Wolfe v. A. E. Kusterer & Co.

• Decision Date: 10 December 1934
• Docket Number: No. 44.,44.
• Parties: WOLFE v. A. E. KUSTERER & CO.
• Court: Michigan Supreme Court

269 Mich. 424

257 N.W. 729

WOLFE

v.A. E. KUSTERER & CO.

No. 44.

Supreme Court of Michigan.

Dec. 10, 1934.

Action by Nellie Shulsky Wolfe, usually known as Nellie Shulsky, against the A. E. Kusterer & Co. From a judgment in favor of plaintiff, defendant appeals.

Affirmed.

Appeal from Circuit Court, Kent County; Leonard D. Verdier, judge.

Argued before the Entire Bench.

Travis, Merrick, Johnson & McCobb, of Grand Rapids, for appellant.

Butterfield, Keeney & Amberg, of Grand Rapids, for appellee.

BUSHNELL, Justice.

This is an action to recover the amount plaintiff paid defendant, brokers, for 6 per cent. Collateral Trust Gold bonds series E of Central Securities Company of Asheville, N. C., of the par value of $5,000, the purchaser having rescinded and tendered return of the bonds, alleging fraudulent misrepresentations on the part of the seller. Defendant appeals from a judgment for the purchase price, plus interest, less liquidating dividends paid plaintiff by the receiver of the trustee under the indenture securing the bonds.

The two purchases of these bonds were made for plaintiff in 1930 by her son, Harry Shulsky, from Roger Verseput, Jr., who was then secretary-treasurer and sales manager of the defendant company, after conversations, discussions, explanations, and examination of a circular compiled by defendant describing the issue. The case turns on the oral representations by seller and those made in its circular. The second purchase was within ninety days of the first, with very little added discussion between the representatives of the parties.

Plaintiff contends that she was led to believe that the bonds were similar to real estate mortgage bonds in that the collateral was to be the direct obligations of mortgage companies, secured by guaranteed real estate mortgages on improved city property, mostly residences. The circular, which says, ‘These Gold Bonds constitute four name paper,’ after setting out the security just mentioned, continued:

‘And in lieu thereof, U. S. Government bonds, U. S. Treasury certificates of indebtedness and/or cash may be deposited.’

Plaintiff argues that this language led her to believe that the substitution of cash was to be in small amounts and only for temporary periods. The statement in the circular was not in conformity to the provisions of the trust indenture by which any amount of either type of security mentioned could be deposited. When plaintiff made her first purchase, approximately 20 per cent. of the security was in cash, and at the time of the second purchase, almost 50 per cent., due to the trustees having wrongfully sold some United States government bonds. A supplemental indenture provided that should the cash collateral exceed 10 per cent., the trustees should furnish a bond guaranteeing payment of the full amount of such excess.

Plaintiff also alleges that while the circular did mention that ‘cash’ might be security, the indenture provided that demand certificates of deposit issued by any bank, etc., with not less than $2,000,000 paid-in capital and surplus, shall be deemed to be and considered as cash, and that the practice was for the trustee to deposit with its own banking department the cash revenues and hold the certificate of deposit issued to itself as security. It was this practice of loaning money to itself that subsequently affected the worth of the bonds. The Central Bank & Trust Company, trustee under the indenture, closed its doors on November 19, 1930, and only $25,000 worth of certificates of deposit were guaranteed. On December 17, after hearing about the insolvency, plaintiff tendered back the bonds and demanded the return of her money. Was there a false and fraudulent misrepresentation upon which plaintiff relied?

‘Fraud may be consummated by suppression of facts and of the truth, as well as by open false assertions.’ Macey Co. v. Macey, 143 Mich. 138, 153, 106 N. W. 722, 727,5 L. R. A. (N. S.) 1036.

‘In an action of deceit, it is true that silence as to a material fact is not necessarily, as matter of law, equivalent to a false representation. But mere silence is quite different from concealment. Aliud est tacere, aliud celare,-a suppression of the truth may amount to a suggestion of falsehood. And if, with intent to deceive, either party to a contract of sale conceals or suppresses a material fact which he is in good faith bound to disclose, this is evidence of and equivalent to a false representation, because the concealment or suppression is, in effect, a representation that what is disclosed is the whole truth. The gist of the action is fraudulently producing a false impression upon the mind of the other party.’ Stewart v. Wyoming Cattle Ranche Co., 128 U. S. 383, 388, 9 S. Ct. 101, 103, 32 L. Ed. 439.

While the defendant may not have ‘concealed’ the fact that ‘cash’ could also be security, it did at least ‘suppress' the fact. A requirement of fair and open dealing is placed upon a seller in security transactions. Mr. Justice Lehman said in Hotaling v. Leach & Co., 247 N. Y. 84, 88, 159 N. E. 870, 871, 57 A. L. R. 1136:

‘Critical examination of the statements contained in the circular leaves some doubt as to whether any of them was literally untrue. As a whole the circular presents a picture which would lead an investor to believe that the security behind the bonds offered was far greater than was the fact.’

Very close on its facts to the present case is Downey v. Finucane, 205 N. Y. 251, 98 N. E. 391, 394,40 L. R. A. (N. S.) 307, where the question was whether a prospectus under which bonds were issued had truthfully stated the security therefor. The court said:

‘Speaking of an equivocal prospectus which was condemned as fraudulent by the House of Lords in Aaron's Reefs v. Twiss, L. R. (1896) App. Cas. 273, 275, 285, Lord Halsbury calls the language ‘ambidexterous'; and this expression aptly characterizes that in the present case. In the case cited it was argued, as it is suggested here, that there was no specific allegation of fact which is proved to be false; but the Lord Chancellor protested against this being regarded as the true test, and declared that the question was whether taking the whole thing together was there a false representation. ‘I do not care by what means it is conveyed-by what trick or device or...