Sears v. Barker

³²⁵ Sloan, J., delivered the opinion of the Court. This is an appeal from an order of the Circuit Court for St. Mary’s County, overruling a demurrer to the appellee’s bill of complaint. The bill of Margaret R. Barker, the appellee, alleges that by reason of certain false and fraudulent representations made to her prior to July 15th, 1920, by Richard H. Sears, in Paris, Eranee, she was induced to buy 4,888 shares of the capital stock of the La Paz Oil Corporation, incorporated under the laws of Delaware, for which she paid 10,000 English pounds, approximately $50,000 in money of the United States. It appears from the bill that, some time prior to July 15th, 1920, the appellant, Richard H. Sears, in Paris, Eranee, met and opened negotiations with one Carlos Pflucker, the agent of the appellee, with a view to the sale to the appellee of shares in the La Paz Oil Corporation, and that through the agent Sears delivered to the appellee a certain prospectus represented by Sears to contain a correct statement of the properties and assets of the oil corporation, together with an album containing photographs represented to be the property of the oil corporation, and that the appellee, relying upon the representations as to the assets and property of the oil corporation by Sears, and upon his right and authority to act for the corporation in the premises, did on or about July 15th, 1920, pay for the stock as aforesaid; that it was not until the summer of 1925, although the appelleo asserts that she in the meantime made diligent inquiry, that she first learned that the property and assets of the oil corporation had been misrepresented to her by Sears in many material and vital particulars, and that as a result of an investigation made by the appellee she learned that the statements and representations contained in the prospectus and album were false in several particulars, and so known to Richard II.

Sears, as follows: (a) That the company did not own certain of the oil properties and leases represented by Sears to be owned by it, and that the representations were known by said Sears to 'be false and falsely madei by him for the purpose of inducing her to purchase the stock; (b) that ³²⁶ the stock of the La Paz Oil Corporation did not at the time of her purchase and never has had any real value or assets behind it; (c) that the oil corporation did not own the oil properties and shares of other corporations as represented by the prospectus and by Sears, but it had merely entered into a contract to purchase the same; (d) that the oil corporation did not own certain of the properties mentioned in the prospectus as being owned by it, and that certain of the oil leases and properties mentioned therein had been offered to the oil corporation by Sears, when as a matter of fact Sears did not at that time own or have any interest in the properties so offered by him. The bill further alleges that, after her purchase, she made diligent inquiry, and attempted by correspondence and otherwise to locate Sears, but it was only after coming to this country, in the past few months (the bill was filed January 22nd, 1926), that she learned of his supposed residence in St. Mary’s County, and that it was only a few weeks prior to the filing of the bill that she learned that Richard LL Sears had no authority to sell her the stock purchased by her, and that the books of the company, which is now defunct, have no record of the sale to her, and that, immediately upon learning of the fraud practiced upon her, the appellee repudiated the purchase, and instituted this action to recover the purchase price paid to Richard H. Sears, and that the defendant Sears, knowingly, intentionally, and for the purpose of inducing her to buy the shares of stock of the La Paz Oil Corporation, made the misrepresentations and false statements attributed to him. The bill further alleges that, by deed dated August 1st, 1916, W. Bernard Duke and wife conveyed to Richard H. Sears a valuable farm property containing 795 acres, located in St. Mary’s County, known as “Society Hill,” subject to the lien of a purchase money mortgage from Sears to Duke for the sum of $20,000, which mortgage was assigned to the Eastern Shore Trust Company and released by it August 5th, 1921; that the release was not recorded until August 27th, 1925, the mortgage having been paid by the New England Brass Company, the appellee alleging that the money ³²⁷ used to pay the mortgage was to that extent a part of the 10,000 pounds obtained from her by Richard H. Sears. It further appears from the bill of complaint that the appellants, Richard II.

Sears and Eva V. Sears-, his wife, conveyed the “Society Hill” property to the New England Brass 'Company by deed dated Rovember 16th, 1916, and b-y deed dated August 14th, 1925, the Bretton Manor Company took title to the same property from the said Richard II. Sears and wife and the New England Brass Company, the grantors and the grantee therein all being the appellants in this case; and by deed dated Rovember 28th, 1925, the New England Brass Company and the Bretton Manor Company conveyed the same property to Richard H. Sears and Eva V. Sears, his wife, as tenants by the entireties; and on the same day the grantees executed an indemnity mortgage thereon to the First Rational Bank of St. Mary’s-, of Leonardtown, Maryland, for $6,000. The bill then avers that the property is “in reality owned by t-he defendant Richard H. Sears; that the title thereto was without any consideration put in the names- of the various other defendants herein named solely for the purpose of concealing this asset from the creditors of Richard II. Sears and particularly from” the appellee.

The appellee then prays: (1) That the sale of 4,888 shares of the capital stock of the La Paz Oil Corporation to the appellee bo annulled and set aside, and that the appellant Richard H. Sears repay to the appellee the sum of 10,00 pounds paid by her to him as aforesaid; (2) that the release of the mortgage on the farm property, dated August 5th, 1921, be declared null and void, and that the name of the appellee be substituted as mortgagee in the mortgage so released; (3) that the farm property in St. Mary’s County, the title to- which now stands in the names of Richard B. Sears and Eva V. Sears, his wife, as tenants by the entireties, be decreed to be the property of Richard II. Sears, and as such subject to attachment for his debts, and for general relief. To this bill of complaint all of the defendants except the First Rational Blank of St. Mary’s demurred, alleging as ³²⁸ grounds of demurrer: (l)That the plaintiff has not stated such a cause of action as entitles her to relief in equity; (2) that the plaintiff has a complete and adequate remedy at law-; (3) that a court of equity has no jurisdiction to entertain the suit; (4) that the bill is multifarious, indefinite, confusing and contradictory; (5) that the cause of action is barred by the statute of limitations and by laches; (6) that the bill is otherwise defective. Upon a hearing of the demurrer, the court below passed an order overruling the same, and from that order the appeal is taken.

The decisions of this court recognize the right of a purchaser of stock who has been induced to buy through the fraudulent representations of another to invoke the aid of a court of equity to have the sale cancelled and the money paid therefor refunded. In the case of Wenstrom Motor Co. v. Purnell, 75 Md. 113, 120, this court said, speaking- through Judge Alvey: “It is now settled that where a subscriber to stock has been deceived and induced to enter into a contract of subscription by misrepresentation and fraud of an agent acting for the corporation, such contract, while not absolutely void, is voidable at the election of the party deceived; and he will be entitled to have the contract of subscription rescinded and declared void and' to have restitution made of all money paid thereon, provided he elects to repudiate the contract at once upon the discovery of the fraud and he is guilty of no unnecessary delay in coming to a court of equity for relief. This relief will 'be afforded even after the complete execution of the contract, if the rights of creditors or of innocent third parties do not intervene and give rise to equities superior to those of the stockholder alleging himself to have been defrauded. But in all such cases the rule is uniformly declared and applied that the particulars of the misrepresentations and fraud must be distinctly alleged and fully and clearly proved, to entitle the party to relief; and that relief will only be granted in those cases where it plainly appears that the misrepresentation or undue suppression of material facts actually occasioned and brought into existence the contract.”' See Findlay, v. Baltimore Trust Co., 97 Md. 716 ; Reid v. Hugh ³²⁹ lett, 135 Md. 181 ; Baltimore Sugar Refining Co. v. Campbell & Zell Co., 83 Md. 36 ; Negley v. Hagerstown Mfg. etc. Co., 86 Md. 692 .

See Purdum v. Edwards, 155 Md. 178 . It will therefore be seen from the authorities cited that the contention of the appellants that the appellee has not stated a cause of action and is not