Woods-Faulkner & Co. v. Michelson

• Decision Date: 03 April 1933
• Docket Number: No. 9553.,9553.
• Citation: Woods-Faulkner & Co. v. Michelson, 63 F.2d 569 (8th Cir. 1933)
• Parties: WOODS-FAULKNER & CO. v. MICHELSON.
• Court: U.S. Court of Appeals — Eighth Circuit

63 F.2d 569 (1933)

WOODS-FAULKNER & CO. v. MICHELSON.

No. 9553.

Circuit Court of Appeals, Eighth Circuit.

February 17, 1933.

Rehearing Denied April 3, 1933.

James A. Reed and James E. Taylor, both of Kansas City, Mo., for appellant.

I. J. Ringolsky, William G. Boatright, Harry L. Jacobs, Ringolsky, Boatright & Jacobs, and D. S. Millman, all of Kansas City, Mo., for appellee.

Before KENYON, GARDNER, and SANBORN, Circuit Judges.

GARDNER, Circuit Judge.

This is a suit in equity, brought by the appellee as plaintiff below, against the appellant, for the rescission of a contract of sale of 500 shares of the capital stock of the Arrow Aircraft & Motors Corporation. For convenience, the parties will be referred to as they appeared in the lower court.

Plaintiff alleges that he was induced to purchase the stock by certain false and fraudulent representations made by the defendant, which he believed and upon which he relied. So far as here pertinent, these representations are as follows:

That the defendant falsely and fraudulently represented to plaintiff that, if he would buy the shares of stock involved in this suit at $12.50 per share, defendant would repurchase same from him at the same price, and that this representation was made by defendant with no intention on its part to repurchase the stock sold by it at $12.50 a share. It is then alleged that defendant refused to purchase from plaintiff at $12.50 per share, the stock sold him by it, to plaintiff's damage in the sum of $6,250.

Defendant, in its answer, sought apparently to challenge the sufficiency of the facts pleaded in the bill of complaint to constitute a cause of action in equity, but did not interpose a motion to dismiss the complaint for want of equity. Instead, it joined issue with the allegations of the bill, and in effect denied making the alleged false and fraudulent representations to plaintiff.

On trial the lower court found in favor of the plaintiff on this issue, and entered decree for the rescission of the contract of sale and for the recovery of the purchase price paid by the plaintiff, the decree providing that defendant should pay the amount of the judgment to the clerk, whereupon the clerk should pay the same over to the plaintiff, upon his depositing with the clerk the 500 shares of stock properly indorsed, which stock should then be delivered to defendant.

From the judgment so entered, defendant prosecutes this appeal, urging that (1) the court erred in finding that plaintiff purchased the 500 shares of stock in controversy from the defendant; (2) the court erred in finding that plaintiff relied upon the alleged misrepresentations; (3) the court erred in finding that the alleged misrepresentations were material to the sale of the stock; (4) the court erred in refusing to dismiss the bill, for the reason that no damage to plaintiff was pleaded or proven; (5) the court erred in not dismissing the bill, because no cause of action was stated therein; (6) the court erred in not dismissing the bill, because plaintiff failed to maintain the burden of proof; and (7) the court erred in refusing to dismiss the bill, because plaintiff had a plain, adequate, and complete remedy at law.

It should first be observed that the lower court has found the material issues in favor of plaintiff. These findings are presumptively correct, and should not be disturbed, unless it appears that a serious mistake has been made in the consideration of the facts, or an obvious error has been committed in the application of the law. Central Republic Bank & Trust Co. v. Caldwell (C. C. A. 8) 58 F.(2d) 721; Hodges v. Meriwether (C. C. A. 8) 55 F.(2d) 29; Karn v. Andresen (C. C. A. 8) 60 F.(2d) 427; Lion Oil Refining Co. v. Albritton (C. C. A. 8) 21 F.(2d) 280.

It is contended by appellant that plaintiff's evidence touching the matter of the purchase of this stock is so contradictory and evasive, and so far outside the usual conduct of affairs, as not to be worthy of credence; but the lower court was in better position than we are to judge of the credibility of witnesses and the proper weight to be given to their testimony. There was evidence from which the court was warranted in finding that defendant owned this stock and was trying to sell it through one Moses. It was sent to Kansas City to fill an order of one Davidson, but Davidson refused to accept it. The stock therefore, still belonged to the defendant, and its agent was authorized to sell it for defendant to any one who would buy. Plaintiff paid for the stock, and defendant's account in the Kansas City bank was credited with the purchase price. Defendant signed a receipt for the purchase price so paid, and Moses testified that he sold it to plaintiff for defendant and so advised defendant. Plaintiff likewise testified that he bought the stock from defendant. Whatever uncertainty or conflict there may have been in the testimony with reference to the stock having been purchased from the defendant was resolved by the lower court in favor of the plaintiff, and we are of the view that this finding should not be disturbed.

It is next urged that the evidence does not sustain the finding that the plaintiff relied upon the alleged representations, and in support of this contention it is urged that plaintiff, before purchasing this stock, wrote the Wall Street Finance Bureau of New York for information regarding it, and that he about the same time wrote defendant requesting it to send its circular and other information concerning the stock to this finance bureau. If plaintiff acted in reliance upon his own judgment or knowledge, based upon an independent investigation, he could not be heard to complain of defendant's misrepresentations. Farrar v. Churchill, 135 U. S. 609, 10 S. Ct. 771, 34 L. Ed. 246; Southern Development Co. v. Silva, 125 U. S. 247, 8 S. Ct. 881, 31 L. Ed. 678; Farnsworth v. Duffner, 142 U. S. 43, 12 S. Ct. 164, 35 L. Ed. 931. Yet the mere fact that the purchaser inquires and receives some information from others does not preclude him from attacking the sale, and this is particularly true when information is obtained from the defendant itself. An inquiry that does not bring to the purchaser knowledge of the truth, or such facts as charge him with knowledge of the truth, does not affect his right of recovery. Tooker v. Alston (C. C. A. 8) 159 F. 599, 16 L. R. A. (N. S.) 818; Sioux National Bank v. Norfolk State Bank (C. C. A. 8) 56 F. 139.

It is here observed that the defendant sent to the finance bureau the prospectus or circular, which is alleged to be false, as a basis for the bureau's analysis. In addition to this, plaintiff denies that he ever received any information from the Wall Street Finance Bureau in response to his inquiry. In any event, any analysis that the Wall Street Finance Bureau might have furnished to plaintiff, would have had no possible bearing upon the misrepresentations as to the maintenance of the market and the agreement to repurchase the stock. This was wholly outside of the circular, and no information which the Wall Street Finance Bureau could possibly have furnished plaintiff would have any bearing upon the truth or falsity of this representation, but must of necessity have related to collateral matters. It appears also that this inquiry was made with reference to the proposed purchase of 1,000 shares of the stock, but these negotiations were abandoned, and later new negotiations were instituted, which resulted in the consummation of the sale in question. It was during these latter negotiations that the representations were repeated, and upon the strength of which plaintiff purchased the stock. We conclude that plaintiff was not precluded from maintaining this suit by reason of any independent investigation.

It is mildly suggested by appellant that the alleged misrepresentations were not material. The representation must, of course, be in regard to a material fact, and, while it is not necessary that the false representation should have been the sole cause of the sale, yet it must have been such that without it the contract would not have been made. It seems perfectly obvious that the false representation, which the court found had been made, was a material one. Old Colony Trust Co. v. Light & Traction Co. (C. C.) 89 F. 794; Knudsen v. Domestic Utilities Mfg. Co. (C. C. A. 9) 264 F. 470; Rogers v. Virginia-Carolina Chemical Co. (C. C. A. 3) 149 F. 1.

Neither is it past belief, as argued by defendant, that defendant should have represented that it would, if necessary, repurchase this stock at $12.50 per share. Indeed, the record sustains the conclusion that such practice on behalf of investment houses was freely indulged in for the purpose of inducing the public to trade in stocks. Plaintiff testified that he did not think he would have purchased this stock but for the representations made by the defendant, because defendant had no past history, and that, if he had known the representations were not going to be carried out, he would not have purchased the stock. On this question plaintiff testified as follows:

"Q. If you had known, Mr. Michelson, at that time that any of these statements made by Mr. Moses were not going to be carried out, the representations, and were false, would you have purchased this stock? A. No.

"If I knew that any of the statements contained in this circular Exhibit 5 were false, I would not have...