Williams v. Bedenbaugh

• Decision Date: 04 November 1926
• Docket Number: 6 Div. 722
• Parties: WILLIAMS et al. v. BEDENBAUGH.
• Court: Alabama Supreme Court

110 So. 286

215 Ala. 200

WILLIAMS et al. v. BEDENBAUGH.

6 Div. 722

Supreme Court of Alabama

November 4, 1926

Appeal from Circuit Court, Walker County; Ernest Lacy, Judge.

Suit by Augusta Riddlesperger Bedenbaugh against V.H. Williams, R.M Ellis, and A.S. Preston. From a judgment for plaintiff defendants Williams and Ellis appeal. Transferred from Court of Appeals, under Code 1923, § 7326. Reversed and remanded.

Chas R. Wiggins and Curtis, Pennington & Pou, all of Jasper, for appellants.

Gray & Powell, of Jasper, for appellee.

BOULDIN J.

This is a suit at law, brought against individual stockholders and officers of a corporation, to recover damages for fraud in the sale of stock to the plaintiff for the use of the corporation.

Amended count 2 relies upon misrepresentations of defendant Williams. That said defendant represented the corporation to be in every respect solvent, owning assets greatly in excess of its liabilities, and making large dividends on its capital stock, when the corporation was, in fact, at the time, insolvent and in a failing condition, and plaintiff was induced by such representations to purchase capital stock of the corporation, resulting in a total loss to her, presents a case of actionable fraud against defendant Williams.

The representations are of facts, not mere opinions; their materiality is manifest and need not be specially averred; that plaintiff was thereby induced to purchase sufficiently shows reliance upon them; knowledge of their falsity and representations made recklessly, without knowledge, is not essential to liability in such case. Code 1923, § 8049; Harton v. Belcher, 195 Ala. 186, 70 So. 141; Southern States F., etc., Co. v. Wilmer Stores Co., 180 Ala. 1, 60 So. 98; Manning v. Carter, 201 Ala. 218, 77 So. 744; Stone v. Walker, 201 Ala. 130, 77 So. 554, L.R.A.1918C, 839.

To fasten liability on defendants Ellis and Preston, this count avers, in effect, that Williams, Ellis, and Preston, were owners of all the stock theretofore issued in the Walker-Buick Company, the corporation, were acting as representatives or agents of the corporation in making the sale of the stock to plaintiff, and were interested in the sale to protect their own investments; and that the representations made by Williams were "for himself and, as agent," for the other defendants, or were ratified by them in that, with full knowledge of the representations and their falsity, they accepted the money and issued the stock.

To be liable, in tort, for the doings of an agent, it must appear the agent was acting within the line and scope of his employment. This may appear by express averment or by averments of fact showing a relation of agency, its scope, and the act complained of as within such scope.

Officers of a corporation engaged in selling stock for the corporation, with the powers of sales agents, may bind the corporation for fraud in the promotion of sales. But the mere fact that the several officers are agents of the corporation in making sales and they have common interests as stockholders in the corporation does not render each the agent of the other, in such sense as to render one liable for the independent fraud of the other. There must exist, between them, some express or implied power in one to speak for the other, in making representations. This may arise by the relation of partnership or other form of joint enterprise, wherein each represents the other, but it does not arise merely by being common agents of another person, although each has a similar interest or receives a like benefit from representing the common principal.

The alternative averment that Williams' representations and acts "were done for himself and as agent of the other defendants" is defective in failing to show his authority to bind them, as above indicated. Hanover Fire Insurance Co. v. Wood, 209 Ala. 380, 96 So. 250; Evans Bros. v. Steiner Bros., 208 Ala. 306, 94 So. 361; Childress v. Miller, 4 Ala. 447; May v. Kelly, 27 Ala. 497.

The second alternative. ratification of the fraud with knowledge thereof, is sufficient. He who joins in the consummation of a transaction, known to have been negotiated by fraud, becames a party to the fraud. Where liability is based upon alternate grounds, each must be good.

We are impelled to hold count 2, as amended, subject to the demurrers interposed by defendants Ellis and Preston. The suit is not against the corporation; no question of respondeat superior as to the corporation is involved. Hence count 2 was not demurrable for the want of averment that defendants were acting within the line and scope of their employment, as agents of the corporation. Moreover, the count shows the defendants had the controlling power in the corporation and the consummation of the sale, by issuance of the stock.

Count C charges that the defendants, managing officers and chief stockholders of the corporation, knowing it was insolvent, or fast becoming insolvent, fraudulently represented it to be, in every respect, solvent, the owner of assets greatly in excess of liabilities, and making large dividends on its capital stock, and plaintiff was thereby induced to invest $600 in worthless stock, etc. This is a good count for fraud by misrepresentations. See authorities above. Under our statutory forms, it is a good count for deceit. Code of 1923, vol. 4, p. 507, form 21.

The averment that the defendants guaranteed a fixed dividend on the stock may be treated as surplusage, in the action of tort. Count E reads:

"The plaintiff claims of the defendants $600 damages, for that on the 8th day of January, 1923, the defendants represented to the plaintiff that the Walker-Buick Company, a corporation, was solvent and in good credit, and worth many thousand dollars over its liabilities.

"That the plaintiff, not knowing such representations were false, was thereby induced to invest the sum of $600 in the capital stock of said corporation.

"That said representations were false and were known by the defendants, at the time they made them, to be false, and were made with the intent to deceive and defraud the plaintiff.

"That the said corporation was insolvent, and the plaintiff wholly lost the amount of money invested in such stock."

This meets all the requirements of the most exacting rules of pleading in actions of fraud and deceit. Code of 1923, § 5677.

Count G is based upon alleged fraudulent concealment. It shows no confidential relations between the parties, no misrepresentations, nor partial statements tending to silence inquiry, and no knowledge on the part of the defendants that the plaintiff was uninformed as to the condition of the corporation. The fraud relied upon is merely that the defendants knew the corporation was fast becoming insolvent and withheld such information from the plaintiff, who did not know it. For all that appears in this count, the parties may have been dealing at arms' length, the plaintiff acting, so far as defendants knew, on her own chosen source of information, neither looking to nor desiring information from them.

To make a case of fraudulent concealment by silence, facts should be averred from which the duty to speak arises. The general averment that the information was withheld with intent to defraud, and that the defendants knew the plaintiff would lose her money, does not meet this requirement. True, as evidence tended to show, if the plaintiff applied to the defendants, as business advisers, for assistance in finding a safe and profitable investment for her money, and, assuming the role of friends, they directed and advised her to invest in the stock of their own company, known to be in a failing condition, concealing that fact from her, and, not knowing the facts, she invested on such advice, a case of fraud appears. But this is not the tenor nor effect of Count G. The demurrer thereto should have been sustained. Code of 1923, § 8050; National Park Bank v. L. & N.R. Co., 199 Ala. 193, 74 So. 69; Griel v. Lomax, 89 Ala. 420, 6 So. 741; Jordan v. Pickett, 78 Ala. 331; Moses v. Katzenberger & Sons, 84 Ala. 95, 4 So. 237.

This is not a suit for rescission, nor dependent on rescission, as a condition precedent. It does not deal with the liability of the corporation. The claim is to recover damages resulting from the fraud of individuals, acting on behalf of the corporation. There was no need to offer to surrender the stock, or otherwise put the corporation in statu quo. The measure of damages is the loss resulting from the fraud alleged.

The date of the cause of action, as laid in the complaint, was on or about January 8, 1923. Suit was begun May 2, 1924. Defendants pleaded the statute of limitations of one year. To this, the plaintiff filed special replication No. 3, alleging:

"This suit was brought within one year from the time the plaintiff

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