The Dorsey Machine Company v. McCaffrey

• Decision Date: 25 September 1894
• Docket Number: 15,777
• Citation: 38 N.E. 208,139 Ind. 545
• Parties: The Dorsey Machine Company et al. v. McCaffrey
• Court: Indiana Supreme Court

38 N.E. 208

139 Ind. 545

The Dorsey Machine Company et al. v. McCaffrey

No. 15,777

Supreme Court of Indiana

September 25, 1894

Petition for a Rehearing Overruled Dec. 19, 1894.

From the Wayne Circuit Court.

The judgment is affirmed.

C. H Burchenal and J. L. Rupe, for appellants.

M. E Forkner and T. J. Study, for appellee.

OPINION

Dailey, J.

The facts constituting the plaintiff's cause of action, as shown by the complaint, stated briefly, are substantially as follows:

The Dorsey Machine Company was organized on October 14, 1879, with a capital stock of $ 60,000, for the purpose of manufacturing and selling reapers and other agricultural implements, and, on October 17, 1881, the stock of the company was increased to $ 125,000, up to which time the business of the company had not been prosperous, successful or remunerative; but, on the contrary, the company had sustained serious loss, and was, at that time, actually insolvent and unable to pay its debts, and was pressed to the last extremity for money to keep the company going, all of which the appellants, except Warren, who were then the directors and officers of the company, and large holders of the original stock thereof, then well knew. And knowing the insolvent condition of said company, and its pressing need of money to pay its debts and keep its business from stopping, and recognizing the utter worthlessness of the stock, the defendants Morris, Liebhardt, the Fergusons, and Kinsey and others, who were directors of the company, together with others who were its stockholders, conspired and confederated together for the purpose of fraudulently increasing the stock of the company, and selling such increase outside of the company for the purpose of paying its debts and keeping it going in apparent prosperity until they could sell and dispose of their own stock, and thereby cheat and defraud those who might purchase such new and original stock, by making certain false representations as to the property, condition and business of the company, the value of its stock and the nature and extent of its liabilities.

About January 1, 1882, the plaintiff was unmarried, under the age of twenty-one years, inexperienced and ignorant of business, and under guardianship of one Millikin, who had in his hands, as such, a large amount of money which would come to plaintiff at her majority, on November 7, 1882. Said facts were known to defendant Morris, who, for himself and his coconspirators, sought out the plaintiff and importuned her to purchase one hundred shares of said increased stock for the sum of $ 5,000; and to induce her to do so, he, for himself and codefendants and coconspirators, and in pursuance of said conspiracy, falsely and fraudulently represented to her that said company was solvent, and doing a prosperous business; that it was not increasing its stock to pay debts or because it needed money, but to enlarge its business; that the stock represented $ 1.37 to every dollar of the face value of said stock of solvent assets, and its stock was worth $ 1.37 to the dollar; that the company had no debts, and had a large surplus, to wit, $ 47,000 of solvent assets; that all of said representations were false, and known to be by said Morris and the other defendants. Each one of the facts so represented is specifically negatived, and it is alleged that the company was insolvent, and the stock worthless; that at the time of making said representations, said Morris was well known to her, and reputed to be a person of large property, and great business capacity and integrity, wherefore she confided in him, and believed in, and relied on his representations as being true, and purchased $ 5,000 of the stock, for which she gave her note, and afterwards paid the same; that no dividends have ever been paid on the stock, and it is worthless; that the company on December 20, 1888, being insolvent executed an assignment of all its property to the defendant Warren, for the benefit of its creditors, and the assets in his hands are not sufficient to pay the debts of the company, or any part of its liability to its stockholders. The complaint then goes on to allege certain things done and omitted by the defendants which are said to have prevented the plaintiff from discovering her cause of action, and by which it was concealed from her until within the last year, and concludes by claiming damages in the sum of $ 8,000. The defendants severally demurred to the complaint on the ground that it did not state facts sufficient; which demurrers were severally overruled, and defendants severally excepted. The defendants answered in two paragraphs:

1st. General denial.

2d. The statute of limitations.

The plaintiff filed a reply to the second paragraph of the answer, the first being a general denial; and the second setting up certain matters by which it was alleged that the plaintiff's cause of action was concealed from her until within the period of six years before the commencement of the action. The defendants demurred to the second paragraph of the reply; which was overruled and they excepted. The cause was tried by a struck jury, who returned a verdict for the plaintiff in the sum of $ 7,568.90, and also returned answers to certain interrogatories propounded to them. Separate motions for a new trial were filed by the defendants, all of which were overruled; and on the 29th day of March the court rendered judgment against the defendants, except Warren, from which the defendants severally appeal. All the defendants unite in an assignment of errors, four in number. Several of the defendants also make separate specifications of error, but as these cover substantially the same grounds, for convenience we will consider them together. Among the alleged errors discussed by the learned counsel for the appellant, is the ruling upon the demurrer to the complaint. They say the demurrer of the Dorsey Machine Company to the complaint should have been sustained. The fraud, if any, was committed by individuals engaged in it, and not by the corporation. The corporation is made up of all the stockholders, all of whom are interested in proportion to the amount of their stock. It is not alleged that all of the stockholders engaged in the conspiracy, or participated in the alleged fraud, but only that the makers and some others did so. The complaint shows that at the time the conspiracy set forth therein was entered into, the defendants Morris, Liebhardt, Oliver and Linville Ferguson, Kinsey, Gresh and Gaines were the directors of said company, and that the defendants in the action, which includes said company, combined, confederated and conspired together, and, with others, whose names are not known to the plaintiff, but who then held and owned large amounts of the original stock of said company, for the purpose, and with the intent to fraudulently increase the capital stock of said company to $ 125,000, for the fraudulent purpose of cheating and defrauding those who might purchase stock. And that for said purpose the stock of said company was, on or about the 17th day of October, 1881, increased $ 65,000, making its capital stock $ 125,000. The complaint also shows that said Morris, in January, 1882, was the president of the company, and while then acting as such, by means of the false and fraudulent representations he then made to the appellee, induced her to purchase of said company one hundred shares of its capital stock, for which the appellee executed to the company her note for $ 5,000, which she paid to it on the 11th day of November, 1882. In our opinion the complaint shows a good cause of action against the company. It is the law that a corporation may become a party to, or participator in a conspiracy, such as is charged in the complaint, and may be liable for the damages resulting therefrom.

In Buffalo, etc., Oil Co. v. Standard Oil Co., 106 N.Y. 669, 12 N.E. 825, the court say: "We entertain no doubt that an action against a corporation may be maintained to recover damages caused by conspiracy * * *. If actions may be maintained against corporations for malicious prosecution, libel, assault and battery and other torts, we can perceive no reason for holding that actions may not be maintained against them for conspiracy. It is well settled by the authorities cited, that the malice and wicked intent needful to sustain such actions may be imputed to corporations."

In Cragie v. Hadley, 99 A.D. 131 (134), it was said that "a corporation may be in a legal sense guilty of a fraud. As a merely legal entity it can have no will, and can not act at all, but in its relations to the public it is represented by its officers and agents, and their fraud in the course of the corporate dealings, is in law the fraud of the corporation."

The proposition is sustained by the authorities that a corporation may be charged with any wrong that may be committed through an agent, and may be held liable for damages caused by his deceit or false representations. In such case the doctrine of ultra vires has no application Morawetz Priv. Corp., paragraphs 725, 726, 727; National Bank v. Graham, 100 U.S. 699, 702, 25 L.Ed. 750; Fishkill Savings Inst. v. Nat'l Bank, etc., 80 N.Y. 162; American Exp. Co. v. Patterson, 73 Ind. 430; 2 Wait's Act. and Def., 337.

Increasing the stock of a corporation is its act, and like every other act by a corporation, can only be done through the instrumentality of some person acting for or in its behalf and when the stockholders of the appellate company increased its capital stock, they did so as the agents of and for the company, and the act was that of the company. It is true the complaint does not show that all the stockholders of the company participated in increasing its stock,...