Wenstrom Consol. Dynamo & Motor Co. v. Purnell
| Decision Date | 17 December 1891 |
| Citation | 23 A. 134,75 Md. 113 |
| Parties | WENSTROM CONSOLIDATED DYNAMO & MOTOR CO. v. PURNELL. |
| Court | Maryland Court of Appeals |
Appeal from circuit court of Baltimore city.
Suit by Lyttleton B. Purnell against the Wenstrom Consolidated Dynamo & Motor Company of Baltimore City and E. L. Tunis for the rescission of plaintiff's subscription to the stock of defendant corporation. From a decree in favor of plaintiff and against the corporation, it appeals. Reversed.
Argued before ALVEY, C.J., and IRVING, ROBINSON, MCSHERRY, BRISCOE and FOWLER, JJ.
Edgar H. Gans and B. Howard Haman, for appellant.
Randolph Barton and C.J. T. Gould, for appellee.
The plaintiff below, the appellee here, filed his bill against the appellant and E. L. Tunis, the defendants below, for the purpose of having rescinded his contract of subscription to the capital stock of the defendant corporation, procured from him, as alleged, by the fraudulent misrepresentation of E. L. Tunis, the agent and one of the principal promoters of such corporation. By the decree of the court below, the contract of subscription was rescinded, and declared null and void; and the corporation defendant was decreed to pay back to the plaintiff the amount of money paid on the shares of stock subscribed for, with interest from the date of such payment by the plaintiff; but as to the agent and promoter, by whose alleged fraudulent misrepresentation the subscription of the plaintiff to the stock of the corporation was procured, the bill was dismissed. The facts of the case, such as are material to the questions involved, are these: There were formerly two manufacturing electric companies incorporated,--the first, known as the "Wenstrom Northern Electric Company," incorporated under the law of the state of New York, and was owner of all the patent-rights for the manufacture of dynamos and motors, according to the invention and patent-right of Jonas Wenstrom, of Sweden; and the second company, known as the "Southern Electric Company," incorporated under the laws of this state, was organized for the purpose of working the same patent-rights in the southern territory, but this latter company was required to pay largely for the privilege of using the patent-rights owned by the former company. In the early part of the year 1890 these two companies practically consolidated, and formed and organized the Wenstrom Consolidated Dynamo & Motor Company of Baltimore City. The capital stock of this consolidated company consisted of 10,000 shares, of the par value of $100 each, making a capital of $1,000,000. E. L. Tunis, one of the defendants, was one of the directors and the president of the company. Of the 10,000 shares of stock, H. C. Tunis, a brother of the president of the company, subscribed for 9,993 shares, payable in the assets of the two original companies, which had been vested in him for the purpose of effecting the arrangement, and which consisted of all the patent-rights, good-will, diagrams, patterns, machinery, drawings, book-accounts, etc., of the two companies. The shares so subscribed for were issued as fully paid up and non-assessable stock, in exchange for the assets of the two former companies. This subscription appears to have been made and accepted as being in pursuance of that provision of the general incorporation law of this state, (Code, art. 23, § 61,) which authorizes subscriptions to stock to be made in property. Immediately upon the making of this subscription, H. C. Tunis transferred to two trustees, for the benefit of the company, 5,000 shares of the stock subscribed for by him, to be sold on account, and for the benefit, of the company, and the residue of the stock was held by him. Of the shares thus retained by H. C. Tunis, he gave to five of the directors of the newly-organized company 50 shares each, for serving as directors for the first year. There is no question, however, made here on this transaction. But, after the organization of the corporation, some time in April, 1890, several members of the board of directors, including the president, E. L. Tunis, took or purchased of the company stock at $10 per share, the whole of such purchases aggregating 700 shares. Whether the stock had a marketable price at that time, or whether any of the stock that had been transferred to the trustees for the benefit of the company had been sold prior to that time, for more than $10 per share, does not appear. But a short time thereafter subscription lists were circulated for subscriptions to the stock, at the fixed rate of $50 per share; such subscriptions not to be binding until 2,500 shares of the stock held by the trustees had been subscribed for at that rate. About the middle of July, 1890, one of these subscription lists was subscribed, by hand and seal of the plaintiff, for 100 shares of the stock, at $50 per share; and thereupon he paid the sum of $2,990, part of the price. It is this subscription that is in controversy, and which is alleged to have been obtained from the plaintiff by the false and fraudulent misrepresentations of E. L. Tunis, the president of the company. The bill was filed on the 20th of November, 1890. It alleges that the plaintiff, in July, 1890, was solicited by E. L. Tunis, the president of the defendant corporation, to purchase from the trustees appointed by it some of its shares of stock; and that after some hesitation, and relying upon the representations of said Tunis, he agreed in writing to purchase 100 shares of the capital stock of the company, of the par value of $100 per share, for the sum of $50 per sbare, or a total of $5,000, payable in installments, as they should be demanded. "That at the time of said purchase said Tunis represented to your orator that the capital stock of said company was $1,000,000, consisting of 10,000 shares, of the par value of $100 per share; that $500,000 had been paid for the patent-rights and properties of the northern and southern companies; that 5,000 shares had been placed in the hands of trustees to be sold for working capital, and that 3,500 of these shares had been sold for not less than $50 per share; that your orator relied entirely on the representations so made, and would not otherwise have agreed to purchase said 100 shares of stock." The bill then proceeds to charge (1) that the plaintiff had since discovered that $500,000 had not been paid for the patent-rights and properties of the northern and southern companies, and that in fact no cash at all had been paid, but that they were purchased by shares of stock in the defendant company, a large portion of which was given to the promoters of said company for their services in organizing the same; and (2) that the plaintiff had since discovered, contrary to the representation made to him by said Tunis, that a portion of the said 3,500 shares of stock had been sold for less than $50 per share. The plaintiff then makes the allegation that the representations were falsely and fraudulently made, for the purpose of inducing, and did induce, the plaintiff to subscribe for said shares of stock. And he therefore prays that the contract of subscription may be vacated and declared void; that the money paid on the subscription be restored to him; that the company be enjoined from suing at law upon the contract of subscription; and for general relief.
As will be observed, the grievance complained of is the positive false assertions made of particular facts, upon the faith of which assertions the plaintiff relied and was induced to act to his injury, and not the willful, silent suppression of facts that ought to have been disclosed. The defendants, by their answers, utterly deny all fraud or misrepresentation charged in the bill, as having been practiced in procuring the plaintiff to subscribe to the stock of the company; and they aver that all the material representations made by the said Tunis were substantially true, and that the plaintiff was in no manner...
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