Gunderson v. Havana-Clyde Mining Co.

133 N.W. 554, 22 N.D. 329, 1911 N.D. LEXIS 49

Opinion

Burke, J.

At the time the transactions hereinafter referred to took place, the defendant mining company was a foreign corporation, of which the three other defendants were directors. About April 1, 1906. the plaintiff and ten other persons purchased capital stock in the mining ■company from one Ganan, also a director, but not a defendant in this action. The ten other purchasers having assigned their claims to the plaintiff, he brings this action for deceit, alleging that the sales were induced by fraudulent statements of Canan and of the corporation through its prospectus. No attempt was made to rescind the contract.

1. The defendants answered' separately, admitting the sales, but «denying the fraudulent representations. When the case was reached for trial, and after a jury was duly sworn, the defendant mining company moved for judgment upon the pleadings. This motion was granted, and such ruling has been challenged by appeal. The complaint was in ordinary form, and the sole objection raised to its sufficiency, as we .understand it, is the fact that the mining company is a corporation, and, ■the defendants claim, cannot be sued for deceit under the circumstances, Nut is liable only to a rescission. We do not think the weight of authority sustains this contention. On the contrary, the better doctrine seems fo be that a corporation is in exactly the same position as an individual, and may be sued for deceit. This is especially true in the present case, where it is alleged that the fraudulent statements were contained in a prospectus issued directly by the corporation. N. D. Rev. Codes 1905, §§ 1480, 6707, 9535, 9536, attempts to place “persons” and “corporations” upon the same footing. While there has been a time when courts pretty generally held that a corporation could not form a fraudulent intent, the modern rule is to the contrary. See Benedict v. Guardian Trust Co. 58 App. Div. 302, 68 N. Y. Supp. 1082; Dorsey Mach. Co. v. McCaffrey, 139 Ind. 545, 47 Am. St. Rep. 290, 38 N. E. 208; Stewart v. Wright, 77 C. C. A. 499, 147 Fed. 321; 10 Cyc. 1220. It was therefore error to order judgment upon the pleadings in favor of ■the corporation.

2. The trial then proceeded against the three remaining defendants, the defendant Leach being first called for cross-examination under the statute. He identified the prospectus, and said it had been gotten out Ny the corporation; also, that Canan had been employed by the corporation to sell stock, and that he had the prospectus with him at the time the sale was made; that the directors were not mining experts, and knew nothing of mining; that in April, 1907, the company had employed ■experts to make an examination of the mines, and said experts reported them to be worthless. He also identified several circular letters sent by the corporation to its stockholders, but as it appears that those were dated and mailed after the sales in suit, and could not have influenced the purchase of the stock, we will not further refer to them. The reports of the experts were introduced in evidence, and received over the objection of the defendants that they were not the best evidence, and will not therefore be further considered, their admission being clearly wrong. The plaintiff testified that Canan had produced to him a piece of ore, and said it had come from the mine; that he had reiterated the claims ■set forth in the prospectus, and said that the directors were reliable business men of Havana, North Dakota, and had put their own money into the enterprise; that there was no promoter’s stock; that the directors and officers acted without salary, and that the stock was worth par; that 1,000 shares would make him independent for life. It was stipulated that the testimony of the other purchasers would be similar to that of plaintiff, and should be considered as given. The prospectus was offered and received in evidence. It set forth the names and addresses of the officers; stated that the company owned a large number of valuable mines in the Cripple creek mining district; that samples of ore taken from said mines had disclosed always the presence of gold; that most of the samples had run from $3 to $30 per ton — some higher; that there was a large amount of low-grade ore upon the dump, of sufficient value to warrant the erection of an extracting mill, and the money obtained by sales of stock was to be used in erecting such mill; that the mines were valuable. It was then stipulated between the parties that the mining company owned the mines as claimed; that at the time of the sales there had been dug some 1,200 feet of first-class tunnels; that there was a large amount of rock upon the dump that yielded, according to assays made after the sales, from nothing to $1.60 per ton; that such ore was not of sufficient value to warrant its treatment; that in the opinion of competent expert mining engineers the mines were of no value as mines; that there never had been any justification for the erection of an extracting mill upon the property. There was also some testimony as to other sales of stock to the same purchasers, and designated as mill stock, for which the money had been returned by the mining company, but it has no bearing upon this suit.

With the evidence in this condition the plaintiff rested, and the three defendants Leach, Ellingson, and Johnson moved for a directed verdict in their favor. This was allowed, and is also challenged by this appeal. We think the ruling was correct. This is an action for deceit, not for rescission. There is a vast difference between the actions, and this difference must be constantly kept in mind in considering this ease. When the plaintiff had reached the conclusion that he had been defrauded, he had his election of two remedies: First, he could rescind upon the grounds that this assent to the contract had never been freely given, and return his stock and recover the money paid by him; or, second, he could ratify the sale, accept his stock with its consequential profits or losses, and maintain an action for damages against his deceivers. In tbe second case he refuses to rescind, in effect, and demands that tbe representations of tbe sellers be made good in damages. He, tbe purchaser, assumes all of tbe risks of tbe speculation, as be bas in effect affirmed tbe contract of sale. Therefore bis damages for tbe deceit must not include damages occasioned by tbe failure of tbe speculation. In this case Gunderson having elected to ratify tbe sale, instead of repudiating it as be might, assumed tbe speculation, and would be tbe winner if tbe mine made good, and tbe loser, if tbe mine failed. His damages would be tbe difference between what bis stock would have been worth at tbe time of tbe sale if as represented, and what it was actually worth at that time. Or stated a little differently, be can compel tbe sellers to make good their representations by paying damages for those things they have misrepresented. We must go back to tbe day tbe stock was sold, and determine bow much more plaintiff’s stock would have been worth bad tbe statements made to him been true. At such time both tbe buyer and seller believed, or at least hoped, that tbe mine would be a success. How much less would tbe plaintiff have been obliged to pay for tbe stock bad be known tbe truth. Taking up tbe •evidence, and remembering that tbe plaintiff bas tbe burden of proof, we find that many of tbe statements of tbe prospectus were true. They owned mines; they bad dug tunnels; they bad much low-grade ore on tbe dock; they believed their mines to be valuable; they bad put in their own money; tbe officers served without compensation; they were reputable business men; they intended tbe money to be used for an extracting mill and in developing their property. It is not claimed that they wilfully misrepresented tbe prospects of tbe mine, but that they made statements without knowing whether tbe said statements were true or false. An examination of tbe evidence will disclose, however, two kinds of misrepresentations: First, it may be said that tbe ore upon tbe dump was misrepresented. If so, it may further be said that tbe stock of tbe plaintiff would have been of greater value bad tbe ore npon tbe dump been there, for it could be treated and sold. This seems to be true, but, when we come to measure the damages for this false representation, we find much difficulty. If, for example, it bad been falsely represented that there was upon tbe dump $10,000 worth of •ore, tbe plaintiff would be entitled to bis proportionate share of the $10,000; but as no evidence was offered as to tbe amount of ore, or of its probable value, to base a verdict upon this item would be the wildest kind of guesswork. It may be said that, had the plaintiff known, that the ore was of such little value, he would not have bought the stock» The complete answer to that proposition is that the plaintiff by bringing an action for deceit elected to ratify the contract, and did, in effect, buy the stock after he knew the value of the ore. The second representations proven false are those made by Ganan to the purchasers that the stock was worth par, and that 1,000 shares would make the purchaser' independent. We do not believe, however, that the plaintiff will be heard to say that he believed Canan when he told him the stock was. worth par when he was selling it at 15 cents upon the dollar. The purchaser has no right to rely upon the truth of statements so obviously false. The seller must state truthfully the facts upon which he and the purchaser may base an opinion as to values. Having done so, he is not liable for conclusions equally apparent to both. All of the above conclusion are in line with the best decisions of the courts of this country and England, and have been twice before approved by this court. Beare v. Wright, 14 N. D. 26, 69 L.R.A. 409 (103 N. W. 632, 8 Ann. Cas. 1057, a well considered case); Fargo Gas & Coke Co. v. Fargo Gas & Electric Co. 4 N. D. 219, 37 L.R.A. 593, 59 N. W. 1066; Van Epps v. Harrison, 5 Hill, 63, 40 Am. Dec. 314 (very instructive); Page v. Parker, 43 N. H. 363, 80 Am. Dec. 172, 6 Mor. Min. Rep. 544; Smith v. Bolles, 132 U. S. 125, 33 L. ed. 279, 10 Sup. Ct. Rep. 39, 16 Mor. Min. Rep. 159; 4 Sutherland, Damages, 3d ed. p. 3401; Crater v. Binninger, 33 N. J. L. 513, 97 Am. Dec. 737, 10 Mor. Min. Rep. 124. The rule for the measure of damages being well settled in this state, and there being no evidence upon which such damages could be based, it follows that the direction of the verdict for defendant was proper. If it seems a hardship upon the buyers of the stock, we can only reply that they had a chance to repudiate the sales if fraudulent, and recover back their money. This they refused to do, but, on the contrary, kept their stock until further developments proved it worthless, and then demanded that the defendants pay them six times the amount plaintiffs had paid for it. They wished to keep the stock and take all the chances there were of the mine paying out, and then, in case of failure, compel the defendants to make good Can-an’s representation that the stock was worth par. Only their modesty, probably, prevented them from demanding that they all be “made independent” according to the promise of Ganan. The purchasers’ losses were occasioned by sticking to a bad bargain after they knew they had been deceived. For this poor judgment the defendants are not liable. Neither are they liable for the unkindness of nature in placing the mother vein outside of the defendants’ property.

3. Appellants have assigned error upon the ruling of the trial court in the admission and exclusion of testimony, but an examination of the record discloses that none of the testimony excluded went to the question of the damages to which the plaintiff was entitled. The evidence, if admitted, would not have supported a verdict any more than the evidence received by the trial court does. Such evidence all went to the question of the falsity of representations made by Ganan, and would be merely cumulative. We have already conceded, for the purposes of this decision, that the plaintiff had proved their right to rescind. The exclusion of further evidence of that right did not hurt them. They failed to prove the damages contemplated by law, and, unless the evidence excluded tended to prove such damages, it was immaterial to this decision.

4. Eespondent urges in his brief that, in case this court reaches the decision above announced, the error in allowing the motion of the defendant mining company upon the pleadings is without prejudice, for the reason that the plaintiff has failed in the proof as against the other defendants; that it would do the plaintiff no good to be granted a new trial wherein he must fail. This sounds plausible, but this court cannot assume that the evidence offered to a new trial will be the same as was offered here. Nor can we assume that in the trial already had that plaintiff had not other evidence that he would have offered had the mining company remained a defendant.

From the above, it follows that the judgment must be affirmed as to the defendants Leach, Ellingson, and Johnson, and reversed as to the defendant the mining company.

Appellant will recover his costs from the mining company, and the other respondents will recover their costs from the appellant.