Latrobe v. Dietrich

Boyd, C. J., delivered the opinion of the Court. Perdinand C. Latrobe, Jr., by his father and next friend, Perdinand C. Latrobe, Sr., and John C. Shane filed a hill in equity againts Andrew J. Dietrich and Hammond Dietrich individually and as co-partners, trading as Dietrich Brothers, by which the plaintiffs sought to have a transaction between "Mr. T^atrohe, Jr., and Mr. Shane, of the one part, and the Dietrich Bros., of the other part, annulled and set aside. AYe will refer to Messrs. T^atrohe and Shane as appellants, for although, by reason of the minority of Mr. T,atrobe when the hill was filed, he sued by his next friend, before the decree below was passed he had reached his majority and the appeal was taken on behalf of him and Mr. Shane.

The appellants purchased from the appellees two hundred and fifty shares of the capital stock of the Baltimore Poundry ¹⁰ Co., for which they paid $10,000.00 cash, gave their four' notes of $2,500.00 each, which were endorsed by Mr. Latrobe, Sr., and also gave a note of the Baltimore Foundry Co. for $15,000.00, making $35,000.00, the purchase price agreed upon for the two hundred and fifty shares. The total amount of the capital stock of that company was $30,000.00, and the appellees retained fifty shares of the par value of $100.00 each. The bill alleges that the appellees knowingly and intentionally made misrepresentations and false statements to the appellants for the purpose of inducing them to purchase the stock, and that the appellants, relying on ■ the statements and representations,- purchased the stock on the strength thereof. It is also alleged that Mr. Latrobe, Jr., was at the time of entering into the agreement under twenty-one years of age, and had not yet reached that age, and that in view of his infancy he was advised that he was entitled to have the contract set aside and rescinded, so far as ho is concerned.

The testimony shows that the. negotiations for the purchase were begun by a letter from George A. Finch, a member of the Baltimore Bar, who represented the appellants, addressed to the company, stating he had an inquiry from a client as to whether “your company and plant could be purchased”. Mr. Andrew J. Dietrich, the president, who together with his brothers held the stock, called upon Mr. Finch in response to the letter and, after consulting with his brother Hammond, who was his partner, named $40,000.00 as the price. On August 31st, Mr. Finch wn'ote to Mr. Dietrich that lie had communicated his message to his clients, “and would request that you send me at your earliest convenience not a detailed inventory, but a general statement of the property belonging to the Baltimore Foundry Co., with your valuation of each item mentioned in said statement.” He further said that his clients thought the price rather high, but if he would send him “a general statement of the property at the foundry.” together with his valuation, he would be glad to arrange at ¹¹ 'an early date a meeting of his clients with him “for the purpose of arranging to take over the Company, if the price can he agreed upon.” The next day Mr. Dietrich replied that they did not feel inclined to give an itemized list at that time, unless it was agreeable to Mr. Finch for him to meet his clients, “and I would then bring with me a list showing the items that would go with the transfer of the property.” The correspondence resulted in Mr. Latrobe meeting Mr. Dietrich in Mr. Finch’s office the early part of September, when Mr. Dietrich gave him, as stated by Mr. Latrobe, “a pencil memorandum of the foundry and what was at the foundry, and he told me the price the foundry was for sale for.” Mr. Latrobe said he had that statement until about the loth of September, when he returned it to Mr. Dietrich. The aggregate of the valuations placed upon the various items in that statement bv Mr. Dietrich was $31,753.00.

They again met in Mr, Finch’s office on September 24th, according to Mr. Latrobe, Of that interview Mr. Latrobe testified that: “Mr. Dietrich went into the foundry, and said one thing about the foundry, said it was doing a business of $250,000.00 a year and making a profit of $18,000.00, and I told him that I would close the deal, meaning of course to ask the consent of my partner.” He also said that the terms were then agreed upon (which arc, above stated), and the consummation was reached on his part, subject to Mr. Shane’s approval, and on Mr. Dietrich’s part, subject to his brother’s approval. At that interview Mr. Finch, Mr. A. J. Dietrich and Mr. Latrobe, Jr., were all that, were present. The misrepresentations relied on by the appellants are: First, that, the defendants represented that the Baltimore Foundry Co. was doing an annual business of $150.000.00; second, that the defendants submitted to the complainants a trial balance which showed a profit for nine months of 1909 of $18,014.68; third, that the defendants represented that Dietrich Bros, would give the foundry company business ¹² amounting to $5,000.00 per month, and in the testimony, although not alleged in the bill, it is also stated that it was represented that the company was making a profit of $18,-000.00 a year. We will consider those charges in the order in which we have mentioned them, together with certain other matters to be hereinafter referred to. 1.

Mr. Dietrich was quite positive that he did not meet Mr. Latrobe at Mr. Finch’s office on September 24th, but it is not material as to the exact day, as it. was about that time. He: does, however, positively deny that he ever told him that the company was doing a business of $150,000.00 a year, but admitted that at one of the meetings he did say that it was doing from seven to ten thousand per month. Mr. Finch is equally positive that Mr. Dietrich did not say that the business amounted to $150,000.00 a year, but his recollection is that he said it was $120,000.00. ITe was asked: “You don’t remember what the amounts were, do you remember whether he said so much a year or sonnuch a month ?” and replied : “I can’t recall that, but it is distinctly in my mind it was $120,-000.00 a year, whether he said $100,000.00 or $120,000.00 I can’t recall, but the amount $120,000.00 is imbedded in my mind, but I am sure he did not say $150,000.00 or $180,-000.00.” The only other testimony on that subject, in addition to that of Mr. Latrobe, was that of Mr. Shane.

He spoke of making the $15,000.00 note by reason of the representation of $150,000.00 a year, but the following testimony was then given by him: “Q. Representation made by whom ? A. Well, by my partner Ferdinand C. Latrobe. Q. As to the $150,000.00? A. The $150,000.00 and the $18,000.00 profit on that business of $150,000 0 -a year.

Q. Who made the. representation as to the $150,000.00? A. At that time at one of the meetings at the foundry Mr. Dietrich and Mr. Latrobe and I were there together, and Mr. Dietrich on the balcony says, ‘we were doing a business of $150,000.00 a year and being you and Mr. Latrobe are interested down here you ought to raise, it to $180,000.00.’ ” ¹³ That testimony was given by Mr. Shane when called in rebuttal, and ir was excepted to and ruled' out by the Court •below. It was not proper evidence in rebuttal. Courts of Equity should not draw fine distinctions between evidence that is properly in chief and that properly in rebuttal, but Mr. Shane was a party to this cause—was seeking the aid of the Court on serious charges made in the bill by him and Mr. Latrobe against the defendants, which not only might affect them financially but would reflect upon their characters, if true.

Although the allegations were made in the , bill, that the defendants represented that the “company was doing a gross annual business of $150,000.00, which could be increased by judicious management to the sum of $180,-000.00 annually,” and although- that was specifically denied in the answer, Mr. Shane was not called as a witness in chief, but was called after, the. defendants concluded their testimony, and after Mr. Latrobe had testified in rebuttal. To permit, him to testify under such circumstances would be a dangerous precedent, and the Court below was unquestionably correct in ruling out his testimony, but even if it could be considered, Mr. Dietrich positively denied ir and Mr. Latrobe did not sustain him as to such testimony on the occasion he spoke of. Mr. Latrobe said the statement was made when Mr. Finch and Mr. Dietrich were present- -on September 24th. Mr. Finch testified that in the conversations he heard Mr. Dietrich and Mr. Latrobe agree that the purchasers could increase the business to $150,000.00 or $180,000.00 in the next, year by reason of their facilities for'handling and getting business.

Tt is, therefore, probable that. Mr. Latrobe's impression as to the amount of the business said to have been done was received from confusing that with what was said could be done, but, however that may be, it cannot be said, in view of the testimony of Mr. Dietrich and Mr. Finch, that that charge is sustained by the evidence—on the contrary, it is shown by the weight- of the evidence not to be correct. ¹⁴ The books of the company show, as alleged in the bill, what business was done,—being from something over $90,000.00 to a little over $117,000.00 per annum, averaging about $8,-000.00 per month, and it would be remarkable if parties engaged in a transaction of this character would rely on the statement of one of the vendors, when the books so clearly spoke for themselves. It might be possible that Mr. Latrobe. by reason of his lack of experience, would conclude a deal on the mere statement of one of the vendors, but the testimony shows that he had the benefit of the advice of those who would certainly know better. It is difficult to believe that if Mr. Dietrich be the character of man that even the appellants say he is, he would have been so foolish, if no higher motive influenced him, as to grossly misrepresent the amount of business done and the profits received, in order to induce the purchase, and then turn over the books to them five days before he and his brother were paid the $10,000.00 in cash, as he did.

Any competent bookkeeper could surely have ascertained the facts in a day or two. Mr. Earley, the bookkeeper of the company, was'retained by the new management and ought to have been able to give such infomation in that time, if not in much less time. In addition to that Mr. Bailey, an experienced accountant, was elected secretary and treasurer of the company, and whether he took advantage of it or not, had full opportunity to examine the books, or have them examined, from October 2nd, when he was elected secretary and' treasurer, to October 7th, when the money was paid. Moreover, Mr. Bailey testified that at the meeting on October 2nd he asked that a statement be submitted before going fufher in the transaction, and said that, “There was no definite plan or policy decided upon with regard to the terms of payment except that no payment should be made until we had an opportunity to look at the trial balance.” It is almost inconceivable that if the amount of business done 'by the company was an inducing cause in concluding the purchase, one of his experience would have relied on a mere ¹⁵ trial balance as of October 1st, 1909, without ascertaining the amount of business done which a trial balance would not show.

Moreover, there was no occasion for asking Mr. Dietrich to procure the trial balance, as it is admitted that the new officers were elected on October 2nd. So from whatever standpoint we view the case, it -is clear that the plaintiffs did not sustain the charge as to the amount of business done. 2. The testimony as to whether the defendants represented that the profits which had been made were $18,000.00 a year was ruled out by the Court below on the ground that there was no such allegation in the bill, but we will not discuss that ruling as we are satisfied the plaintiffs failed to establish the charge. What was said ,in reference to the representation as to- the amount of business done is for the most part applicable to the one concerning the amount of profits, as both of those charges practically depend upon the same testimony.

But it is alleged in the bill that a trial balance as of October 1st, 1909, was furnished which showed a profit of $18,-<014.68 for the nine months preceding that date, and it is contended that that was not only false, but was one of the inducements which led the appellants to purchase the stock, or at least that it misled them to believing that the company was making profits. Mr. Bailey who stated, as shown above, that no payment was to be until they could see the trial balance, admitted on cross-examination that he did not ask Mi’. Dietrich for it, but he asked Mr. Latrobe to secure it. Mr. Finch, who was representing the appellants, said it did not enter into the negotiations at all, and the evidence does not satisfactorily explain who gave it to the appellants.

Mr. Latrobe said in answer to “Who produced it ?” “I think Mr. Dietrich, sir,” but Mr. Dietrich positively denies that and some circumstances show that Mr. Latrobe was mistaken. He said that the trial balance was at Mr. Finch’s office on October 6th. A letter dated October 7th from Mr. Bailey to Mr. ¹⁶ Fixxcli is as follows: “Enclosed you will please find a statement received by me from the Baltimore Foundry Company showing the list of Accounts Receivable and Accounts Payable amounting in the first instance to $15,368.48. and in the second instance to $8,136.76, being open hook accounts as of October 1st, 1909, • as reported by them. I also enclose a statement dated October 1, 1909, showing the Assets and Liabilities, including merchandise on the liability side, and sundry expense items on the assets side.

Hone of these accounts have been verified, hut it is understood that the amounts are acceptable to the parties concerned.” That letter is signed by Mr. Bailey as “Secretary Baltimore Foundry Company of Baltimore City.” If the statement was in Mr. Finch’s office on the 6th, it is not easy to see why Mr. Bailey sent it to Mr. Finch on the 7th. Mr. Farley testified that he made the trial balance up on October 4th and he handed it to a young man in the office and did not know what became of it. It must ho renxenxbered that that -was after the new management took charge, and the xregular way would have been for the “young xxxaxx” to give it to Mr. Latrobe, as president, if xxot to Mr. Bailey, as secretary and treasxxrer. Mr. Farley said he had xxxade xxp a trial balance every moxxth, which was kept iix a hook for that purpose, aixd, prior to the one on October 1st, they were either mailed to or handed to "Mr. Dietrich.

Mr. Dietrich was formerly the president of the company, hut on October 2ixd Mr. Latrobe was elected president, aixd hence the most reasonable explaxxatxon would be that it was giveix to or sent to Mr. Latrobe, especially as i\lx\ Bailey testified : “T think T asked Mr. Latrobe to try to secure a statement.” That was on October 2nd. Thxt, if we pass that by without further comxnexit, it is impossible to find from the testimony that the trial balance authorized the charge iix the hill that the defexxdaxits wore guilty of knowingly and intentionally making misrepresentations and false statements for the pxxrpose of inducing them to purchase the stock. In the first place we do not under ¹⁷ stand how any one could thereby be misled into believing that the company made $18,014.68 that year or during any other particular period. Air.

Farley, the bookkeeper, testified that no one can tell from a trial balance at the end of the month whether there was any real profit or not. He was a Avitness for the appellants, and as he was the bookkeeper who made out the trial balance, his testimony ought to be convincing on that subject. A good deal Avas said at the argument about the Dietrich Brothers marking off an indebtedness of $61,211.15, which the company owed them, and it is alleged in the bill in connection with the trial balance. That was done as of September 30th, and it is conceded that the books showed the whole transaction.

Air. Bailey said he could have found out that item in “a couple of seconds if I had. taken the trouble to look at the books.” Air. Finch testified that he told Air. Dietrich they did not want “any detailed inventory; avc simply wanted a general statement of the premises and property of the company because Air.

Latrobe had directed me to get a price am the cost of the plant and for that reason, he simply wanted', to take over