Robertson v. Parks

Alvey, C. J., delivered the opinion of the Court. This is an action for alleged deceit in the sale of certain shares of stock in a fertilizer company, in the City of Baltimore. The action was brought by the present appellant against the defendants, who were stockholders and officers managing the affairs of the corp'oration that issued the shares that were sold to the plaintiff. The declaration contains two counts.

The first alleges that the defendants, being desirous of obtaining addi ¹²⁷ tional capital, caused an advertisement to be published in the Baltimore Sun newspaper, in these terms: “Business Opportunities. A larger capital being required to meet the demands arising from an increase of business, a limited number of shares are offered for sale by a prosperous and well established fertilizer company. Any one wishing to make a safe and profitable investment, is requested to investigate; address Manufacturer, .179 Sun Office. ” And that the plaintiff', being desirous of investing money in a safe and profitable business, and acting upon the advertisement so published, had communication with the defendants in regard to the subject-matter of the same; and that the said defendants, being stockholders and interested in the company, “represented the business to be a most flourishing and profitable one, and stated that the investment of $5,000 would yield the plaintiff 20 per cent, income on his investment, and offered to permit the plaintiff to inspect their books to verify their representations.” That the plaintiff did undertake the examination of the books, to see for himself the true condition of the concern; but that he has since discovered that said books were misleading, in the manner in which they were kept, and that they did not show the true condition of the affairs of the concern; that all the books were not shown to the plaintiff, but that books were withheld from him which would have revealed the true condition of affairs, and enabled him to have guarded against the fraud and deception of the defendants; but, believing in the representations made by the defendants, and being misled by the books shown him, he invested $5,000 in the stock of said fertilizer company; and being subsequently employed as clerk to the company, and as such clerk having access to the books of the company, he discovered that he had been misinformed, and deceived by the false representations of the defendants, who well knew, at the time that such ¹²⁸ representations' were made, that they were false. And that, by reason of such fraud, misrepresentation and deceit, the plaintiff has been greatly wronged and injured.

The second count alleges that the defendants unlawfully conspired and combined together to induce the plaintiff to invest $5,000 in the stock of the Parks Guano Company, and that, in pursuance of such purpose, the defendants represented to the plaintiff that the company had a large and prosperous business, and that it was a safe and sure investment; whereas, such representations were, at the time made, false in fact, and were wilfully and fraudulently made to deceive the plaintiff, and whereby he was deceived and induced to invest $5,000 in the stock of the company, to his loss and injury. The defendants pleaded not guilty, and also pleas of res adjudicata in respect to the stock issued to the defendants, and other things tried and determined in an equity proceeding specially referred to. It appears from the record that, prior to July 1st, 1887, there had existed in the City of Baltimore a copartnership formed for conducting the guano and fertilizer business, under the firm name of Parks and Company. At the time of the dissolution of this partnership it was composed of James T. Parks, John Mauldin and Matthew P. Hubbard, three of the defendants in this case.

About July 1st, 1887, the members of the firm, for- the purpose, as stated by them, of increasing the capital and enlarging the business, determined to convert the partnership into a joint stock corporation, with a capital of $100,000, to be divided into one thousand shares of $100 each. The corporation was formed under the provisions of the general incorporation law of the State, by the name of the Parks Guano Company, and was organized about the 1st of July, 1887. Of the capital stock two hundred and fifty shares were subscribed for, ¹²⁹ amounting, according to the par value of the shares, to $25,000. Parks, Mauldin and Hubbard, the members of the partnership of Parks & Co., each subscribed for fifty shares.

The assets of the partnership of Parks & Co. were estimated and appraised, and turned over to the corporation, and on account of which three several certificates, as for paid up. shares, were issued for fifty shares each, one to Parks, Mauldin and Hubbard each, in payment for their respective interests in the partnership assets transferred to the corporation. The corporation proceeded in its operations, but desiring more capital than had been subscribed, the advertisement of the 4th of November, 1887, set out in the declaration, was inserted in the Baltimore Sun. After that the plaintiff applied for information, as to the condition and business prospects of the concern; and after making examination of the books of the company, the plaintiff himself being an expert bookkeeper and accountant, he took fifty shares of the stock — a part in December, 1887, and the remainder in January, 1888 — and paid the full par value therefor. Immediately upon becoming a stockholder he became an employe of the company, and remained such until its dissolution in May, 1889.

Upon the dissolution of the company, the plaintiff agreed to become its liquidator, and was duly appointed to that position, at a salary of $900 per annum. As such liquidator, he collected about $20,000 of the assets of the corporation, and paid out, in discharge of its debts, about $16,000, leaving a surplus for distribution among the stockholders of near or about $4,000. At this juncture of proceeding, the plaintiff filed a petition on the 11th of January, 1890, in the Circuit Court of Baltimore City, praying that Court to take jurisdiction of the trust, and to administer the same, and to direct distribution of the funds to those entitled thereto. In this petition there was no charge that the ¹³⁰ shares of stock held by the defendants had been issued fraudulently.

The Court, according to the prayer of the petition, assumed jurisdiction of the trust. This petition of the plaintiff seems to have given rise to contest. Soon thereafter a petition, on behalf of the stockholders, was filed for the appointment of a receiver, and a receiver was accordingly appointed. In the course of settlement, an account was stated by the auditor, distributing the surplus fund, after payment of debts, among those claiming to be stockholders of the company; and distribution being 'made by the auditor to Parks, Mauldin and Hubbard, in respect to their shares-of stock, exceptions were taken by the plaintiff and others to such distributions, upon the specific ground that the issue of stock to those parties was fraudulent- and void, and that no distribution should be made to-such stock, in prejudice of the rights of other stockholders.

These exceptions were answered, and testimony was taken on both sides of the issue thus formed;, and after hearing upon the facts, the exceptions were overruled, and the account was finally ratified. These facts are all shown by the record in the equity proceedings, produced as evidence in this cause. On the trial below there was a good deal of testimony produced, and much of it of a very conflicting character, as to the representations that were made by the defendants to the plaintiff, in regard to the affairs and amount of available assets of the company, and its business prospects, and in regard to the extent of the disclosures made to the plaintiff in the course of his examination into the affairs of the company previous to his subscription for stock. Both sides asked for instructions to the jury; and the jury were instructed by the Court, by granting some of the prayers offered by the plaintiff, and all those offered by the defendants.

And, upon examination of the ¹³¹ prayers granted, it appears that the whole case was amply embraced by the instructions given, and that the plaintiff' obtained the full benefit of all the law to which he was entitled to have applied to his case. The verdict and judgment being against him he has appealed. The general principles upon which actions for deceit or fraudulent misrepresentations are maintainable have been very clearly stated by this Court in the cases of McAleer vs. Horsey, 35 Md., 439 , and Buschman and Cook vs. Codd, 52 Md., 202 . If a defendant knowingly tells a falsehood, or makes a positive representation of a fact as true, when he does not know it to be true, and has no reasouable grounds for believing in its truth, with an intent to induce, and does thereby induce the plaintiff to enter into a contract or incur liability, which, but for such misrepresentation, he would not have entered into or incurred, and the plaintiff is thereby damnified, a case of fraudulent deceit is established.

It is not