King v. Livingston Mfg. Co.

SOMERVILLE, J. As we read the original bill, it must be regarded merely as a. suit for damages of purely legal cognizance. By amendment, however, it has become a bill for equitable discovery and relief, and we think the amendment works no departure from the original bill, since the relief sought is the same, and the discovery is merely in aid of that relief. Where a purely legal claim is presented, equity will not entertain it, except by way of giving complete relief, where the bill exhibits some associated equity. And, with respect to equitable discovery, the bill is sufficient, if it shows that the information sought is material, indispensable to complainant in the prosecution of his suit, within the knowledge of the other party, and the proof not available to complainant by other means.—Horton v. Moseley, 17 Ala. 794; Crothers v. Lee, 29 Ala. — 124 — 337; C. L. Ins. Co. v. Webb, 54 Ala. 688; Shackelford v. Bankhead, 72 Ala. 476; Lawson v. Warren, 89 Ala. 584, 8 South. 141. The amended bill fairly meets, these requirements, and does not come within the ruling in Wolf v. Underwood, 96 Ala. 329, 11 South. 344, that a stockholder must first resort to his remedy by mandamus to obtain access to the corporation’s books, papers, and records, unless he charges that the matters inquired about are not fully and fairly'shown thereby; for this bill does charge that no minutes of directors’ meetings were kept, and some of the matters are not such as would naturally be found in the corporate records or archives. Of course, if on answer and proof the contrary appears, the equity of the bill would fail. It results from these considerations that there is equity in the amended bill of complaint. For the purposes of discovery it is proper to join the officers of the corporation, who may know the facts sought. Hence there is no misjoinder of parties here, if the bill makes a case of deceit against the corporation and its manager, Smith, jointly. Each of the respondents, by demurrers separately filed to the amended bill, denies the sufficiency of its allegations to show fraud as to either of them, or, if they be sufficient as to Smith, to show that Smith’s fraud- was participated in by the company. The fraud complained of is the alleged false statement made to complainant, by a letter written to him in January, 1906, by respondent Smith, that the company had that year earned 20 per cent, on its paid-in capital. We think the allegation in the bill that this letter was from the company, and signed by its manager, sufficiently shows it to be the act of the company. If it was not a corporate act, not being specifically authorized by the — 125 — board of directors, nor within the general scope of the manager’s authority, then no case is made against the company, and it is not liable. It is to be noted, however, that, independently of the particular allegation quoted, the principal, who intrusts to an agent the duty of giving information to those interested therein, is liable to such persons for the consequences of false information given by the agent in the course of his employment, to the same extent as if given directly by the principal, • even though the principal intended and directed that only time information should be given.- — ■ Cyc. 1583, and cases cited in note 23. This results from the general principles of the law of agency. See McCord v. W. U. Tel. Co., 39 Minn. 181, 39 N. W. 315, 1 L. R. A. 143, 12 Am. St. Rep. 636. The bill seeks also to make the principal, the company, liable for Smith’s fraud on the ground that the proceeds of the fraudulent transaction, the $3,000 paid by complainant for worthless stock, went into the treasury of the company, and was expended by it, and that the company and Smith refused to refund the money to complainant on his demand therefor. If the money was accepted or retained by the company with a knowledge of the fraud in its acquisition, this would, of course, be a ratification of the agent’s fraud; for he who knowingly enjoys the benefits of a fraud must also bear its burdens. But the bill does not show that restitution was possible when demand was made on the company, and so does not show an election on its part to ratify the agent’s fraud. — 31 Cyc. 1270. In this aspect the bill is therefore defective, although no demurrers are .addressed to this particular phase of it. We now come to the consideration of a more difficult question, viz., whether the false representation thus made by Smith, as to the corporate earnings for the — 126 — year, six months before the issue of additional stock and complainant’s investment therein, can be regarded as the responsible cause of complainant’s investment and loss — i. e., as a legal fraud upon him with respect to that transaction — in the absence of any shoving by express averment or necessary implication that such false statement was made in contemplation of the future issue of stock, and with the intent that it should be acted upon by complainant in respect thereto. This question is directly raised by the demurrers. The law seems to be well settled that one essential element of actionable deceit is that the party making the false representation intended it to be acted upon by the party complaining, or else by one of the general or special class to whom he belongs.—Henry v. Dennis, 95 Me. 24, 49 Atl. 58, 85 Am. St. Rep. 365, and note, 370; Colorado Springs Co. v. Wight, 44 Colo. 179, 96 Pac. 820, 16 Ann. Cas. 644; 2 Pam. Eq. Jur. (2d Ed.) § 876; 20 Cyc. 35. This is, of course, an inferential fact to be gathered from the circumstances of the case. It is evident that, unless a future issue of corporate stock was in the contemplation of the company and in the mind of Smith when the false statement in question was made, there could have been no intention that it should be acted upon by complainant as it Avas. As a necessary basis for the intention above stated as an essential, it is incumbent upon complainant to allege that some future issue of stock was in contemplation, and, further, that Smith knew of it, and intended it to be acted upon by the complainant. The facts alleged in the bill may support inferences to that effect, but they are at. least equivocal; and, as a matter of pleading, the essential facts,' though inferential, must also in such cases be averred.—Norton v. Randolph, 176 Ala. 381, 58 South. 283. It follows that — 127 — the eighth and ninth grounds of demurrer were well taken, and hence the decree of the chancellor sustaining the demurrers generally was without error, though apparently based upon considerations other than those we have just specified. If the false representation was in fact made in contemplation of any future issue of stock, and 'with the intention that it should influence complainant to its purchase, it cannot be said, as matter of law, that the lapse of six months between the statement and the issue and purchase works a withdrawal of the statement, or exhausts its influence as the causa causans of the purchase. The remoteness of its alleged operation, if not wholly unreasonable, may weaken or even destroy the inference of causal connection, but it still remains a question of fact. — 20 Cyc. 41, “c,” and cases cited in note 66. We note in this connection that the case of Hooper v. Whitaker, 130 A]a. 327, 30 South. 355, cited by appellee, is not at all in conflict with this view of the law. Contributory negligence is not a defense to an action for deceit. If the false statement is made by one who may be fairly assumed to know what he is talking about, it may be accepted as true, without question and without inquiry, although the means of correct information are easily within reach. This has been repeatedly declared. It may be true that “credulity is but the bastard brother of belief,” yet in such cases the law protects the simple and foolish, as well as the Avise and prudent. It would, indeed, be singular to hold a swindling deceiver exempt from liability because he has swindled only foolishly credulous and trusting persons, and more singular still to hold that such a swindler may successfully plead the incredibility of his falsehood and the folly of — 128 — his victim’s belief. We are speaking abstractly, of course. We apprehend that the improbability or incredibility of a statement, judged by ordinary standards of intelligence, is a matter that is ordinarily relevant only to the question of its acceptance as true by the other party, and of its influence upon his conduct, and that those qualities never of themselves forestall a right of action. If the allegations of the bill are true, complainant, a stockholder, unquestionably had a right to rely implicitly upon the statement of • Smith, the managing director.—Tyler v. Savage, 143 U. S. 79, 12 Sup. Ct. 340, 36 L. Ed. 82. As already ¡jointed out, the bill is one to recover damages for deceit, and not for rescission, as predicated in .some of the grounds of demurrer. Other grounds of demurrer are so plainly without merit as not to justify discussion. Our conclusion is that the eighth and ninth grounds of demurrer were well taken, and that the other objections to the bill were not meritorious. It results that the decree of the chancellor must be affirmed. Affirmed. All the Justices concur, except Mayfield and de G-raffenried, JJ., not sitting.