Salmon v. Richardson

Sanford, J. It is unnecessary for us to examine all of the counts in this declaration, because we are satisfied that the fourth is sufficient, and upon that the plaintiff is entitled to judgment whether the other counts are good or not. This count charges that the defendants were, and acted as, directors of the insurance company; “ that for the purpose of giving the company a false and fictitious credit, and to increase the business of said company and to add to their own profits as stockholders of said company, the said directors, the defendants, did falsely and fraudulently represent and publish to the world, as and for the true condition of the affairs of said company, that said company was possessed of a very large amount of property of great value, to wit, forty-five Harlem railroad first mortgage bonds,” &c., amounting in all to $367,147.12 ; “ that the said directors of said company falsely and fraudulently represented said company to be the rightful owners of said property, and to be good and solvent, to induce people to effect their insurances in and by said company, and to increase the business and profits of said company and their own profits as stockholders thereof; that the plaintiff, relying on said representations of the directors of said company, the said defendants, and believing the same to be true,” at the .special instance and request of the said company insured his building &c., in said company, and paid to the company a premium on such insurance amounting to $100; that the Insured property was destroyed by fire; and that at the time of the publication caused and made by the directors as aforesaid, and at the time of said fire and for a long time previous thereto, said company was not the owner of the valuable assets before specified and enumerated, and contained in said publication, nor of any valuable assets, but was wholly insolvent; all which the defendants well knew when they thus willfully, — 373 — falsely and fradulently uttered and caused to be published said false statement as aforesaid ; ” and that by means of the premises, &c., the plaintiff has suffered great loss, &c. The defendant Richardson claims that the publication complained of is charged to have been made by the defendants acting as directors of the insurance company, and that no action can be maintained against them for any thing done by them while acting in that capacity. We will not stop now to inquire whether, upon the true construction of this count, the false and fraudulent publication complained of is charged to have been made by the defendants when acting in their official, or in their personal character, because we think that the law regarding the defendants’ liability, in any aspect of it, is not as the defendants claim. If it is, it ought speedily to be amended in order to relieve it from just reproach. Directors of a corporation in the management of its affairs are the power which gives expression to its will, but it is no part of their duty to perpetrate crimes or frauds in its name or for its benefit, and whatever, the liability of the corporation may be, the individuals who under cover of their office of directors commit frauds like those charged against these defendants, ought to be, and in our judgment are, upon the clearest principles of law and justice, accountable for their conduct in a civil action at the suit of the injured party. It is true that the contract of insurance was made with the corporation, and not with its directors, and that no suit coulíl be maintained upon that contract against such directors, whatever agency they may have had in making it. It was the contract of the corporation and not of its directors, and there was therefore, as the defendants claim, no privity of contract between the plaintiff and these defendants. But this action is not founded upon any contract, or to obtain damages for the breach of one. The plaintiff’s claim is that these defendants, availing themselves of the facilities afforded by their office and position of directors, have perpetrated a flagitious fraud upon him, for the benefit of the corporation, and their own pecuniary profit and emolument as stockholders thereof; that they — 374 — individually made, and concurred in the making and publishing ofj the statement that the affairs of the company were in a sound and prosperous condition, knowing it to be false, and intending to deceive and defraud all property holders who might be induced thereby to insure their property in that company. And whether directors of a corporation are to be regarded as its agents or its elements, impartial justice and public policy both require that, as all natural persons are, so they should be held responsible to third persons for the misfeasances by them in fact committed or commanded. In the case of Goodspeed v. The East Haddam Bank, 22 Conn., 530, the contest between the parties was whether the corporation could be held responsible for the malicious and wrongful act of its directors. The bank was held responsible; but neither in that case, nor in any other which has fallen under our notice, has it been decided that the actual active perpetration of a wrong to the rights or property of another can find protection under the charter of a corporation, any more than in the command or authority of a natural superior. The familiar principles applicable in the case of positive torts committed by servants and ordinary agents, must be applied to the misfeasances of directors also. It may sometimes be difficult to prove the actual participation of individual directors in the acts complained of, but the legal principle which subjects them when discovered is not Effected by such contingency. No privity between the parties, other than that which is exhibited in this count, was necessary to the maintenance of the suit. The false and fraudulent statement of the condition of the insurance company is charged to have been made and published to the world by these defendants (knowing it to be false,) to induce people to effect their insurances in and by said company. And it is averred that the plaintiff (being of course one of the persons to whom that false statement was addressed) giving credit to such false statement insured his property in said company; and that by means of the false and fraudulent statement so uttered by the defendants to the world, — 375 — and the plaintiff’s belief in the same and consequent insurance in said company, he has suffered loss, &c. Thus the defendants’ false and fraudulent publication is shown to have taken effect as they intended, in the deception and consequent loss and injury of the plaintiff, and to their own profit and advantage. In the case of Polhill v. Walter, 3 Barn. & Ad., 114, where the defendant without authority had accepted a bill in the drawer’s name as by procuration, Lord Tenterden, Ch. J., said: “ Here the representation ” (of authority to accept) “ is made to all to whom it ” (the bill) “ may be offered in the course of circulation, and is in fact intended to be made to all, and the plaintiff is one of these.” And in Gerhard v. Bates, 20 Eng. L. & Eq., 129, where the declaration charged that the defendant, a director and managing agent of a joint stock company, had published false statements of the condition and prospects of the company, knowing them to be false, to induce persons to purchase shares in the company, and by means of which the plaintiff had been induced to purchase, and had been injured and suffered loss thereby, Crompton, J., remarked, that although a contract required privity, he did not see that if one injured a mere stranger he might not sue for the injury. Coleridge, J., said: “ It (the false statement) amounts to a representation to any person who may hold the shares.” And Lord Campbell, Ch. J., in giving judgment said:—a We consider it clear law that if A fraudulently makes a representation which is false to B, meaning that B shall act upon it, and B believing it to be true does act upon it and thereby suffers damage, B may maintain an action against A for the deceit, there being hei’e the conjunction of wrong and loss, entitling the injured party to a compensation for damages.” And in regard to the want of privity between the parties, he said :—“ The doctrine can not apply to an action founded, irrespective of a contract, upon a false representation fraudulently made by the defendant to the plaintiff for the purpose of inducing the plaintiff to act upon it, the plaintiff showing that by so acting upon it he has suffered damage. Under such circumstances, although the parties be entire — 376 — strangers to each other, the action lies, and it would be strange if a man who has suffered damage from the wrongful act of another were without remedy.” In Allen v. Curtis, 26 Conn., 456, cited by the defendants’ counsel, the complaint was that the defendants, being directors of a bank, had mismanaged its affairs, and rendered it insolvent and the plaintiff’s stock therein worthless. This court held that the action could not be maintained, because the defendants in the management of the affairs of the corporation were its agents, and responsible to it alone for the manner in which they discharged their duties as such agents ; and the property squandered was the propei’ty of the corporation, so that the plaintiff had no legal interest in the cause of action. And in Denny v. Ihe Manhattan Co., 2 Denio, 115, the defendants, being transfer agents of the Planters’ Bank of Tennessee, refused to make or permit a transfer to be made on the books of the Planters’ Bank in their possession. The court held that the plaintiff’s remedy was against the Planters’ Bank, not against its agent ; upon the same principle that would subject an innkeeper and exonerate his servant, for the refusal of the latter to receive and entertain a guest in his master’s inn, or would subject a common carrier and exonerate his servant, for the latter’s refusal to carry goods in his master’s wagon. In these cases the legal obligation rests upon the superior, to whom alone the agent or servant is responsible for his fidelity, and the wrong complained of is in the servant a mere nonfeasance, when the remedy of the injured party is always against the superior alone. In the case at bar the defendants were guilty, not of a mere nonfeasance toward the plaintiff or neglect of duty toward the insurance company, but were the active perpetrators of a positively wrongful act, intended to operate, and in fact operating, directly and injuriously upon the plaintiff’s rights. See remarks of Jackson, J., in Vose v. Grant, 15 Mass., 519. Two objections are taken to the ruling of the court below in admitting evidence. First, it is claimed that the plaintiff’s evidence to prove that the president of the company and another director, in Novem — 377 — ber and December, 1857, solicited Richardson to make an arrangement by which certain valuable bonds might become, or be represented to be, the property of the company, was irrelevant and ought to have been rejected. We think it was properly admitted. Upon the trial it was conceded that Richardson was a director of the company from its first organization until several months after the plaintiff’s policy was issued in February, 1858, and that as early as the first day of July, 1857, six months before the publication of the false statements complained of, the company was and ever since had been utterly insolvent; that the bonds in question never were the property of the company, although by the published statement made on the first day of January, 1858, they were represented to be so; and Richardson testified that he did not know that the company ever claimed the bonds, or that the bonds were ever represented to be the property of the company. Certain entries in the books of the corporation also showed the purchase of these bonds by the company of Richardson, on the 8d of December, 1857, in exchange for certain worthless stocks of the Hudson Paint Manufacturing Company. But the plaintiff claimed that the exchange indicated by those entries was merely colorable, made under an arrangement between Richardson and the other directors, in order that the bonds might, for fraudulent purposes, be represented to be the property of the company while they were not so in fact. And to prove such fraudulent arrangement it was proper to show that just prior to the date of those entries such an arrangement was proposed to Richardson by the other directors, then the entries on the corporation books to which Richardson and all the other directors at all times had access, and then, that within a month after the date of those entries, Richardson acknowledged in writing that the bonds were the property of the company, and that he held them as such, and promised to return them on demand. Thus was presented a well connected chain of facts and circumstances, from which the jury might fairly infer that the statement complained of was fraudulently made and published, with the knowledge, consent and approbation of Richardson, as the plaintiff claimed. — 378 — It is to be observed that the proposition to Richardson was not to procure the bonds by a bona fide purchase or exchange only, but to make some arrangement by which the bonds might become, or be represented to be, the property of the company; and that the entries on the books showed not merely an exchange of these bonds, but an exchange of them for worthless stock, while the bonds were themselves of great value. The very terms of the proposition indicate a fraudulent purpose in the party making it, esp'eeially when it is considered that the company was, and for nearly six months had been, insolvent, that the party making it and the party to whom it. was made were all directors of the company and presumed to be cognizant of its condition, and that the time for making the annual statement of the company affairs was near at hand. The receipt is evidence that the proposition to make some arrangement had been accepted, while its peculiarity indicated the character of that arrangement. The receipt therefore, to the admission of which in evidence the second objection is made in this court, was properly admitted. It is unnecessary for us to consider whether the evidence of Richardson’s leaving his receipt with the company was admissible as against the other defendants or not, because it does not appear that the court was requested to restrict its operation to the case of Richardson alone, and as to him it was undoubtedly admissible, both to prove his knowledge of and participation in the fraudulent statement, and to contradict his own testimony that he was ignorant, and therefore innocent of the fraud. And besides, none of the defendants except Richardson now claim that the evidence was admissible. He alone files this motion. Lastly, we think the defendants objection to the charge ought not to prevail. It is certainly true that evidence of false statements, representations or other acts, after the plaintiff’s insurance was effected, and having no reference to what had transpired before, should have been laid out of the case, because such subsequent acts could have had no influence — 379 — upon the plaintiff when he effected that insurance ; and so the judge told the jury. • But it is equally true that the conduct and declarations of the defendant after the insurance, may have been such as to indicate the existence of a combination between Richardson and the other defendants prior to the insurance, to perpetrate the fraud complained of. And we think that Richardson’s delivery of the bonds to Green, in order that they might be exhibited to the New York commissioner as the property of the company, is a fact from which, and from the circumstances accompanying it, the jury might infer the existence of such combination. For why, it may be asked, were these bonds applied for and delivered to Green, in order that they might be used to deceive the New York commissioner. And how is it to be accounted for that they were, for that purpose or any other, delivered over without discussion or negotiation, but upon the supposition of a prior agreement that they should be used by the directors for such a purpose when the necessities of the company should require ? We think the evidence of the delivery of these bonds by Richardson to Green was not only admissible, but the fact of such delivery was in our judgment highly significant of such prior understanding or agreement. The conduct of Richardson and Green in relation to the delivery of these bonds seems to us unaccountable upon any other hypothesis. The evidence therefore was legally admissible, so that the defendant has no reason to complain of the charge, even if the question of the admissibility of the evidence was, as he claims, submitted to the jury, because the only effect of the mistake, if one was made, was to give the defendant an opportunity to take the opinion of the jury upon a question which would and ought to have been decided against him by the court. Both of the defendant’s motions ought to be denied. In this opinion the other judges concurred.