Sears v. Barker

• Decision Date: 04 May 1928
• Docket Number: 7.
• Citation: 141 A. 908,155 Md. 323
• Parties: SEARS ET AL. v. BARKER.
• Court: Maryland Court of Appeals

141 A. 908

155 Md. 323

SEARS ET AL. v. BARKER.

No. 7.

Court of Appeals of Maryland

May 4, 1928

Appeal from Circuit Court, St. Marys County; W. Mitchell Digges and Joseph C. Mattingly, Judges.

"To be officially reported."

Bill by Margaret R. Barker against Richard H. Sears and others. From an order overruling a demurrer to the bill, defendants appeal. Affirmed, and case remanded for further proceedings.

Argued before BOND, C.J., and PATTISON, URNER, ADKINS, OFFUTT PARKE, and SLOAN, JJ.

S Marvin Peach, of Upper Marlboro (John H. T. Briscoe, of Leonardtown, on the brief), for appellants.

Stuart S. Janney, of Baltimore (Janney, Ober, Slingluff & Williams of Baltimore, and T. L. Bartlett, of Washington, D. C., and Philip H. Dorsey, Jr., of Leonardtown, on the brief), for appellee.

SLOAN J.

This is an appeal from an order of the circuit court for St. Marys 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 15, 1920, by Richard H. Sears in Paris, France, 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 15, 1920, the appellant, Richard H. Sears, in Paris, France, 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 15, 1920, pay for the stock as aforesaid; that it was not until the summer of 1925, although the appellee asserts that she in the meantime made diligent inquiry, 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 Richards H. 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 made by him for the purpose of inducing her to purchase the stock; (b) that 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 22, 1926), that she learned of his supposed residence in St. Marys county, and that it was only a few weeks prior to the filing of the bill that she learned that Richard H. 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 1, 1916, W. Bernard Duke and wife conveyed to Richard H. Sears a valuable farm property containing 795 acres, located in St. Marys 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 5, 1921; that the release was not recorded until August 27, 1925, the mortgage having been paid by the New England Brass Company, the appellee alleging that the money used to pay the mortgage was to that extent a part of the pounds sterling10,000 obtained from her by Richard H. Sears. It further appears from the bill of complaint that the appellant Richard H. Sears and Eva V. Sears, his wife, conveyed the "Society Hill" property to the New England Brass Company by deed dated November 16, 1916, and by deed dated August 14, 1925, the Bretton Manor Company took title to the same property from the said Richard H. 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 November 28, 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 National Bank of St. Marys, of Leonardtown, Md., for $6,000.

The bill then avers that the property is "in reality owned by the 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 H. 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 be annulled and set aside, and that the appellant Richard H. Sears repay to the appellee the sum of pounds sterling10,000 paid by her to him as aforesaid; (2) that the release of the mortgage on the farm property dated August 5, 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. Marys county, the title to which now stands in the names of Richard H. Sears and Eva V. Sears, his wife, as tenants by the entireties, be decreed to be the property of Richard H. 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 National Bank of St. Marys demurred, alleging as grounds of demurrer: (1) 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 canceled and the money paid therefor refunded. In the case of Wenstrom Motor Co. v. Purnell, 75 Md. 113, 120, 23 A. 134, 136, 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

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