Shotwell v. Mali

By the Court, Grover, J. The only questions presented by the exceptions relate to the cause of action set forth in thq third count of the complaint. Only one of the exceptions to the rulings upon the trial in regard to the admissibility of evidence was insisted upon, on the argument. That related to the offer of the defendants to prove that the plaintiff received stock of the American Coal Company for the stock in question, by the consent of the directors of the Parker Vein Coal Company in value exceeding the suba paid by the plaintiff therefor. This exception is not well taken. The plaintiff’s right of action was complete upon the purchase. And this right could not be affected by any subsequent action of the directors of the Parker Vein Company, with which the defendants had no connection. The directors had no right whatever to transfer any of the property of the company on — 469 — account of fictitious stock; and if they did so, the stockholders could compel the party receiving the property to account therefor. 2fo grounds for the motion to dismiss the complaint, made by the defendants’ counsel at the close of the plaintiff’s proof, were stated. It is well settled that an exception to the refusal to grant such a motion cannot be sustained on account of the deficiency of any proof that might have been supplied upon the trial, had the attention of the court and the opposite party been called thereto. It is not claimed by the defendants’ counsel that evidence might not have been given that would have sustained the action. The exception is not, therefore, well taken. The real questions in the case arise upon the exceptions to the charge and the refusals to charge as requested. The defendants’ counsel requested the court to charge that there was not sufficient evidence to warrant a finding that the stock was not genuine, and excepted to the refusal so to charge. The evidence showed that the entire capital stock of the company had been issued prior to the dates of the certificates purchased by the plaintiff, and also that the defendants, prior thereto, had, as officers of the company, issued spurious certificates of stock to a considerable amount. This evidence created a presumption that the certificates in question were false and fraudulent. This devolved the burden upon the defendants of showing that the certificates were issued either upon the surrender of certificates of genuine stock, or upon the transfer on the books of the company of such stock—facts peculiarly within the knowledge of the defendants. The like principle should be applied as in the case of a party fraudulently mingling his property with that of another so that it cannot be distinguished, in case the defendants so conducted the business that the spurious could not be distinguished from the genuine, as against them. An exception was taken by the defendants’ counsel to the charge of the court that it was not necessary for the plaintiff to prove that the stock was bought of the defendants or of the company. That if the de — 470 — fendants issued, this stock and. the plaintiff purchased, it upon the faith. that it was genuine, authenticated, as it was, the defendants were liable although the actual purchase was made of others. This exception presents the principal question in the case, and the one mainly relied upon by the defendants’ counsel. That is, whether the officers of a corporation, authorized to issue certificates to the stockholders as evidence of title to stock, are liable only to the immediate purchaser of spurious stock falsely and fraudulently certified by them, or liable to any subsequent purchaser buying upon the faith of the false certificate. This precise question was decided by this court in Seiner v. Mali, (32 Barb. 76.) It was there held that the liability extended only to the immediate vendees of the company or of the defendants. I should follow this case, holding the point as adjudicated, in this court, but for the case of Cazeaux v. Mali (25 Barb. 578) holding the contrary doctrine. These conflicting decisions leave the question open; especially as it does not appear that the attention of the court was called to the latter case, while considering the former. I will briefly state the reasons for my concurrence in the case of Cazeaux v. Mali. The principle enunciated in the case of Seizer v. Mali is doubtless sound. The error, if any, is that the case does not come within it. A vendor guilty of fraud in the sale of property is liable only to his vendee, and a subsequent purchaser does not acquire the right of action. The same rule applies in case of a sale with warranty, and a breach. There is not only no privity, but no fraud practiced of contract made with the subsequent purchaser. It is also true that the purchaser of the stock had a remedy against his vendor for a breach of the implied warranty of title. But does such right of action constitute a bar to an action against one who had induced the purchase by a fraudulent representation that the vendor had title to the stock, where damage resulted from the fraud ? Clearly not. That is but the common case of frauds committed in transactions between — 471 — other parties. And it is no answer to the action that the guilty party obtained no advantage from the fraud, or that some remedy, in some form, exists against another party. This action cannot be sustained upon the principle that the plaintiff acquired by his purchase any right of action that any of the prior purchasers of the stock had against the defendants. If sustained at all, it must be upon some other principle. The case shows that the defendants made certificates that certain parties owned specified amounts of stock in the Parker Vein Coal Company, which were false and fraudulent, and caused stock evidenced by such certificates to be sold in the market, and delivered such false certificates to the purchasers. The certificates were affirmations in writing that the parties owned stock as therein expressed. These certificates were presented to the plaintiff, and he purchased upon the faith he reposed therein. It thus appears that the plaintiff purchased upon the written affirmation of the defendants that the party selling had title to the stock; or, in case there was a blank power authorizing a transfer, attached to the certificate, to be completed by filling in the name of any subsequent purchaser desiring a transfer upon the books to him, the effect would be the same. In either case there was the representation of the defendants that the party offering the stock for sale had the right and power to give a title thereto. There is no question but that had the defendants been present upon the purchase by the plaintiff, and then fraudulently represented to the plaintiff that the vendor owned the stock, and the plaintiff was induced thereby to purchase, and he sustained damage from failure of title, the defendants would have been liable to him. It would not be claimed that it would be any defense to the action to show that the defendants had made the same false representations to prior purchasers and were liable therefor. It may be said that the defendants did not authorize the plaintiff’s vendors to exhibit the certificate to him, and consequently they are not chargeable with the consequences of such exhibition. Is this — 472 — assumption correct P I think that any one furnishing another with a false and fraudulent document purporting to show title in another to any property, is liable to any one sustaining damage from reposing confidence therein. Upon the same principle that a party writing a fraudulent letter, as to the trustworthiness of another, to a particular person, with a view to induce the giving of credit, by such person, is held liable to another giving credit, upon the faith of the letter, to whom the letter may have been shown. In such case there is no privity between the writer of the letter and the party giving the credit, but the writer has been guilty of fraud, and ■the party giving the credit has sustained damage therefrom, and this is the foundation of the liability. The case in judgment is still stronger. The defendants knew that upon every sale of the stock the certificates would be presented and ,delivered to the purchaser as evidence of title; and it may be fairly argued that the defendants authorized such presentation and purchases upon the faith thereof. It follows, then, that the defendants having made and issued their certificates, for the purpose of defrauding, are liable to any one sustaining damage by purchasing stock, in consequence of faith in their truth. It is not necessary in this case to discuss the question whether the damages might have been reduced on account of the plaintiff’s right of action against his vendor, for breach of warranty, as no such question was raised upon the trial; nor, for the same reason, to determine what effect the recovery in this case would have upon an action brought by a prior purchaser of the same stock, against the defendants, for any injury such purchasers might have sustained. I will simply remark that, as a general rule, every tort-feasor is liable to every person sustaining an injury from the direct consequences of the wrongful act. The only question submitted to the jury was whether the stock was spurious. It will be seen that I place the defendants’ liability upon the ground of having issued the certificates in question with the fraudulent design of enabling some one to transfer spurious — 473 — stock and thereby to defraud the purchasers. It was necessary that this should be established and found by the jury. The evidence tended to show it, and the defendants’ counsel did not request any question to be submitted to the jury, except as to the spuriousness of the stock and whether the purchase of the plaintiff was made of the defendants or the company, or whether made of some one else. The former question was submitted and the jury found for the plaintiff. The latter was not material. A new trial should he denied, and judgment rendered for the plaintiff, upon the verdict. [New York General Term, November 24, 1862. blew trial denied. Ingraham, Clerke and Grover, Justices.]