Rothmiller v. Stein

• Decision Date: 27 November 1894
• Citation: 143 N.Y. 581,38 N.E. 718
• Parties: ROTHMILLER v. STEIN et al.
• Court: New York Court of Appeals Court of Appeals

143 N.Y. 581

38 N.E. 718

ROTHMILLER

v.STEIN et al.

Court of Appeals of New York.

Nov. 27, 1894.

Appeal from common pleas of New York city and county, general term.

Action by Adolph Rothmiller against Theodore G. Stein and others. From a judgment of the general term (29 N. Y. Supp. 707) affirming a judgment for plaintiff, defendants appeal. Affirmed.

Louis Marshall, for appellants.

Wm. J. Lippmann, for respondent.

PECKHAM, J.

The defendants insist that there is no legal fraud alleged in the complaint, and that, even if there be such allegation, the complaint does not contain any statement showing that legal damage can flow from the fraud. We think the complaint is good in both particulars. The first ground upon which the defendants allege the action is not maintainable is founded upon the statement that the plaintiff was not induced to take affirmative action by defendants' false representations, but that he simply remained passive, did nothing, and refrained from selling his stock at a price which would have been more advantageous to him than that at which he in fact sold. The plaintiff did not remain passive. He had received two different offers from one who was also a stockholder, and who offered to purchase from him his stock. The one offer was $80 cash per share; the other was $50 cash, with the right to another $50 per share in January, 1894, in case the company should in the meanwhile have paid dividends for 1893 equal to 10 per cent. The plaintiff asked these defendants for facts in relation to the condition of the company upon which he might make up his mind which offer to accept, and they were informed of the character of the two offers, and of the reasons for his inquiries. The defendants, being directors, and knowing the facts, and for the purpose of deceiving the plaintiff, made statements in regard to the condition of the company which they knew to be false, and they did it for the purpose of making him believe, for reasons of their own, that the business of the company was flourishing, and they advised him not to sell his stock at less than par. The plaintiff relied upon these false statements of the defendants thus made to him, which they knew were false, and which they made with a fraudulent purpose, and he, because of the false representations, accepted the offer for the purchase of his stock at the above-mentioned $50 cash rate per share, with the conditional promise of $50 more, instead of taking the $80 cash. Instead, therefore, of remaining passive, the plaintiff took affirmative action, induced thereto by the fraudulent statements of the defendants. We do not, however, mean to imply the correctness of the doctrine advanced by the counsel for the defendants, that if a person simply refrain from acting, induced thereto by the fraud of another, he can in no case recover damages sustained by him on account of such fraud. Such a case is not here now. Here the plaintiff alleges he has sustained damages because the company was in such a condition pecuniarily at the time of his sale of the stock that it would have been better for him in the money result if he had accepted the $80 cash instead of the $50 conditional offer of purchase which was made to him, and that he would have sold at the former price if the defendants had told him the truth. He had two courses open in selling his stock, and the defendants knew it, and he was induced to take the one from which he has suffered loss because of the fraudulent representations of defendants. It is not alone a failure to sell, but there is also an actual sale, produced by the fraud of the defendants. The damage arises from the sale at one price, coupled with the fact that plaintiff would have sold at the other price but for the fraudulent representations of the defendants. The fact that their chief purpose was to induce, by means of these false representations, a belief on the part of the plaintiff that the company was prosperous, and that their representations were not specially and solely made to induce the plaintiff to sell his stock at one figure rather than another, is, in the light of all the facts, not material. The defendants knew the reason for and the purpose of the plaintiff's inquiries, and they knew that the direct, proximate, and natural result of their fraudulent representations would in that particular case be the sale of the plaintiff's stock by him at the conditional sale at par, rather than the absolute cash one. They must, therefore, be held to have intended what was the natural and direct result of their misrepresentations, although such misrepresentations were not specially induced by a design to bring about such sale. They cannot, in such case, shelter themselves under the statement that they did not make the representations-i. e. commit the fraud-with the motive or for the purpose of inducing the plaintiff to sell his stock. They intended to deceive the plaintiff, and they were induced thereto by other causes; yet the natural, proximate, and direct result of such deception they knew or had reasonable ground for believing would be this sale, although its accomplishment was not the particular purpose of their fraud. In such case their liability would seem to be plain.

There is nothing in the case of Brackett v. Griswold, 112 N. Y. 454, 20 N. E. 376, which runs counter to this doctrine. In that case it was asserted-what there can be no doubt about-that to sustain a recovery in an action for fraud and deceit the fraud and injury must be connected. The one must bear to the other the relation of cause and effect, and it must be seen in an appreciable sense that the damage flows from the fraud as the proximate, and not as the remote, cause. The complaint in this case, we hold, shows such to be the case. From the allegations in the complaint, if properly denied, it might be a question for the jury to decide whether the plaintiff, if the truth had been told him, would or would not have sold his stock at the rate of $80 cash. The demurrer admits that he would. Having two offers for the purchase of his stock, the inference might be drawn from all the facts stated that, if the truth had been told by defendants, the plaintiff would have sold at the $80 cash price. The inference arising from all the facts alleged that he would have done so if the truth had been told, is neither too remote, indefinite, or contingent to form part of the basis of a cause of action. The case differs widely, in these respects, from Bradley v. fuller, 118 Mass. 239, and cases therein cited. What a person would have done, but did not do because (as he alleges) of the fraud of another, may not always be a matter of such vague conjecture as to render the question incapable of that degree of proof upon which courts of justice may properly act. Cases may readily suggest themselves where such possible action would be too problematical and vague to base any verdict upon it. Some of the cases cited in the Massachusetts case, supra, would seem to be of that nature. In the case under consideration we think the complaint presents facts from which a jury ought to be permitted to decide the issue whether or not, but for the fraud, the plaintiff would have sold at the cash price. We are therefore of the opinion that the complaint contains allegations sufficient to show the commission of actionable fraud.

The other ground taken by defendants is based upon the fact that the complaint alleges that the corporation at the time of the sale of the stock by plaintiff was insolvent, and the defendants claim that if they had told the plaintiff the truth he would have known that fact, and would have been himself guilty of fraud if he did not communicate it to the intending purchaser, and if such purchaser were informed of the financial condition of the corporation it must follow as a legal conclusion that he would not have purchased the stock at all, or at least at any such price as was actually received by plaintiff; and hence the latter has sustained no damage by the misrepresentations of the defendants. In the first place, we are scarcely prepared to say as matter of law that no one would purchase stock in what he knew was an insolvent corporation at the price of $80 a share. That might depend upon a great variety of facts, such as the cause and extent of the insolvency, and whether, in the opinion of the intending purchaser, the result were remediable or final, his familiarity with that cause, and his belief in his or his friends' ability to remedy it, his opinion of the value of the stock if the business were properly conducted, his belief in his own or his friends' ability to properly conduct it at remunerative and profitable rates, and the prospect of obtaining sufficient control over the corporate action by the purchase of stock to enable the purchaser to carry out his policy and control the management of the company. Other facts may be...