Townsend v. Felthousen

• Decision Date: 04 October 1898
• Citation: 51 N.E. 279,156 N.Y. 618
• Parties: TOWNSEND v. FELTHOUSEN.
• Court: New York Court of Appeals Court of Appeals

156 N.Y. 618

51 N.E. 279

TOWNSEND

v.FELTHOUSEN.

Court of Appeals of New York.

Oct. 4, 1898.

Appeal from supreme court, general term, Fifth department.

Action by Richard E. Townsend against Edward G. Felthousen. From a judgment of the general term (35 N. Y. Supp. 538) affirming a judgment for plaintiff, defendant appeals. Affirmed.

Adelbert Moot, for appellant.

Norris Morey, for respondent.

GRAY, J.

This action was brought to recover damages for the fraud alleged to have been practiced upon the plaintiff by the defendant in the sale of shares of the capital stock of a corporation known as the Buffalo Steam Pump Company. The plaintiff's attention had been attracted to an advertisement, in November, 1890, inserted by the defendant, and offering his interest in the company for sale. He communicated with the defendant, and thereupon negotiations were set on foot and conducted, in interviews and in correspondence, which resulted in the purchase of the defendant's 625 shares of the stock, at the price of $60 per share, in the latter part of January, 1891. The complaint charges that this purchase was induced by fraudulent representations on the part of the defendant, as to the amount of the actual property and assets of the corporation, exclusive of the value of the good will, and inclusive of the profits made in the previous two years of its existence, and of $25,000 paid in cash by the subscribers to an issue of capital stock at the time of its organization. It was charged, in substance, that the defendant undertook to, and did, make representations and statements to the plaintiff to show what was the condition of the company's affairs, what its assets and liabilities were, and what the actual profits of the business in the two past years, and that these representations and statements made a false showing of these matters, and were knowingly made and furnished by the defendant for the purpose of deceiving the plaintiff as to the company's true condition, past and present, and of thereby inducing him to purchase the defendant's shares of stock. It was also charged that the cash paid in, at the time of the organization of the corporation, upon the sale of shares of its capital stock, and which was represented by the defendant as forming part of the corporate assets, had been, in fact, at once withdrawn by him from the business; as had been other moneys through the medium of the company's notes, made by him as its president. The defendant's answer was a denial of the various allegations of the complaint, charging the defendant with the representations and statements complained of as being false, and as having been made to deceive the plaintiff into the purchase of the stock; and it was alleged in defense that the plaintiff made the purchase upon his own investigations and judgment, and not because of any statements or representations of the defendant. Upon the issue thus made, the parties went to trial before a special jury, and a great mass of evidence was submitted, containing the testimony and exhibits adduced on either side. The jury awarded the plaintiff a verdict for a substantial sum, though less than he had demanded, and the judgment upon the verdict has been affirmed by the general term. A review of the case contained in the appeal book shows that there was sufficient support in the evidence for the verdict.

The corporation was formed in July, 1888, with a capital of $150,000, to take over the properties and business of the defendant's firm of Volker & Felthousen, and defendant became its president. Shares amounting to $125,000 of the capital stock were issued to the members of the firm, in purchase of its properties, business, and good will, and the balance was issued to subscribers for cash. At the time of the negotiations for the sale to the plaintiff of defendant's shares, the business had been going on for a little over two years, and it was the plaintiff's contention that oral and written statements were made and exhibited to him, which exaggerated the existing assets of the company, diminished its actual liabilities, and falsely represented that substantial profits had been made in the conduct of the business since its inception; and, in support of this contention, he submitted much evidence, in the testimony of himself and of other witnesses. On the other hand, the defendant contended that there was no fraud intended or practiced in the transaction; that it was a case where the plaintiff did not rely on the defendant's representations, but upon his own judgment, after an inquiry and investigation into the company's affairs, and that in no material respect were the statements from books or accounts inaccurate, or calculated to deceive. In support of his position, he relied, not only upon evidence given by himself and by other witnesses, but upon what the evidence of the plaintiff himself showed as to his inquiries and examinations to ascertain and fix the actual value of the corporate stock. To discuss the evidence in this record would subserve no useful end. Considerable latitude was allowed by the trial judge, in its admission, to both sides, and not without reason; in view of the more or less necessary range of the inquiry over the acts and transactions of the parties. An issue involving the honesty of the part played by the defendant in procuring the plaintiff to purchase his shares of stock, and the extent to which reliance was, in fact, placed upon his statements by the plaintiff, as an intending purchaser, justified a broader field of judicial inquiry. It was necessary, not only that the evidence should establish, or tend to establish the falsity of the statements made, but also that they were known to be false, and, to that end, facts and circumstances showing the defendant's means of knowledge, and bearing upon the candor and integrity of his acts, in his connection with the corporation and the management of its business, were more freely admissible in evidence, in order that there might be furnished the basis for a decision as to the existence of an intention to dispose of his interest upon a fraudulent valuation. The latitude of examination, whether in the investigation of these facts and circumstances, or in those exhibiting the plaintiff's attitude to the defendant and the extent of his dependence upon his statements and of the...