Hotchkiss v. Fischer

• Decision Date: 07 April 1934
• Docket Number: 31553.
• Citation: 139 Kan. 333,31 P.2d 37
• Parties: HOTCHKISS v. FISCHER.
• Court: Kansas Supreme Court

31 P.2d 37

139 Kan. 333

HOTCHKISS v. FISCHER.

No. 31553.

Supreme Court of Kansas

April 7, 1934

Syllabus by the Court.

In action for fraud committed by president of corporation in purchasing stock from stockholder, corporation's assets and liabilities, market value of stock, opinion evidence as to its value, nature of corporation's business, dividends paid, number of shares, number of stockholders, and personnel of corporation's management must all be considered in determining value of stock.

In an action for the recovery of damages for fraud in the purchase of stock in a corporation by the president of a company from a stockholder, where the point in issue is value of the stock at the time of the purchase, the jury should be instructed to consider the value of the assets and liabilities of the corporation, the market value of the stock, opinion evidence as to its value, the nature of the business of the corporation, dividends paid, the number of shares, the number of shareholders, and the personnel of the management of the company, and no one of these elements by itself should be taken as a criterion of value of the stock.

Appeal from District Court, Shawnee County, Division No. 3; Otis E Hungate, Judge.

Action by Frances A. Hotchkiss against Floyd Fischer. From the judgment, plaintiff appeals.

A. E Crane, A. Harry Crane, and Oscar Raines, all of Topeka, for appellant.

T. M Lillard, O. B. Eidson, and O. D. Buck, all of Topeka, for appellee.

SMITH Justice.

This was an action to recover damages growing out of the purchase of shares of stock in a company by a director from a stockholder. A verdict was returned for plaintiff in the amount of $997.60. Plaintiff filed a motion to increase the amount found by the jury to $3,689.80. This motion was denied. Plaintiff appeals.

This case has been in this court before. See Hotchkiss v. Fischer, 136 Kan. 530, 16 P.2d 531. Plaintiff is a widow and administratrix of the estate of her husband. Her husband left her 2,320 shares of stock in the Elmhurst Investment Company. Early in January, 1927, she called on defendant, who was the president and managing officer of the company. Her purpose was to talk to defendant about her stock. She needed money. If there was to be a dividend declared, she did not want to sell her stock. If there was no dividend, she feared that it would be necessary to sell her stock at a loss. The result of her talks with defendant was that she sold him her stock for $1.25. The next day a dividend of $1 was declared. When plaintiff learned of this she brought suit against defendant to recover the difference between the actual value of the shares and the price paid by defendant. Plaintiff charged that defendant was guilty of fraudulent conduct, misstatement, and omissions to give plaintiff information to which she was entitled at the time he purchased the stock. The first trial of the case resulted in a verdict and judgment for the defendant. On appeal this court reversed the judgment on the ground that the court had not properly instructed the jury as to the duty owed by a president and director of a corporation as to disclosing the condition of the company to a stockholder where the president or director is about to purchase stock in the corporation from the stockholder. The Elmhurst Investment Company owned half of the stock of the Orlando Petroleum Company. At the first trial the financial statements of both companies as of December 31, 1926, were introduced in evidence. The case turned largely on whether the defendant made sufficient disclosure of the value of the stock and condition of the company by showing plaintiff these statements.

These statements were also used in the trial of the case the second time. Under the rule announced in Hotchkiss v. Fischer, supra, the jury found the defendant guilty of fraud and of inducing plaintiff to sell him her stock by false answers to inquiries of plaintiff about a dividend. No motion for a new trial was filed by defendant, so that question is settled. One element necessary for plaintiff to establish was the actual value of the stock at the date it was bought by defendant, since she would be entitled to recover the difference between the actual value and the price she received.

The rule contended for by appellant was that the value of the assets over and above the liabilities should be ascertained. This should be divided by the number of shares outstanding. This would give the value of each share. From this amount the sum received by plaintiff, or $1.25, should be subtracted, and the remainder, multiplied by the number of shares sold by plaintiff, would give the amount that should be recovered by the plaintiff.

On the other hand, defendant argues that the value of the assets and the amount of liabilities are not the only elements of actual value which it was the duty of the jury to consider. He points out instruction No. 10 and instruction No. 11 that were given by the trial court as follows:

"X. If you find in favor of the plaintiff, the measure of her recovery is the difference between the price paid to plaintiff for her stock and the actual and true value thereof at the time of the transaction, if the latter exceeds the former.

"XI. In determining the actual value of plaintiff's stock at the time of the transaction, you are entitled to take into consideration testimony as to the value of the assets of the Elmhurst Company and of the Orlando Company, and also evidence as to the indebtedness and liabilities of both of said companies; and if the evidence discloses there was a general market for the sale of Elmhurst Stock you are entitled to take into consideration testimony as to the sales of stock of said company at or near the time of the transaction between plaintiff and defendant; also opinion evidence as to the value of said stock by individuals whom you may find from the evidence by their dealing in such stock have peculiar knowledge of the claimed market value of the stock of the Elmhurst Company not possessed by the ordinary person; also testimony concerning business carried on by the Elmhurst Company and the Orlando Company; dividends paid; the number of stockholders and the extent of the distribution of the stock of the company; and of the personnel of the management of the corporation at and before the time of the transaction in question. Evidence as to book value of the stock of the corporation has been introduced in evidence and this you may also take into consideration. No one alone of the elements that I have mentioned is controlling of the value but from the consideration of all these elements it is your duty to determine the fair, actual and true value of the stock of the plaintiff at the date of the transaction."

Appellee sets out eight elements of value which he insists the jury should have considered. They are as follows:

"1. Testimony as to the value of the assets of the Elmhurst Investment Company and the Orlando Petroleum Company.

"2. Evidence as to the indebtedness and liabilities of both companies.

"3. If the evidence discloses a general market for the stock, you are entitled to take into consideration testimony as to the sale of stock at or

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