Bain v. Deal

Decision Date07 February 1972
Docket NumberNo. 5--5709,5--5709
CourtArkansas Supreme Court
PartiesJack BAIN d/b/a Bain & Co., Appellant, v. Thelma DEAL et al., Appellees.

Guy Jones, Phil Stratton and Guy Jones, Jr., Conway, for appellant.

Spitzberg, Mitchell & Hays, Little Rock, for appellees.

HARRIS, Chief Justice.

Appellees, Thelma Deal, and her grandsons, Larry D. Crissler and Kim D. Crissler, instituted suit against appellant, Jack Bain d/b/a Bain & Co., to recover the purchase price paid for stock in a domestic insurance company which subsequently failed. The complaint alleged that appellees purchased 50 shares of Class C stock in Mercury Life and Accident Insurance Company of North Little Rock from one of appellant's agents, Louis C. Donoho, for $1,000.00, and the complaint alleged that Donoho 'did employ a fraudulent and deceitful device, scheme and artifice and make untrue statements of material facts and omit to state material facts * * * and did engage in acts, practices and a course of business which operated as a fraud and deceit upon the plaintiffs' in selling them the stock. It was further asserted that the fraud was perpetrated and consummated in part by use of a deceitful circular, and that by virtue of the agency relationship 'and also by virtue of having materially aided in the transaction before mentioned, the defendant Jack Bain, d/b/a Bain & Company, is liable for the fraudulent and tortious conduct of Louis C. Donoho'. In addition to the $1,000.00 the complaint also sought punitive damages in the sum of $10,000.00. Appellant moved to dismiss the complaint on the basis that the case was brought in the language and by the authority of Ark.Stat.Ann. section 67--1256 (Repl.1966); that such action had to be brought within two years, and it was asserted that the cause was barred by the statute of limitations. As to a cause of action stated in common law fraud, the motion asserted that no cause was stated. On October 30, 1969, the court entered the following order:

'That the Complaint herein insofar as it attempts to state a cause of action under Arkansas Statutes Annotated 67--1256, is barred by the Statute of Limitations contained in that Statute.

The Court further finds that the Complaint herein does not state a cause of action under the law of Common Law Fraud in the State of Arkansas or a cause of action under any other Statutory or Common Law in the State of Arkansas.

THEREFORE, IT IS HEREBY ORDERED AND DECREED that the Complaint herein be dismissed unless within Ten (10) days of the date of this Order, the Complainant herein amend said Complaint to state a cause of action justifiable under the Laws of Arkansas.'

Thereafter, on November 5, appellees filed an amended complaint setting out in considerably more detail their allegations of common law fraud and the case subsequently proceeded to trial on the amended complaint and answer filed. At the conclusion of the trial, the court entered its judgment for appellees in the sum of $1,000.00 for damages resulting from the fraudulent sale, and finding that the sale was accomplished by:

'(1) fraudulent misrepresentations as to the book value of the securities involved; and (2) fraudulent misrepresentations as to the amount of profits realized by the company in dealing with Numismatic Securities.'

From the judgment so entered, appellant brings this appeal. For reversal, four points are asserted which we proceed to discuss in the order listed.

I

It is first argued that the claim was barred by the statute of limitations. At the outset, it becomes necessary to give the pertinent dates. The stock was purchased on June 3, 1965, and the suit was filed on March 29, 1968, more than two years from the time of the transaction, but less than three years. As previously stated, the court entered its order on October 30, 1969, holding that no cause of action was stated but giving appellees ten days in which to amend their complaint. It is not necessary that we determine whether the applicable statute of limitations is the three year statute or the five year statute, since we think it is clear that, under the court's order, appellees had the right to amend their complaint--and the pleading filed was an amendment of the original complaint, rather than a new complaint.

From a practical standpoint, it might be mentioned that section 67--1256 clearly provides the statute of limitations to be two years, and it is not logical that a suit would be instituted under that section, when the statute itself shows such a complaint would be barred. Be that as it may, it would certainly appear, to say the least, that the complaint was not based entirely upon section 67--1256; though some allegations are similar to the wording of the statute, other language is used which is not included in the section. More importantly, relief is sought which is not authorized by section 67--1256; for instance, the complaint seeks punitive damages in the sum of $10,000.00, and punitive damages are not authorized by the section under discussion. At any rate, all of the allegations are consistent with a suit for common law fraud, though it is true that the original complaint appears to plead only conclusions. The amendment filed enlarges upon the general allegations of the first complaint, i.e., they are made more specific, and we do not consider that the amended complaint states a new cause of action. In Bridgman v. Drilling, 218 Ark. 772, 238 S.W.2d 645, this court said:

'Appellant insists that the trial court erred in overruling the demurrer to the complaint and the amendment thereto and in refusing to direct a verdict in his favor. It is argued that the amendment to the complaint of October 2, 1950, not having been filed within three years from June 23, 1947, the date of the last payment alleged therein, was barred by the statute of limitations when filed because the amendment introduced a new cause of action to which appellant was entitled to plead the statute separately. In overruling this contention the trial court ruled that the amendment to the complaint did not constitute a new cause of action, but related back and became a part of the original complaint.

Our cases hold that where there is an amendment to a complaint stating a new cause of action or bringing in new parties interested in the controversy, the statute of limitations runs to the date of the amendment and operates as a bar when the statutory period of limitations has already expired. * * * If, however, the amendment to the complaint does not set forth a new cause of action, but is merely an expansion or amplification of the cause of action already stated, then the amendment relates back and takes effect as of the date of the commencement of the original action. Little Rock Traction & Electric Co. v. Miller, 80 Ark. 245, 96 S.W. 993; Western Coal & Mining Co. v. Corkille, 96 Ark. 387, 131 S.W. 963.'

We find no merit in Point I.

II

It is next asserted that the court erred in finding that appellant had fraudulently misrepresented the book value of the stock. This assertion, along with a contention which will be discussed under Point III, actually challenges the sufficiency of the evidence to sustain the judgment.

Mrs. Deal testified that Mr. Don Donoho came to the cafe in Carlisle which she was operating, introduced himself, and explained that he was working for Bain & Company. She said that he told her that the stocks were making money, that it would be a good investment, and would double in two years. According to the witness, Mr. Donoho said that the stock was worth $24.00 a share; that Mercury Life was in sound financial condition and that it invested in Numismatic Securities. He handed her a circular regarding the stock and she stated that she relied on the printed and written matter set out in the circular in deciding to make the purchase. The printed circular states:

'The future of the Life Insurance Industry appears exceptionally bright, and profits dealing in Numismatic Securities, as well as holding for growth, are fantastic. We believe this Company has good capable management with years of experience. Therefore at the present level (Below Book), we think this stock presents an attractive speculation, for a long term investment.'

As to the book value, Ben Larson, senior examiner for the Arkansas Insurance Department, a certified public accountant, testified that he computed the book value of the stock as being the difference between the assets and the liabilities divided by the number of shares outstanding, and he testified that this was the method generally used. He said that he had examined the annual statement of Mercury Life and Accident for 1965 1 and based on the formula that he used, he found the book value to be $1.46 per share. However, he made two other computations, under other formulas, and the greatest value per share that could be found as of December 31, 1965, was $7.94; the witness testified however that this last was not realistic because it did not account for non-recorded liabilities such as reserve requirements. Larson also testified that the company paid no dividends to stockholders, and that the net loss for that year was...

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    ..."presumed from the relation of the parties to a transaction or from the circumstances under which it takes place." Bain v. Deal, 251 Ark. 905, 475 S.W.2d 708, 713 (Ark.1972) (quoting Kersh Lake Drainage District v. Johnson, 203 Ark. 315, 157 S.W.2d 39, 45 (1941), cert. denied, 316 U.S. 673,......
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