Voellmeck v. Harding

• Decision Date: 28 December 1931
• Docket Number: 23418.
• Citation: 166 Wash. 93,6 P.2d 373
• Court: Washington Supreme Court
• Parties: VOELLMECK v. HARDING et ux.

6 P.2d 373

166 Wash. 93

VOELLMECK v. HARDING et ux.

No. 23418.

Supreme Court of Washington

December 28, 1931

Department 1.

Appeal from Superior Court, Spokane County; Fred H. Witt, Judge.

Action by J. W. Voellmeck against George Harding and wife. Judgment for the plaintiff, and the defendants appeal.

Affirmed.

Cannon, McKevitt & Fraser and Hamblen & Gilbert all of Spokane, for appellants.

Don F Kizer and Graves, Kizer & Graves, all of Spokane, for respondent.

BEELER J.

This is an action based upon fraud and deceit, brought by the plaintiff to recover the sum of $43,647.50 from the defendants Harding and wife, growing out of the sale and purchase of 2,500 shares of the capital stock of the Inland Sales Company, a domestic corporation. The cause was tried to the court and a jury resulting in a verdict in favor of the plaintiff for the full amount sued for. The defendants' motions for judgment non obstante veredicto or, in the alternative, for a new trial, were overruled and a formal judgment was entered against the defendants, from which they have appealed.

The appellants first contend that the trial court erred in overruling their motion for a directed verdict at the close of all the evidence, and in overruling their motion for judgment n. o. v. These assignments raise the single question, whether the evidence supports the verdict.

In August, 1904, August Paulsen, a wealthy financier of Spokane Wash., and several of his business associates acquired all of the capital stock of the Consumers Company, Limited, which owned an electric plant and a water system in the city of Coeur d'Alene, Idaho. Soon thereafter they set about to increase its business and to improve its plants. With this purpose in mind, they secured the services of George Harding, one of the appellants, an experienced engineer, as superintendent. By reason of his devotion to duty, he was soon made general manager. Since the appellant Mrs. Harding took no part in the transactions or negotiations hereinafter detailed, she being joined as a party to the cause merely to bind the community, we shall refer to the appellant George Harding as though he were the sole party appellant.

Some time after Harding became general manager, it was deemed advisable to separate the electric business from the water system, and in 1908, a new corporation, the Kootenai Power Company, Limited, was formed, and the electric system transferred to it; the shareholders of the Consumers Company receiving proportionate holdings in the power company. Hereafter we shall refer to these two companies as the 'parent companies.'

In 1924, for the purpose of furthering and protecting the interests of the shareholders of the two parent companies, a third company was formed by them, the Inland Sales Company, and to it was transferred the electric appliance business, together with certain other property and interests of the two parent companies. Instead of taking all of the stock of the new company for themselves, the shareholders of the parent companies took one-half, or 5,000 shares, and permitted Harding and the respondent to acquire 2,500 shares each. The opportunity to acquire this stock was given them in appreciation of their valuable and faithful services in the past, and to insure the continuance thereof in the future. At the time the respondent purchased his 2,500 shares of stock in the Inland Sales Company, he entered into a written agreement with Paulsen that, upon ceasing to be an employee of the parent companies, he would sell his shares to Paulsen at the then book value.

In January and February, 1929, two large utility companies, the Foshay Company and the Washington Water Power Company, were negotiating with Harding for the purpose of purchasing all of the corporate stock owned by the several shareholders of the three companies; the Consumers Company, the Kootenai Power Company, and the Inland Sales Company. An offer of $1,004,000 was made by the Foshay Company to Harding in January, 1929. Harding kept this valuable and exclusive information to himself. He testified: 'I did not tell anybody.' A sale was finally made to the Washington Water Power Company for $1,100,000. Because of the strategic and dominant position Harding occupied with the shareholders and directors of the two parent companies (for over twenty years he had had charge of all their affairs unhampered by either a stockholders' or directors' meeting), Harding knew that when the sale of the properties in question was consummated, the purchase price would be divided among the three companies. Of course he could not then accurately determine in advance of the concurrence of the board of directors the exact amount which would be allocated to each of the three companies, but his faith and confidence that a substantial amount would be allocated to the Inland Sales Company is evidenced by the fact that when the officers of the Washington Water Power Company in the early part of February, 1929, sought information as to how the purchase price would be distributed among the three companies, he informed them that 25 per cent of the purchase price would go to the Inland Sales Company, and the balance thereof divided between the two parent companies. On this basis, if the sale were made for $1,000,000, the Inland Sales Company would receive $250,000, which would make the respondent's 2,500 shares of stock worth $62,500. It may be said parenthetically that 17.69 per cent of the sale price, $1,100,00, was ultimately allocated to the Inland Sales Company. On this basis, respondent's shares of stock were worth slightly in excess of $50,000. Still a nice prize. Realizing that the sale of the properties of the three affiliated companies was imminent, and that a substantial part of the purchase price would be paid to the shareholders of the Inland Sales Company (Harding at that time still believed that 25 per cent would go to that company), Harding determined to secure for himself the 2,500 shares owned by the respondent. Prompted by this scheming and selfish thought, and fortified by his intimate knowledge of the existing conditions, and the bright prospects of sale, Harding had an interview with the respondent at Spokane, Wash., on February 13 and 14, 1929, and insisted on an immediate sale to him of respondent's 2,500 shares of stock at their book value, $7,500. What was said, represented, or withheld at this and previous interviews between the two principals, as detailed by the testimony of the respondent, upon which the jury undoubtedly predicated their verdict, is, in substance, as follows:

In January, 1929, Harding told the respondent there was a likelihood of a sale of the three affiliated companies, and mentioned the names of prospective purchasers. In February following, respondent visited Harding's office in Spokane on routine business, and the latter asked him if he would sell his stock for $7,500, to which he promptly answered in the negative. Thereupon Harding stated that the properties would undoubtedly be sold, and that the purchase price would be so divided that the shareholders of the Inland Sales Company would receive only the book value of their stock, namely $30,000, making respondent's stock worth but $7,500. Still the respondent refused to sell at the figure quoted. Harding then said that it was the desire of the shareholders of the two parent companies that the sale be made and reminded him that they had the power to discharge him at any time and acquire his stock at its book value. Harding stressed the fact that he was acting for the dominant shareholders and was compelled, himself, to submit to similar terms for his own stock in the Inland Sales Company. After further consideration, and moved by the fraudulent and deceitful representations and statements made by Harding, in whom the respondent then had implicit confidence, he agreed to accept $7,500. The contract of sale was drawn by Harding, dated February 14, 1929. It provided for an initial payment of $25, and the placing of the stock in escrow, and for the transfer and delivery of the stock to Harding as soon as the balance of the $7,500 was paid. In due course, the sale of the stock of the three affiliated companies to the Washington Water Power Company was consummated, and the balance due the respondent paid to the escrow holder, and his stock was delivered to Harding on April 29, 1929.

While there are many other facts and circumstances that might be detailed, we are satisfied that the foregoing is sufficient to show that the verdict of the jury is abundantly supported by the evidence, and that the trial court properly overruled both of appellants' motions.

The remaining four assignments of error relate to the giving and to the refusal to give certain instructions.

The appellants earnestly contend that, even conceding that the representations made by Harding were untrue and were relied on by the respondent to his prejudice nevertheless the statements do not support an action for fraud and deceit, for the reason that the respondent had the means and opportunity of ascertaining the truth Before irrevocably committing himself to the sale of his stock; and further contend that the trial court erred in giving a portion of instruction No. 1, and in refusing to give instruction No. 10 requested by appellants. The substance of this contention is that the respondent had no right to rely upon the representations made by Harding, but was bound to make an independent investigation to determine whether the representations were true or false. A determination of this issue necessitates an examination into the relationship that existed between Harding and the directors and stockholders of the three affiliated companies on the one hand, and the...