Oliver v. Oliver

• Citation: 45 S.E. 232,118 Ga. 362
• Parties: OLIVER v. OLIVER et al.
• Decision Date: 11 August 1903
• Court: Supreme Court of Georgia

45 S.E. 232

118 Ga. 362

OLIVER v. OLIVER et al.

Supreme Court of Georgia

August 11, 1903

Syllabus by the Court.

1. Courts cannot, by requiring a disclosure of facts, deprive one party to a contract of the advantage which superior judgment, greater skill, or better information may give; nor can they be expected to enter upon an inquiry as to how the parties would have contracted if each had known the same facts as to condition of the market, state of trade, or other extrinsic matters of general or special knowledge, where the sources of information were equally open to both.

2. But a sale may be rescinded where one conceals material facts as to the quality or value of the article sold, which the other party, by the exercise of ordinary prudence and caution could not have discovered.

3. This rule is particularly applicable to those occupying a trust relation, when they seek to purchase property in any way committed to their care, management, or control.

4. While he does not hold title to the shares and is not a strict trustee, a director does occupy a fiduciary relation to the stockholders with reference to the latter's interest in the property under the director's control.

5. Stock represents an interest in the property, and in the purchase of shares the director acquires, not merely the paper scrip, but the stockholder's interest in the property committed to the director's care.

6. Hence, by virtue of his control of the property, and his fiduciary relation to the shareholder, a director, when dealing with a stockholder for the purchase of shares, is under the same obligation as partners, agents, and other fiduciaries, to make a full disclosure of all material facts relative to the value of the property under his control known to him and unknown to the stockholder, where the sources of information are not equally accessible to both parties.

7. Where a director purchases shares from a stockholder at 110 concealing the fact that there is a contemplated sale of the entire plant of the company, which made the stock worth 185, the concealment of such material fact entitles the shareholder to rescind the sale, or to other appropriate relief.

Error from Superior Court, Fulton County; J. H. Lumpkin, Judge.

Action by John Oliver and others against William Oliver. From judgment on demurrer, defendant brings error. Affirmed.

J. H. Porter, and Anderson, Anderson & Thomas, for plaintiff in error.

R. C. Alston and F. G. Du Bignon, for defendants in error.

LAMAR J.

Courts are created for the enforcement of civil contracts, and are powerless to relieve against hard bargains, unless authorized so to do by some rule of civil law. From the very nature of their constitution, they must accommodate themselves to the general transactions of mankind. They cannot put parties upon an equality which does not in fact exist. They cannot deprive one of the advantage which superior judgment, greater skill, or wider information may give. Nor can they be expected to enter upon an inquiry as to how the parties would have traded if each had known the same facts as to the state of the crops, the conditions of trade, a declaration of war, the signing of a treaty of peace, or any speculative matter or extrinsic fact of general or special knowledge. Hence in Laidlaw v. Organ, 2 Wheat. 178, 4 L.Ed. 214, it was held that a purchaser of tobacco was not bound to disclose to the vendor that peace had been declared between this country and Great Britain, although that fact materially affected the value of the commodity sold; Chief Justice Marshall saying that "it would be difficult to circumscribe the contrary doctrine within proper limits, where the means of intelligence are equally accessible to both parties." Contra, Frazer v. Gervais, Walk. (Miss.) 72; Bowman v. Bates, 2 Bibb, 47, 4 Am.Dec. 677. See Abbott v. Dermott, 34 Ga. 228; Ellis v. Hammond, 57 Ga. 179 (2). Without making the distinction between extrinsic and intrinsic facts apparently recognized by our Civil Code,§ 3534 (4), and many American cases, Lord Thurlow said, in Fox v. Mackreth, 2 Bro. C. C. 420, that the court would not set aside a sale where the purchaser failed to divulge the fact, of which he knew the seller was ignorant, that the estate had upon it a valuable mine, unless the relation between the parties was such as to raise an obligation on the part of the vendee to make the discovery. See, also, Davies v. London Ins. Co., 8 Ch. Div. 469; Turner v. Harvey, Jac. 178; 2 Pom. Eq. Jur. (2d Ed.) § 903; 2 Kent, Com. 482, 490, 491, note; Williams v. Spurr, 24 Mich. 335; Lapish v. Wells, 6 Me. 183; Bowman v. Bates, 2 Bibb, 47, 4 Am.Dec. 677.

And this brings us to a consideration of the relation which a director bears to an individual stockholder. All the authorities agree that he is trustee for the company, and in his capacity as such he serves the interests of the entire body of stockholders, as well as those of the individual shareholder, who usually cannot sue in his own name for wrongs done the company by the officer. Civ. Code, § § 1858 1859, 1860. But the fact that he is trustee for all is not to be perverted into holding that he is under no obligation to each. The fact that he must serve the company does not warrant him in becoming the active and successful opponent of an individual stockholder with reference to the latter's undivided interest in the very property committed to the director's care. That he is primarily trustee for the corporation is not intended to make the artificial entity a fetich to be worshipped in the sacrifice of those who in the last analysis are the real parties at interest. No process of reasoning and no amount of argument can destroy the fact that the director is, in a most important and legitimate sense, trustee for the stockholder. Jackson v. Ludeling, 21 Wall. 616, 22 L.Ed. 492; 2 Pom. Eq. Jur. (2d Ed.) § 1090. Not a strict trustee, since he does not hold title to the shares, not even a strict trustee who is practically prohibited from dealing with his cestui que trust, but a quasi trustee as to the shareholder's interest in the shares. If the market or contract price of the stock should be different from the book value, he would be under no legal obligation to call special attention to that fact, for the stockholder is entitled to examine the books, and this source of information, at least theoretically, is equally accessible to both. It might be that the director was in possession of information which his duty to the company required him to keep secret; and, if so, he must not disclose the fact even to the shareholder, for his obligation to the company overrides that to an individual holder of the stock. But if the fact so known to the director cannot be published, it does not follow that he may use it to his own advantage, and to the disadvantage of one whom he also represents. The very fact that he cannot disclose prevents him from dealing with one who does not know, and to whom material information cannot be made known. If, however, the fact within the knowledge of the director is of a character calculated to affect the selling price, and can, without detriment to the interest of the company, be imparted to the shareholder, the director, before he buys, is bound to make a full disclosure. In a certain sense the information is a quasi asset of the company, and the shareholder is as much entitled to the advantage of that sort of an asset as to any other regularly entered on the list of the company's holding. If the officer should purposely conceal from a stockholder information as to the existence of valuable property belonging to the company, and take advantage of this concealment, the sale would necessarily be set aside. The same result would logically follow where the fact giving value to the stock was of a character which could not formally be entered on the record. Where the director obtains the information giving added value to the stock by virtue...