Tuthill v. Sherman

165 N.W. 4, 39 S.D. 464, 1917 S.D. LEXIS 180

Opinion

WHITING, J.

This cause was before us upon appeal from a judgment rendered on a former trial, our opinion being- reported-in Tuthill v. Sherman, 36 S. D. 237, 154 N. W. 518. Reference is made to such opinion for a statement of the cause of action thén pleaded. It will be seen that, upon the former trial, plaintiff sought to recover the alleged purchase price of certain insurance stock, such alleged1 right of recovery being based upon á written contract the material parts of which will be found recited in our former opinion, plaintiffs theory being that thé contract was one’ of sale under which-title to-the ten'shares 'of stock had'passed to> defendant, thus giving- plaintiff a right to recover under section 2302, C. C. We held that the contract was not one of sale, but for a sale to be thereafter consummated; that the title to- the stock had never passed- to- defendant; and' that plaintiff could only recover under subdivision 2, § 2303, C. C. We suggested that it would become necessary for the appellant, before another trial, “to seek -an amendment of his complaint.” Plaintiff was allowed to amend his complaint. Thus, while the second action was 'brought upon the same contract, it was brought to recover the damages allowed under said subdivision 2, § 2303, C. C., being the difference between the agreed purchase price of said stock and the value of said stock on the 20th day of December, 1911, the time on or before which defendant had covenanted to consummate the purchase. Defendant, answering, alleged that the contract was not binding upon him1 because procured through fraud and deceit. Trial was bad to a jury. There was verdict for plaintiff in the sum of $800 upon which a judgment was entered. From such judgment and orders' denying a new trial each party ha© taken an appeal, which appeals 'have been consolidated for the purposes of presentation and disposition^

Plaintiff’s assignments of errors present in reality but two matters: Were the facts proven sufficient to justify the court in submitting to the jury the question of fraud? If the answer to the first question should be in the negative, then was there such undisputed -evidence as to the value of the insurance stock as to entitle plaintiff to- a direction of verdict?

Defendant’s assignments of error present but three matters: Was it error to allow plaintiff to amend his complaint? Was- it error to exclude certain testimony offered upon the question of the value of the insurance stock? Was there error in the instructions given and in the refusal to give certain instructions?

We will consider the various questions raised in what seems to us to be their regular order, to^-wit: (1) That relating to the amendment of the complaint. (2) That relating to the exclusion of evidence as to value of insurance stock. (3) Those relating to plaintiff’s right to- an instructed verdict, including therein: (a) Question of sufficiency of proof o-f fraud; (b) Certainty as to highest value of insurance stock under the undisputed evidence. (4) Those relating to instructions given and refused.

[i] The decision of this court upon the former appeal left the trial court entirely free to- -determine whether an amendment to> Ihe complaint shoul-d be granted, an-d, if so, upon what terms. Defendant contends that th-e proposed- amendment would so change the cause of action as to render its allowance an abuse of judicial discretion. Under both complaints plain-tiff sought to- recover upon the -one contract, -and, while, under the one, he was seeking t-o -recover upon the- theory that the -contract was one of sale under which title to the stock had passed to defendant, and, under the -other, upon- the theory that the contract was one for sale under which the title to su-ch stock did- not pass, the trial c-o-urt did not abuse the -discretion in it vested when it allowed the amendment. The right to amend was- granted subject t-o the condition that, if plaintiff was- ultimately successful, he sh-oukl have no right to tax any costs accruing prior to- the time -of the amendment. Defendant contends that, under the uncontradicted showing made by -him-- as to the expenses he had- been put to in meeting the unfounded claims presented' upon the first pleading, ihe terms imposed on plaintiff were too light. We think the order allowing the amendment should- be modified so that, regardless of the final outcome of this cause, plaintiff be not allowed to tax costs for the first trial, but be -required to pay such costs on the first trial as defendant would have been entitled- to tax if h-e had -been successful upon that trial.

[3] The ev-iden-ce showed that the insurance stock in question 'had no established- market value. There was testimony as to what one party had -given for some of such stock. There was leceiv-ed in evidence on 'behalf of plaintiff a written report or statement made by the insurance company to the insurance department -of this state. After the receipt of this statement in evidence, defendant offered evidence based u-pon the theory that such financial statement was not -conclusive evidence of the real value of such stock; an-d that -defendant -had a right to introduce evidence tending to s-how the real financial condition o-f the insurance company as a going concern, and as a basis for that -to prove that the insurance company was a going concern having a line of’ agencies established at considerable cost and 'of a money valu-e to the corporation. Such evidence was excluded. This was -clearly error. It is the supposed value of a corporation as a going concern, and- not necessarily the mere amount of its tangible assets and liabilities as shown hv their book values that fixes the market value of stock. But even where there is an established market • value, such market value is but prima facie evidence of the true value — the true value is not the supposed, but the actual, value- of the corporation as a going concern. This is a proposition too well settled to admit of -question at this date. Ewert v. Taylor, 160 N. W. 797; 2 Cook on Corporations (6th Ed.) § 581. The report to the state insurance department gave the “book value” of certain assets. It is at least questionable whether such a report standing alone, is competent „ evidence of value. We are inclined to- agree with the following from Patterson v. Plummer, 10 N. D. 95, 86 N. W. 111, wherein the court was considering a report of a national bank made 'to the Comptroller of the Currency as evidence of the value of the bank’s stock:

“What evidence has been offered to show that it had an actual-value greater than its par value? N-one whatever. No testimony was introduced to show the actual value of the stock, and n-o- evidence as to the actual value of the property of the corporation. The report of the cashier to- the Comptroller is not evidence of the value either of the property or the stock. It does not purport 'to, give an estimate of the value of either. It is apparent that it was not within the scope or purpose of the report to- declare, upon the actual values of the various items of property owned by the corporation, and it does not do s-o. It is also- apparent that the sum deduced from such reports as book value are purely arbitrary, and have no reference to- actual value. This can be seen at once by considering that the actual value of the stock w-ould necessarily rise or fall with -changes in the actual value of the property of the corporation, but the book value would not change. It would remain fixed and entirely unresponsive to conditions rendering the assets of the -bank highly valuable or entirely worthless. * * * Whether the report was admissible for any purpose we need not discuss or determine. It is sufficient to say that it did not furnish, evidence of the value -of the assets, or data from which -the actual value of the stock could be deduced.”

[ 5] But plaintiff contends that the ruling of the court excluding, the evidence offered by defendant was nonprejudicial if erroneous, because, under the evidence received, 'the greatest possible value of the stock was not to exceed about $130 per share, and in giving a verdict for plaintiff of only $800 the jury valued the stock at $375 a share, an amount so clearly beyond all possible value that such stock could have had that, even with' all the testimony sought to be introduced, no such value could' have been established. We agree with plaintiff. In the light of all the evidence received tending to show the status of the business of the insurance company during the years immeditely preceding December 20, 1911, such evidence being in part letters written by defendant, it is impossible. to conceive that the stock of this company could have had a value much, if any, in excess of its par value, $100 per share. We are of the opinion that, if the witnesses 'had been allowed to advance opinions as to the value of such stock — basing such opinions on the report and all matters proper to be considered in connection therewith — and such witnesses had put such value at anywhere near $375 a share, the trial court would have been justified, of its own motion, in setting aside any verdict which showed that the- jury accepted such- valuation as correct.

[6] Was plaintiff entitled to a' directed verdict? The motion for a directed verdict was based upon the ground “that the defendant has not proven any facts sufficient to constitute a defense,” but plaintiff, instead of asking the court to direct the jury to bring in a verdict in a. fixed amount, asked the court to direct the jury to fix the amount of the verdict by “talcing the highest value of stock shown by the evidence, to-wit, the statement made by the insurance company to the department of insurance.” Unless the “highest value” of this stock was so clear and , certain under the evidence that there could be only one conclusion as to the amount so- that, by deducting such value from the agreed purchase price, the court could properly determine and direct the amount of the verdict to be rendered, a motion to' direct a verdict was improper; plaintiff’s proper procedure being to move that the evidence touching the question of fraud be all stricken out, or that such issue of fraud be taken from the jury, and there be submitted to the jury the sole ciuestion of the amount' plaintiff' shotild ! recover. Inasmuch as it is clear that different minds 'might reach different conclusions' as to the “highest value” shown'by said “statement” —éveñ conceding the same to'be competent' evidence ás to 'the value of the stock — the trial court could not have properly directed a verdict.

Long after the trial closed and the jury had1 been discharged, plaintiff asked to have the verdict amended so as to grant plaintiff 3 recovery in the sum of $2,250 instead of $800. Defendant questions the correctness of the method 'by which plantiff sought to attack the justness of the verdict. We do not deem it necessary to consider whether, if the amount for which the verdict should have been rendered was certain, such a motion would lie. Suffice it to say that, for reasons already stated, the highest value of said stock — even basing the same on the “statement" — is open to dispute, and was therefore a question for the jury.

[7] Plaintiff did ask that all the evidence bearing upon the issue of fraud be taken from the jury, and has assigned as error the court’s refusal to strike out such evidence and to submit the cause to the jury on the sole question of amount of damages to which plaintiff was entitled. Plaintiff concedes that, inasmuch as the verdict resolved the issue of fraud in his favor, it would, at first thought, seem that the ruling of the court, even if error, was without prejudice, tie urges, however, that, 'in view of the smallness of the verdict — which he insists, and we believe, is excessively small under the evidence received, provided he was entitled to recover at all — one cannot help but conclude that leaving with the jury tíre two- questions of fraud and amount of damages led the jury to give the plaintiff a smaller verdict than it would 'have given if there had been left to it but the one question of amount of damages. Did the court err in submitting the question of fraud to the jury? If it did not, then we need not consider the claim of prejudice; if it did, then certain errors assigned by defendant need no> consideration.

To a proper consideration of'this question a clear understanding of defendant’s answer and of the matter testified to by defendant is necessary. Concisely stated, the answer alleged that defendant, being desirous of obtaining purchasers for a certain increase of stock of the insurance company, had offered to enter into written contracts with certain of such purchasers, guaranteeing a dividend on such stock, provided such purchasers would agree in writing to turn over and deliver to defendant all dividends in excess of 10 per cent, and to give defendant the privilege at any time of repurchasing such stock; that some of the purchasers accepted1 such offer and entered into such written agreements; that plaintiff failed and declined to enter into such an agreement, and no agreement, verbal or written, was entered into in relation, to such stock prior to this agreement sued on; that, at about the date of the contract sued on, the parties hereto met in connection with another transaction; that at that time plaintiff “represented to this defendant that there had been an agreement 'between the plaintiff and the defendant at the time of the issuance and delivery of the capital stock to the plaintiff, whereby this defendant had agreed with the plaintiff to guarantee to the plaintiff 6 per cent, per annum income upon his said investment”; that defendant could not -remember of any such .agreement; that, owing to the extremely confidential relations between these parties, defendant was -in- the habit of and did then absolutely rely upon the representations made by plaintiff, and “believed and understood- that this defendant had, either by correspondence -between the plaintiff and the defendant or otherwise, made such * * * agreement * * * * and * * * that the plaintiff -was one of the persons with whom -defendant had made such contract.” There were allegations that die ? ep-resentatio-n was1 false, and that plaintiff knew defendant relied upon it, as well as an allegation to the effect that plaintiff willfully took advantage of the extremely confidential relations' existing between them. From the evidence received, it appears -that, in the year 1906, it was found advisable, if not necessary, to increase the capital stock of the insurance company, but that, in order to meet losses for which the company was' liable under its existing policies, such stock had to be sold at -above par, as the excess above par received for such stock could alone be used in payment of such losses. Defendant was a heavy stockholder and president of the company. On December 20, 1906, he solicited plaintiff, who was not then a stockholder, to invest in this stock, and plaintiff invested $3,900 therein. When soliciting plaintiff to purchase such stock, -defendant offered, if plaintiff purchased such stock, to enter into a contract with plaintiff in relation to such stock. The exact nature of this offer, whether in the nature of a guaranty of dividends or agreement to repurchase the stock, is disputed. Plaintiff testified that:

“He (meaning 'defendant) ©ays, ‘If you will falce this stock I will return the money you pay me with 6 per cent, interest from this time if you are dissatisfied with the stock” that “I told him' that was all right, that I would rely upon his statement, and that I would take the stock, and I did take it.”

Defendant testified that: In the fore part of October, 1909, he and plaintiff met- at defendant’s office in- connection with another business matter; that, as plaintiff was about to leave" he said, “About that.matter between us of the purchase of my stock;” that in answer he said, “Did I agree to buy your stock?” That plaintiff answered, “Yes.” - That, owing to the very confidential, relations -existing between them, he never thought of doubting plaintiff’s word. That he h-estitated a bit, not wanting to buy it then, and plaintiff said “Any time later.” That that was about all there was to it. That later he received a letter from plaintiff, in which plaintiff wrote:

“You saidl you would be willing to give me a guaranty to use "in -case anything happened to you. * * * I am sending you one to sign if you wish. * * *” -

That the instrument inclosed with such letter was not in proper form. That he prepared and sent to plaintiff the contract sued -on. That in entering into such contract he relied upon the above oral statement of "plaintiff. That at the time he was soliciting perstons to buy stock in 1906 he had‘entered into contract with some purchasers, whereby he had- guaranteed to them certain dividends on that stock for certain years, they contracting to give • him all excess of dividends, if any, with privilege of repurchasing such stock. That he "relied upon plaintiff’s false statement. That after-wards, upon looking over the -old correspondence between ’ himself and plaintiff, he discovered the falsity of plaintiff’s statement. That he then was- able to- recall "just what took place' at the time plaintiff purchased his- stock; that the true facts were that he" -offered to enter into a contract "with plaintiff such" as he "had enteréd into with -other's, but, that plaintiff refused.

" We deem it important to note that defeftdant did not ’ claim to "have "ever forgotten- the nature of the contracts’entered into with the" other -otirchasers; neither'did1 be claim that ‘ plaintiff’s representation’led-him- to believe that he had agreed'to reptirt chase such’" stock — but'" upori" the other ’hand he'swore tha!t such representation led him to believe that he had entered, into' the same agreement with plaintiff .that he had' with the other pur-, chasers — an entirely -different agreement than one obligating him to purchase the stock. Introductory to the contract proper, and apparently . stating the reasons why defendant entered into such contract, the contract recited that, at the time of the original purchase of his stock:

“Sherman agreed wi-t-h * * * Tuthill to guarantee to party of the first part 6 per cent, interest on his investment.” Moreover, in the letter in which -defendant sent the contract to plaintiff, he e-tated as a -reason for not signing the form of contract prepared by plaintiff:

“I think * * - * -that what I return * * * would contain more information for others who might be called upon to settle the matter for us.”

While from the above one might conclude that defendant entered into the contract under the mistaken belief that he had formerly made -the same contract with plaintiff that he had with others; and while, if plain-tiff had represented to ■him, as alleged in the answer, that he “had agreed with the plaintiff to guarantee to the plaintiff 6 per cent, per annum income upon his investment,” one could find from such representation something which would naturally, -owing to defendant’s ’ confidence in.-plaintiff, lead to such mistake, we are unable to- find in the testimony of defendant anything to establish the only representation pleaded by defendant; nor can we find, in the representation by plaintiff -that defendant had agreed to repurchase the stock, -even if such representation had been the one alleged, anything that would indicate any -intent -on -the part of plaintiff to lead defendant to believe that plaintiff had accepted the offer which defendant made him back -in 1906. Common sense would certainly lead plaintiff, if he remembered wh-at actually occurred between these parties and it was as claimed by defendant, and if he was desirous of deceiving defendant and getting him to enter into a contract, to have made some such representation as the one pleaded, and not such an one as 'defendant swore was made. The most one could possibly conclude, under all the evidence, construing it as favorably as one could for defendant, is that, if plaintiff’s representation- was false, it was made because his memory was at fault, and not because he intended to- -deceive. In other words, construing the evidence as reasonable men guided by human experience, the most we could- say is that -there was evidence from which the jury might have said that the contract sued upon was founded upon mutual mistake. The trial court erred in not taking the question of lraud from the jury.

W.as such error prejudicial? Something caused the jury to give the plaintiff a verdict of only $800 when, under the evidence received, he was clearly entitled to some amount far in excess of the $800. What led the jury, to overlook the evidence and the instructions of the co-unt on -the question of amount of damages? We must presume that the jury intended to- fairly consider this -case. We are unable to explain their verdict, except upon the ground1 that i-t was affected by the fact that they allowed some -doubts as to the existence of. the defense pleaded to influence their action in determining the amount of their verdict.

[8] The trial co-urt refused -defendant’s request for an instructio-n that the jury sho-ul-d fin-d for defendant if it found from the evidence that -both parties entered into the contract laboring under a mistaken -belief that there had- been an agreement entered into at the time plaintiff purchased' the stock. The court did not err in refusing such instruction-; no- su-ch defense was pleaded; no amendment of pleading to conform to proof was sought; such defense- is inconsistent with the position taken by defendant throughout the trial.

Defendant contends that the trial' court erred in both giving and refusing instructions relating to- the elements of that fraud 01-deceit which renders an apparent consent to a -contract not a legal consent. As there probably will be -another trial of this cause, we might feel in -duty bound to consider the questions so- raised ■to the end that the trial court be guided' aright upon such further trial, if it were not f-or the faot that, in the light of defendant’s sworn testimony, we cannot conceive -how he can longer urge his present -defense.

We are therefore of the opinion that -the trial court erred in its rulings excluding evidence offered- by defendant, and1 in its ruling submitting the -question of fraud to the jury; that, in the ligh-t of the verdict, the first of these rulings was nonprejudicial and the other prejudicial.

The judgment and the order denying a new trial upon plaintiff’s motion are reversed; the order granting plaintiff leave to amend modified as above noted; and neither party is allowed costs.