, Stilwell and Leroux continued to be, respectively, president and vice-president, and added to their salaries each, one-half of the salary he had received. The damage of which he complained was the loss of four years salary under his contract at $2,600 per annum, and $24 per share on his 165 shares of common stock sold by Stilwell and Leroux to Keith some five or six months later, besides one-third interest in the sale of the other stock, though it is difficult to understand the last item, as he claimed all the price of the 165 shares, and actually received all the price of the 50 preferred shares.

In reply to the direct question from his counsel, "What induced you to sell your stock?" he replied, "The representations made to me at that meeting that the company was going to fall down, and that Mr. Stilwell was going to get out, and the presentation of that paper, and the advice of Mr. Stilwell to get out while I could, and the offer of Mr. Leroux, and the conditions which would exist, if Mr. Stilwell sold his stock to Leroux, giving Leroux controlling interest, and his telling me then and there he would vote me out, now is your chance; take your money or we will put you out, and leave your money in the company; you can do as you please."

Plaintiff also testified that Stilwell and Leroux would not permit him to open a set of books for the new company until six months after it was in operation, and that when opened, they were required to be three months in arrears and by reason of this, he did not know and could not ascertain the condition of the company. He admitted on cross-examination that the agreement mentioned was cancelled by mutual agreement when he sold his stock, and that was induced by the same reasons which caused him to sell his stock.

Mr. Baker and Mr. Oches, who were respectively, the assistant, and principal book-keepers during 1901, testified that Stilwell and Leroux continued to be respectively president and vice-president of the company until January, 1903, and that their salaries were increased as before stated after plaintiff got out.

George C. Gantz testified that he owned 50 shares of preferred, and 30 shares of the common stock, which he sold in July, 1901, through Stilwell for $5,050 cash, but did not know who bought them, and that he sold because Stilwell alarmed him by saying the company was losing money. He also said Stilwell told him he and Leroux had feigned quarrels in plaintiff's presence, for the purpose of inducing him to sell his stock and get out of the company, and that he furnished Leroux the money paid him for his stock.

Minor C. Keith testified that some time in the fall of 1901, he purchased from Stilwell and Leroux, a large block of both preferred and common stock of the company, and through them, all the residue of both kinds of stock, paying par for the preferred, and about $24 per share for the common; that they always spoke favorably as to the financial condition and future business of the company, and represented that its assets were sufficient to cover the total issue of preferred stock, and something, but not very much, on the common stock; that they furnished him a number of written statements, showing that the assets and liabilities were about even, but there were many bad debts, and that he understood afterwards there was a deficit; that some of the representations made to him, afterwards proved not to be true, but he thought they were misled in making them.

When the representations which plaintiff states caused him to cancel his contract and sell his stock, are analyzed, it will be seen that none of them measure up to the requirements of the law. The representation that the company was going to fall down, is not a statement of existing insolvency, but a prediction of future insolvency, and comes directly within the ruling inRobertson v. Parks, 76 Md. 135, where it was held that representations concerning the future value or profitableness of the business should be excluded by the jury as a basis of recovery, and as defendants counsel well said in their brief in this case, "caveat vendor," is as sound a rule of law as "caveat emptor," though less frequently invoked. So, Stilwell's declaration that he was going to get out, and that Leroux would vote Boulden out are but declarations of future purpose subject to change of mind, and the advice of Stilwell and Leroux to accept the last chance to get his money was but "buyers talk," which, in Byrd v. Rautman, supra, it was said should not be regarded. Even Stilwell's letter stating he had sold his stock to Leroux, so much relied on as a statement of an existing fact, comes within the category upon which plaintiff was not authorized to rely as the basis of an action for deceit, since in Cahill v. Applegarth, supra, it was said that a false representation merely as to the ownership of stock would not justify a recovery. It should have been obvious to the plaintiff that if Leroux could with safety, not only hold his own stock, but also purchase Stilwell's at par, he could, at least with equal safety, hold his stock, and that he could not blindly accept Stilwell's prediction that the company was about to fail. Nor is it material whether the money paid him for his stock was supplied by Stilwell or Leroux. In either event he was selling his stock at a premium in a company which his purchaser predicted was about to fail. He was secretary and treasurer of the company, and had at least equal means of knowledge as to its condition and prospects, and although the books were not up to date, this was a disadvantage common to all three of the parties, and it must be held his own lack of business prudence, and business courage, which caused him to cancel his contract and sell his stock under the circumstances stated.

In Buschman v. Codd, supra, the case of Vernon v.Keyes, 12 East. 632, was cited with approval upon the point that where parties have equal means of knowledge as to the truth of representations relating to value or quality of the thing sold, no action for deceit will lie; and again in Byrd v.Rautman, it was cited, to show that a false representation as to a future event would not sustain an action. In Vernon v. Keyes, the defendant represented to the plaintiff, his partner, that he was about to form a partnership with other persons whom he could not disclose, and that they desired to buy the plaintiff's interest in the existing business, but that his intended partners would not give more than a certain sum, which the plaintiff, in reliance upon this statement, accepted; whereas the new partners had not refused to give more than that sum, but had authorized defendant to make the best terms he could, and he had in fact charged them a much higher sum than plaintiff had received. LORD ELLENBOROUGH held that the buyer was not liable in an action of deceit for thus misrepresenting the seller's chance of sale, or the probability of his getting a better price than that offered by the buyer, and that it was the seller's indiscretion to rely upon such statement. That case seems to be quite conclusive of the present, as to the reliance to be placed upon the representations here made. But there are other objections to the plaintiff's recovery, touching the proof of damage sustained. There is no proof that the defendants knew at the time plaintiff sold his stock, that the common stock could be sold to Keith, or to any one, for anything worth consideration, or even that the preferred stock could be sold for what they paid for it, for proof of value in September, is no proof of equal value in the preceding April.

In this aspect of the case, plaintiff's claim for damages is merely a claim for future contingent profits on the common stock, and as was said in Smith v. Bolles, 132 U.S. 12, which was an action for deceit, "Liability does not include the expected fruits of an unrealized speculation." In the view we take of this case, the result would not be altered, if the testimony which was stricken out had remained in, and it is therefore unnecessary to consider the ruling upon the motion to strike out. This case is a practical illustration of the instances referred to by JUDGE MILLER, in which a man "may succeed in establishing a perfect legal title to advantages to which he has no moral right" if the testimony at this stage of the case, is assumed to be true, as it must be.

The judgment is affirmed with costs to the appellee above andbelow.

(Decided March 22d 1905.)