The following opinion was filed December 9, 1924:
Crownhart, J.
As appears by the evidence on the trial of this case in the court below, plaintiff at all times mentioned was a lawyer of considerable business experience with corporate affairs, and understood in a general way how to interpret financial statements of corporations.
Sometime prior to 1912 plaintiff had secured stock in the Richardson-Phenix Company, and in June of that year became a director of the company, representing the Richardson interests. In January, 1914, he left the board of directors of the company, and after that time knew but little about the business and general condition of the company. He received on his stock for the nine years prior to October, 1921, only two or three six per cent, dividends. .When these dividends were paid a financial statement accompanied them.
While the plaintiff was a director of the company he had a verbal altercation with the defendant Peterson over what [454]*454plaintiff considered mistreatment of Mr. Richardson by the defendant Peterson. Plaintiff thought that Peterson harbored ill feeling toward him thereafter.
Peterson was an influential personage in the company during all the time of plaintiff’s connection therewith, and along about 1918 had secured a majority interest in the stock of the company. At the time of the consolidation hereinafter mentioned Peterson was the president and treas^ urer of the Richardson-Phenix Company and was in active management of the company.
This was the situation on September 26, 1921, when defendant Dyke called upon plaintiff at plaintiff’s office in Milwaukee and sought to purchase plaintiff’s stock in the corporation for himself and the defendant Bromley.
For a couple of years prior to this time Dyke had occupied a responsible position with the Richardson-Phenix Company as its auditor. Bromley also occupied a responsible position with the company in connection with its sales department for about the same length of time. Both Dyke and Bromley, upon entering the service of the company, had suggested to Peterson that they desired some stock in the company, and Peterson had agreed that if their services proved satisfactory he would secure stock for them.
When Dyke applied to plaintiff to purchase plaintiff’s stock plaintiff requested from him a financial statement of the condition of the company. Dyke replied that he was not an officer of the company and suggested that the plaintiff apply to Peterson for the information desired. Thereupon plaintiff, in the presence of Dyke, dictated to his stenographer the letter following:
“Richardson-Phenix Co., September 26, 1921.
“118 Reservoir Ave.,
“Milwaukee, Wis.
“Attention Mr. Peterson.
“My dear Mr. Peterson:
“Mr. Dyke suggests buying my stock in his own and others’ interest.
[455]*455“I am willing to sell at a fair price. I wish to know just what I am selling. For this reason I asked him for the most recent trial balance or other record of the accounts which would show the corporation’s present financial condition.
“Mr. Dyke preferred to have this request passed on to you, so here it is.
“I regret very much to learn from him that Mr. Stroth-man is in such bad health, and am glad to know that you are in your usual superlative vigor. If the company has as large an undivided surplus of assets as you always seem to have of energy, it will be no less than you and your excellent and aggressive management has well earned.
"Seriously, it has been my thought for several years that my holdings would better be in the hands of some person active in your organization, and because of this I should be glad to make the suggested turn-over at what is a fair price under all the conditions.
"Yours sincerely,
“Robert N. McMynn.”
This letter was received in the mail by Peterson in due course. In the meantime Dyke had reported to Peterson the result of his negotiations with the plaintiff for the purchase of his stock, and upon receipt of plaintiff’s letter, Dyke, under the direction of Peterson, prepared a statement purporting to represent the true financial condition of the' corporation as of August 31, 1921. This statement was turned over to Peterson and by him forwarded by mail to plaintiff, together with this letter:
“Mr. Robert N. McMynn, September 27, 1921.
"534 Wells Building,
“Milwaukee, Wis.
“My dear Mr. McMynn:
“Replying to your request of the 26th inst., I am pleased to inclose herewith our financial statement as of August 31st.
“At the time Mr. Strothman purchased Mr. Burroughs’ stock, Mr. Burroughs told me you would like to sell yours and I have kept the matter in mind, but no stock has changed hands since.
[456]*456“Some time ago Mr. Dyke and one of our good men, Mr. Bromley, expressed a desire to. purchase a small block of stock and I suggested that they see you. I would like to have both of them interested with us, as practically all of our capital stock is now held by those active in the management of the business, which is advantageous, because we all draw sufficient salaries to take care of ourselves very nicely, and we are therefore able to leave the profits in the business to be used in building it up-.
“I don’t feel as though I ought to suggest what I would consider a fair price for you to ask for your stock, but as a matter of information, Mr. Strothman paid Mr. Burroughs $15 per share, at which time business was good and money was easy, whereas now conditions are just the reverse. Just now and for several months past we have been operating at a loss, but I am very hopeful for the future, because we have a sound business, which is bound to grow under normal conditions.
“I thank you for the kindly, expressions contained in your letter, and while way back in the beginning we agreed to disagree, I have always felt that if this had not occurred we would have made a great team, and I shall continue to have the highest regard for you.
“Sincerely yours.
“J. Wm. Peterson,
“President and Treasurer.”
Prior to the negotiations for the purchase of plaintiff’s stock defendant Peterson had been in communication with the vice-president of S. F. Bowser & Company, a corporation, of Fort Wayne, Indiana, with reference to a consolidation or merger of the Richardson-Phenix Company with S. F. Bowser & Company. Some suggestions of this had been made a year or more prior to this time, and they were renewed on August 19, 1921. On September 22d or 23d a tentative oral agreement was entered into between Bowser & Company and Peterson looking to such combination. Between October 4th and 11th the attorneys of the respective [457]*457parties were in correspondence in the drafting of a written agreement to fix the terms of the merger between the two companies, and such agreement was put in writing and executed by the parties on October 11, 1921.. This agreement followed very closely the tentative agreement of September 22d or 23d. By the terms of the agreement Peterson was to deliver to Bowser & Company all the stock of the Richardson-Phenix Company on or prior to January 5th following, and to immediately deliver in escrow to the National Exchange Bank-of Milwaukee a majority of the stock. The terms of the agreement were afterwards carried out and the stock of the Richardson-Phenix Company was taken over by Bowser & Company on a cash basis for $26.75 per share.
During the negotiations between Peterson and Bowser & Company on September 22d or 23d Peterson had Dyke prepare a financial statement, as of August 31, 1921, of the Richardson-Phenix Company, which was furnished to Bowser & Company for the purpose of determining the value of the stock which was to be purchased by Bowser & Company. This statement so furnished was found to be a substantially true and correct statement of the financial affairs of the company by the auditors who made an investigation of the Richardson-Phenix Company for Bowser & Company. The statement showed the book value of the stock to be'$27.30 per share, which value was finally compromised between the parties and fixed at $26.75.
The stock of the Richardson-Phenix Company amounted to $200,000, divided into 20,000 shares of the par value of $10 each. The plaintiff owned 637 shares. Very shortly after the receipt by the plaintiff of the letter from Peterson inclosing the financial statement of the Richardson-Phenix Company, plaintiff left Milwaukee for the East and did not return until October 13th. Immediately upon his return he was called up by Dyke over the telephone and asked for [458]*458his answer as to sale of the stock. To this inquiry the plaintiff replied by letter to Peterson and carbon copy to Dyke, which reads as follows:
“J. Wm. Peterson, Pres, and Treas., October 13, 1921.
“The Richardson-Phenix Co.,
“Milwaukee, Wis.
“My dear Mr. Peterson:
“I left for New York on a business trip the day after I received your letter of September 27th and have just returned.
“I have looked over the financial statefhent of August 31st which you were kind enough to send me and I congratulate you upon the solid and prosperous condition of the corporation.
“If I had received $15 per share at the time Mr. Burroughs sold to Mr. Strothman, and invested what I got,- I figure that the increase by interest would more than cover the difference in business conditions between that time and this. Also, if I were yourself or any other salaried stockholder, I would not think of letting go such an interest in so sound a business at anything like that price.
“I note that you would like to have both Mr. Dyke and Mr. Bromley as stockholders with you, and under these conditions I will sell whatever stock I have at $15 per share cash, and if it is any accommodation to the young men or to yourself, I will keep this offer open until November 1st.
“I certainly appreciate your pleasant reference to myself, and as you know from my last letter I reciprocate your feelings.
“Tam sending a carbon copy of this letter to Mr. Dyke.
“Yours sincerely,
“Robert N. McMynn.”
Notwithstanding that plaintiff’s offer to sell was open until November 1st, the parties made haste to close the deal. Immediately upon receipt of plaintiff’s letter Dyke and Bromley took the matter up with Peterson, and the three of them went to the National Exchange Bank and arranged [459]*459for the bank to loan to Dyke the amount required to purchase half of plaintiff’s stock, and to Bromley a similar amount to purchase the other half of the stock. Under the agreement with the bank the stock so purchased was to be put up as collateral security for the money loaned by the bank. Dyke and Bromley then forthwith repaired to the office of the plaintiff and notified plaintiff that they were prepared to take this stock at the price fixed in the letter to Peterson. Plaintiff thereupon turned over to Dyke and Bromley the stock and received from each one half of the purchase price by checks. Thereafter Dyke and Bromley had the stock transferred on the books of the company in their respective names and turned the same over to the bank as agreed, indorsing the certificates over to S. F. Bowser & Company with the understanding that the stock was to be delivered by the bank to S. F. Bowser & Company uftder the agreement of sale between Peterson and Bowser & Company, and the bank was to repay itself out of the purchase price.
This is the picture in rough outline of the case as presented to the trial court. However, many details were supplied by the evidence.
The appellants here take issue with the findings of fact, and this leads us to briefly analyze the evidence in support of the same. It should be borne in mind that Peterson had a twofold interest in securing plaintiff’s stock for defendants Dyke and Bromley. First, he had promised each of said defendants that he would procure them some stock in case their services were satisfactory, and he was desirous of complying with his promise. Second, at the time he sent Dyke to the plaintiff to sepure the stock Peterson knew that the merger of the Richardson-Phenix Company and Bowser & Company would most likely go through, and that under the terms of his agreement he would be required to deliver [460]*460all the stock over to Bowser & Company. The stock was all closely held, and all, with the exception of plaintiff’s stock, was in friendly hands. Peterson was therefore anxious to have this stock also owned by friendly interests. Turning to plaintiff’s letter to Peterson, it will be noted that plaintiff said at the very beginning that “I am willing to sell at a fair price. I wish to know just what I am selling. For this reason I asked him [Uy/es] for the most recent trial balance or other record of the accounts which would show the corporation’s present financial condition.” He closed his letter with this statement: “1 should be glad to make the suggested turn-over at what is a fair price under all the conditions.” There can be only one interpretation to these paragraphs in the letter, and that interpretation was made by Peterson and clearly appears from his response to the letter. The plaintiff desired to know all the facts which would be helpful to him in fixing a fair price on the stock for the purposes of sale. We now turn to Peterson’s reply. The first paragraph says: “Replying to your request of the ■26th inst., I am pleased to inclose herewith our financial statement as of August 31st.” This statement was untrue. The statement inclosed to plaintiff was not a true statement of the financial condition of the corporation as of August 31st. On the contrary, it was doctored for the purpose. Peterson had, only two or three days prior to this time, made a substantially true statement of the financial affairs of the corporation as of August 31st to Bowser & Company. This statement naturally would be fairly accurate, as it was to be subjected to the scrutiny of Bowser & Company’s auditors. Instead of furnishing the plaintiff with a copy of that statement, the plaintiff was furnished with a statement which showed the condition of the company in a very much less favorable light than the statement made to Bowser & Company. For the purpose of showing the difference in statements, we have combined the two statements into one with [461]*461the figures in juxtaposition (see below). It will be seen at a glance that in the statement furnished the plaintiff the figures were manipulated with design.
[462]*462
In the statement to Bowser & Company, under “Current Assets,” notes receivable are given as $10,905, while in the statement to the plaintiff, notes receivable are given as $62,500, but under “Liabilities,” notes payable are given as $60,000 in the McMynn statement, and nothing in Bow-ser & Company’s statement; finished stock, in the statement to Bowser & Company, is given at $133,380.73, while in the statement to plaintiff it is reduced to $81,380.73.; work in process in the Bowser statement is $40,630.96, while in the statement to plaintiff it is $32,630.96; total current and working assets in the .Bowser statement is given as $281,501.35, and only $146,646.90 in the statement to plaintiff; buildings, under “Fixed Assets,” is given in the Bowser statement as $77,965.34, and this sum is reduced in the statement to plaintiff to $60,729.12, with nothing in the statement to show what became of the difference. True, [463]*463there is testimony that a building put up for war-time operation was charged off as obsolescent. But why not charged off on the Bowser statement of the same day? It would seem that an effort was made to reduce the surplus in the McMynn statement. The surplus is given in the Bowser statement at $345,991.46, while in the statement to plaintiff it is given at $261,225.03. To the untrained mind, the surplus would be one of the great factors in determining the value of the stock. It will be seen that the surplus in the statement to plaintiff is decreased by over forty per cent, of the capitalization from the statement to Bowser & Company. Enough is shown on the mere face of these statements to indicate that the statement to plaintiff was a false statement, and made for the purpose of indicating less than the true value of the stock.
In the second paragraph of Mr. Peterson’s letter he said:
“At the time Mr. Strothman purchased Mr. Burroughs’ stock, Mr. Burroughs told me you would like to sell yours and I have kept the matter in mind, but no stock has changed hands since.”
The first part of this statement may be true or may not be true. Mr. Dyke says that he told Peterson that the plaintiff had inquired of him about the purchase of Burroughs’ stock and the price of the same, and this being so, it is quite evident that Peterson was reminded to cleverly introduce the subject in this way. But the statement “no stock has changed hands since” was a false statement and known to be false at the time it was made. Peterson, himself, but a short time befqre had purchased the stock -of Swanberg.
In the next paragraph Peterson brings to the front a matter that had been pretty fully impressed upon the mind of the plaintiff in the years gone by, and that was that practically all the capital stock was held by men active in the business who drew “sufficient salaries to take-care of our[464]*464selves very nicely,” and who were, “therefore, able to leave the profits in the business 'to be used in building it up.” In other words, the plaintiff was served with notice then and there that he might not expect, any more dividends, if he held his stock.
Peterson then expressed in his letter that he thought it was too delicate an - affair for him to suggest a price for plaintiff to fix on his stock, but proceeded to lay the facts, as he claimed, before the plaintiff, which facts were calculated to impress upon the plaintiff that the stock was worth less than $15 per share. He said:
. Mr. Strothman paid Mr. Burroughs $15 per share, at which time business was good and money' was easy, whereas now conditions are just the reverse.' Just now and for several months past we have been operating at a loss, but I am very hopeful for the future, because we have a sound business, which is bound to grow under normal conditions.”
As thus painted the conditions of the company were ominous. It was losing money and had been losing money for several months, — how much was not stated. It may be suggested here that in order to make the statement of Peterson appear to be truthful it was necessary to change the financial statement that was rendered to Bowser & Company, and it was thus so changed. As a matter of fact the company was not -losing money. The statement was false. For the year 1921 the company made profits that would allow it to pay more than ten per cent, on its capital stock, and even for the first eight months covered by the statement the profits.exceeded ten per cent. The profits for 1921 were juggled by deducting therefrom a claim made by the United States government for taxes prior to 1921, amounting to more than $22,000, which were a charge against the business prior to 1921 and not a charge against the business of 1921.
Dyke knew that negotiations for the merger of . the two companies were going on before he solicited the.pur[465]*465chase of plaintiff’s stock, but both he and Bromley professed not to know anything about the terms of the proposed merger. However, we think the trial court was permitted to draw the contrary inference. .The tell-tale finger-prints show up plainly in the conceded facts. Neither Dyke nor Bromley appears to have had any funds with which to purchase plaintiff’s stock; with Peterson’s assistance they borrowed from the bank the full amount of the purchase price; the stock was assigned to Bowser & Company and deposited with the bank as collateral; the notes were made payable the same day the deal' was to be finally closed between Peterson and Bowser & Company; the bank was to deliver the stock to Bowser & Company and pay itself for the loans out of the sale price to Bowser & Company. These facts presuppose that Dyke and Bromley were familiar with the deal between Peterson and Bowser & Company. No other inference can be logically drawn. The claim that they and Peterson were interested in their having a working interest in the Richardson-Phenix Company is entirely negatived by the facts. The court could draw no other conclusion but that such representations were false and made with the intent to deceive the plaintiff.
Plaintiff testified that he was induced to sell at the price he did because of the false representations made to him. The court so found. The truth of this is shown not only in plaintiff’s testimony but also in the' letters which passed between the plaintiff and Peterson and the statements he concededly made to Dyke and Bromley at the time of the sale. The fact that Burroughs had sold stock for $15 per share when business was good and profitable, and that now the business was poor and losing money, made a strong impression on the mind of plaintiff. He even deemed it necessary to make an argument as to why he should receive as much' as Burroughs, — because he had had the stock longer without dividends. The false statement of Peterson that he wished the stock to be held by parties directly asso-[466]*466dated in the business who, by reason of adequate salaries, could leave the profits in the business, was calculated to impress upon the mind of the plaintiff that the prospects of future dividends were even less probable than in the past. When Peterson made these representations he probably knew that the stock, when secured, was to be assigned to Bowser & Company and not held by Dyke and Bromley. The object of Peterson in making these statements was plainly to get McMynn’s stock into his control so'as to insure Peterson’s ability to carry out his agreement with Bowser & Company to deliver to that company all the stock of the Richardson-Phenix Company. That was an impelling motive. On the delivery of all the stock might depend the ultimate success of the deal.
Thus far we have discussed the active fraud of the defendants. They were equally guilty of concealment of facts which Peterson was required to divulge to plaintiff. Plaintiff had asked for facts upon which he could base a fair market value of his stock. The book value had some relation to the market value, but the ability and disposition to pay dividends was a much greater element going to increase market value. But over and beyond all else was the factor of value definitely fixed at the time McMynn’s stock was purchased.
This court held in Timme v. Kopmeier, 162 Wis. 571, 156 N. W. 961, that the
“Directors of a corporation occupy a position of trust and confidence and are considered in the law as standing in a fiduciary relation toward the stockholders and as trustees for them. The directors of a corporation are not permitted to use their position of trust and confidence to further their private interests, nor to become parties to contracts concerning corporate affairs intrusted to their management which conflict with a free and impartial discharge of their duties toward the stockholders.”
This rule was commented upon in the case of Conger v. [467]*467Wallis, 181 Wis. 378, 194 N. W. 340. The appellant contends that the rule was modified or held not to apply to a case of sale of stock by a shareholder to an officer of the corporation. A careful reading of the opinion of the court clearly shows no intention of modifying the rule of the Timme-Kopmeier Case. The court held in effect that that case did not apply to the Conger-Wallis Case, for the reason that the officer of the corporation — Wallis—did not breach his trust and the plaintiff Conger was not deceived by any misrepresentations of Wallis. In that case the trial court found against the plaintiff as to fraud and adjudged no cause of action for the same reason, and its judgment was affirmed by this court. As applied to the facts in that case, we reaffirm the decision in Timme v. Kopmeier, supra.
In the instant case the trial court finds a breach of duty on the part of the defendant, designedly intended to mislead the plaintiff, and which in fact did mislead him into making an improvident sale of his stock, resulting in large gains to defendants.
This court has expressed itself on several occasions on the relative duties of officers and stockholders in corporations. It has firmly maintained that officers of a corporation must treat stockholders with fidelity and good faith. Jesse v. Four Wheel Drive Auto Co. 177 Wis. 627, 189 N. W. 276.
This is the present tendency of courts of equity. Modern corporate methods demand open and honest dealings by the corporate officers toward the stockholders. In the Four Wheel Drive Auto Co. Case this tendency is shown, and also in Goodwin v. von Cotzhausen, 171 Wis. 351, 177 N. W. 618. Honesty and fair dealing between individuals is expected, and no less is to be demanded of those who occupy positions of agency and trust. Officers.of corporations are elected to represent the shareholders and to carry on the business of the corporation in their interest. They [468]*468are not privileged to make false statements of corporate affairs or to suppress and conceal its business for the purpose of cheating the stockholders.
We recognize that the officers of a corporation represent all the stockholders and that situations may arise where full publicity of all the negotiations and business affairs of the corporation may be detrimental to the welfare of the stockholders considered as a whole. In such cases all that may be required of the officers is the exercise of honest judgment and honest disclosure in so far as disclosure of the business is made. But this is not such a case. Peterson held a majority of the stock; he was the president, treasurer, and general manager of the corporation. He held the secret’that would determine the value of plaintiff’s stock at nearly 100 per cent, in excess of the purchase price. Plaintiff had asked, as a basis upon which to fix a fair selling price of his stock, facts which would inform him “just what I am selling” and “a fair price under all the conditions.” Peterson did not fairly or honestly respond.
The correct rule in such a case is laid down in Strong v. Repide, 213 U. S. 419, 29 Sup. Ct. 521, as stated in the syllabus:
“A director upon whose action the value of the shares depends cannot avail of his knowledge of what , his own action will be to acquire shares from .those whom he intentionally keeps in ignorance of his expected action and the resulting value of the shares. . . . Even though a director may not be under the obligation of a fiduciary nature to disclose to a shareholder his knowledge affecting the value of the shares, that duty may exist in special cases, and did exist upon the facts in this case. In this case the facts clearly indicate that a director of a corporation owning friar lands in the Philippine Islands, and who controlled the action of the corporation, had so concealed his exclusive knowledge of the impending sale to the government from a shared-holder from whom he purchased, through an agent, shares in the corporation, that the concealment was in violation of [469]*469his duty as a director to disclose such knowledge and amounted to deceit sufficient to avoid the sale.”
An analysis of the foregoing case shows that it is practically on all-fours in principle with the case before us. We are not called upon in this case to decide whether the rules applicable to trustees and cestuis que trust shall apply in the relations of officers of a corporation toward the shareholders. There is a difference of 'opinion in different jurisdictions. These cases are considered in Dawson v. Nat. Life Ins. Co. 176 Iowa, 362, 157 N. W. 929. No case holds that an officer of a corporation, under the particular facts of this case, may not be required to disclose facts within his knowledge to a stockholder whom he is seeking' directly or indirectly to deprive of his stock.
It is strenuously contended that there is no evidence fixing liability on appellants Dyke and Bromley. We do not agree with this contention. The findings of the trial court cannot be disturbed unless they are contrary to the clear preponderance of the evidence. Proof of fraud is rarely shown by direct proof of intention, but on the contrary the intent to defraud is usually found as an inference from other facts. Here the inference of collusion between Peterson, Dyke, and Bromley is very persuasive. It is unnecessary to again state the evidence. In any view of the facts the court was warranted in concluding that the three defendants worked together for a common purpose in defrauding the plaintiff.
By the Court. — The judgment of the circuit court is affirmed.
A motion for a rehearing was denied, with $25 costs, on April 7, 1925. . ' "