Duryea v. Zimmerman

In this action the plaintiff has recovered a judgment for damages which he claims he has sustained in consequence of the deceitful representations of the defendant Zimmerman and of Rogers, Brown

Prior to the organization of the Alabama Sz Georgia Iron Company, Rogers, Brown & Co. and the defendant Zimmerman jointly bought the properties of two existing companies, the Cherokee Iron Company, a Georgia corporation owning an iron furnace and iron lands in and near Cedartown, Ga., and the Augusta Mining Company, owning ore lands in Georgia and Alabama, after which the Alabama Sz Georgia Iron Company was organized, upon a basis of $650,000 preferred stock and the same amount of common stock. Zimmerman and Rogers, Brown Sz Co. paid $100,000 into its treasury and transferred to it the properties acquired from the Cherokee Iron Company and the Augusta Mining Company, receiving therefor the stock of the new corporation and the $100,000 in its treasury. It was testified upon the trial by • Noah H. Swayne, who had been an officer of the corporation from the time of its organization, and its president until a few weeks before, that the value of its properties then was not less than $1,500,000, and that it was making between 8 and 10 per cent, upon the full amount of its preferred stock; that it was a paying property, and in a very prosperous condition. During the negotiations for the purchase of the two properties referred to the purchasers were wholly represented by Archer Brown (a member of Rogers, Brown & Co.), who died on September 23, 1904.

After the organization of the new company and conveyance of said properties to it, it was determined to sell some of its preferred and common stock for the purpose of repaying some portion of the cost to the original purchasers, who retained a large amount of its stock and had a substantial money investment in the property. Archer Brown had the exclusive charge of all the details connected with the acquisition of the property, the preparation of the prospectus of the new company and other details of the sale of its stock, with all of which matters neither of the defendants had any personal knowledge or connection. Thereafter Brown prepared, and caused to be printed and circulated, a lengthy prospectus of the new company, setting forth in detail its properties, the expenditures that had been made upon them, their estimated value and earnings, and many other matters, to which the names of “Rogers, Brown & Co.” and “Eugene Zimmerman” were signed.

The plaintiff challenges the accuracy or truthfulness of certain statements contained in the prospectus, which are alleged to have been false and to have been made with the intent of inducing the plaintiff to subscribe to the capital stock of said company, as follows: Eirst. That the Cherokee Company was a prosperous company, which had paid dividends to the time of the death of its president, Col. West, in 1898. (Upon'the trial it appeared that Col. West died in 1892, instead of 1898.)

It is disclosed by the evidence that the plaintiff had no direct or personal relations with any member of the firm of Rogers, Brown & Co., or with the defendant Zimmerman. His transactions were solely with his brokers—Grant Bros.—who were represented in the purchase of the stock by their employé, Van Sickle, who had all of his dealings with one Gilchrist, who was an employé of Rogers, Brown & Co., and authorized by them to sell some of the stock on commission. The record presents several interesting questions; but, as the case must be disposed of upon an error of the trial court in its instructions to the jury, we do not regard the consideration of the other questions presented profitable or of benefit to the litigants.

The learned trial justice, in his main charge, instructed the jury that, before they could find a verdict for the plaintiff, they must find that Brown must have known that the statements contained in the prospectus were false, or, not knowing whether they were false or true, and not caring what the fact might be, made them recklessly, paying no heed to the injuries which ensued, after which he charged, as requested by defendants, that “in all actions for deceit the presumption is in favor of innocence,, and on that account the intent or design to deceive the plaintiff must be affirmatively made out by evidence,” and refused to charge that “if, therefore, the jury find that this prospectus was prepared from information furnished to the defendants or to Archer Brown, then the jury must presume that such information corresponded to the contents of the prospectus, and, even though such information was false, yet the defendants would not be liable therefor.” We think this sentence correctly states the law applicable to this case upon one of the crucial questions involved, and that the refusal" of the trial justice to instruct the jury as requested was error, requiring a reversal. There is uncontradicted evidence in the case that Brown did get information concerning these properties from several persons prior to their purchase. These persons were not called, as witnesses, and there is no proof that his statements contained in the prospectus were not in strict accordance with the information thus acquired. This stock was purchased by plaintiff in 1899. Brown died September 23, 1904, and it w,as not until practically a year after his death that this action was commenced. If the information received by Brown was in fact believed by him, and honestly stated in the prospectus, no matter if such information and his representations based thereon were in fact untrue, there was no deceit, and the defendants were not liable in his

Actionable deceit cannot be practiced without an actual intention to deceive, resulting in actual deception and consequent loss. There is nothing contained in the prospectus which can properly be construed as asserting that its statements were based upon, or true to, the personal knowledge of the persons making them, which distinguishes this case from the case of Hadcock v. Osmer, 153 N. Y. 604 , 47 N. E., 923 , in which the court pointed out that the defendant assumed to have actual knowledge of the statement made, and intended that the lender should understand him as communicating his actual knowledge. The rule as stated in Constant v. University, 133 N. Y. 640 , 31 N., E. 26 , is that where the natural inference from the evidence does not necessarily lead to the presumption of a fraudulent intent, but is equally ■as consistent with innocence as wrongdoing, that construction must be placed upon it which will exonerate the party implicated from a dishonest intent. See, also, Morris v. Talcott, 96 N. Y. 100 , 104. In Shultz v. Hoagland, 85 N. Y. 464 , it is said:

“It is not enough that they [the facts] are ambiguous, and just as consistent with innocence as with guilt. That would substitute suspicion as the equivalent of proof. They must not be, when taken together and aggregated, when interlinked and put in proper relation to each other, consistent with an honest intent. If they are, the proof of fraud is wanting.”

The burden was on the plaintiff to establish that Brown did not have and believe information according with the representations which he set forth in the prospectus. Kountze v. Kennedy, 147 N. Y. 124 , 129, 41 N. E. 414 , 29 L. R. A. 360 , 49 Am. St. Rep. 651 . And in the absence of such evidence the defendants were entitled to the charge requested.

For this error, the judgment and order must be reversed, and a new trial granted; costs to abide the event.

HOOKER and MILLER, JJ., concur, the latter in a separate opinion. GAYNOR, J., reads for affirmance, with whom JENKS, J., concurs.

MILLER, J. It being established by the testimony of the plaintiff’s own witnesses, and not disputed, that the alleged fraudulent prospectus was prepared by Archer Brown from information furnished him by Edward F. Browning, it was incumbent upon the plaintiff to establish either that the prospectus did not correspond to the information furnished or that said Archer Brown knew that it was false. If there was no evidence to establish either- of those propositions, the court erred, both in refusing the request to charge discussed by Mr. Justice RICH, and in denying the motion for a nonsuit. Said prospectus furnishes internal evidence that the facts stated by it were not' within the personal knowledge of the signers, and any one reading it would so understand. The plaintiff, who had the burden of establishing intention to deceive, and who brought his action after the death of the person charged with that intent, omitted to call said Browning as a witness, and, if the defendants can invoke the presumption of

But, whatever view of the questions stated supra we may take, we must agree, I think, that there is not sufficient competent evidence in this case upon which a jury could base a verdict for damages. Of the four alleged misrepresentations enumerated in the opinion of Mr. Justice RICH, there is no pretense that there was any testimony to show the falsity of the fourth, and I have searched the record in vain to find any to establish that of the second, namely:

“That the actual cash outlay upon the property of .the Oherokee Iron Company was upwards of $800,000.”

This, of course, refers to the expenditures made before the acquisition of the property by the Alabama & Georgia Iron Company, and the testimony of the only witness on the subject is that in 1878 $350,000 had been expended on the property, and that from that time on very large expenditures were made in improving the property by Col. . West, the amount of which the witness did not pretend to state. The third alleged misrepresentation was contained in a paragraph headed “Estimated Earnings,” and its statement of the cost of coke and charcoal iron at the Cherokee furnace was obviously an estimate based on the cost of the different elements entering into the production of coke or charcoal iron, namely, coke or charcoal, limestone, ore, and labor. There was no evidence whatever to show that this statement was not in accordance with the information furnished Archer Brown, nor was there any evidence of the cost, at the time referred to in said prospectus, of the different elements entering into said estimate. The only evidence upon this subject related to a time prior to 1888 and to one period after said Alabama & Georgia Iron Company began to operate the property; but there was no proof of the relative conditions. Assuming, however, that there was proof of the falsity of the representations respecting the cost of producing iron and the prosperity of the Cherokee Company, and of an intention to deceive in respect thereto, I am unable to find in the evidence any basis for estimating the effect thereof on the value of the stock. It is plain that the value of the Cherokee Iron Company furnace was relatively small as compared to that of the extensive ore lands acquired by said Alabama & Georgia Iron Company, and it is not claimed that any misrepresentations were made respecting said lands.

The judgment should be reversed.

(dissenting). It does not seem to me that the refusal to charge was error. It does not seem to me possible that it can be error, and I should be greatly surprised to find any authority even lending countenance to a claim that it is.

The request was that if the jury find “that this prospectus was prepared from information furnished to the defendants or to Archer Brown, then the jury must presume that such information corresponds to the contents of the prospectus, and even though such information was false, yet the defendants would not be liable therefor.”

Is it so, that one who sells worthless stocks by a false prospectus, is exonerated of liability for deceit for false statements in such prospectus, by simply proving that some one, any one, “told him so”? Must a judge charge that? It is for those who make such requests to make them technically accurate in order to get a good exception on their' refusal. We are often told things by untrustworthy people, whom we should not and do not believe; and reputable people tell us things which we should not always believe, and which, indeed, we know to be untrue, or that they are not qualified to speak of. Are we to send this case back for the next trial judge to charge this sweeping request ?

Nor does it seem to me that refraining from saying in a circular that