Doyle v. Union Bank & Trust Co.

• Decision Date: 04 March 1936
• Docket Number: 7488.
• Citation: 59 P.2d 1171,102 Mont. 563
• Parties: DOYLE v. UNION BANK & TRUST CO.
• Court: Montana Supreme Court

59 P.2d 1171

102 Mont. 563

DOYLE v. UNION BANK & TRUST CO.

No. 7488.

Supreme Court of Montana

March 4, 1936

Rehearing Denied July 24, 1936.

Appeal from District Court, Lewis and Clark County; George W Padbury, Jr., Judge.

Action by Julia Doyle against the Union Bank & Trust Company. From a judgment for plaintiff, defendant appeals.

Reversed and remanded with directions.

SANDS C.J., dissenting.

Gunn Rasch, Hall & Gunn and Richard C. Hines, all of Helena, for appellant.

Wellington D. Rankin and Arthur P. Acher, both of Helena, for respondent.

ANDERSON Justice.

This was an action to recover damages which the plaintiff alleges she suffered by reason of the purchase of a $1,000 debenture bond from the defendant early in the month of November, 1929.

The complaint was in two counts. The first count was on the theory of fraud and deceit; the second was on the theory of breach of warranty in the sale of personal property. The facts alleged in the two counts were identical, with the exception of such allegations as were necessary to develop the particular theory of liability therein alleged. The answer denied all of the allegations of the complaint, aside from those which were introductory in character.

The cause was tried before the court sitting with a jury. At the close of the evidence defendant moved for a directed verdict on the ground, in effect, that plaintiff had failed to prove any damage. The motion was denied. The cause was submitted to the jury and a verdict was returned for the sum of $910, the price paid by plaintiff for the bond. A judgment was entered on the verdict, and the appeal is from the judgment. By appropriate specifications of error defendant seeks a review of the ruling of the trial court denying its motion for a directed verdict.

Early in the month of November, 1929, plaintiff purchased from the defendant a certain Insull Utilities Investment Company debenture, Series A, of a par value of $1,000, bearing interest at 5 per cent., payable semiannually on February 1st and August 1st, dated January 1, 1929, and due January 1, 1949, for the sum of $910. Her allegations as to the false and fraudulant representations and warranties were as follows: "That the aforesaid security was a secured bond; that it was just as good as a $1,000 bill; that the holder thereof had a first mortgage on the property of all of the utility and power companies in Chicago, Illinois; that the security thereof was the same as if the holder thereof had a first mortgage upon all of the property of the Montana Power Company; that said bond was secured by property of a value of four or five times the value of the bonds outstanding; that said debenture was a safe investment."

Evidence was produced in support of these allegations on behalf of the plaintiff, and on behalf of the defendant denying the truth of the same. It is conceded that the verdict of the jury is conclusive on the question of the fraudulent representations. It was stipulated on the trial that the Insull Utilities Investments, Inc., was incorporated in the state of Illinois to carry on an investment business and to acquire, hold, sell, and underwrite securities of all kinds; that the debenture was not at any time secured by a mortgage; that the company covenanted not to mortgage or pledge any of its assets without equally and ratably securing this debenture with other obligations secured, or to be secured, by such mortgage or pledge, except that the company could mortgage or pledge its assets for the purpose of securing loans in the usual course of business for a period not exceeding one year. The corporation went into receivership in the federal court in the state of Illinois in April, 1932, and failed to pay interest maturing on August 1, 1932. The debenture was in default as to subsequent payments of interest. The undisputed evidence in the record is that the debenture, at the time plaintiff purchased it, had a market value equivalent to the amount she paid for it, and continued to have such market value for some time after its purchase. It was testified that at the time of the trial the market value of this debenture was from $17.50 to $20, and that on January 1, 1929, the Company had total assets in excess of $29,000,000 and outstanding debentures to the amount of $6,000,000. The next statement published by the company as of December 31, 1929, showed total assets of $161,000,000, and liabilities of $55,000,000. It further appeared in the testimony that the assets and liabilities in the month of November, 1929, were approximately the same as of the date of December 31, 1929. The issue of the debentures of which the one involved in this case was a part, amounted to $6,000,000 originally, but that at the time of the purchase the amount outstanding was $2,489,000. The gross earnings of the company, as reported for the year 1929, were $12,387,974, and the actual interest payments were $769,228. Reports disclose that in 1932 the total assets of the company were $27,000,000, and the total liabilities $148,000,000.

It was testified by persons who qualified as experts that in the month of November, 1929, at the time the bond was sold to plaintiff in this case, in their opinion the price paid was the fair value for it at that time. It appears from the record that plaintiff purchased the bond for investment and not for purposes of speculation, and that she did not discover the falsity of the representations until some time in the year 1934.

Defendant argues that the proof of plaintiff is lacking in two particulars, namely, that she failed to prove the actual value of the debenture at the time of the sale, and likewise the value which the debenture would have had if it had been as represented.

Under some authorities, the measure of damages under each of the causes of action set forth in the complaint is the same. This court, in the case of Healy v. Ginoff, 69 Mont. 116, 220 P. 539, said that the measure of damages for fraud inducing the purchase of property is "the difference between the actual value of the property at the date of sale and the contract price." In the case of Rickards v. Aultman & Taylor Machinery Co., 64 Mont. 394, 210 P. 82, it was said that the measure of damages for breach of a warranty in the sale of personal property was the difference between the value of the thing sold if it had been as warranted, and its actual value at the time of the sale. The trial court instructed the jury that the measure of damages was the difference between the value of the debenture which plaintiff obtained and the value that debenture would have been had it been as represented.

Plaintiff contends that the evidence was sufficient to go to the jury, in that the market value at the time of the purchase was some evidence of what the value of the debenture would have been had it been as represented; that since she bought the debenture for purposes of investment and not speculation, the jury was entitled to consider subsequent developments, and that these developments sufficiently proved that the debenture was worthless at the time of its purchase.

The price paid for property is generally held to be strong, but not conclusive, evidence of what the value of the property would have been if as represented. 12 R.C.L. 453; Reeser v. Hammond, 122 Kan. 695, 253 P. 233; Divani v. Donovan, 214 Cal. 447, 6 P.2d 247. We think that the evidence of the market value was sufficient to take the case to the jury upon the question of what the value would have been if the debenture had been as represented.

The decided cases are in conflict on the question of what is the measure of damages in cases of fraud and deceit in the case of corporate stocks and bonds. Many of them adhere to the rule as announced by this court in Healy v. Ginoff, supra; many others, as applied to this particular type of case, have adopted the rule as announced in Rickards v. Aultman & Taylor Machinery Co., supra. They are collected in the note to 57 A.L.R. 1142. It will be noted that under either rule the formula for the computation of the damages uses an identical subtrahend, namely the actual value of the thing sold at the time of the sale. We direct our attention to this situation, as we shall presently cite cases from jurisdictions adopting either one or the other of these rules on the question of the sufficiency of the proof to establish the actual value of the debenture at the time of the sale.

Some courts hold that the market value of the stock at or about the time of sale is evidence bearing on the question of its real value, although not necessarily conclusive. Warner v. Benjamin, 89 Wis. 290, 62 N.W. 179, and Ford v. H. W. Dubiskie & Co., 105 Conn. 572, 136 A. 560. If we adopt this rule and consider only the testimony as to the market value, plaintiff suffered no damage, for it was undisputed that she purchased the debenture at the market value.

Plaintiff contends that in cases such as is here presented, where a bond, debenture, or corporate stock is bought for purposes of investment and not speculation, the actual value of the corporate security controls the market value, and that the jury were at liberty to take subsequent events into account in arriving at the actual value of the debenture. Thus far many decided cases support this contention, among which are the following: Whiting v. Price, 172 Mass. 240, 51 N.E. 1084, 1085, 70 Am.St.Rep. 262; Hindman v. First National Bank (C.C.A.) 112 F. 931, 57 L.R.A. 108; Morrow v. Franklin, 289 Mo. 549, 233 S.W. 224; Paul v. Cameron, 127 Neb. 510, 256 N.W. 11; Hotaling v. A. B. Leach & Co., 247 N.Y. 84, 159 N.E 870, 871, 57 A.L.R. 1136; Cramer v. Overfield, 115 Kan. 580, 223 P. 1100; Davis v. Coshnear, 129 Me. 334, 151 A. 725. The reason for this...