Goess v. Lucinda Shops, Inc.

CHASE, Circuit Judge. One of the suits was brought by the plaintiff as receiver of the Harriman National Bank & Trust Company to recover the amount due on a promissory note for $1,500 made by the defendant Lucinda Shops, Inc., on December 21, 1932, payable, and delivered, to the above-named bank and indorsed by the defendant A. D. H. Holding Corporation and by the appellant before delivery. The other suit was on three causes of action; an overdraft on appellant’s account with the bank to the amount of $3,-560.78; a promissory note for $25,000 indorsed by the appellant; and an overpayment of $1,301.03 made on a continuing guarantee by the appellant to the bank on the account of defendant Lucinda Shops, Inc. The appellant did not contest his liability on the causes of action alleged, but did rely upon three counterclaims, which were the same in both suits, alleging that he had been defrauded by the bank when he was induced to purchase of it 40 shares •of its capital stock in 1930 by the false representations of its president; that appellant paid $59,185 for the 40 shares; and that upon discovering the fraud in 1933 rescinded the sale and demanded the return of the purchase price which was refused to his damage to the amount thereof. ■ The appellee answered the counterclaims with complete denials of the fraud, and the two actions went to trial together on the issue so raised and upon another raised by an amendment of appellee’s answer alleging that the bank was closed on March 3, 1933; never thereafter opened; a conservator appointed on March 13, 1933; the bank declared insolvent on October 16, 1933; and a receiver appointed. It was contended that the rescission, which was after March 3, 1933, was in any event too late to be effective. After trial on the merits, the coxirt ‘directed a verdict for the plaintiff for the amount due on his causes of action' and dismissed the counterclaims on the ground that no fraud had been proved. Apparently the defense to the counterclaims raised by the amendment was futile in view- of Oppenheimer v. Harriman Nat. Bank & Trust Co., 301 U.S. 206, 57 S.Ct. 719, 81 L.Ed. 1042, but we need not go 'into that, for the reason that a majority of the court agrees with the trial judge that the appellant failed to prove that he was defrauded when he purchased the stock and so had no just ground for rescission at any time. The appellant dealt with J. W- Harriman, the president of the bank, in buying the stock. His grounds for rescission are that Mr. Harriman made false representations to him regarding the stock which induced him to buy it and failed to disclose to him that the bank and Harriman were artificially maintaining the price of the stock far above its actual value by “rigging” the market. The stock was an unlisted one bought and sold in small quantities. The purchases by the appellant were in three lots. On March 19, 1930, he bought 15 shares at $1,417 per share, which was charged to one of his accounts at the bank. On May 6, 1930, he bought 10 additional shares. at $1,525 each and paid for them in a similar way. On October 24, 1930, 15 shares were purchased at $1,512 per share and paid for'as before. The evidence as to the representations made by Harriman to the appellant upon [451] which he relied in buying the stock is found in the testimony of the appellant himself and the following quotations show the gist of it: “He (Harriman) first called me on the telephone and said that he would like to have me as a stockholder of the bank and that he thought he could get a hold of a small amount of stock, it was very difficult to get, and he would like to have me buy it. “He also said that the stock would have a material increase in value and he thought it was a good investment and they were anxious to have some of their important depositors, stockholders, and I told him I supposed it would be all right to buy a few shares. Subsequently he deducted some money from one of the accounts and bought some stock. He told me it was worth considerably more than the price. He said it was selling for fourteen or fifteen hundred dollars a share or thereabouts- — I have forgotten. He thought it was worth considerably more. I then authorized him to purchase the stock for me. I vaguely did. I didn’t pay much attention to it.” He further testified that in response to a telephone call from the bank later when he talked either with Mr. Harriman, or with one of two vice-presidents, Mr. Austin or Mr. Noble, he couldn’t remember, he bought 10 more shares' in the same manner but didn’t testify to any representations except that 10 more shares could be purchased. He further testified: “I think I had another conversation with Mr. Harriman some time in the fall of the year. It was either September or October of 1930. I think it was prior to October 24th, 1930. The conversation was about the same thing, the same kind of conversation as the previous one. He urged me to buy some more stock. I bought it in the same manner. He gave me a very glowing idea of the value of the stock at that time. He said he thought in a year or so the stock would be worth about $3,-000.00 a share.” He said Harriman told him the stock was worth more than it was selling for, which was around $1,500 a share. None of these representations upon which the appellant relied in making the purchases were shown to be wrong except those which were patently expressions of opinion. It appeared that .actual current sales of stock took place from time to time during 1930 at prices around $1,500 per share. There was credible evidence substantially uncontradicted that the prices appellant paid for his stock were in 1930 fair and reasonable prices for it. At that time, of course, it was not known that the bank would succumb to the effect of the depression and mismanagement, and it would be far-fetched to believe from the evidence that even Harriman, though wrong as subsequent events proved, was consciously wrong in making the statements and predictions as to value over selling price which he made to the appellant in 1930. The reasonable conclusion is that in fact appellant did, as a matter of law he had to, take such expressions as to value as mere statements of opinion and prophecy and use his own judgment. Such statements will not support an action against the seller* for they do not amount to misrepresentations of existing facts. Vulcan Metals Company v. Simmons Mfg. Co. (C.C.A.) 248 F. 853; Kimber v. Young (C.C.A.) 137 F. 744; Lehigh Zinc & Iron Co. v. Bamford, 150 U.S. 665, 14 S.Ct. 219, 37 L.Ed. 1215; Hatton v. Cook, 166 App. Div. 257, 151 N.Y.S. 577. Nor was there evidence to show rigging of the market to maintain the price of the stock in 1930. It did appear that it was customary for brokers who had any of the stock for sale to call the bank to try to get a firm bid from Mr. Harriman or a vice-president. Sometimes a bid was so obtained and sometimes not. Sometimes only part of the stock was so sold. But this was but an easy way, perhaps, for the brokers to dispose of what they had for sale. No agreement between them and the bank was shown. One broker testified to purchases and sales of some 150 shares of the stock during the year at prices from $1,350 to $1,605 per share which were “regular sales in the market, the over-the-counter market, regular sales. * * * These are perfectly straight, legitimate sales. I can give you the names of the customers.” It appeared that in 1930 the bank declared and paid dividends amounting to $35 a share on its stock, a foolish move in the light of later events, but at that time it was a matter for the exercise of the discretion of its board of directors. There is no evidence of bad faith upon which the declaration of those dividends [452] may be questioned' in this case. Liebman v. Auto Strop Co., 241 N.Y. 427, 150 N.E. 505. And so there was insufficient evidence to make a case for the jury on the issue of fraud. Some evidence was excluded. The rulings of exclusion are relied on for reversible error. Conversations between Harriman and appellant after all the stock had been purchased by the appellant were offered to show that appellant had been dissuaded from selling the stock. The theory was that this would show the fraudulent intent of Harriman in making the representations which led the appellant to buy. But, as we have seen, no actionable misrepresentations were shown, and it obviously would have added nothing to show that Harriman still retained and asserted his opinion that the stock was a good investment. An offer was made of what is called a concession of fact made by the attorney for this plaintiff in the trial of an action against one Ehret in which appellant argues that it was conceded that the market for Harriman National Bank & Trust Company, stock was rigged; that there was no real market; and that the stock had practically no value. We find that the concession relied on was not of that nature, but merely that Ehret would in his case testify, if called, that he had discovered facts “tending to show” what was claimed, as above stated, about rigging the market and lack of value of the stock. Certainly this was no concession by the plaintiff that the facts were as claimed or that Ehret’s testimony would establish them to be so. It was merely a concession to make unnecessary the calling of a witness in another case to which this appellant was not a party and whose testimony, even if it had been given in that case, could not have been introduced here as a concession of any material fact by this plaintiff. Upon a review of the entire record, a majority of the court believes that no reversible error has been made to appear. Judgment affirmed