McDonough v. Williams

• Decision Date: 16 December 1905
• Citation: 92 S.W. 783,77 Ark. 261
• Parties: MCDONOUGH v. WILLIAMS
• Court: Arkansas Supreme Court

92 S.W. 783

77 Ark. 261

MCDONOUGH v. WILLIAMS

Supreme Court of Arkansas

December 16, 1905

[Copyrighted Material Omitted]

Appeal from Sebastian Circuit Court; STYLES T. ROWE, Judge reversed.

STATEMENT BY THE COURT.

This is an action brought by G. T. Williams against Jas. B. McDonough to recover damages for fraud and deceit alleged to have been practiced by the defendant to plaintiff's injury in the purchase by defendant from plaintiff of shares of stock in the Montreal Coal Company, a domestic corporation owning and operating a coal mine in Sebastian County. The corporation was organized with a capital stock of $ 50,000, of which $ 24,000 was subscribed and issued--$ 9,000 to the plaintiff Williams, $ 3,500 to his brother-in-law, Oscar P. Bonney and $ 11,500 to defendant, McDonough. Williams and McDonough resided in the city of Ft. Smith, and Bonney in Chicago, Ill Williams represented Bonney, and was authorized to act for him in the sale or disposition of his stock. McDonough was president of the corporation, Bonney was vice-president, and Williams was secretary and general manager. Williams managed the operation of the mine and the sale of coal, and McDonough assisted in making collections and disbursements of funds.

On January 14, 1903, the plaintiff sold and transferred his stock and Bonney's to the defendant for the par or face value paid in cash, and on May 11, 1903, this suit was commenced to recover damages resulting from the alleged fraud and deceit perpetrated by defendant in inducing the sale of the stock.

The plaintiff alleged in his complaint that by reason of the ties of friendship between himself and defendant and their intimate association as co-owners of the capital stock of the corporation and managers of its business, a relation of trust and confidence subsisted between them, and that, by reason of that relation, defendant was enabled to successfully practice the alleged fraud and deceit, and that on that account he (plaintiff) relied upon the representations made by defendant. Also that he (plaintiff) was absent from the State of Arkansas for some time before the sale of the stock and for that reason relied upon the representations of defendant. He also alleged that defendant, knowing that P. A. Ball and T. W. M. Boone had the confidence of the plaintiff, by false representations and fraudulent concealment of material facts induced them to advise plaintiff to sell his stock to defendant at par, and said Ball and Boone, on the faith of said representations, did so advise plaintiff to sell, and that he (plaintiff) relied and acted upon said advice.

The said fraud and deceit are alleged to have consisted of the following, viz:

(1.) That defendant falsely represented to Ball and Boone that the financial condition of the company was much worse than it was in fact, and that the company must go into liquidation unless plaintiff sold his stock to defendant; (2) that he falsely represented to plaintiff and to Ball and Boone that the obligations of the company were more pressing than they were in fact, and that the creditors of the company were making more peremptory demands for payment than were in fact being made by creditors; and (3) that he fraudulently and deceitfully concealed from plaintiff and from Ball and Boone, at the time he was negotiating with plaintiff for the purchase of the stock, the fact that he had already entered into a contract with one Franklin Bache for the sale of the entire capital stock of the corporation at a price largely in excess of the par value, which contract was consummated after his purchase from plaintiff.

It is also alleged in the complaint that, at the time of the purchase of the stock from plaintiff at par the actual value thereof was greatly in excess of the par value, and damages are claimed in the sum of fifteen thousand dollars by reason of such false representations and fraudulent concealments, whereby plaintiff was induced to sell his stock.

The defendant filed his answer, denying all the allegations of the complaint as to fraud and deceit or misconduct of any kind, and denied that the market value of the stock at the time of his purchase of plaintiff's stock exceeded the par value; he denied that there was any relation of trust and confidence between himself and plaintiff at the time of the sale, or that plaintiff was ignorant of any facts connected with the affairs of the corporation of the sale of the stock; and he alleged that plaintiff sold the stock to him after a full investigation and with knowledge of all the facts.

There is some conflict in the testimony as to what occurred between the plaintiff and defendant prior to December 10, 1902, in negotiating for the sale of the stock, but there are two important facts about which there is hardly any doubt. One is that plaintiff had offered to sell his stock to defendant at par, and the other that defendant had undertaken for himself and plaintiff to find a purchaser for all the stock at the best price obtainable.

On the last-named date the plaintiff left the State, and did not return until the day on which he transferred the stock to defendant, and the negotiations between them for the sale of the stock up to the final act of consummation of the sale by transfer of the shares were conducted altogether by written and telegraphic communications, the last being a telegram sent from St. Louis by plaintiff to defendant accepting the latter's offer to take the stock at par.

On January 10, 1903, defendant executed to Franklin Bache a written option for the purchase of the entire stock of the corporation on February 7, 1903, at the price of $ 33,000, of which $ 3,500 was paid to defendant on that day (Jan. 10) under a stipulation in the option contract that the sum paid should be forfeited to defendant if said Bache should fail to make the next payment on February 7.

The plaintiff reached Fort Smith on January 14, 1903, and at once transferred the stock (his own and Bonney's) to defendant upon payment of the price.

The plaintiff testified that he suspected that defendant had concealed material facts from him and, immediately before he signed the transfer of the stock, he said to defendant: "Mr. McDonough, if you have obtained this stock from me fairly and squarely, without any misrepresentations, it is all right, you can have it; but if you used any undue influence or chicanery in getting possession of this stock, you will probably hear from me later on;" and defendant replied, "Mr. Williams, there is nothing of the kind at all."

The defendant's version of this interview just before the transfer of the stock is stated as follows:

"At two o'clock I was at my office, and Mr. Williams came in about 2:30. He walked into the office, and said: 'Mack, I am ready to do business with you,' I said, 'All right.' he says, "I knew the moment I got your telegram in Battle Creek that you had a deal on.' I said, 'Of course you knew that, because I told you that in one of my telegrams.' He said, 'I made up my mind that I was going to come to Fort Smith, and look into it.' I says, 'All right, you are here; now look into it.' I said, 'Mr. Williams, if you did not intend to sell your stock to me, why did you telegraph me that you were in duty bound to go to Chicago and consult Bonney, and that you would answer me from there, and that you thought the matter or offer would be all right, O. K.?' He said he did that for the purpose of delay; that he found out that he couldn't get home, and that his messages were simply to keep the matter up, so that he could determine whether he should sell the stock to me or not. He says, 'I am ready to sell it. I have no objection to but just one thing. Bonney and I decided that we would not sell the stock to you, and we did not think it right of you to buy it at $ 12,500, and turn it in to some new concern at $ 26,000,' I said 'Mr. Williams, before I answer that question, I want to say this, that the stock is now yours; you needn't sell it unless you want to. If you do sell it and I buy it, it is mine. If I buy it, it is mine; and I will do with it as I please. I have a deal on.' He interrupted me, and said, 'I don't want to know anything about your deal.' I said, 'Very well; if my deal goes through, I will make anywhere from $ 5,000 to $ 10,000. If it does not go through, and this mine is a failure, I will be bankrupt.' He said, 'Oh well; I will go your bond if you get into bankruptcy. '"

The instructions of the court and other features of the testimony will, as far as deemed important and essential to the decision of the case, be discussed in the opinion.

The jury returned a verdict in favor of the plaintiff in the sum of $ 4,000, and the plaintiff subsequently entered a remittitur in the sum of $ 1,112.50.

The defendant appealed to this court.

Judgment reversed and cause remanded.

James F. Read, Winchester & Martin, Youmans & Youmans, and Rose, Hemingway & Rose, for appellants.

A verdict should have been directed for defendant. No case of agency was made by the proof; it was an outright sale. 66 S.W. 512; 1 Am. & Eng. Enc. Law (2 Ed.), 937. If there was an agency, it was terminated. 45 Ia. 331; 26 P. 102. There was no duty on defendant to disclose the Bache option; the concealment was not actionable. 8 Col. 161; 12 East, 616. The representations must be material. 11 Ark. 58; 46 Id 347; 149 U.S. 427. A tenant in common is not bound to disclose. 35 N.Y.S. 807. Nor did plaintiff rely upon the representations. 32 Minn. 197. He did not believe them. 56 N.W. 628; 125 U.S. 247; 130 Id. 643; 7 Col. 16; 34 N.E. 847; 105 F. 573; 85 Id. 740; 44 N.E. 193; 1 Sweeny, 406. Nor does the testimony make a case of deceit. 33 W.Va. 624; 63 Mo. 181; 9 Ired. 507. The representations of Boone...