Shwab v. Walters

• Decision Date: 05 May 1923
• Citation: 251 S.W. 42,147 Tenn. 638
• Parties: SHWAB ET AL. v. WALTERS ET AL.
• Court: Tennessee Supreme Court

251 S.W. 42

147 Tenn. 638

SHWAB ET AL. v. WALTERS ET AL.

Supreme Court of Tennessee.

May 5, 1923

Appeal from Chancery Court, Davidson County; Jas. B. Newman Chancellor.

Suit by J. Buist Shwab and others against H. C. Walters and others. From a decree for plaintiffs, defendants appeal. Affirmed.

Clarence T. Boyd and Currell Vance, both of Nashville, for appellants.

Chas Cornelius and E. J. Walsh, both of Nashville, for appellees.

GREEN C.J.

This is an action of fraud and deceit brought in the chancery court to recover damages for false statements alleged to have been made as to the financial condition of a corporation in which the complainants bought stock from the defendants. There was a decree for the complainants below, and the defendants have appealed to this court.

A preliminary question of the jurisdiction of the chancery court in Tennessee to entertain such an action is made by the defendants. This objection to the jurisdiction must be overruled.

Chapter 97 of the Acts of 1877 conferred upon the chancery court in this state jurisdiction of all civil cases triable in the circuit court, except suits "for injuries to person property or character, involving unliquidated damages."

To meet a construction of this statute made in Swift v. Warehouse Co., 128 Tenn. 82, 158 S.W. 480, by chapter 47 of the Acts of 1915, the Legislature further enlarged the jurisdiction of the chancery court as follows:

"That jurisdiction of all civil causes of action now triable in the circuit court, except for unliquidated damages for injuries to person or character and except for unliquidated damages for injuries to property not resulting from a breach of oral or written contract, is hereby conferred upon the chancery court, which shall have and exercise concurrent jurisdiction thereof along with the circuit court."

Under these broad provisions it is obvious that the chancery court does have jurisdiction of a suit such as the one before us. Actions for fraud and deceit, like this one, have been constantly heard in the chancery court in this state since the passage of chapter 97 of the Acts of 1877. If any doubt was thrown upon chancery jurisdiction of such cases by Swift v. Warehouse Co., supra, it was removed by chapter 47 of the Acts of 1915.

The statement that the chancery court had no jurisdiction of a suit for fraud and deceit made in Ellett v. Embury & Maury, 142 Tenn. 444, 217 S.W. 818, was doubtless an inadvertence. The facts of the case do not very fully appear. At any rate, the cross-bill seeking damages for fraud and deceit was dismissed on another ground, and the remark about the jurisdiction of the chancery court was not necessary to a decision of that case.

The defendants, Walters, Elliston, and Leake, together with complainant Campbell formerly owned all the stock (except one share) in the Public Service Tire Company, a corporation organized under the laws of this state, located at Nashville and capitalized at $20,000. Each of these parties owned one-fourth of the stock.

After some negotiations, Campbell became associated with complainant Shwab, and these two purchased the stock of Walters, Elliston, and Leake.

The proof shows that Campbell was an outside employee, traveling for the concern, and knew little about the methods of bookkeeping employed. The books were kept by Walters principally, sometimes assisted by Elliston. Walters appears to have acted for the defendants very largely in arranging and concluding this sale of stock.

Before the complainants would buy, they demanded an audit of the company's business, and Grannis and Blair, a firm of expert accountants, were employed by the complainants to make this audit. The defendants knew for what purpose this firm was employed, knew that the audit was being made and would be relied on by the complainants, and the defendants, particularly defendant Walters, undertook to assist in the audit. It seems that the defendants did not keep a record of their liabilities or bills payable on their permanent books. In their effort to ascertain the liabilities of the corporation, the auditors called upon defendant Walters for this information. Grannis, Blair, and Campbell all testify that Walters furnished certain invoices which he represented showed all the liabilities of the company. They say that when a list of the debts was compiled from this data, such list was shown to Walters, and he told the auditors that the list was complete, making one correction. Walters denies this, but the preponderance of the evidence is against him.

Other facts appear in the record, all of which we have considered; but we cannot undertake to review them. While it is contended that from materials at hand, the auditors might have compiled a complete statement of the liabilities of the company, the weight of the proof is that they were dependent on Walters for such knowledge and that he examined the list of debts gotten up and pronounced this list correct. It is conceded that the statement of liabilities prepared by the auditors was not correct and that the complainants, who purchased on the faith of this statement, had to pay a large amount of indebtedness incurred by the corporation and not reported to them.

While the complainants made some personal investigation of the corporation into which they bought and considered matters other than the audit, nevertheless they had a right to rely on the audit. Their action was very largely influenced certainly by their confidence in the truth of such audit. They were therefore entitled to maintain this action.

"If a party represents as true, that which he knows to be false in such a way and under such circumstances as to induce a reasonable man to believe that it is true and it is meant to be acted on, and the person to whom the representation has been made believing it to be true acts...