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HOBART v. HOBART ESTATE CO. ET AL.
Plaintiff, Walter S. Hobart, brought this action against defendants Hobart Estate Company, A. Crawford Greene, and others, alleging that through the fraudulent representations of the defendants he was induced to sell 833 1/3 shares of stock in the Hobart Estate Company at much less than its true value. With the exception of the two named, all the other defendants were dismissed prior to judgment. The cause was tried before a jury. The trial resulted in verdicts against Greene and the company for $32,175 actual damages, and an additional $10,000 against Greene as exemplary damages. From the judgment entered on these verdicts, and from orders denying their motions for judgment notwithstanding the verdicts, defendants have separately appealed. It should be mentioned that the trial judge denied defendants' motions for a nonsuit, for a directed verdict, for judgment notwithstanding the verdict, and for a new trial.
On these appeals, both appellants urge, as the main grounds for reversal, (1) that the evidence is insufficient to establish a cause of action for fraud and, as a matter of law, is insufficient to support the verdicts; (2) that respondent's action, as a matter of law, is barred by the statute of limitations; (3) that the court committed prejudicial error in the giving and the refusing of instructions; and (4) that the verdict against Greene resulted from coercive pressure exerted by the trial court upon the jury under circumstances which precluded the return of a free verdict. The appellant corporation, in addition, urges that, as a matter of law, the evidence shows that nothing that Greene did or said was done or said by him as agent of the company, and that for that reason the evidence, as a matter of law, is insufficient to support the judgment against the company. It is admitted that the company's liability, if any exists, is predicated solely upon the theory that in making the allegedly false representations Greene was acting as agent for the company.
The record is long, the briefs are exhaustive. So far as the question of the sufficiency of the evidence is concerned, we are presented with the usual fact case. One side introduced evidence which, if believed by the jury, supports the conclusions that Greene intentionally made false statements of material facts, intending Hobart to rely upon them, and that Hobart reasonably relied upon them to his damage. The other side introduced evidence which, if believed by the jury, would have supported findings of honesty and fair dealing. In such case it is for the jury, and the trial judge in passing on a motion for a new trial, to pass upon the credibility of the witnesses. It is not for the appellate court to determine where the truth lies. The appellate court has no power to weigh the evidence. The appellants, by emphasizing certain evidence, and disregarding other evidence, make a quite persuasive argument that the evidence is insufficient, as a matter of law. When the entire record is considered, however, we are convinced that the implied findings of the jury are supported.
Although the rules applicable to the power of the appellate court in passing upon the sufficiency of the evidence are elementary and have frequently been stated, in view of the apparent sincerity with which appellants contend that the evidence is insufficient, it would appear proper to refer briefly to such rules before pointing out the evidence which supports the judgment. In the frequently cited case of Crawford v. Southern Pacific Co., 3 Cal.2d 427, 429, 45 P.2d 183, 184, it is stated: “In reviewing the evidence on such an appeal, all conflicts must be resolved in favor of the respondent, and all legitimate and reasonable inferences indulged in to uphold the verdict if possible. It is an elementary, but often overlooked, principle of law, that when a verdict is attacked as being unsupported, the power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the conclusion reached by the jury. When two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court.” In Albaugh v. Mt. Shasta Power Corp., 9 Cal.2d 751, 773, 73 P.2d 217, 229, it is stated: “Of course, the jury is the sole judge of the effect, sufficiency, and weight of the evidence, and the sole judge of the credibility of the witnesses. Whatever our opinion may be as to the weight of the evidence, if there is material, credible evidence to support the verdicts, this court is without power to disturb them.” See, also, Juchert v. California Water Service Co., 16 Cal.2d 500, 106 P.2d 886; Peri v. L. A. Junction Ry., 22 Cal.2d 111, 137 P.2d 441; Atherley v. Market St. Ry. Co., 42 Cal.App.2d 354, 108 P.2d 927; Estate of Pessagno, 58 Cal.App.2d 390, 136 P.2d 644; Sunseri v. Dime Taxi Corp., 57 Cal.App.2d 926, 135 P.2d 654; Macart v. San Joaquin B. & L. Ass'n, 45 Cal.App.2d 395, 114 P.2d 395; Signorelli v. Miller, 55 Cal.App.2d 538, 130 P.2d 730; De la Motte v. Rucker, 55 Cal.App.2d 226, 130 P.2d 444.
Keeping these well settled rules in mind, what does the record show? Hobart Estate Company is a family corporation, incorporated in 1894. The properties constituting the first assets of this corporation were originally owned by Walter S. Hobart, the grandfather of respondent, who died in 1892 leaving his estate, valued at over six million dollars, equally to his three children, Walter S. Hobart, the father of respondent, and hereafter referred to as Hobart, senior, Alice Lester and Virginia Baldwin. These children decided to and did organize the Hobart Estate Company to which they transferred substantially all the assets received from the estate of their father. In 1904 there were 45,000 outstanding shares of this company, each of the three children owning 15,000 shares. In 1907 Alice Lester was declared incompetent by the Superior Court of El Dorado County, and since that date has been confined in an out–of–state hospital. Prior to 1933, several of the three original stockholders surrendered some of their stock to the corporation in payment of debts, so that in 1933, there were but 38,010 shares outstanding. Hobart, senior, created a trust of 5,000 of his shares, the income from 2,500 shares of which went equally to his three children, the respondent, Hobart, junior, Ruth Hobart Crocker and Hannah Neil Prince. Hobart, senior, died in November, 1933, and upon his death this trust terminated and there was distributed to each of the three children 833 1/3 shares in the company. The shares thus distributed to respondent are the shares, the sale of which, under circumstances hereafter set forth, gave rise to this action.
In the spring of 1933 Hobart, senior, was indebted to Alice Lester in the sum of $240,000. Being pressed by Greene, guardian of the estate of Alice Lester, for payment, he agreed, and the guardianship court approved, to settle the indebtedness by transferring to Alice Lester 6,000 shares of Hobart Estate Company stock at a value of $40 per share. This was done on Greene's averment that this was the then reasonable value of the stock. After this transaction, the estate of Alice Lester owned 21,000 shares, substantially more than half of the outstanding stock.
Hobart, senior, died in November, 1933. By his will he practically disinherited the respondent. He left a substantial estate consisting, in part, of a large block of stock in the Hobart Estate Company. In the spring of 1934, one of the partners of Greene, admittedly acting as Greene's agent, gave the inheritance tax appraiser certain information about the assets of the corporation, and about the sale of the 6,000 shares to Alice Lester, which caused the stock to be appraised at $40 per share in that estate for tax purposes.
At the time of his father's death, Hobart, junior, was in New York. He had been estranged from his father and from some of the other members of his family for some time. He came to California, and, upon discovering that he had been disinherited, retained counsel, and in order to finance the contest, pledged part and later all of the 833 1/3 shares of the Hobart Estate Company stock owned by him with Charles Crocker to secure such advances made for this purpose, and to secure some past debts owed to Crocker. His first counsel was attorney Lachmund, and later Lachmund was superseded by attorney George Harris. Both attorneys hired an investigator, Eugene Aureguy. The attorneys took the case on a contingent fee basis. Harris, Aureguy, and plaintiff testified that Harris and Aureguy were employed solely in connection with the proposed will contest, and that they had no authority at all in connection with the sale of the stock. The will contest was filed in June of 1934, the main ground of contest being the alleged mental incompetency of Hobart, senior, it also being alleged that the will was the result of undue influence alleged to have been exerted by the executors of the will (one of whom was Greene––the other the widow of Hobart, senior) and by the legatees.
After the will contest was filed, the proponents of the will took the depositions of Stevenson, the company's secretary, and of Hobart, junior. Lachmund was present at the taking of the Stevenson deposition, and he cross–examined Stevenson to some extent concerning the balance sheets of the company for 1932, 1933 and 1934. There is no evidence that plaintiff had actual knowledge of any of the facts there disclosed. At the taking of respondent's deposition he was represented by Harris and Aureguy. About this time Aureguy, on behalf of his client, interviewed the inheritance tax appraiser, and ascertained the facts upon which he had acted in appraising the stock at $40 a share. It was while respondent's deposition was being taken that discussions were first had looking towards a sale of the stock and the settlement of the will contest. These conversations were inspired by attorney Mannon, one of the partners of Greene.
Before directly discussing these conversations, some mention should be made of Greene's various employments. He is a partner in the law firm of McCutchen, Olney, Mannon and Greene. That firm, or its predecessors, has represented the Hobart Estate Company, and some of its stockholders, since the inception of the company. Since 1907 one of the partners of that firm has been the guardian of the estate of Alice Lester, and, on occasion, the law firm has acted as attorney for the guardian. In 1922 or 1923 Greene and one of his partners were appointed co–guardians of the estate of Alice Lester, and upon the death of his partner Greene became sole guardian. It is obvious that after Hobart, senior, transferred 6,000 shares to Alice Lester, Greene, as her guardian, had voting control of the corporation. Greene has been active in the management of that company for many years. Since 1932 he has been a director, president and general manager of the company. He was named co–executor of the will of Hobart, senior, and one of the trustees to whom the estate was distributed. His law firm was attorney for the executors, and collected normal and substantial extraordinary fees for its services.
The deposition of Hobart, junior, in the will contest, was taken by the proponents of the will in the summer of 1935. The taking of this deposition consumed considerable time. It was during this period that Mannon suggested to Aureguy and Harris that they confer with him and Greene concerning the possibility of settling the will contest. As a result of these conferences the will contest was settled, and the 833 1/3 shares owned by respondent were purchased by Greene, on behalf of the estate of Alice Lester. This transaction was closed January 16, 1936. It is respondent's contention that he sold his stock for $25 a share upon the positive representations of Greene that that was the fair value of the stock, upon which representations he relied, and that $25,000 was paid him for the settlement of the will contest. It is appellants' contentions that he was paid $55 per share for the stock, and was paid nothing for the settlement of the will contest. The respondent filed this action in June of 1941, under circumstances hereafter set forth.
At the trial Greene frankly testified that he believed the respondent was a troublemaker and better out of the company; that he felt that if respondent could be removed as a stockholder it would remove a “storm center” from the company; that “we felt clearly” that he was causing trouble; that he was likely to be a point of controversy in years to come; that by getting him out it would remove a potential source of attack; that he thought it within the possibilities that Hobart, junior, would attack the management of the company unless he were removed; that he talked the matter over with some of the other stockholders; that it was his point of view that “it was probably for the good of the corporation if his stock was purchased”; that “in general you would prefer to have stockholders of another description.”
Aureguy testified that he was employed by respondent's attorney to assist in the will contest; that he was not employed in connection with the sale of the stock; that he was present at the various sessions during which respondent's deposition was taken by Mannon in connection with the will contest; that there had been several preliminary discussions with Mannon concerning the possibility of settling the will contest; that toward the close of the deposition Mannon asked Harris and Aureguy to remain after their client had left; that Mannon then told them that his people were desirous of disposing of the will contest, but that he, Mannon, was going to be absent and further discussion should be had with Greene. Aureguy then testified that Greene communicated with him and that he went to see Greene; that after some preliminary discussion Greene stated that “as a condition precedent to the settlement of this will contest, it will be necessary that Mr. Hobart sell his stock in the Hobart Estate Company”; that he told Greene that the sale of the stock was beyond the scope of his employment, but that he would report to Hobart and report back to Greene. Subsequently Aureguy had two other meetings with Greene at one of which Harris was also present, at which the problem was again discussed. At the third conference Greene told Aureguy that they were willing to pay $25,000 to settle the will contest, contingent upon the stock being sold; that they would pay $25 a share for the stock. Aureguy asked Greene how he reconciled the $25 figure with the $40 figure given in the appraisement of the father's estate. Greene, according to Aureguy, replied that the $40 figure was based on the sole sale of the stock in recent years; that that sale was an inter–family sale, and that the price paid was in excess of the value of the stock. Aureguy told Greene that if Greene could secure a purchaser for $40 a share and would pay $25,000 to settle the will contest the entire matter could be settled. Greene replied that the stock was only worth $25 per share; that the depression and the attitude of the National Administration towards such types of corporations must be considered; that the corporation owed money; that if the loans were called it would jeopardize all of the stock; that if the assets were sold and the expenses paid and the money divided each stockholder would receive $25 or less per share; that the Hobart Estate Company was in a bad financial condition.
Shortly thereafter a fourth conference was had with Greene at which Aureguy, Harris and respondent were present. Aureguy testified that at this meeting he first reviewed his prior conversations with Greene, including the offer of $25,000 to settle the will contest, and $25 a share for the stock; that Hobart demurred to the price of $25 per share, pointing out that the stock had been appraised for $40 per share and stating he had thought it was worth $100 per share; that Greene replied that the $40 figure was based on the deal between respondent's father and the estate of Alice Lester; that Hobart's father had been paid more than the stock was worth; that the corporation was in a bad financial condition; that Greene refused to disclose who was going to purchase the stock; that Greene stated “the stock is not worth over $25 a share”; that Greene expressed a friendly interest in Hobart; that he stated that he had nothing but the kindliest of feelings toward him; that Greene repeated that if the company were liquidated the stockholders would not receive $25 per share; that in that event the stock would be worth “very much less than $25 a share”; that the fair market value of the stock was $25 per share; that Hobart finally agreed to accept $25,000 for the settlement of the will contest and $25 a share for his stock.
The respondent testified that Harris and Aureguy were not retained by him to sell the stock; that their sole authority was in connection with the will contest; that he knew little or nothing about the business affairs or the assets of the company; that he had had but little business experience; that during the taking of his deposition Aureguy and Harris reported to him the results of their conferences with Greene; that finally he attended the conference in Greene's office; that Aureguy told Greene that they had no authority in connection with the sale of stock and for that reason Hobart was present; that Aureguy gave a résumé of the prior conferences with Greene as recounted above; that Greene agreed with this résumé and stated it was “absolutely essential” that the stock be sold or there would be no settlement of the will contest; that he, the witness, objected to selling the stock, stating that he was contemplating setting up a trust for his daughter, but Greene reiterated that there would be no settlement of the will contest unless he parted with his stock; that Aureguy in the presence of Greene repeated what Greene had stated about the value of the stock; that Greene refused to disclose who the prospective purchaser was, stating “that is a secret”; that when Aureguy stated in the presence of Greene that Greene had stated that the fair market value of the stock was $25 per share, he, the witness, expressed amazement, and pointed out the $40 a share figure at which the stock had been appraised the preceding year; that Greene explained that the Hobart Estate Company was in a “very bad financial condition” and that the assets had been declining in value; that if the company were forced to liquidate to pay certain loans the stock might be worth even less; that after listening to Greene, Harris asked him if he wished to take Mr. Greene's word for it or wished to investigate further; that he replied that he was sure that he could rely on the word of a man of Mr. Greene's integrity; that Greene expressed a kindly feeling toward him and stated that he wanted him to get all that he possibly could out of the stock, but his conscience would not permit him to suggest that any purchaser pay more than $25; that Greene then explained that they did not want the records to show that anything was being paid for the will contest and for that reason the papers would have to show that he was receiving $55 a share for his stock, which would be $25 a share plus $25,000 for settlement of the contest; that he took Mr. Greene at his word and, from what Greene had said, came to the conclusion and belief that the stock was worth but $25 a share; that he believed what Greene had told him; that Greene also had told him at the conference that he, Greene, knew all about the Hobart Estate Company and that there was nothing he did not know about the assets and liabilities of that company; that there was no other source from which these facts could be ascertained, and that any inquiry concerning value would be ultimately referred back to him. The witness also testified, as did Harris, that the documents by which the deal was closed were prepared by the law firm of which Greene was a member; that Harris first prepared certain papers for this purpose but they were not acceptable to that law firm. All of the closing papers referred to the transaction as a sale of the stock at $55 per share. Concurrently, however a dismissal, with prejudice, of the will contest was executed.
Harris was unable to corroborate all of the details testified to by Aureguy and respondent. He could not remember the details of the various conversations. He did testify that at the last conference Greene discussed “declining values, the depressed condition of things at the time and painted a rather depressed picture of the affairs at that time.” He also testified that the recitation of $55 per share was inserted because Greene insisted that that was the only way the transaction could be handled; that, because of the feeling in the family, Greene insisted that “the record under no condition could show or should show any payment directly in connection with this will contest.”
After the last conference, which took place in July or August, 1935, it took respondent several months to settle his difficulties with Crocker, who had possession of the 833 1/3 shares. Crocker was claiming that Hobart, junior, owed him $25,000, while Hobart, junior, contended that he owed but $15,000. Crocker was adamant, and refused to cooperate in any way unless he received $25,000. The deal was finally consummated on January 16, 1936, by the payment to respondent of $45,833.15. Of this sum Crocker received $25,000, and Harris and Aureguy a little over $5,000 each. This last point is of some importance. Harris had a contingent contract in connection with the will contest, but no contract at all in connection with the sale of the stock. When they came to divide up the moneys received from Greene, Harris and Aureguy took a fee based on something over $20,000 in settlement of the will contest. This is corroborative of the testimony above set forth that included within the $55 a share recited in the closing papers was a substantial sum in settlement of the will contest.
The deal was closed by Greene, as guardian, petitioning for approval of the purchase of the stock by the estate of Alice Lester. In his verified petition, Greene averred that, in his opinion, the stock was reasonably worth $55 per share, and that it was for the best interests of the ward's estate that the stock be purchased. Permission was granted by the Superior Court, and the deal consummated as above indicated.
The testimony of appellants, some of which is set forth in the dissenting opinion, was directly contradictory to that presented by respondent. Greene testified, as did Mannon, that the conferences above referred to were inspired by Aureguy, and not first suggested by Mannon. These conflicts were for the jury. Greene positively and unequivocally denied that he ever represented, either as a fact or as his opinion, that the stock was worth but $25 a share; that it was his honest opinion from July, 1935, through January, 1936, that the stock was reasonably worth $55 a share; that he refused to pay anything for the settlement of the will contest, and that the $55 per share recited in the closing papers was paid solely for the stock. Both he and Mannon testified that Aureguy first offered them the stock for $40 per share, if they would pay twenty–four or twenty–five thousand dollars to settle the will contest; that later Aureguy reduced this last figure to fifteen thousand dollars. It should be noted that the amount ultimately paid to plaintiff was within a couple of thousand dollars of the amount that would have been paid had the deal been consummated at $40 per share plus $15,000 to settle the will contest. Mannon and Greene also testified that, although the stock had been offered to them at $40 per share, in their opinion it was worth $55 per share; that although the stock had been offered to them at $40 a share, they ultimately paid $55 per share for it, and that the difference between these two figures was not paid for settling the will contest, although the only condition attached to the offer of $40 per share was that $15,000 be paid to settle the will contest. Obviously, under such circumstances, it was for the jury and is not for the appellate court to say whether the recited consideration of $55 per share correctly represented the true picture, or whether in fact that figure included $25,000 or some other sum in settlement of the will contest. The attempt by appellants to demonstrate that the true price paid was $55 a share and that nothing was paid for the settlement of the will contest, is directly contrary to the positive testimony of three witnesses, and directly contrary to reasonable inferences from Greene's and Mannon's testimony, above referred to.
On the question of the value of the stock, respondent's experts testified as to values far in excess of $55 per share. Greene admitted that from July, 1935, to January, 1936, he honestly believed the stock was worth $55 per share, and testified that the company was then in good condition. As the guardian of Alice Lester, in 1933 Greene had petitioned the guardianship court to buy the 6,000 shares then owned by plaintiff's father at $40 a share, averring that this was the then reasonable value of the stock. In 1934, through one of his partners, admittedly acting as his agent, he had furnished the inheritance tax appraiser with figures justifying a $40 a share value for tax purposes. The negotiations with the plaintiff took place in July or August, 1935. In an attempt to show that nothing had been paid to settle the will contest he testified that at that time it was his honest opinion that the stock was worth $55 per share. He also testified that in 1932 the dividends on the stock were $3.52 per share; in 1933 they were $1.45 per share; in 1934 they were $1.30 per share; in 1935 they were $1.35 per share. In 1936, however, in the very year the transaction here involved was consummated, but after respondent's stock was purchased, the dividends jumped to $2.80 per share. He also testified that the income of the company was less in 1936 than in 1935, and that the balance sheet showed that the total assets of the corporation were less in 1935 than in 1933, but he thought the actual values had increased.
The jury was correctly instructed at length on the elements necessary to constitute fraud, and on the differences between representations of fact and opinion. On the evidence above summarized, and on these instructions, the jury has found in favor of respondent. Appellants urge that, as a matter of law, the alleged misrepresentations were of matters of opinion, and not of fact, and that, as a matter of law, respondent had sufficient knowledge of the true facts so that it must be held there was no reasonable reliance. The dissenting opinion develops these arguments at some length, and it is not necessary to repeat them here. The complete answer to these contentions is that whether the representations were of fact or opinion, and whether respondent honestly and reasonably relied upon them, were jury questions. This being so, this court is without power to substitute its interpretation of the facts for that of the jury. In view of the jury's verdict, and without regard to whether or not a confidential relationship existed, and, assuming the parties were dealing with each other at arm's length, in support of such verdict we must assume that the jury found that Greene represented as a fact that the stock was worth $25 a share. Greene testified that at that time his honest opinion was that the stock was worth $55 a share, and that, in his opinion, the company was then in good financial condition. In support of the jury's verdict we must assume that the jury found that with intent to deceive respondent, Greene stated that the company was in a bad financial condition and that the stock was worth $25 per share when he honestly believed the company was in good condition, and that the stock was worth $55 per share. In addition, we must assume, in support of the jury's verdict, that Greene stated as facts that the stock was worth $25 or less per share; that the fair market value was $25 per share but that the liquidation value was less; that he told respondent that any inquiry as to value would be ultimately referred to him; that he knew all about the company and its assets. Appellants, and the dissenting opinion, cite many cases to the effect that a mere expression of opinion, no matter how positively asserted, is not actionable. That is, of course the general rule. But as was stated in Barron Estate Co. v. Woodruff Co., 163 Cal. 561, 573, 126 P. 351, 356, 42 L.R.A.,N.S., 125, “the qualifications and modifications of this general rule are as important as the rule itself. Those qualifications and modifications are numerous. It is unnecessary to attempt to illustrate them all. But, bearing in mind that an expression of an opinion, if honestly made, is an expression of what the speaker believes to be a fact, it becomes apparent that, by the expression of a dishonest opinion to one entitled to rely upon it, deceit is practiced, injury may be worked, and an action will lie.” Many cases are cited in support of this elementary rule of fair dealing. To hold that a deliberate intentional misrepresentation of an opinion made with intent to induce action by another is not actionable is to sanction a rule of morality not approved by any court, so far as our research has disclosed.
It is also elementary that representations of value which might usually be considered expressions of opinion, when affirmed as an existing fact, may found an action for fraud. See many cases collected 12 Cal.Jur. p. 727, § 14 et seq.
As already pointed out, the trial court exhaustively instructed the jury on these issues. These instructions are not challenged. It seems too clear to require further comment that the implied findings of the jury that Greene misrepresented the value of the stock either as a fact or as a dishonest statement of opinion (Barron Estate Co. v. Woodruff Co., supra), and that such representations were made with the intent that Hobart should act on them, are amply supported.
Much is said in the dissenting opinion about whether plaintiff reasonably relied upon the misrepresentations. This issue was presented to the jury on complete and proper instructions. Its finding that respondent did rely, and acted reasonably in so doing, is amply supported, and this is so whether or not a confidential relationship in fact, or in law, existed. Respondent testified that, after listening to Greene, his original impressions as to the value of the stock were overcome, and that he was convinced by Greene's statements that the stock was worth but $25 a share. It is true that his first counsel, prior to that date, had made some investigation as to the question of the assets of the company. But if Greene, as a fact, represented that the stock was worth $25 a share when in fact it was worth at least $55 a share, and Greene knew it was worth at least that much, he is in no position now to claim that, as a matter of law, plaintiff should not have relied upon such representation. See cases collected 12 Cal.Jur. p. 758, § 34.
There is another independent reason why the verdicts are supported, and that is that the jury was justified in finding that a confidential relationship existed, in fact, between Greene and respondent. This issue was likewise submitted to the jury on proper instructions. Its findings are conclusive on this issue. The determination of this point is not vital to this opinion, inasmuch as it has already been held that, independently of whether there was a confidential relationship, fraud existed. The point is vital to the appellants, however, because if a confidential relationship existed respondent would be entitled to rely upon what otherwise might be considered a mere statement of opinion.
Appellants urge that, as a matter of law, these parties were adverse parties; that Greene, as a matter of law, was not acting in a confidential relationship with plaintiff, and that the implied findings of the jury to the contrary are totally unsupported, this position is concurred in by the dissenting opinion.
It is true that Hobart, junior, and Greene met but once. It is true that respondent charged, in the will contest, that Greene, together with others, had exerted undue influence upon Hobart, senior, that caused him to disinherit respondent. That evidence would have supported a finding that no confidential relationship existed. But as opposed to this testimony was the following evidence. Respondent was a small stockholder in the Hobart Estate Company. Greene told him that he, Greene, was activated only by the kindest of feelings toward respondent; that Greene had complete knowledge concerning the assets of the company, and that any inquiry would ultimately be referred to him. Greene was president of the Hobart Estate Company. He was the general manager of that company. He was a director of that company. As the guardian of the estate of Alice Lester he controlled the majority of the stock of that company. He had been connected with the company for many years. This was not an ordinary business corporation. It was a family corporation. The stock was closely held. Greene knew what the stock was worth. According to respondent's story, which must be believed on this appeal, Greene approached plaintiff to buy his stock. When Greene purported to state the facts in reference to that corporation, or, if you will, when Greene purported to give his opinion to a stockholder about the value of the stock, was he not acting in a confidential relationship towards that stockholder? Was not the jury justified in finding that, under such circumstances, Hobart, as a stockholder, was reasonably entitled to rely on the statements of Greene, even if they were only opinions? Can or should it be the law that the president, general manager, director, and principal stockholder, as a matter of law, when he determines to deal with a stockholder about the purchase of his stock, owes no duty of good faith toward the stockholder? Can or should it be the law that the president, general manager and director of such a corporation, acting on behalf of the corporation and on behalf of its principal stockholder will be permitted to defend an action for fraud brought by a stockholder on the ground that, as a matter of law, in dealing with such stockholder in connection with his stock, in telling the stockholder the facts about his company, he is dealing at arm's length and with an adverse party? The appellants must answer these questions in the affirmative to prevail on this issue. In my opinion neither reason nor authority compels or suggests such conclusion.
It is true that in Ryder v. Bamberger, 172 Cal. 791, 158 P. 753, and in Bacon v. Soule, 19 Cal.App. 428, 126 P. 384, it was held that a director and officer of a corporation has the legal right to purchase the stock of other stockholders, and, where the transaction is free from fraud, is not bound to disclose facts which he knows which would enhance the value of the stock, and that in such situation no relationship of trust and confidence arises because the director owes no fiduciary relationship to the stockholder as such, but only to the corporation. It is very doubtful if even this limited statement of the rule is still the law of this state. The problem received exhaustive consideration by the Supreme Court in American Trust Co. v. California, etc., Ins. Co., 15 Cal.2d 42, at pages 56–62, 98 P.2d 497. The court first referred to the so–called “majority rule” embodied in the Bamberger and Soule cases. It then cited several cases from other states which support the so–called “minority rule, which recognizes the director's obligation to the stockholders individually as well as collectively, and refuses to permit him to profit at the latters' expense by the use of information obtained as a result of his official position and duties. This view, while generally conceded to be in the numerical minority, is followed by able courts, and text–writers who have examined the subject.” page 56 of 15 Cal.2d, page 504 of 98 P.2d The court went on to point out that, in addition, there is a third rule adopted by many courts to the effect that even though in the ordinary case there is no confidential relationship “where special circumstances or facts are present which make it inequitable for the director to withhold information from the stockholder, the duty to disclose arises, and concealment is fraud.” page 57 of 15 Cal.2d, page 504 of 98 P.2d. This is referred to as the “special facts” doctrine. Cases are cited with apparent approval to the effect that “active participation in the negotiations for a transfer of the corporate property may constitute the special circumstances to raise the duty.” page 57 of 15 Cal.2d, page 504 of 98 P.2d The court cites with particular approval the case of Poole v. Camden, 79 W.Va. 310, 92 S.E. 454, 457, L.R.A.1917E, 988. The court in that case conceded the correctness of the so–called majority rule but held that where the director instead of remaining silent gives information to the stockholder, that is where he “ ‘undertakes to speak or become active in inducing the sale, he must speak fully, frankly, and honestly, and conceal nothing to the disadvantage of the selling stockholder’.” (Italics the court's.) After discussing the Bamberger and Soule cases, and also the case of McCord v. Martin, 47 Cal.App. 717, 191 P. 89, the court concludes its discussion with the statement (page 61 of 15 Cal.2d, page 507 of 98 P.2d): “the question is still open in this state as to whether we shall follow the majority rule, the majority rule as modified by the ‘special facts' doctrine, or the minority rule.” Under the facts there involved, even under the majority rule, there was fraud present.
I am of the opinion that no reasonable argument can be advanced against the adoption of the so–called special facts doctrine. I am further of the opinion that the Supreme Court in its discussion above referred to has indicated with unmistakable certainty that when the issue is directly presented it will look with grave doubts upon the correctness of the so–called majority rule. In the present case this issue was submitted to the jury on proper instructions. Its findings, on the special facts, are conclusive. To hold under these facts that Greene with impunity could actively misrepresent his opinion about the value of the stock without legal responsibility to a person relying on that opinion, in view of Greene's special knowledge about the affairs of the company, is to sanction a rule of law that should receive the approval of no court.
I conclude this phase of the discussion with the following observations:
1. Independently of whether there was or was not a confidential relationship, the jury was justified in finding that Greene falsely and fraudulently misrepresented material facts, and falsely and fraudulently stated something as his opinion which he knew to be false;
2. That the jury was justified in finding that such misrepresentations were made by Greene with the intent that Hobart should act upon them;
3. That the jury was justified in finding that Hobart was under no duty of investigation, and that he acted reasonably and honestly upon the misrepresentations, to his damage;
4. That the jury, under the facts, was justified in finding that a confidential relationship existed.
For these reasons all of the contentions relating to the sufficiency of the evidence are without merit.
The appellant corporation makes an additional point in reference to the sufficiency of the evidence. It urges that, as a matter of law, Greene was not acting as its agent in the purchase of the stock, and that for that reason the judgment against it is unsupported. In other words, it is urged that, assuming Greene was fraudulent, he was not acting for or on behalf of the corporation in making the assumed fraudulent representations. But little need be said about this contention. The evidence has been stated. It is obvious that the question was one of fact. O'Shea v. Pacific Gas & Elec. Co., 18 Cal.App.2d 32, 62 P.2d 1066. It was submitted to the jury on proper instructions. The jury has impliedly found that Greene was acting on behalf of the company. That finding is amply supported.
Greene was president, director and managing officer of the company. As the guardian of the stockholder who owned over half the stock he could and did control the company. He testified that one of the reasons that he was interested in purchasing the stock of Hobart was because it was for the benefit of the corporation and other stockholders to get the person he considered a troublemaker out. The balance of his testimony on this issue has been quoted, supra. It is obvious that the jury could find, on Greene's testimony alone, that in making the purchase Greene was acting in the interests of the corporation, and within the scope of his agency.
We turn now to a discussion of the statute of limitations. Appellants urge that as a matter of law respondent's cause of action was barred by the statute of limitations––Subd. 4 of § 338, Code of Civil Procedure. That section requires actions based on fraud to be commenced within three years, but “the cause of action in such case not to be deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.”
The appellants, and the dissenting opinion, cite many cases as to what must be pleaded and proved to avoid the bar of the statute of limitations. There is no necessity of repeating those citations here. The cases cited in the dissenting opinion set forth the applicable rules. By the standards there laid down the pleading and proof in the instant case was sufficient.
The jury was fully and properly instructed in exact accord with those cases. Those instructions are not challenged, most of them, in fact, being instructions proposed by appellants. Under the circumstances of this case, the question as to whether the statute had run was a question of fact for the jury. Whether the complaint is sufficient, is, of course, a question of law. But whether the evidence is sufficient to support the implied findings on this issue is a mixed question of law and fact. In Mitchell v. Towne, 31 Cal.App.2d 259, 262, 87 P.2d 908, 910, the proper rule is stated, quoting from Cullinan v. McColgan, 87 Cal.App. 684, 692, 263 P. 353, as follows: “ ‘* * * where issue is joined on a plea of the statute and the evidence is conflicting as to when, with reference to the filing of the complaint, a cause of action accrued, the question is properly submitted to the jury as a mixed question of law and fact (Pacific Imp. Co. v. Maxwell, 26 Cal.App. 265, 146 P. 900; Towle v. Sweeney, supra, [2 Cal.App. 29, 83 P. 74]; Crawford v. Duncan, 61 Cal.App. 647, 215 P. 573), and the case may not be taken from the jury where the plea of the statute is interposed and there is evidence to support the plea. (Heilbron v. Heinlen, 72 Cal. 376, 14 P. 24.)’ ” See, also, cases collected 16 Cal.Jur. p. 629, § 221.
As already pointed out, the jury was fully instructed on all of the elements required to avoid the plea of the statute of limitations as those elements are so clearly set forth in the many cases referred to in the dissenting opinion. At the request of appellants, some 24 instructions on this issue, covering over 13 pages of the transcript, were given to the jury. The jury was told that this defense, pleaded by appellants, was not a “mere technical defense” but should be looked upon as any other phase of the case; that such statutes “are vital to the welfare of society and are favored by the law”; that they “are to be viewed as statutes of repose and as such constitute meritorious defenses.” The court then quoted the appropriate section, and instructed, in language quite favorable to appellants, that the three years from discovery provision was an exception to the general rule and cannot be invoked “unless the plaintiff brings himself within the terms of the exception. This can only be done by showing that he did not discover the facts constituting the fraud three years or more prior to the commencement of his action. This showing is an essential element of the right of action and must be affirmatively pleaded and proved by the plaintiff, and the plaintiff has the burden of making this proof by a preponderance of the evidence. If the plaintiff in this case has not made this proof and has not brought himself within the exception, it will be your duty to return your verdict in favor of the defendants.” The court then went on to instruct that in order to bring himself within the exception and to show that there was no discovery within three years of the commencement of the action, the plaintiff has the burden of proving by a preponderance of the evidence, the following:
“1. He must prove first that he was in fact ignorant of the facts at the time of the closing of the transaction on January 16, 1936, and that in fact he remained ignorant of them and did not learn the true facts until three years prior to June 9, 1941.
“2. Secondly, he must prove not only that he was ignorant of the facts, but he must show that * * * the transaction of which he complains was closed in such circumstances that he would not be presumed to have any knowledge of the true facts.
“3. Thirdly, he must show that at no time prior to June 8, 1938 did he have notice or information of circumstances which would have put an ordinarily prudent person, exercising reasonable care and diligence for his own concerns, upon inquiry which would have led to knowledge of what he now claims to be the true facts, and
“4. He must show the times and the circumstances under which the facts claimed by him to constitute the alleged fraud were brought to his knowledge and must show that the circumstances were such that he is not to be charged with discovery of them prior to June 8, 1938.”
The jury was then told that in determining whether a “discovery” had or should have been made actual knowledge was not required––that “something less than actual knowledge of the facts may constitute discovery. Even if a plaintiff has no actual knowledge of the facts constituting the claimed fraud, still, in applying this statute, means of knowledge may be the equivalant of actual knowledge and if it appears that a plaintiff had notice of information or circumstances which would put him on inquiry, that is, if he had notice or information of circumstances which would lead an ordinarily prudent man who was exercising reasonable care for his own concerns and for his own protection in respect of his property rights to make further inquiry, and if such inquiry, if followed, would have led to knowledge, then he is deemed to have discovered the facts constituting the claimed fraud and is to be treated in the same way as though he had actual knowledge.” The jury was then told that constructive notice was all that was required, and constructive notice was properly defined. It was also told that, under the proper circumstances, knowledge of Lachmund, Harris or Aureguy was knowledge of the plaintiff, and that if plaintiff had actual or constructive knowledge “it will be your duty to return your verdict in favor of the defendants.” Instructions were then given to the effect that plaintiff must show why he did not make discovery sooner, and that his failure to make sooner discovery “was not due to lack of diligence upon his part”; that the burden of proving the time and circumstances of the discovery was in plaintiff, but if the same means of discovery were available to plaintiff more than three years prior to the commencement of the action and he failed to make inquiry, through lack of diligence, the verdict must be for defendants; that if, after the conference with Greene and before the closing of the deal, the circumstances were such as to put him on inquiry, it was his duty to investigate the value, and if he did not do so the action is barred; that as a stockholder he had the right to inspect the company's books; that he was chargeable with notice of the matters contained in the inventory of his father's estate; that plaintiff could have inspected Stevenson's deposition, and that, in the will contest, he could legally have inquired into the issue of the value of the assets of the company; that after January 16, 1936, no relationship of trust or confidence existed between the parties; that “if you find that the plaintiff has failed to make a full and complete showing of the times and circumstances under which the facts claimed to have been discovered by him were brought to his knowledge, with sufficient completeness and particularity so as to enable you to determine that [sic] [what] the facts were * * * it will be your duty to return your verdict in favor of the defendants”; that the mere absence of the plaintiff from the state is immaterial and did not suspend the running of the statute.
These instructions state the law quite favorably to appellants, and are in accord with the cases cited in the dissenting opinion.
The complaint as amended alleged the facts concerning the time and circumstances of the discovery of the fraud with some particularity. In some respects the evidence falls short of the pleading. It is obvious, therefore, that if the evidence is sufficient to avoid the bar of the statute, the pleading is likewise sufficient. The real question is whether or not there was any substantial evidence, contradicted or uncontradicted, or any reasonable inference from that evidence, to support the implied finding of the jury, based on the above instructions, that the statute had not run.
The evidence is uncontradicted that the transaction here challenged was consummated in January, 1936; that, thereafter, Hobart remained in this state for about three months; that he then went to Europe where he remained until January or February, 1941; that this action was filed in June, 1941. There is not one word of testimony that between 1936 and 1941 respondent acquired any information at all about this transaction, in fact, the evidence is to the contrary. In other words, after the fraud was perpetrated, after plaintiff was lulled into a false sense of security, after he was convinced by what the jury has found were the false statements of Greene that he had received a fair price for his stock, he learned of no fact that put him on inquiry until January or February, 1941. He testified that upon his return to New York early in 1941 he first received information from a friend that caused him to question the stock transaction; that he immediately came to California and retained counsel to investigate the matter; that in May, 1941, he received information, obviously from his counsel, that the value of the stock was “excessively at variance” with the statements of Greene. Until he returned to New York in 1941 he had no reason to believe he had been defrauded. Until that time he believed what he had been told by Greene.
Under this evidence the jury could, and apparently did, find that he first received some information that he had been defrauded in January or February, 1941. He then came, almost immediately, to California, retained counsel, and then made the actual discovery upon which he relies. As to what he then discovered, the evidence is as follows:
“Mr. Hallinan: Q. Well, did you then discover, or were you then informed as to some of the holdings of the Hobart Company, the values of those holdings, and whether or not any encumbrances existed against them? * * * A. Yes.
“Q. And was that information at variance with the statements that Mr. Greene had made to you? A. Excessively at variance.
“Q. And was that the first information you had that was at variance with the statements Mr. Greene had made to you as to the value of the holdings of the corporation? * * * A. That would be roughly the second, because the winter in New York that you were about to refer to, where I got the information about the stock transaction, was the first time I had heard it, but then that was not official.
“Mr. Hallinan: Q. In other words, that did not purport to give any items of the property, or anything of that kind? A. No, it was just a statement of similar character.”
From this evidence the jury could find that, until January, 1941, respondent was ignorant of the true facts; that until that time he was under no duty to investigate; that after receiving certain information in New York he pursued his discoveries diligently; that he discovered the true facts in San Francisco, and immediately commenced this action. It must be conceded that the evidence as to the facts and circumstances that he discovered in San Francisco are not as clear as might be desired, but in our opinion the evidence is sufficient to sustain the implied finding of the jury that he discovered different substantial and material facts from those known to him in January, 1936, on the issue of value.
Appellants argue that respondent was put on inquiry prior to the date of the false representations, that prior to that date he had actual or constructive knowledge of facts which should have put him on inquiry, and that therefore, as a matter of law, he should have discovered the fraud before the expiration of five years. The argument is not sound, and is concluded by the verdict of the jury. The jury has impliedly found that respondent was defrauded on January 16, 1936; that, thereafter, for five years he had no reason to challenge or question the transaction; that he discovered the fraud in 1941.
There is an obvious fallacy in the argument of appellants that the knowledge gained prior to the alleged fraud was sufficient, as a matter of law, to put respondent on inquiry as of that time. That argument can be used to urge that respondent, because of such supposed knowledge, should not have relied upon Greene's statements. The jury has decided that issue adversely to appellants. But if the evidence supports the implied findings of the jury that there was fraud, and we have held it does, then we are presented with a situation where, regardless of what respondent knew prior to the date the false representations were made, he acted reasonably in relying upon such representations. Thus on January 16, 1941, he had been fully deceived––in spite of what he may have known prior to that date, on that date he honestly and reasonably believed the stock was worth but $25 a share. Is he to be required on January 17, 1936, as a matter of law, to begin to distrust the representations that induced him to sell? Without any further facts coming to his knowledge, after the sale was consummated, is he to be required to assume immediately that he has been defrauded, and to be required to launch an expensive investigation to ascertain that fact? On proper instructions, the jury has passed upon this issue.
From what has been said it follows that, regardless of whether there was a confidential relationship between the parties, the findings of the jury on this issue are amply supported by the record.
If there was a confidential relationship between the parties the rules of pleading and proof referred to in the cases cited in the dissenting opinion are much less rigid and severe than those there set forth. A few citations will demonstrate the true rule that applies when a confidential relationship is found to exist.
In Seeger v. Odell, 18 Cal.2d 409, 418, 115 P.2d 977, 982, 136 A.L.R. 1291, the rules are succinctly stated as follows: “In California the statute of limitations in an action based upon fraud begins to run from the time when the fraud was discovered or should reasonably have been discovered. Cal.Code Civ.Proc., § 338(4). It is necessary for a plaintiff to allege facts showing that suit was brought within a reasonable time after discovery of the fraud without unnecessary delay and that failure to make the discovery sooner was not due to negligence. See cases cited in 12 Cal.Jur. 795–799. The present action was brought more than three years after the date when the misrepresentation was allegedly made but only sixty days after it was discovered. Plaintiffs allege that the discovery did not occur sooner because of their advanced age, the considerable distance of the available records from their home, and the absence of any occasion on their part to examine the records or otherwise inquire into the truth of the representation. The alleged facts, if believed, would justify a trial court in finding that the plaintiffs were sufficiently diligent in discovering the fraud, and that the action was brought within a reasonable time thereafter.” (Italics added.)
The leading and frequently cited case of Victor Oil Co. v. Drum, 184 Cal. 226, 193 P. 243, contains language particularly appropriate here. In that case, as in the instant case, it was urged that the plaintiff knew of facts that should have put him on inquiry. The court discussed at length the various inferences from the evidence, and at page 241 of 184 Cal., at page 249 of 193 P., stated: “Without some information which carried a direct implication or suggestion of possible fraud, the plaintiff could not be put upon inquiry. The courts will not lightly seize upon some small circumstance to deny relief to a party plainly shown to have been actually defrauded against those who defrauded him on the ground, forsooth, that he did not discover the fact that he had been cheated as soon as he might have done. It is only where the party defrauded should plainly have discovered the fraud except for his own inexcusable inattention that he will be charged with a discovery in advance of actual knowledge on his part.”
Most of the important cases on this issue are cited and commented upon in Denson v. Pressey, 13 Cal.App.2d 472, 57 P.2d 522. In that case it was stated (page 476 of 13 Cal.2d, page 525 of 57 P.2d):
“As said in the case of Tarke v. Bingham, 123 Cal. 163, at page 166, 55 P. 759, 760: ‘Where no duty is imposed by law upon a person to make inquiry, and where under the circumstances “a prudent man” would not be put upon inquiry, the mere fact that means of knowledge are open to a plaintiff and he has not availed himself of them, does not debar him from relief when thereafter he shall make actual discovery. The circumstances must be such that the inquiry becomes a duty, and the failure to make it a negligent omission. Bank of Mendocino v. Baker, 82 Cal. 114, 22 P. 1037, (6 L.R.A. 833); Prouty v. Devin, 118 Cal. 258, 50 P. 380. In this case, though means of information were open to the plaintiff, it does not appear that there was any duty devolving upon him to make use of them. Nothing had occurred to excite his suspicion, or to put him upon inquiry, and for these reasons, under the facts of this case, we think the finding of the court sufficient and sufficiently supported by the evidence.’ See, also, Lataillade v. Orena, 91 Cal. 565, 27 P. 924, 25 Am.St.Rep. 219; Estudillo v. Security Loan, etc., Co., 149 Cal. 556, 87 P. 19; Miller v. Ash, 156 Cal. 544, 105 P. 600; Teague v. Hall, 171 Cal. 668, 671, 154 P. 851; Cameron v. Evans Securities Corp., 119 Cal.App. 164, 170, 171, 6 P.2d 272; Neff v. Engler, 205 Cal. 484, 488, 271 P. 744; Adkins v. Potter, 211 Cal. 512, 520, 296 P. 285; Divani v. Donovan, 214 Cal. 447, 453, 6 P.2d 247; Grady v. Luy, 117 Cal.App. 292, 3 P.2d 577; Payne v. Clow, 114 Cal.App. 597, 600, 601, 300 P. 138.
“In the case of Teague v. Hall, 171 Cal. 668, at page 671, 154 P. 851, 852, it is said: ‘This view of the law has been repeatedly declared in the decisions of this state. In Ruhl v. Mott, 120 Cal. 668, 676, 53 P. 304, 307, the court says: “it is true that where one is justified in relying, and in fact does rely upon false representations, his right of action is not destroyed because means of knowledge were open to him. In such a case, no duty in law is devolved upon him to employ such means of knowledge.” The same doctrine is declared in Bank of Woodland v. Hiatt, 58 Cal. 234; Wenzel v. Shulz, 78 Cal. 221, 20 P. 404; Morris v. Courtney, 120 Cal. 63, 52 P. 129; Dow v. Swain, 125 Cal. 674, at pages 683, 684, 58 P. 271; Maxon–Nowlin Co. v. Norswing, 166 Cal. 509, 512, 137 P. 240; Eichelberger v. Mills L. & W. Co., 9 Cal.App. 628, 100 P. 117.’ ”
In Rutherford v. Rideout Bank, 11 Cal.2d 479, 80 P.2d 978, 117 A.L.R. 383, the action was brought seven years after the fraud. The court, in disposing of the issue now under discussion, stated (page 485 of 11 Cal.2d, page 981 of 80 P.2d, 117 A.L.R. 383):
“It is, however, the contention of the appellant that the fraud was open and patent, that, since the slightest inquiry would have disclosed the truth, nothing but the plaintiff's inexcusable negligence kept her so long in ignorance of the fact that she had not received a fair price for her property, and finally, the additional fact, which came to light in September, 1927, was not one of the facts constituting the fraud but merely Taylor's motive for committing it. * * *
“[The court then quotes from Victor Oil Co. v. Drum, supra, and continues:] The appellant argues that the slightest inquiry would have disclosed the difference between the value of the ranch and the price offered by Finnie, the fact that the holders of the trust deed were not on the point of foreclosing and that Taylor's representations as to the bank's similar intentions were false. It is true that the plaintiff could have discovered the inadequacy of the price by inquiry but this alone would not necessarily have been sufficient to warn her of the fraud in the light of her belief in the representation, by one in whom she had implicit trust and confidence, that it was for her best interest to make the sale, even if for only $5 an acre, because otherwise she would lose everything by foreclosures. It was not until September, 1927, that she discovered this advice to have been motivated by personal gain and so was brought to question Taylor's good faith. At this point inquiry became a duty and plaintiff was chargeable with what she would discover if inquiry were made. Henigan v. Yolo Fliers Club, 208 Cal. 697, 284 P. 906; Victor Oil Co. v. Drum, supra. The fraud was in essence a concealed fraud; that is, it consisted in Finnie's procuring Taylor to represent to the plaintiff that it was his opinion as a banker and man of business that it was highly advisable for plaintiff, in the situation in which she found herself, burdened with overdue debts and with her properties encumbered as security therefor, to accept the offer made by Finnie; that the bank of which he was the managing agent, would, unless she accepted, foreclose upon one of her properties and that the holders of the trust deed upon the other, with whom the bank had negotiated the loan, would foreclose upon it. Taylor's knowledge to the contrary was concealed despite the confidential relationship found by the trial court to exist between the bank and Mrs. Rutherford. The finding of a confidential relationship is amply sustained by the evidence (Bank of America v. Sanchez, 3 Cal.App.2d 238, 38 P.2d 787), and, in view of its existence, Mrs. Rutherford cannot be charged with lack of diligence in making independent investigation either at the time or afterward. Barron Estate Co. v. Woodruff Co., 163 Cal. 561, 575–577, 126 P. 351, 42 L.R.A.,N.S., 125; Marston v. Simpson, 54 Cal. 189, 190.”
In Knapp v. Knapp, 15 Cal.2d 237, 100 P.2d 759, a demurrer had been sustained on the ground the action was barred. In reversing the judgment the court referred to what must be pleaded and proved in such an action and stated (page 242 of 15 Cal.2d, page 761 of 100 P.2d):
“A further element of his cause of action is a statement of facts showing that he had no notice or means of knowledge which, if followed by inquiry, would have shown the true facts. Lady Washington C. Co. v. Wood, 113 Cal. 482, 45 P. 809; Consolidated R. & P. Co. v. Scarborough, 216 Cal. 698, 16 P.2d 268; Turner v. Liner, 31 Cal.App.2d 196, 87 P.2d 740. However, the latter requirement has been relaxed in cases involving confidential relationship, because facts which justify investigation in the ordinary case would not excite suspicion where the circumstances show a right to rely upon the representations of another and the same degree of diligence should not be required. Rutherford v. Rideout Bank, 11 Cal.2d 479, 80 P.2d 978, 117 A.L.R. 383; Barron Estate Co. v. Woodruff Co., 163 Cal. 561, 126 P. 351, 42 L.R.A.,N.S., 125; Tarke v. Bingham, 123 Cal. 163, 55 P. 759; Lataillade v. Orena, 91 Cal. 565, 27 P. 924, 25 Am.St.Rep. 219.”
Reference should also be made to the case of Laraway v. First Nat. Bank of La Verne, 39 Cal.App.2d 718, 104 P.2d 95. After quoting with approval the portion of the Victor Oil Drum case above quoted, the court continued as follows (page 728, of 39 Cal.App.2d, page 100 of 104 P.2d): “Courts will not put their imprimatur upon a possible but antiquated authority that a person must assume that everyone with whom he has a business transaction is a rogue and act accordingly, but rather will hold that one can act upon the presumption that there exists no intention to cheat or defraud him. (Tidewater Southern Ry. Co. v. Harney, 32 Cal.App. 253, 260, 162 P. 664); or as was said in Tracy v. Smith, 175 Cal. 161, 165, 165 P. 535, 537, ‘the fraudulent vendor cannot escape from liability by asking the law to applaud his fraud and condemn his victim for his credulity’; and again, in Togni v. Taminelli, 11 Cal.App. 7, 14, 103 P. 899, 902, we find the following: ‘No one has a right, either in law or in morals, to complain because another has placed too great reliance upon the truth of what he himself has stated.’ ”
From what has been said it follows that appellants' contention that the action is barred cannot be sustained.
Both appellants challenge some of the instructions. It is contended that some of the instructions were faulty, others erroneous, and that some were outside the issues. The instructions were exhaustive, complete, and, on the whole, correct. Although there is some ambiguous language in a few of the instructions, when the charge is read as a whole, it is obvious that the jury could not possibly have been misled, and no prejudice to appellants could possibly have occurred. On all of the basic issues the jury was correctly instructed. Under such circumstances any slight errors that may have occurred in wording were not prejudicial to appellants.
The most serious objections are made to two instructions, quoted in the dissenting opinion. These are the only two instructions held in that opinion to be erroneous. These instructions expressed the thought that where a representation of fact within the knowledge of the party making it has been made, the defense that the receiving party knew the real fact “must be clearly and conclusively established by the evidence.” The challenged instructions were taken almost verbatim from 2 Pomeroy's Equity Jurisprudence, 4th Ed., §§ 895, 896, quoted with approval in Teague v. Hall, 171 Cal. 668, 670, 154 P. 851, 852. In this last–named case the jury had been instructed that before a defrauded party could recover he must show that he did not have the means at hand to acquire knowledge of the true facts. This instruction was held to be erroneous, and the giving of it held to be reversible error, the Supreme Court holding that it was not the law that a party who has relied upon a misrepresentation is precluded from recovery if he had an opportunity, but did not avail himself of the opportunity, to test the truth of the representations. The court approved the rule, and cited many cases to support it, that a man may act upon a positive representation of fact notwithstanding that the means of knowledge were specially open to him. The court then cited Pomeroy to the effect that “ ‘whenever a positive representation of fact is made, the party receiving it is, in general, entitled to rely and act upon it, and is not bound to verify it by an independent investigation. Where a representation is made of facts which are or may be assumed to be within the knowledge of the party making it, the knowledge of the receiving party concerning the real facts, which shall prevent his relying on and being misled by it, must be clearly and conclusively established by the evidence. The mere existence of opportunities for examination or of sources of information is not sufficient, even though by means of these opportunities and sources, in the absence of any representation at all, a constructive notice to the party would be inferred; the doctrine of constructive notice does not apply where there has been such a representation of fact.’ ” Many cases are cited to support this rule.
It may be that the use of the word “conclusive” was unfortunate and does not accurately state the law. However, whether that error, if error it was, was prejudicial depends on the facts of the case. The jury was instructed at length that if plaintiff had actual knowledge of the truth of the matters alleged to have been misrepresented he could not recover. It was also instructed at length on the rule of preponderance of the evidence. The evidence shows without contradiction that the only possible actual knowledge that Hobart had was that he had received a balance sheet from Greene, together with a letter in which Greene stated he could not fix the value of the stock. The rest of the knowledge alleged to be possessed by Hobart was constructive knowledge, based on the alleged knowledge of his attorney and investigator. The balance sheet, according to appellants' own witnesses, did not show the true value. The doctrine of constructive knowledge, of course, has no application where actual representations of fact are made. For these reasons, since actual knowledge did not exist as a matter of fact, it is hard to see how appellants could possibly be injured by the use of the challenged word, even if erroneous. After reading the entire record, it seems clear that, even if erroneous, the jury could not possibly have been misled, and that no prejudice resulted.
The last point upon which the dissenting opinion relies for a reversal is that the jury was, in effect, coerced into returning a verdict against Greene by the asserted misconduct of the trial judge. In my opinion the point is devoid of merit.
The first verdict was in favor of plaintiff and against the company in the sum of $32,175 actual damages, but with no finding at all as to Greene. Counsel for all the parties stipulated that the verdict was not complete and that the jury should be instructed to return to the jury room and reconsider its verdict. The court instructed the jury as follows:
“Counsel and the Court are in accord that you have not arrived at a verdict, ladies and gentlemen of the jury. Under the law you cannot return a verdict against a principal unless you return a verdict against the agent. So you must return and continue your deliberations and either return a verdict against the agent and the principal, or in favor of the agent or the principal.
“You will now retire until you have agreed upon a verdict.
“Does that statement comply with our understanding, gentlemen, as to the instruction, as to the limited instruction to be given to the jury?
“Mr. Hallinan: Exactly.
“Mr. Dunne: [Representing both defendants.] Yes.”
Ten minutes later the jury returned to the courtroom, apparently in some confusion over the forms of verdicts that had been furnished to it. The court informed the jury that such forms were furnished for its convenience, and that it was not required to use such forms. In addition to these forms the court then gave the jury a completely blank form of verdict, and then stated: “You will write in the names of the parties, the number of the action, and then whatever verdict you may agree upon. You may write upon this blank form of verdict and the foreman will sign his name, and that will be your verdict if you have or do agree upon a verdict.
“Will that assist you in any way?
“The Foreman: Yes, your Honor.
“The Court: You may retire and resume your deliberations.”
The jury then retired, and the court then stated to counsel:
“I meant to ask, before the jury retired, but I neglected to do so, is there any other or different statement that either counsel desires the court to make to the jury? I am rather loathe to say too much. I prefer to say as little as possible and leave it to the jury to find their own way out.
“Mr. Hallinan: I think what you said was all that was necessary.
“The Court: Can you think of anything additional, Mr. Dunne?
“Mr. Dunne: I do not, your Honor.”
It is obvious that, up until this time, no possible error had been committed. Everything that was done by the court was done with the approval and upon the stipulation of both counsel. The return of the jury for further deliberations and the instructions then given were given pursuant to such stipulation. If any “coercion” was involved it must have occurred when the second verdicts were returned.
After a little over two hours further deliberations the jury returned with verdicts of $32,175 against the corporation, actual damages and no exemplary damages, and against Greene for actual damages in the sum of no dollars and exemplary damages in the sum of $10,000.
It seems quite clear that if the first set of verdicts were incomplete, as the attorneys had stipulated, that these second verdicts were likewise incomplete. The trial judge promptly so ruled, although both counsel moved that the verdicts be filed. The court then instructed the jury in part as follows: “* * * you cannot find a verdict against the principal, that is the Hobart Estate Company, a corporation, without finding a verdict against the agent, or the defendant A. Crawford Greene. If the corporation defendant is liable in any amount, likewise the agent will be liable in the same amount. You cannot hold the corporation unless you find that it acted through the agent, defendant A. Crawford Greene. It has no other way of acting other than through its agent or officers, and you cannot find actual damages against the principal, in the opinion of this Court, and exemplary damages only against the agent.”
The judge then told the jury that further forms would be furnished to it, that if the jury could not agree it would be discharged, and that: “If you want to deliberate longer, the Court will permit it, and if you cannot agree, the Court will discharge you.” He also told the jury that he would be glad to repeat any of the instructions if they were desired, particularly those on principal and agent. Then just before the jury retired for further deliberations, the following instruction was given: “* * * you cannot return a verdict against the defendant corporation alone but you may decide to give or not to give a verdict for actual damages against both defendants, but you cannot give a verdict against the corporation alone for actual damages. Whether you want to give any exemplary damages is entirely a matter for you to determine * * *.”
It seems too clear to require extended comment that the trial judge acted properly, and in exact accord with the law. He did not direct a verdict against Greene. The jury had clearly indicated by all of its verdicts that respondent was entitled to actual damages in the sum of $32,175––that he had been defrauded, and had suffered damage in that amount. Under such circumstances, the trial judge correctly told the jury that the company was liable for actual damages only if Greene was liable, and that it could decide that either both were innocent or both were guilty of fraud. That is in exact accord with the law. Had the trial court failed to attempt to correct the incomplete verdicts it would have been derelict in its duty. Section 619 of the Code of Civil Procedure provides: “When the verdict is announced, or if it is informal or insufficient, in not covering the issue submitted, it may be corrected by the jury under the advice of the court, or the jury may be again sent out.” See, also, Hallinan v. Prindle, 220 Cal. 46, 29 P.2d 202; Sparks v. Berntsen, 19 Cal.2d 308, 121 P.2d 497.
It should be noted that no contention is or could be made that the award of actual damages is excessive, and appellant Greene makes no specific objection in connection with the award of exemplary damages against him.
For the foregoing reasons, the judgment and order appealed from are affirmed.
I concur in the order affirming the judgment and order appealed from. I agree with the conclusions in the majority opinion except on the issue of confidential relationship. The main opinion points out that there are three possible rules on this subject––the so called “majority” and “minority” rules, and the so called “special facts” doctrine. See American Trust Co. v. California, etc., Ins. Co., 15 Cal.2d 42, 98 P.2d 497. In the case last cited the Supreme Court has stated that the question as to which rule is in force in this state is still an open one. Until a definite rule is established, as a member of an intermediate appellate court I believe the so called “special facts” doctrine is the most reasonable to follow. However, I am of the opinion that, as a matter of law, the record will not sustain a finding that any confidential relationship existed between Greene and Hobart. Stated another way, even under the special facts doctrine the record shows that no confidential relationship existed, and that the parties were, in fact, hostile. Hobart had charged Greene with fraud in the will contest, and Greene did not represent that, in negotiating the sale, he was acting in any official capacity other than for the proponents of the will. Subsequent events prove that Greene purchased the stock on behalf of another stockholder.
Independently of this confidential relationship point, but based upon the facts and instructions of the court, it is my view that the evidence supports the judgment, and that the cause of action was not barred by the statute of limitations. The last question presented the most debatable point in the case.
I dissent. It is my conclusion that the judgments should be reversed. Two of the major points urged for reversal are: (1) that the evidence is insufficient as a matter of law to establish the essential elements of a cause of action for fraud. Under this heading it is contended among other things that the asserted representations, assuming them to have been made, were as a matter of law mere expressions of opinion and were made and understood as such; also that the undisputed evidence demonstrates that the plaintiff did not rely upon the asserted representations but relied upon independent advice and independent investigations conducted by him and his attorneys and professional investigator concerning the value of the stock. (2) That plaintiff's cause of action was barred by the three–year statute of limitations. In support of this point appellants contend that plaintiff has neither pleaded nor proved facts sufficient to show that he did not have notice of and did not discover the alleged fraud until within three years of filing suit; and that the undisputed evidence shows that he had knowlodge or was on notice of the facts relating to the alleged fraud long prior to the three years before the action was brought.
The main opinion fails to give a true picture of the factual situation relating to the foregoing points. It completely ignores many undisputed facts and numerous controlling legal principles which are utterly destructive of plaintiff's cause of action; moreover, it invokes language used in several cases which are based upon facts essentially different from those here presented. In support of the conclusions reached therein regarding the application of the statute of limitations a considerable portion of the main opinion is devoted to setting out a series of instructions which the court gave involving the application of the statute. But certainly a reviewing court cannot escape the duty of reversing a judgment where there is a want of indispensable facts to bring the case within the statute merely because instructions have been proposed and given upon the subject matter of the application of the statute. In short, the main opinion seems to go upon the theory that since an action for fraud involves questions of fact, and the application of the statute of limitations may involve questions of fact, and a jury has awarded the plaintiff a verdict, the case ends so far as the reviewing court is concerned, regardless of whether the evidence has established the indispensable elements of an action of that sort. I am unable to join in that view. The opinion which follows was prepared and submitted by me prior to the preparation and adoption of the main opinion, and since the views I entertain regarding the factual and legal problems presented by the case are fully discussed therein, I am setting it forth as my dissenting opinion.
This action for damages arose out of the sale by the plaintiff, Walter S. Hobart, Jr., of the 833 1/3 shares of stock held by him in Hobart Estate Company. Separate judgments based on the verdicts of a jury were entered against the defendants Hobart Estate Company and A. Crawford Greene. Each has appealed therefrom and from an order denying their motions for judgment notwithstanding the verdicts.
The stock was sold by plaintiff as the outgrowth of negotiations looking to a settlement of a contest he had filed to his father's will. The appellant Greene was one of the executors, and a member of the firm of attorneys for the estate. He was also the president and general manager of Hobart Estate Company. Attorney J. M. Mannon, one of Greene's law partners (now deceased) was in charge of the will contest for the proponents, and the negotiations for settlement were opened with him; but before they reached a definite state he left on vacation and they were continued with Greene. In behalf of plaintiff the negotiations were carried on by his then attorney, George B. Harris, and a professional investigator named Eugene Aureguy; and the sale was concluded after an investigation had been made of the affairs of the company. The stock was acquired by plaintiff's aunt, Mrs. Alice H. Lester, who for many years had been under guardianship proceedings as an incompetent person. Greene was her guardian and had been so for more than ten years. She already owned a majority of the stock of Hobart Estate Company, and Greene purchased plaintiff's stock for her under the authority and with the approval of the court in which the guardianship proceedings were pending. The contemporary papers evidencing the sale show definitely that plaintiff agreed to and did sell his stock at an agreed price of $55 a share, or $45,833.15 in all. Neither Greene nor the corporation acquired any interest whatever in the stock, nor did Greene own any beneficial interest in any of the company's stock. It was purely a family corporation. Greene was a non–relative and only one share of stock stood in his name to qualify him as an officer.
The sale was consummated in San Francisco in January, 1936, and the purchase price was paid to plaintiff at that time. After selling his stock plaintiff remained in California for several months, and then went to Europe. Thereafter and for more than five years no complaint whatever was made by him or anyone in his behalf as to the fairness of the transaction; but at the end of that time he returned to California and in June, 1941, through other counsel brought this action for damages, based on allegations to the effect that through fraudulent misrepresentations he was led to part with his stock at much less than its true value. Contrary to the clear and unqualified wording of the contemporary writings, he alleged that the purchase price of the stock was only $25 a share, and that the balance of the $45,833.15 received by him, to–wit, $25,000 thereof, was paid to him in settlement of the will contest, which was dismissed; that the stock was worth much more than $25 a share, and that he was induced to sell at that price by fraudulent misrepresentations.
The complaint was based on a conspiracy theory. It charged all persons named as defendants with having conspired to defraud him of his stock. Those so accused and named as defendants, besides Hobart Estate Company and Greene, were plaintiff's sister, Ruth Hobart Crocker, her husband, W. W. Crocker, and the latter's brother, Charles Crocker; also Attorney J. M. Mannon, Flora Dean Hobart (widow of plaintiff's father), and H. N. Stetson. However, summons was served on only three of them––Hobart Estate Company, Greene, and Charles Crocker. They answered separately, denying the charges of conspiracy and fraud, and as special defenses alleged that the cause of action set forth in the complaint was barred by the statute of limitations. The defendants not served did not appear in the action.
At the trial of the action however, plaintiff made no attempt to prove the charges of conspiracy. They were expressly abandoned by his counsel before he rested plaintiff's case; and notwithstanding that plaintiff had alleged specifically that the fraudulent misrepresentations were made to him by the defendants Mannon, Greene and Charles Crocker, his counsel stated that he was unable to substantiate the charges insofar as they were directed against Mannon and Crocker; and he offered no opposition to the granting of a nonsuit as to Crocker. The cause then proceeded against Greene and Hobart Estate Company alone upon the theory that Greene made the fraudulent misrepresentations and therefore was liable in damages to plaintiff, and that in making them he was transacting the business of Hobart Estate Company and that therefore the company was liable for his wrongful acts under the doctrine of respondeat superior as declared by the provisions of section 2338 of the Civil Code.
The fraudulent misrepresentations Greene is charged with having made are set forth in paragraph VI of the complaint as follows: (1) That the Hobart Estate Company was in a bad financial condition; (2) that the assests of said corporation had declined in value to such an extent as to threaten the safety of the stock held by plaintiff; (3) that the assets of the said corporation were of such value that the actual value of the stock held by the plaintiff, as aforesaid, did not exceed $25 per share; (4) that there was no market for the said stock; and (5) that upon any dissolution of said corporation a division of the assets among the stockholders would net therefor not more than the said sum of $25 per share. And (6) by amendment, allowed at the trial over defendants' objection, plaintiff added an allegation that the defendants had stated that the “book value” of the stock was about $25 a share. The complaint then goes on to allege that Mannon and Greene stated and represented that because of certain trusts created by the will, and for other reasons unknown to plaintiff, the proponents of the will and their attorneys did not wish to settle the will contest by the direct payment of money to plaintiff, but offered to purchase his 833 1/3 shares, for parties whose identity was not disclosed, “for its actual value, to–wit, the sum of $25 per share, plus the sum of $25,000 in settlement of said will contest, but * * * desired that the settlement aforesaid should be in such form as to make it appear that plaintiff was selling his said stock for a total sum of $45,833.15, that is, at the rate of $55 per share * * *.” It is then alleged that plaintiff consented to such arrangement. There was but one interview between plaintiff and Greene. Attorney Harris and Aureguy participated therein; and upon the occasion of this single interview Greene and plaintiff met as strangers. They had never met before nor did they ever see each other again until the cause came on for trial. As evidentiary support for the foregoing allegations plaintiff relies upon his own testimony and that given by Aureguy. The allegations were not substantiated by Harris, who was a witness for plaintiff; and they were completely negatived by the testimony given by Greene.
After seven hours deliberation the jury manifested a desire to exonerate Greene of any charges of fraud. This is shown by the fact that at the end of that time it brought in a verdict against the company for actual damages in the sum of $32,175, but returned no verdict as to Greene. The court refused to accept the verdict, saying in part: “* * * you cannot return a verdict against a principal unless you return a verdict against the agent”; and the jury was directed to retire for further deliberations, the court adding, “* * * either return a verdict against the agent and the principal, or in favor of the agent or the principal.” To this course both sides assented. After deliberating some three hours more and at 1:35 the next morning the jury brought in a verdict against the company for actual damages in the sum of $32,175, and no exemplary damages, and another verdict against Greene for no actual damages but for exemplary damages in the sum of $10,000. The court refused to accept those verdicts, and again directed the jury to retire and continue its deliberations, saying in part: “If the corporation defendant is liable in any amount, likewise the agent will be liable in the same amount. You cannot hold the corporation unless you find that it acted through the agent, defendant A. Crawford Greene. It has no other way of acting other than through its agent or officers, and you cannot find actual damages against the principal, in the opinion of this court, and exemplary damages only against the agent.” At 1:47 a.m. the jury again retired to deliberate, and about fifteen minutes later brought in two verdicts which the court accepted. One was against the corporation and Greene for actual damages in the sum of $32,175, and the other against Greene alone for the additional sum of $10,000 as exemplary damages. Thereafter appellants moved for judgment notwithstanding the verdict; the motions were denied, and judgments were entered on said verdicts.
As grounds of appeal both appellants urge: (1) that the evidence is insufficient to establish a cause of action for fraud and therefore as a matter of law fails to support the verdicts; (2) that the court committed prejudicial error in giving and refusing instructions; (3) that plaintiff's action is barred by the statute of limitations; (4) that the verdict against Greene resulted from coercive pressure exerted by the trial court upon the jury under circumstances which precluded the return of a free verdict. As an additional ground the appellant corporation urges in its behalf that in nothing that Greene did or said was he the agent of Hobart Estate Company and that therefore the evidence is insufficient as a matter of law to warrant the imputation to the company of any liability for anything Greene may have said or done. The grounds so urged are fully supported by the facts and the law, and taken singly or together require a reversal of the judgments.
Except as hereinafter noted, there is no substantial dispute as to the facts of the case, and those leading up to the sale of the stock may be stated as follows: Hobart Estate Company since it was incorporated has been a family corporation. It had its origin in the fortune left by Walter S. Hobart, who died in 1892. He was survived by a son, Walter S. (plaintiff's father), and two daughters, Alice and Virginia; and the estate left by their father went to them in equal shares. In 1894 the three children formed the corporation to which they transferred the bulk of the estate left them by their father. The stock was divided equally among them, and except for two or three shares which have stood in the names of non–relatives to qualify them as directors, all of the stock has remained in the ownership of the various branches of the Hobart family. Alice Hobart became Mrs. Lester, and as stated has for many years been under guardianship proceedings as an incompetent person. Virginia Hobart became Mrs. Baldwin, and formed a stockholding company of her own. In the course of time the original shareholdings of the three children were broken up, either by transfers between them for various reasons, or by surrender to the company in payment of indebtedness to the company, so that at the time the sale transaction herein took place Mrs. Lester owned a majority of the stock. The members of the law firm of McCutchen, Olney, Mannon & Greene and their predecessors have always been the advisors of and the attorneys for the Hobart family in the management of the corporation and its affairs. For a number of years the board of directors has been composed of Greene, Farnham P. Griffiths (a member of said law firm), plaintiff's father, up to his death and since then his widow Flora Dean Hobart, T. J. Loan (Mrs. Lester's son–in–law), Mrs. Baldwin or her son; H. G. Stevenson (a non–relative and since before 1900 the secretary of the corporation); and W. W. Crocker (husband of Ruth Hobart Crocker).
Hobart, Sr., died in 1933, leaving besides his widow two daughters Ruth Hobart Crocker and Hannah Neil Prince, and a son, the plaintiff Walter S. Hobart, Jr. At the time of his father's death plaintiff was 29 or 30 years old, and was in New York. He and his father had been estranged for a considerable time, as had been the plaintiff and his sister, Ruth Hobart Crocker; and for a number of years plaintiff had been living out of California. In 1907 Hobart, Sr., created a trust of 2500 shares of the company's stock, to be divided equally among his three children at the time of his death. Plaintiff received his share of the income from the trust up to the time of his father's death and he then received unconditionally his one–third of the trust stock to–wit, 833 1/3 shares. It was this stock that he sold in January, 1936. Hobart, Sr., also left a will which was admitted to probate and letters testamentary were issued to his widow and A. Crawford Greene, named therein as executors. It was a lengthy will, and thereunder plaintiff was bequeathed $100. Immediately upon the death of his father plaintiff determined to contest the will. He consulted a New York lawyer, a Mr. Steele, who wrote to California to secure information relating to the affairs of the estate; and in order to raise money to finance the contest plaintiff pledged 233 shares of his stock (which he had not yet received) to Charles Crocker. Plaintiff then came on to California, and later pledged the rest of his stock to Charles Crocker for more advances. Upon plaintiff's arrival in California he secured the services of Attorney Lachmund and those of Aureguy, who was employed by plaintiff under a contingent fee contract; but plaintiff did not file the contest to the will until June 9, 1934, which was only a day or two before the expiration of the six months period allowed by law for such proceeding. One ground of contest was that the will was the product of undue influence, and one of the charges made therein was that the executors and the legatees “over a period of years did, with intent so to do, poison the mind of said decedent” against plaintiff. In due course and before the contest was filed an inventory and appraisement was returned and filed in the matter of the estate. It showed that the principal asset was 3,289 shares of Hobart Estate Company stock, and that the state inheritance tax department had appraised the same at $40 a share. After the contest was filed the proponents of the will took the deposition of Stevenson, the company's secretary, and Hobart, Jr., the plaintiff. Attorney Lachmund was present at the taking of the Stevenson deposition and cross–examined the witness at length as to the financial affairs of the company, particularly with reference to its assets and concerning the balance sheets for the years 1932, 1933, and 1934, which were produced at the hearing. When plaintiff's deposition was about to be taken Lachmund retired from plaintiff's case and was succeeded by Attorney Harris, who was present at the taking of the plaintiff's deposition and participated therein, assisted throughout by Aureguy.
During this period also Aureguy conferred with the inheritance tax appraiser who had appraised the stock at $40 a share, for the purpose of ascertaining the basis for the appraisement; and he obtained from the appraiser such information as he had in fixing the value of the stock, which included a copy of the guardianship proceedings relating to the purchase of the 6000 shares at $40 a share by the estate of Mrs. Lester; also copies of the balance sheets and profit and loss statements of the company from 1931 to 1934, inclusive. On the balance sheet of 1934 were certain pencil notations made by Mr. Parker, one of the attorneys for the estate, bearing upon the value of the company's properties.
The taking of plaintiff's deposition extended over eight sessions, and during the intervals Harris and Aureguy had several conferences with Mannon, directed to the possibility of a settlement of the contest. Mannon's reply to these approaches was that in view of the evidence developed up to that time and of the other available material plaintiff had no contest to settle. At a later meeting it was suggested that perhaps the contest could be settled by the use of plaintiff's 833 1/3 shares of stock; but all expressed the belief that since the company was a family corporation there was no general market for its stock, and it would be a difficult matter to fix its value unless a purchaser could be found. Mannon stated that he did not know what the stock was worth but that he did know that it had been appraised in the matter of the estate at $40 a share; and Harris and Aureguy remarked that they also were aware of that fact. Mannon also told them that he knew about the sale of 6,000 shares by one member of the family to Mrs. Lester for $40 a share. There were other interviews, later, in the course of one of which Aureguy and Harris proposed a settlement of the contest for $15,000 provided the stock was purchased at $40 a share, but Mannon gave no encouragement to the proposition. He told them that he had no purchaser for the stock, and that so far as the will contest was concerned he had been directed by his clients not to pay anything for the contest. He added, however, that he hoped to be able to work out some plan whereby the stock could be purchased. The result of Mannon's conversations with Harris and Aureguy was that he was to see if in any way he could make them an offer for the purchase of plaintiff's stock which plaintiff would accept and dismiss the contest. At the end of July, 1935, Mannon informed Harris and Aureguy that he was about to leave on a vacation, and that during his absence Greene would have charge of the matter, and to confer with him.
During the course of Mannon's testimony counsel for plaintiff stated that he made no claim that Mannon personally made any of the alleged representations or misrepresentations charged against him in paragraph VI of the complaint.
After Mannon left on vacation Harris and Aureguy contacted Greene and resumed the negotiations with him. All agreed that there were but four interviews with Greene. Plaintiff was not present at the first three, but attended the fourth. There is a dispute as to when this fourth interview took place; but it was not later than October, 1935. Plaintiff and Aureguy claimed that it was at that interview that Greene made the misrepresentations and statements to plaintiff as charged in paragraph VI of the complaint. Their testimony, however, was not corroborated by that of Harris, and it was unequivocally denied by Greene. Reduced to its essentials, the testimony given by plaintiff and Aureguy was that Greene told them there could be no settlement of the will contest unless at the time of the settlement plaintiff sold his 833 1/3 shares of stock; that plaintiff did not wish to sell his stock but assented to the sale when told that there was no other way of disposing of the will contest by settlement. According to their testimony Greene further stated that the stock was worth no more than $25 a share and gave his reasons therefor; and that he, Greene, was willing to pay $25,000 for settlement of the will contest, but that in order to avoid having it appear that anything was paid to settle the will contest it would be necessary that the transaction appear to be one in which the stock was sold for $55 a share. However, there was no definite agreement entered into at that time for a settlement. There were two reasons for this: first, because Greene had no purchaser at that time, and plaintiff and his advisors were so informed, as Aureguy testified. Greene indicated, according to their testimony, that he had a purchaser in mind, but declined to state who it was. Secondly, plaintiff at the time of the fourth interview could not make a sale of the stock or give good title, for all of it was pledged with Crocker and a serious dispute had arisen between them as to the amount of the indebtedness to Crocker. Crocker lived in New York, and was represented by a New York lawyer, Judge Cooper; but the matter of the adjustment of the Crocker claim was being handled locally by D. J. Murphy, vice–president of the Crocker First National Bank. Meanwhile Greene endeavored to find a purchaser for the stock. He laid the matter before Mrs. Lester's two daughters, Mrs. Loan and Mrs. Pauli, and they disapproved the purchase in behalf of the guardianship. He then sought other buyers, including the decedent's widow, Flora Dean Hobart, the president of the American Trust Company, and W. W. Crocker; and he talked with some of the directors of Hobart Estate Company, all without success. Several months intervened before, by the adjustment of the dispute with Crocker, plaintiff was in a position to make a sale and transfer of his stock, and thereupon Greene's firm was notified that plaintiff was ready to sell his stock at $55 a share and dismiss the contest. In order to obtain the approval of Judge Cooper, Attorney Harris on November 29, 1935, wrote him a letter advising him of what had been done, in which letter he stated in part: “* * * it was agreed that in consideration of our client dismissing with prejudice the pending will contest and tendering a full and complete release in and with respect to any rights and/or claimed rights in and to said estate, and in addition transferring to the nominee of the representatives of the estate eight hundred and thirty three and one–third (833 1/3) shares of stock of the Hobart Estate Company standing in the name of Walter S. Hobart, Jr., the representatives of the estate would pay therefor and in consideration thereof $55.00 a share for the said eight hundred and thirty three and one–third (833 1/3) shares. In short, the settlement contemplated not only a dismissal of the will contest but also a complete relinquishment of all the right, title and interest of our client in and with reference to said shares of stock.” Near the end of the letter he stated: “We are fearful that if the suggestion which we have outlined is not complied with that the settlement will fall through and that the possibility of obtaining this figure for the stock will be lost.”
After receiving the information that plaintiff had agreed to sell his stock at $55 a share and dismiss the contest Greene again brought the matter to the attention of Mrs. Lester's daughters, and finally, on January 10, 1936, they gave their approval to the purchase in a telegram to Greene reading as follows: “We both approve and recommend that guardianship purchase for the estate of Alice H. Lester approximately eight hundred thirty three shares of Hobart Estate Company stock from Walter S. Hobart, Junior at an approximate price of fifty–five dollars per share stop any action taken by guardian toward consummation of such stock purchase will have our full approval.” Thereupon escrow papers were prepared and delivered whereunder the stock, assigned in blank, was deposited with Murphy, together with a dismissal and a retraxit of the will contest and a release of all demands. Accompanying these documents was a letter of instruction signed by plaintiff, Harris and Aureguy authorizing Murphy to turn the documents over to Greene's law firm upon the receipt from the latter of the sum of $45,833.15, and instructing Murphy to pay out of that sum $25,000 to Charles Crocker, $450 to plaintiff, and the balance amounting to $20,383.15, to Harris. In this letter of instruction to Murphy plaintiff stated: “The said certificate for 833 1/3 shares I have agreed to sell to a purchaser represented by the law firm of McCutchen, Olney, Mannon & Greene, for a total of $45,833.15, representing 833 1/3 shares at $55 per share.” These instructions were dated and delivered to Murphy on January 14, 1936, and on the same day Attorney Harris addressed a letter to Greene's law firm reading as follows: “In accordance with our understanding for the purchase by you, or your nominee, of 833 1/3 shares of the capital stock of the Hobart Estate Company, at the agreed price of $55.00 a share, together with a full and complete settlement of all of the interest of Walter S. Hobart, Jr., in the estate of his late father, I have deposited with Mr. Daniel J. Murphy, Vice President, Crocker First National Bank, this city, all of the documents which you have handed to me, properly executed, pursuant to your instructions. These papers have been deposited by me under appropriate instructions, and I trust that the only thing remaining to be done, to–wit, the payment of $45,833.15, will be made forth–with.” The next day, January 15, 1936, Greene applied for and obtained an order from the superior court in the guardianship proceedings whereby he was “authorized, empowered and directed to purchase the hereinbefore described 833 1/3 shares of the capital stock of Hobart Estate Company, a corporation, at a price not to exceed $55.00 per share”; and on the following day, January 16, 1936, the sale transaction was closed by delivering to Murphy a cashier's check for $45,833.15; and the stock transfer, the dismissal and the retraxit and release were delivered to Greene's law firm. The $45,833.15 was paid out by Murphy as directed by the escrow instructions; and half of the $20,383.15 received by Harris was paid by him to plaintiff. The other half was divided between Harris and Aureguy.
The elements of a cause of action for the recovery of damages for deceit are well stated in Work v. Campbell, 164 Cal. 343, 347, 128 P. 943, 945, 43 L.R.A.,N.S., 581, wherein the court said: “* * * an action for damages for deceit will lie wherever a party has made a false representation of a material fact susceptible of knowledge, knowing it to be false or not having sufficient knowledge on the subject to warrant the representation, with the intent to induce the person to whom it is made, in reliance upon it, to do or refrain from doing something to his pecuniary hurt, when such person, acting with reasonable prudence, is thereby deceived and induced to so do or refrain, to his damage.” This statement of the law is substantially the same as one made by the Supreme Court of the United States in Southern Development Co. v. Silva, 125 U.S. 247, 250, 8 S.Ct. 881, 31 L.Ed. 678, 680, and quoted with approval in Colmar v. Pinckard, 3 Cal.App.2d 213, 216, 39 P.2d 262. All of the elements mentioned must be present; the absence of any one of them is fatal. Colmar v. Pinckard, supra; Hallidie v. First Federal Trust Co., 177 Cal. 600, 171 P. 431; Maxon–Nowlin Co. v. Norswing, 166 Cal. 509, 137 P. 240.
As is the law generally, where the burden of proof of a fact is on the party who asserts a fact, the burden of proof of all the elements is on plaintiff. Except in cases wherein a fiduciary relationship exists, or the statute so declares, fraud is not to be presumed; it must be proved by clear and convincing evidence. Moore v. Giffen, 110 Cal.App. 659, 661, 294 P. 730; Southern Development Co. v. Silva, supra; Bryan v. Ramirez, 8 Cal. 461, 468, 68 Am.Dec. 340; People v. Swift, 96 Cal. 165, 170, 31 P. 16; Rice v. California–Western S. L. I. Co., 21 Cal.App.2d 660, 668, 70 P.2d 516. The usual rule that a party asserting a fact has the burden of proving it is fortified where fraud is charged, for not only will fraud not be presumed, but there is a presumption in favor of honesty and fair dealing which must be overcome. “The presumption is always against fraud,––a presumption approximating in strength to that of innocence of crime * * *.” Truett v. Onderdonk, 120 Cal. 581, 588, 53 P. 26, 29; Hedden v. Waldeck, 9 Cal.2d 631, 636, 72 P.2d 114; Farmers' Auto., etc., Exch. v. Calkins, 39 Cal.App.2d 390, 393, 103 P.2d 230, 232. Because of this “strong presumption of innocence of fraud” the burden of proving his “allegations rested heavily on the plaintiff.” Farmers' Auto., etc., Exch. v. Calkins, supra. A mere suspicion of fraud is not sufficient. Southern Development Co. v. Silva, supra; Moore v. Giffen, supra; Bryan v. Ramirez, supra; People v. Swift, supra; Rice v. California–Western S. L. I. Co., supra; Everett v. Standard Acc. Ins. Co., 45 Cal.App. 332, 187 P. 996, quoted in Farmers' Auto., etc., Exch. v. Calkins, supra; Truett v. Onderdonk, supra.
Furthermore, before there can be actionable fraud, there must be a statement of a material fact susceptible of knowledge. The statement of an opinion will not do. This is particularly true where the basis of the opinion is disclosed (Gleason v. McPherson, 175 Cal. 594, 166 P. 332; Penfield v. Bennett Film Laboratories, 4 Cal.App.2d 306, 40 P.2d 587; Etienne v. Kendall, 202 Cal. 251, 254, 259 P. 752), or where both parties are in a position to determine the fact (Pacific Portland Cement Co. v. Placer County Land Co., 187 Cal. 175, 180, 201 P. 126; Estate of Johnson, 134 Cal. 662, 66 P. 847), the party claimed to have been defrauded has made some investigation and has some knowledge (Hedden v. Waldeck, supra), and both parties are in possession of data which, if properly used, would lead to the forming of an opinion (Rheingans v. Smith, 161 Cal. 362, 119 P. 494, Ann.Cas.1913B, 1140; Henry v. Continental, etc., Ass'n, 156 Cal. 667, 105 P. 960; Lloyd v. Kehl, 132 Cal. 107, 112, 64 P. 125).
It is true that a statement of value may be made in such circumstances that it is a statement of fact, or for purposes of claims of fraud or deceit may be treated as a statement of fact. But when the conditions above referred to have been shown to exist, statements of financial condition (Filice & Perrelli C. Co. v. Walton, 95 Cal.App. 7, 271 P. 1096) and statements of value are statements of opinion only (Alberda v. Smith, 2 Cal.App.2d 74, 79, 37 P.2d 509; Lion v. McClory, 106 Cal. 623, 627, 40 P. 12; Gleason v. McPherson, supra; Henry v. Continental, etc., Ass'n, supra; Craig v. Wade, 159 Cal. 172, 112 P. 891; Wegerer v. Jordan, 10 Cal.App. 362, 101 P. 1066; Meeker v. Cross, 59 Cal.App. 512, 211 P. 229; Southern Development Co. v. Silva, supra.
Moreover, a statement, to be actionable, must appear to have been relied upon in fact. Hallidie v. First Federal Trust Co., supra; Rheingans v. Smith, supra; Yates v. Eudemiller, 213 Cal. 26, 29, 1 P.2d 434. There cannot be any reliance where the party claimed to have been defrauded is not ignorant of the truth. Spencer v. Anderson, 193 Cal. 1, 6, 222 P. 355, 35 A.L.R. 822; Maxon–Nowlin Co. v. Norswing, supra; Estate of Ricks, 160 Cal. 450, 461, 117 P. 532. But something less than actual knowledge of the truth will defeat a claim of actionable deceit. The reliance must be by a person who is “acting with reasonable prudence” (Work v. Campbell, supra), and the law will not assist one simply because he said he believes––he must prove that he “reasonably believed” (Southern Development Co. v. Silva, supra; Farrar v. Churchill, 135 U.S. 609, 10 S.Ct. 771, 34 L.Ed. 246; Gratz v. Schuler, 25 Cal.App. 117, 120, 142 P. 899. As said in Elko Mfg. Co. v. Brinkmeyer, 216 Cal. 658, 666, 15 P.2d 751, 754, “It is elementary, of course, that even if false representations are made, no cause of action arises unless there is reasonable reliance placed thereon by the other contracting parties.” Where a statement, as a statement of value, is made, which may be a matter of fact or a matter of opinion, it cannot be said that there is any reliance, as the law uses that word, where the party claimed to have been defrauded has been given means of ascertaining the truth and has actually undertaken some investigation. Alberda v. Smith, supra; Hayward v. Widmann, 133 Cal.App. 184, 189, 23 P.2d 762; Tucker v. Beneke, 180 Cal. 588, 593, 182 P. 299; Colton v. Stanford, 82 Cal. 351, 23 P. 16, 16 Am.St.Rep. 137; Carpenter v. Hamilton, 18 Cal.App.2d 69, 71, 62 P.2d 1397; Gleason v. McPherson, supra; Lee v. McClelland, 120 Cal. 147, 52 P. 300; Southern Development Co. v. Silva, supra; Gratz v. Schuler, supra; Farrar v. Churchill, supra; Slaughter's Administrator v. Gerson, 13 Wall. 379, 80 U.S. 379, 20 L.Ed. 627, 628. The rule is thus aptly stated in Farrar v. Churchill, supra [[[[135 U.S. 609, 10 S.Ct. 773, 34 L.Ed. 246]: “The representation must be in respect to a material fact, must be false, and must be acted upon by the other party in ignorance of its falsity, and with a reasonable belief that it was true. * * * If the purchaser investigates for himself, and nothing is done to prevent his investigation from being as full as he chooses, he cannot say that he relied on the vendor's representations.” In Gratz v. Schuler, supra [25 Cal.App. 117, 142 P. 900], it was said that in addition to other elements, the plaintiff must show that he was deceived “while acting with reasonable prudence.” And in Southern Development Co. v. Silva, supra [125 U.S. 247, 8 S.Ct. 887, 31 L.Ed. 678], the court said: “Where the purchaser undertakes to make investigations of his own, and the vendor does nothing to prevent his investigation from being as full as he chooses to make it, the purchaser cannot afterwards allege that the vendor made misrepresentations.”
The first contention made by appellants in support of the assignment of insufficiency of the evidence is that the asserted representations, assuming them to have been made, were as a matter of law mere expressions of opinion made and understood as such and were not representations of fact; and accordingly that they are not actionable. This contention must be sustained.
As above pointed out, the complaint charges the making of six representations; but as will be noted, the essence of plaintiff's cause of action is representation (3)––that he was induced to sell his stock for $25 a share by the false representation that it was worth only $25 a share. All of the other representations are incidental to the one just stated, and serve merely to bolster and support it. The first and second––that Hobart Estate Company was in bad financial condition and that the value of its assets had declined so as to endanger the safety of its stock––were in their very nature expressions of opinion; and this was so obvious that the trial court instructed the jury that as a matter of law each of those statements, if made, would be a mere expression of opinion and not a statement of fact. The fifth representation––that upon a dissolution a division of the assets would not net more than $25 a share––like the first two representations, is a statement of opinion and not of fact. It is nothing more than an estimate, or rather a prophecy of what would occur in a hypothetical case of a dissolution of the company. All the elements of that prophecy, the possibility of selling the many and heterogeneous assets of the corporation, the time that might be required to effect such sales, the prices that might be realized, and the expense of such an involved operation and of conducting the corporation until its conclusion, are necessarily matters of conjecture and uncertainty; and fraud cannot be predicated on statements as to future events. 51 A.L.R. 49 et seq., annotation, citing California cases at 50–51. In other words, a charge of fraud cannot be based on a statement that property will yield a good return, or can be sold at a profit at some time in the future. Lee v. McClelland, supra; Gleason v. McPherson, supra; Wegerer v. Jordan, supra; Tahoe Pines Co. v. Newman, 59 Cal.App. 186, 210 P. 445; Williams v. Lowenthal, 124 Cal.App. 179, 12 P.2d 75.
The sixth representation, considered in the light of the testimony given by plaintiff and Aureguy, was no different from the fifth. According to their testimony Greene stated that the “book value” of the stock was $25 a share; that, in response to an inquiry made by them as to the meaning of the term, Greene went on to define it; that as they understood him, it meant the amount that would be left over for distribution to each stockholder after all the assets were sold, the debts paid, and the balance divided among the shareholders. Greene denied having so defined the term; but accepting as true the testimony given by plaintiff and Aureguy, Greene, in what he said about book value, stated the same thing as charged in the fifth representation––that upon a dissolution a division of the assets would need the stockholders not more than $25 a share. Apparently plaintiff concedes appellants' claim that the fifth and sixth representations were mere expressions of opinion, for nowhere in plaintiff's brief does he dispute the claim.
As to the fourth representation––that there was no market for the stock––the evidence affirmatively shows that the representation was true. Briefly stated, the essential undisputed facts are these: Hobart Estate Company was a closely held family corporation, and the only transfers of its stock that took place during the preceding 20 years were inter–family transactions. Back in 1915 plaintiff's father surrendered 600 shares to Mrs. Lester in satisfaction of an indebtedness; that same year Mrs. Baldwin and plaintiff's father surrendered other shares to the corporation itself in payment of an indebtedness due the corporation; and the only other transfer during that period was the sale by plaintiff's father to Mrs. Lester of 6,000 shares at $40 a share, which stock had been theretofore pledged with her as security for loans made to him. There never was any trading of the stock. No evidence was offered to the contrary, nor was any attempt made to prove there was a market for the stock. In the petition filed by Greene as guardian for authority to purchase plaintiff's stock, he stated that he was informed that if the stock should not be purchased by petitioner “there are other persons who are now ready and willing to purchase said shares at said price.” But this statement was made in January, 1936, after Greene had made efforts to interest prospective purchasers, and not in the summer of 1935, at the time of the only meeting between Greene and plaintiff, and when Greene had no purchaser; and on cross–examination by plaintiff's counsel Greene explained that the statement in his petition was made on the basis of a discussion with W. W. Crocker in January, 1936, as the result of which Greene felt assured that in any event the Crocker family would buy the stock, if it were not purchased by the Lesters. Under these circumstances it cannot be said that the statement in Greene's petition serves as evidence showing there was a “market” for the stock. If any such evidence was available it is reasonable to assume that plaintiff would have produced it, in support of his case.
The remaining question, under this heading, is whether the third representation––that the actual value of the stock did not exceed $25 a share––was a representation of fact rather than one of opinion. There is little if any dispute as to the law. Generally speaking, a statement of the value of corporate stock or other property is a statement of opinion and not of fact (Wells v. Lloyd, 6 Cal.2d 70, 56 P.2d 517; Gleason v. McPherson, supra; Craig v. Wade, supra; Wegerer v. Jordan, supra; Meeker v. Cross, supra), but the rule is not absolute, and under certain circumstances a statement of the value of property may be one of fact. One of the factors bearing on the result is the existence of a fiduciary relationship between the parties. This factor will be discussed later on. The other factor is whether the alleged representation of value was made as one of fact, or was expressed by the defendant and understood by the plaintiff to be one of opinion merely. The latter is not actionable. Southern Development Co. v. Silva, supra; Lee v. McClelland, supra. Here, according to the testimony of both Aureguy and plaintiff, the statement made by Greene as to the value of the stock was definitely qualified by other statements made by him at the same interview, that there was no data upon which the value of the stock could be determined with anything approaching accuracy, and that he was giving only his opinion. As shown by their testimony, some of the qualifying statements made by Greene were: that “they had no way of determining values except by actual sales”; “that in order to arrive at the value of the stock in this corporation it would be necessary to sell all of the assets”; also that Greene stated in substance that the only figure they were able to furnish in respect to the value of the stock in the absence of a piece by piece appraisal of the physical assets of the corporation was a family sale that had been made by plaintiff's father at $40 a share; that they had no way of determining values except by actual sales. Aureguy testified that at one time he asked Greene the direct question: “What is the stock worth?” and Greene replied: “We have no way of definitely knowing.” Aureguy further testified that he asked Greene whether they could “approach the value of the stock from the element of interest” and that Greene replied, “That might be one way of arriving at it”; that thereupon Aureguy requested Greene to furnish him with the amount of the dividends declared that year, and after Aureguy had made certain computations therefrom he, Aureguy, made “the suggestion” that at 5% the stock would be worth between $24 and $25 a share, and that Greene said, “That is precisely the value of the stock, Mr. Aureguy, $25 a share.” However, the record shows that immediately preceding this statement Greene had stated unequivocally in answer to Aureguy's direct question that he had no way of definitely knowing what the stock was worth, and that immediately afterwards Greene stated: “When you take into consideration that we are in a depression and that this is a family owned closely held corporation, of which the stock is not generally dealt in, it is worth just what any person will pay for it or someone––or rather, whatever Mr. Hobart can get for it” and “that the only way we can arrive at the value of a corporation of this character would be to sell the assets and divide the money.” At no time did Greene profess to have any expert knowledge concerning the value of the stock; nor is it charged that he made any careless or reckless statements concerning it.
Furthermore, the record shows that the assets of the corporation consisted of a large number of parcels of real property. They included large holdings in New York City, various parcels of business property in San Francisco and extensive interests in mining properties in California, some of which had been profitable, and others failures, and some were still undeveloped; also a small power and light property on the Mother Lode, an outgrowth of the Utica mine. They included also large tracts of timber land in Northern California on which lumbering operations were conducted and some 20,000 acres of land fronting on Lake Tahoe, which had been cut over for lumber, and such value as it had lay principally in the adaptability of the lake frontage for resort purposes or for subdivision for homes.
Manifestly, therefore, in view of the character of the company's assets, it was impossible for anyone, except by way of mere expression of opinion, to attempt to fix or determine, with any degree of accuracy, the value of the stock of the corporation at any given time. All of this was known to plaintiff and Aureguy at the time they claim that Greene fixed the value of the stock at not more than $25 a share. In the foregoing state of the evidence, which is undisputed, and which for the most part was produced in behalf of plaintiff, there is no legal or factual ground upon which it may be held that whatever Greene may have said as to the value of the stock was not mere expression of opinion.
Plaintiff contends, however, that even though the statements attributed to Greene were mere expressions of opinion, a fiduciary relationship existed between Greene and plaintiff, and that therefore under the law governing situations arising out of such relationship the statements of opinion became representations of fact. All the circumstances in the case demonstrate to a certainty that no such relationship existed. The undisputed facts show exactly the opposite––that in all of their dealings their relationships were hostile and antagonistic. Briefly stated the facts are these: Plaintiff and Greene met but the one time, and on that occasion they met as strangers and were introduced to each other as such. The purpose of the conference was to discuss the possibility of the purchase of plaintiff's stock and the dismissal of the will contest. They met as adversaries––Greene representing the proponents of the will, and plaintiff as the contestant of the will. Moreover, at this conference plaintiff was being represented by his attorney and his investigator, and plaintiff was acting pursuant to their advice and counsel. In that contest plaintiff had directly charged Greene personally with the grossest sort of fraud––with having poisoned the mind of plaintiff's father against plaintiff, so as to disinherit him. Furthermore, in the sale transaction their positions were directly opposite to each other. Plaintiff was the owner and seller of the stock, and was being represented by his attorney and his investigator; whereas Greene was bargaining for an undisclosed purchaser and was in no manner acting in behalf of plaintiff. To claim that in such circumstances and in such an atmosphere the relationship between plaintiff and Greene was one of “personal confidence and trust” is plainly contrary to the undisputed fact.
The cases cited by plaintiff (Edmonds v. H. W. Wilcox, 178 Cal. 222, 172 P. 1101; Barron Estate Co. v. Woodruff Co., 163 Cal. 561, 126 P. 351, 42 L.R.A.,N.S., 125; Palm v. Smither, 52 Cal.App.2d 500, 126 P.2d 428; and Seeger v. Odell, 18 Cal.2d 409, 115 P.2d 977, 136 A.L.R. 1291) do not purport to deal with the essential requirements of a fiduciary relationship. They merely hold that where such relationship is shown to exist a statement of what would ordinarily be one of opinion may be treated as a statement of fact, a legal proposition that appellants do not dispute.
It is true that plaintiff alleged in his complaint and testified that during this particular interview Greene stated and represented to plaintiff that he “desired to assist and befriend plaintiff and to protect his interest and to take no advantage of him.” But this comes far from establishing a fiduciary relationship, for it is well settled that evidence of friendly relations or even intimacy of relationship alone does not constitute a fiduciary relationship. As said in Jackson v. Gorham, 98 Cal.App. 112, 116, 276 P. 391, 393: “Friendly relations or even intimacy of relationship presents an entirely different question from what is understood as a confidential relation in law. One may have confidence in another's integrity and honesty of purpose, and likewise believe that he will live up to any of his contracts, without having any confidential relations with such person that would void any agreements or transactions entered into between them, on the theory of constructive fraud or undue influence. * * * There must be something further than mere confidence in another's honesty and integrity to sustain the presumption of constructive fraud.” Upon allegations of fact much stronger than any shown by the evidence in this case the court in Robbins v. Law, 48 Cal.App. 555, 192 P. 118, held that as a matter of law no fiduciary relationship existed.
Plaintiff further contends, however, that the mere fact that he was a stockholder and Greene was a director and the president of Hobart Estate Company established a fiduciary relationship. The following cases hold in conformity with the majority rule prevailing in other jurisdictions that a corporation director and president owes no fiduciary obligation or duty to the stockholders in respect to their individual holdings of stock. Ryder v. Bamberger, 172 Cal. 791, 158 P. 753; Robbins v. Pacific Eastern Corp., 8 Cal.2d 241, 65 P.2d 42. Neither of the two later cases cited by plaintiff (American Trust Company v. California, etc., Ins. Co., 15 Cal.2d 42, 98 P.2d 497, and Leland Stanford Jr. University v. National Supply Co., D.C., 46 F.Supp. 389) overrule the two earlier cases nor repudiate the majority rule adhered to therein. In the American Trust Company case the court declared that the question is still open in this state as to whether the majority rule should be followed; but it went on to point out, as appellants here contend, that there can be no fiduciary relationship where there exists a condition of hostility and if the dealings are at arm's length; and it expressly differentiated the case of Bacon v. Soule, 19 Cal.App. 428, 126 P. 384, upon this very ground. The Leland Stanford Jr. University case was a decision in the District Court of the United States. That decision did not turn on the point for which it is cited by plaintiff, nor is there anything stated therein, much less in the decision of the Circuit Court of Appeals reversing it (9 Cir., 134 F.2d 689) that suggests that there can be a fiduciary or confidential relationship between known adversaries, such as we have here; nor is there any warrant for the suggestion that it was there claimed that such a relationship could exist under those conditions.
Plaintiff's concept of a fiduciary relationship would seem to be that if one of two parties to a transaction is a stockholder and the other is an officer of a corporation, the relation between them is one of trust and confidence, even though they are in fact adversaries and dealing at arm's length in the particular transaction. This unrealistic concept finds no support in the law or in the nature of human conduct. More specifically, it has been expressly held, as in the very nature of things must be the case, that if in fact the relationship is one of adversaries dealing at arm's length, especially where the parties are essentially hostile, there can be no fiduciary relationship; and that is true no matter what the nominal relationship may be. In so holding the court in Robbins v. Law, supra [48 Cal.App. 555, 192 P. 120], said: “The most liberal definition of confidential relations could not include the relation between known enemies. * * * There is no confidential relation between hostile parties.” See also Bacon v. Soule, supra. Moreover, even under the minority rule referred to in the American Trust Company case there could be no fiduciary relationship in a situation where as in this case the relationship between the parties is openly hostile. Bacon v. Soule, supra; Robbins v. Law, supra.
Another essential element in an action for fraud, where a fiduciary relationship does not exist, is that the plaintiff relied upon the alleged false representations. The many cases so holding are uniform, and several of them are hereinabove cited. The substance of the doctrine is this: that one who has made an actual investigation of the matters involved in the representation and has been given full and fair facilities for doing so, and who acts on his own judgment or knowledge, or in pursuance of independent counsel and advice, cannot be heard to complain. Hayward v. Widmann, 133 Cal.App. 184, 23 P.2d 762 and cases cited therein. In applying the foregoing doctrine the court in Carpenter v. Hamilton, supra [18 Cal.App.2d 69, 62 P.2d 1399], said: “Upon the question of knowledge it is held, generally, that where one undertakes to investigate the property involved or the truth of the representations concerning it and proceeds with the investigation without hindrance, it will be considered that he went far enough with it to be satisfied with what he learned. Mr. Pomeroy says, in speaking of one who has undertaken to make an inspection of the property, ‘The plainest motives of expediency and of justice require that he should be charged with all the knowledge which he might have obtained had he pursued the inquiry to the end with diligence and completeness. He cannot claim that he did not learn the truth, and that he was misled.’ 2 Pomeroy's Equity Jurisprudence, (3d. Ed.), § 393. ‘One ground of this latter branch of the rule is the practical impossibility in any judicial proceeding of ascertaining exactly how much knowledge the party obtained by his inquiry; and the opportunity which a contrary rule would give to a party of repudiating an agreement or other transaction fairly entered into, with which he had become dissatisfied.’ Id. If it fairly appears from the evidence that the buyer under–took to investigate for himself the matters as to which representations had been made, he cannot be allowed to later claim that he acted upon the representations, even though he voluntarily abandoned his investigation before it was completed.”
Moreover, in a case of this kind a plaintiff is of course charged with the knowledge of facts discovered or information obtained by his agents or attorneys. 1 Cal.Jur. p. 853, 854. Consequently plaintiff was charged with full knowledge of all information gained by Attorneys Lachmund and Harris and his investigator Aureguy bearing upon the financial condition of the company or the value of its stock. Plaintiff makes no charge of concealment or withholding. Quite to the contrary, Aureguy himself testified that Greene was especially frank in directing attention to the difficulties inherent in arriving at the value of the stock for the purpose of sale; and the facts of record establish without dispute that prior to the interview between Greene and plaintiff at which it is claimed the representations were made, plaintiff's attorneys and his investigator as well as himself made an investigation of the financial condition of the company and the value of its stock, and that as a result of such investigation plaintiff believed that the stock was reasonably worth upwards of $100 a share. In this respect the record shows the following: At the time of the taking of the Stevenson deposition in April, 1935, Lachmund already had in his possession the balance sheet of the company for 1932 and the 1933 and 1934 balance sheets were produced for examination at the hearing and examined by Lachmund. He also went into details in examining Stevenson as to the assets shown on the balance sheets, and brought out the information that the figures entered opposite the various items represented “book value” only, and that these figures were greatly in excess of the current values of the properties. As the result of Lachmund's extensive cross–examination of Stevenson in connection with the statements there produced, Lachmund ascertained among other things that the assets of the company consisted of, what the liabilities were, what the outstanding stock was, and what its book value was; and admittedly the book value as shown by the balance sheets was upwards of $100.
Furthermore, long before plaintiff filed his contest to the will, he himself had acquired considerable knowledge about the affairs of the company, its assets and its stock, for up to the time of his father's death he had an interest in the trust and some years before his father's death he had been shown an annual balance sheet and financial statement of the company by his aunt, Mrs. Baldwin, and had discussed with her matters connected with the estate. He knew also of the sale of 6,000 shares of stock by his father in 1933 for $40 a share, and he also knew of the state appraisement of the stock in his father's estate at $40 a share. According to his testimony, in 1933 and 1934 he believed the stock was worth upwards of $100 a share but that during a conversation with Charles Crocker he was told that his, plaintiff's, stock was worth not more than $20,000 (which is equivalent to $24 a share); that he was “rather amazed” at the statement and did not believe it; and when in 1935 he claimed he was told by Greene that the stock was worth no more than $25 a share he was again “amazed” because from the information he had previously obtained he believed the stock was worth upwards of $100 a share. Furthermore, in his contest to the will, he alleged that his father's estate which had been appraised at less than $200,000 was of the value in excess of $2,000,000, which would fix the value of the stock at between $100 and $150 a share. The record further shows that as soon as Aureguy was employed by plaintiff in the summer of 1934 he began and afterwards pursued an investigation of the financial condition of the company and necessarily of the value of its stock, including a conference with the tax appraiser, in order to arrive at a basis for a settlement of the contest; and finally the record shows that plaintiff and Greene were dealing at arm's length and that plaintiff throughout the negotiations had the independent counsel and advice of competent counsel and an experienced investigator. In these circumstances and under the legal principles above set forth plaintiff cannot be heard to complain that in making the sale he was relying upon the representations made by Greene at this single interview. Colton v. Stanford, supra; Blumenthal v. Greenberg, 130 Cal. 384, 62 P. 599; Carpenter v. Hamilton, supra.
The second major ground upon which the judgments must be reversed is that the action is barred by the three–year statute of limitations. Subd. 4, Sec. 338, Code Civ. Proc.
The defense of the statute of limitations is not a technical one, but is a substantial and meritorious defense that is favored in the law. United States v. Oregon Lumber Co., 260 U.S. 290, 43 S.Ct. 100, 67 L.Ed. 261. In so declaring, the court in Wood v. Carpenter, 101 U.S. 135, 139, 25 L.Ed. 807, said: “Statutes of limitation are vital to the welfare of society and are favored in the law. They are found and approved in all systems of enlightened jurisprudence. They promote repose by giving security and stability to human affairs. An important public policy lies at their foundation. They stimulate to activity and punish negligence. While time is constantly destroying the evidence of rights, they supply its place by a presumption which renders proof unnecessary. Mere delay, extending to the limit prescribed, is itself a conclusive bar.” This language has frequently been quoted by our Supreme Court with approval. See Shain v. Sresovich, 104 Cal. 402, 38 P. 51; Nichols v. Randall, 136 Cal. 426, 69 P. 26; Lilly–Brackett Co. v. Sonnemann, 157 Cal. 192, 106 P. 715, 21 Ann.Cas. 1279.
In the present case it is alleged that the fraud was committed in 1935 or at the latest in 1936, and the action was not filed until June, 1941, five years later; consequently, prima facie, the action was barred by the three–year Code provision above cited. The right of a party to bring an action for fraud after the expiration of three years from the time the fraud is committed is an exception to the general statute on the subject, and cannot be asserted unless he brings himself within the terms of the exception. The burden is on him to show that the bar of the statute has not fallen, and as an essential element of his cause of action he must affirmatively both plead and prove that he did not have notice of and did not discover the facts constituting the fraud until within three years before filing suit. Lady Washington C. Co. v. Wood, 113 Cal. 482, 45 P. 809, 810. In the case just cited, which is considered a leading case on the subject, it is said: “As in the case of any other legal conclusion, it is not sufficient to make a mere averment thereof, but the facts from which the conclusion follows must themselves be pleaded. It is not enough that the plaintiff merely avers that he was ignorant of the facts at the time of their occurrence, and has not been informed of them until within the three years. He must show that the acts of fraud were committed under such circumstances that he would not be presumed to have any knowledge of them,––as that they were done in secret or were kept concealed; and he must also show the times and the circumstances under which the facts constituting the fraud were brought to his knowledge, so that the court may determine whether the discovery of these facts was within the time alleged, and, as the means of knowledge are equivalent to knowledge, if it appears that the plaintiff had notice or information of circumstances which would put him on an inquiry which, if followed, would lead to knowledge, or that the facts were presumptively within his knowledge, he will be deemed to have had actual knowledge of these facts. These principles are so fully recognized that mere reference to some of the cases in which they have been enforced will be sufficient. Martin v. Smith, Fed.Cas. 9,164, 1 Dill. 85; Wood v. Carpenter, 101 U.S. 135 [25 L.Ed. 807]; Hecht v. Slaney, 72 Cal. 363, 14 P. 88; Moore v. Boyd, 74 Cal. 167, 15 P. 670; Lataillade v. Orena, 91 Cal. 565, 27 P. 924 [25 Am.St.Rep. 219].” One of the supporting cases therein cited is Wood v. Carpenter, supra, and the court there said: “In this class of cases the plaintiff is held to stringent rules of pleading and evidence, ‘and especially must there be distinct averments as to the time when the fraud, mistake, concealment, or misrepresentation was discovered, and what the discovery is, so that the court may clearly see whether, by ordinary diligence, the discovery might not have been before made.’ * * * A general allegation of ignorance at one time and of knowledge at another are of no effect. If the plaintiff made any particular discovery, it should be stated when it was made, what it was, how it was made, and why it was not made sooner. * * * The circumstances of the discovery must be fully stated and proved, and the delay which has occurred must be shown to be consistent with the requisite diligence.” Moreover, it is well settled that absence from the state is no excuse for non–investigation or non–discovery of the facts (Phelps v. Grady, 168 Cal. 73, 141 P. 926; Greenberg v. DuBain Realty Corp., 27 Cal.App.2d 111, 80 P.2d 537); nor does absence from the state toll the statute (Cvecich v. Giardino, 37 Cal.App.2d 394, 99 P.2d 573).
Applying the foregoing tests to the present case, it is plain that for three reasons plaintiff has failed to meet the legal requirements to avoid the statute of limitations: first, because he has neither pleaded nor proved facts sufficient to show that he did not discover the alleged fraud until within three years of filing suit; secondly, the undisputed facts show that plaintiff had knowledge or was on notice of facts relating to the alleged fraud long prior to the three years before the action was brought; and third, there was no showing whatever that the facts he claimed to have discovered in 1941 shortly before he filed suit were any different from those of which he had notice or knowledge at the time of the consummation of the sale in January, 1936.
As to the matter of pleading the discovery of the alleged fraud in 1941, the complaint as filed was obviously legally insufficient in its statement of facts, for during the trial and after the question of its sufficiency had been pointed out by appellants, plaintiff's counsel asked for and over the objection of appellants was granted leave to amend paragraph XII “to conform to the proofs.” The substance of the paragraph as amended was that plaintiff went to Europe in 1936 and did not return to New York until the fall of 1940; that in February or March of 1941 he “had a conversation with a mutual friend of plaintiff and said Charles Crocker in the City of New York, in which said mutual friend stated” that after plaintiff left for Europe Crocker had stated that in the settlement of the will contest the estate's attorneys, Greene, Crocker and Crocker's attorney “had gotten together and given plaintiff a ‘fearful trimming’ ”; that as part of the settlement he had sold his stock for $25 a share “when its actual value was at least $120 per share”; that thereupon plaintiff proceeded immediately to San Francisco, arriving in April, 1941, and consulted Aureguy and Attorney Harris, but the latter was about to go on the municipal bench so plaintiff selected his present attorney, who stated he would have an investigation made; that in May, 1941, said attorney “informed him that he had procured information that the Hobart Estate Company was and apparently had been for several years past in excellent financial conditions and owned numerous valuable properties which were unencumbered * * *.” The foregoing allegations are similar to those made in Prentiss v. McWhirter, 9 Cir., 63 F.2d 712, 714, and it was there held that they were insufficient, the court saying in part: “It will be observed that the plaintiff does not state what facts were discovered by the ‘audit’ of the books of the corporation. There is no allegation which purports to show any reason why the same facts could not have been discovered at any time by the plaintiff by the examination of the books of the corporation.”
Even assuming, however, that the allegations of paragraph XII of the complaint as amended may be deemed sufficient, there was no proof in the record to which the amendment conformed, and the evidence thereafter offered by plaintiff in this respect not only failed to support the allegations, but failed also to meet the requirements of the legal rules above referred to. At no time did plaintiff or anybody else testify that anyone had ever told plaintiff that Crocker had made any statement of any kind, much less that he had ever said to anyone, as alleged, that he and his attorney and Greene “had gotten together and given plaintiff a ‘fearful trimming.’ ” All that plaintiff testified to was that in January or February, 1941, he “received some information in New York, of some type, or suggestion”; but what the information was or by whom the suggestion was made he did not indicate; the name of the alleged informant was not disclosed, nor were any of the attendant circumstances revealed. He also testified that after he arrived in San Francisco he received “some information” and that this information was “exceedingly at variance” with the statements made to him by Greene; but at no point was he asked by his counsel nor did he testify what facts were discovered when he came to California or what the circumstances were under which those facts were discovered or from whom they were elicited or why those facts could not with reasonable diligence have been discovered earlier. He merely stated that he was then informed as to some of the holdings of the company, the values thereof, and whether they were encumbered. In short, what facts were discovered were never revealed. The alleged discovery therefore has no factual quality, for unless facts are produced, it would be impossible to ascertain whether there was in truth a discovery within the meaning of the rules which a plaintiff is required to observe to bring himself within the statutory exception. Moreover, without a disclosure of the facts alleged to have been newly discovered, it would be impossible to determine whether those facts were within the prior knowledge of the plaintiff, his counsel or his investigator. As said in the case of Consolidated R. & P. Co. v. Scarborough, 216 Cal. 698, 16 P.2d 268, 269, in quoting from Wood v. Carpenter, supra: “ ‘If the plaintiff made any particular discovery, it should be stated when it was made, what it was, how it was made, and why it was not made sooner. * * * The circumstances of the discovery must be fully stated and proved, and the delay which has occurred must be shown to be consistent with the requisite diligence.’ ”
Plaintiff seeks to excuse the absence of evidence respecting discovery upon the ground that he was prevented from introducing it by objections raised by appellants. But the record falls far short of supporting such claim. Prior to the granting of the nonsuit as to Charles Crocker, plaintiff's counsel asked plaintiff this question: “I want you to tell us now, briefly, what is the first information you received that the stock of the Hobart Estate Company was worth more than $25 a share?” Crocker was represented by separate counsel, and he objected to the question on several grounds, among them being that it called for hearsay evidence. After some discussion the court inquired of counsel for appellants if they joined in the objection, and the record shows positively that they did not do so. They did object to the question, but only upon the ground “that the time, place and person or persons present does not appear yet,” and although the court expressed the view that the objection was good, it made no ruling thereon. Thereupon counsel for plaintiff abandoned the question and this entire line of examination. Evidently for the purposes of the record the trial court inquired, “You have abandoned the question to which Mr. Roche [[[[counsel for Charles Crocker] objected?” to which plaintiff's counsel replied, “Yes, Your Honor, I think it is a little dangerous. I don't want to fall into error on it.” Counsel for appellants then emphasized the inadequacy of the evidence, but plaintiff's counsel stated in effect that he was satisfied with the record as it stood.
Secondly, the more important reason that the action is barred by the statute of limitations is that the undisputed facts show that long prior to the three–year period before plaintiff brought his action he had ample notice or knowledge of the facts which he now claims were discovered only shortly before the action was filed.
In this connection it must be borne in mind that plaintiff's cause of action is based solely upon the claim that in 1936 he was induced to sell his stock by the representation that it was worth not more than $25 a share, and that he discovered for the first time in 1941 that the representation was false. If, therefore, the evidence demonstrates that prior to the three years before he brought his action he had notice or information of circumstances which would put him on inquiry and which if followed would lead to knowledge, or if facts were presumptively within his knowledge, that the stock was worth much more than $25 a share, his action is barred by the statute. Lady Washington C. Co. v. Wood, supra. Furthermore, if the evidence demonstrates that within that period of time the means of discovery of the alleged false statement was within his power and he failed to use diligence to detect it, his action is likewise barred by the statute. Wood v. Carpenter, supra; Vertex Investment Co. v. Schwabacher, 57 Cal.App.2d 406, 134 P.2d 891.
Turning to the record, it discloses the following undisputed facts: (1) In 1933 and 1934 when plaintiff pledged his stock with Charles Crocker the latter told him, so plaintiff testified, that his stock was not worth more than $20,000, which would be approximately $25 a share, and that plaintiff's reaction was, to use his own words: “I was rather amazed at that because I had always thought that the stock was worth somewhere around a hundred a share.” (2) Obviously disbelieving Crocker's statement, plaintiff in February, 1934, sent Greene a telegram reading: “Kindly send air mail all documents concerning last financial status of Hobart Estate Company also desire to know roughly market value of stock * * *.” In reply Greene stated that the 1933 annual report had not yet been prepared, so he sent plaintiff the report for 1932, saying that the figures were book figures, and that when the 1933 report was completed a copy of it would be forwarded to him; and in reply to plaintiff's inquiry as to the value of the stock Greene said: “I know of no recent sales of the stock and therefore have no method of determining what its market value might be.” (3) Some four months later, in the will contest, plaintiff alleged that although his father's estate had been inventoried at $200,000, it was of a value in excess of $2,000,000; and he testified that this allegation was based on the assumption by him that the stock was worth from $100 to $150 a share. (4) Following the filing of the contest Stevenson's deposition was taken and Lachmund was present representing plaintiff; and he conducted an extensive cross–examination as to the financial condition and affairs of the company. He went into the book value of its properties in 1932, as well as the company's annual reports for 1933 and 1934. Many of the company's properties were specifically mentioned, and there was much discussion as to the value of those properties. Furthermore Lachmund had already obtained possession of a copy of the company's balance sheet for 1932, and he cross–examined Stevenson about the figures displayed thereon. (5) Immediately upon the death of plaintiff's father plaintiff employed his professional investigator, Aureguy, on a percentage basis, and Aureguy took the leading part in making the investigation of the financial condition and affairs of the company and the value of its stock in order to arrive at a basis of settlement of the will contest. To that end he conferred with the inheritance tax appraiser and secured from him the information upon which the appraisement of $40 a share was made. It included the sale of 6,000 shares of stock to Mrs. Lester at $40 a share; copies of the balance sheets and profit and loss statements of the company for the years 1931, 1932, 1933 and 1934, on one of which (the 1935 balance sheet) were pencil notations of one of the attorneys for the executors bearing on the value of the company's properties. Aureguy also obtained from the inheritance tax appraiser such information as had been obtained by the appraiser in making his inquiries and investigations of the value of the stock. (6) Plaintiff and Aureguy both knew that the stock had been appraised at $40. All of this took place before the interview with Greene. (7) When Greene is said to have told plaintiff that the stock was worth only $25 a share plaintiff admitted that he was still “rather amazed” and he challenged the figure on the basis of the apraisement of $40 a share.
In the light of the foregoing undisputed facts it is manifest that if as plaintiff claims Greene did represent that the stock was worth not more than $25 a share, plaintiff was on inquiry, if in fact he did not have actual knowledge, as to the material facts concerning the actual value of the stock; and therefore, under the rules laid down by the authorities above cited, his cause of action is barred, because admittedly he made no effort whatever for nearly five and a half years thereafter to verify the belief he entertained in 1936 that the stock was worth much more than $25 a share. To repeat what was said in Wood v. Carpenter, supra, “A party seeking to avoid the bar of the statute on account of fraud must aver and show that he used due diligence to detect it, and if he had the means of discovery in his power, he will be held to have known it. * * * There must be reasonable diligence * * *.” See also Phelps v. Grady, supra, wherein the facts are strikingly parallel with those here presented.
Finally, there is no evidence whatever showing that the facts plaintiff and his present attorney claimed to have discovered in 1941 were not the same facts that plaintiff either knew or was charged with having known of in 1936. No claim is made of concealment or withholding of information on the part of Greene; and for all the record shows, plaintiff and his former counsel and his investigator had before them in 1936 the same balance sheets, annual business reports, and all the information and facts which he and his present attorney claimed to have “discovered” in 1941. In other words, there is no claim that in 1941 they received information respecting earnings, dividends, stock transactions, or stock appraisals, which were not fully disclosed to plaintiff and his attorneys and his investigator prior to the consummation of the sale in 1936. In short, if plaintiff or his present attorney acquired knowledge of any facts bearing on the 1936 value of the stock which plaintiff did not have in 1936, the record is barren of what those facts may have been. For the reasons stated, there is no ground upon which plaintiff may escape the application of the statute of limitations.
Plaintiff in support of the position taken by him on the issue of diligence has quoted extensively from the opinions of a number of cases, in most instances without setting out the facts with reference to which the quoted language was used. The facts of a case, however, as the courts have frequently said are often of controlling importance; and stated briefly, the factual situations which differentiate those cases from the present one are these: Each of the following was based on the actual existence of a fiduciary relationship: Knapp v. Knapp, 15 Cal.2d 237, 100 P.2d 759; Laraway v. First National Bank of La Verne, 39 Cal.App.2d 718, 104 P.2d 95. In the following group there was not only a fiduciary relationship but they were cases of concealment: Victor Oil Co. v. Drum, 184 Cal. 226, 193 P. 243; Rutherford v. Rideout Bank, 11 Cal.2d 479, 80 P.2d 978, 117 A.L.R. 383; Lataillade v. Orena, 91 Cal. 565, 27 P. 924, 25 Am.St.Rep. 219. In Seeger v. Odell, supra, there was an absence of any suspicious circumstances to put the plaintiff on notice that the representations relied upon were not true; and the language quoted from Phelps v. Grady, supra, was used hypothetically to illustrate a concealed fraud; whereas in the present case there was no claim made of concealment. Nor is there any similarity whatever between the facts of Teague v. Hall, 171 Cal. 668, 154 P. 851, and those of the present case. There no inquiry or investigation of any kind was made by the aggrieved party prior to the consummation of the sale; whereas here the inquiries and investigation extended over a period of several months prior to the sale, and they were conducted not only by plaintiff himself, but by his professional investigator and two attorneys. The remaining case, LeSage v. Title Guarantee & Trust Co., 12 Cal.2d 531, 86 P.2d 115, is not at all in point.
Both appellants challenge the correctness of many instructions, and doubtless several so challenged are subject to the criticisms directed against them. But in view of the conclusions reached on the two determinative issues above mentioned, it will be necessary to notice only two of those challenged, both of which relate to the same subject matter, and the giving of which doubtless constituted prejudicial error. The instructions were as follows: “Where a representation is made of facts which are or may be assumed to be within the knowledge of the party making it, the knowledge of the receiving party concerning the real facts, which shall prevent his relying on and being misled by it, must be clearly and conclusively established by the evidence.” “Therefore, if you believe from the evidence that the defendant Greene did in fact make representations calculated to deceive the plaintiff and to induce him to part with his stock for less than its value, then he cannot excuse the deceit by showing that the plaintiff had opportunity to examine or sources of information which would have disclosed the true facts and the falsity of the representations, nor can he excuse himself by saying that the plaintiff had constructive notice of the true facts; but in order to so excuse himself it would have been necessary that the evidence clearly and conclusively establish that the plaintiff Hobart had actual knowledge of the real facts, which would prevent his relying on and being misled by any representations of the defendant Greene.” (Emphasis added.) In short, the jury was charged that the appellants were required to establish knowledge on the part of plaintiff by clear and conclusive evidence. Of course such is not the law, for even conceding that the burden of proving knowledge on the part of the plaintiff was on the appellants, the above instructions imposed upon appellants a degree of proof which is never required in a civil action. “* * * a mere ‘preponderance of the evidence’ is all that is required to establish a fact necessary to be shown in a civil action * * *.” 10 Cal.Jur. p. 790. As defined by Section 1837 of the Code of Civil Procedure, “Conclusive or unanswerable evidence is that which the law does not permit to be contradicted. * * *”; and Section 1978 of the same Code provides: “No evidence is by law made conclusive or unanswerable, unless so declared by this code.” “Conclusive” proof is never necessary to justify the verdict of a jury in a civil action (Exposita v. United Railroads, 42 Cal.App. 320, 183 P. 576); and “To instruct a jury that they must be conclusively convinced is a manifest error. Hiester v. Laird, 1 Watts & S., Pa., 245.” Thompson Lumber Co. v. I. C. C., Com.Ct., 193 F. 682, 684.
From the foregoing it will be seen that the erroneous instructions were even more prejudicial than if the jury had been charged that appellants were required to establish knowledge on the part of plaintiff to a moral certainty and beyond a reasonable doubt, for in such cases a defendant is permitted to introduce contradictory evidence.
Plaintiff seeks to justify the instructions by stating that the language employed therein is used by Mr. Pomeroy in his work on Equity Jurisprudence (2 Pomeroy's Equity Jurisprudence, 4th Ed., sec. 895, 896; see also 3 Pomeroy's Equity Jurisprudence, 5th Ed., sec. 895) where in the course of the discussion of the effect of opportunity to investigate into the true facts by a party claiming to have relied upon a false representation the objectionable words employed in the instructions first above quoted are used. But whatever may be there said cannot change the established law of the state as to the degree of proof required in a civil action. Moreover, in none of the cases cited by the author to that portion of his text is it held that evidence of the plaintiff's knowledge of the facts must be shown “conclusively.” Nor is it true, as plaintiff contends, that in the case of Teague v. Hall, supra, “* * * the Supreme Court reversed a judgment for the defendant because of instructions contrary to this rule.” That case had nothing to do with the degree of proof required. It involved simply the question whether an opportunity to investigate, in the absence of some duty to investigate, would bar an action for deceit. In the course of the opinion therein, which dealt only with that point, the court quoted a passage from Pomeroy which, as it happens, included the sentence which plaintiff now seeks to appropriate to his advantage; but as stated, the passage quoted was not so employed as to suggest endorsement of the particular sentence upon which plaintiff relies, for the reason that the subject matter of that sentence was foreign to the issue before the court.
It is no answer to say that the instructions were not prejudicially erroneous simply because in another part of the court's charge it gave instructions on the preponderance of evidence and others to the effect that in order to prove fraud the evidence must be “clear and convincing.” As will be noted from the Code section above cited, there is a vast difference between “conclusive” evidence and “convincing” evidence, for the reason that the former cannot be contradicted. Furthermore, the two erroneous instructions struck at the very heart of one of the main defenses urged by appellants, and since the obvious effect thereof was to impose upon them a burden of producing a degree of proof contrary to and greater than is required by law, they were clearly prejudicial.
Nor can it be held that the oral instructions given to the jury at the time it sought to return its verdict did not operate to the prejudice of appellants. As shown in the forepart of this opinion, at the time the jury brought in its first verdict it manifested a desire to exonerate Greene of any fraud because it returned no verdict against him. Then, after it had deliberated some three hours more, it returned its second verdicts without assessing Greene for any actual damages. It would seem, therefore, that at this juncture the jury was still minded to resist the assessment of actual damages against Greene. In refusing to accept the second verdicts the court said, among other things: “If the corporation defendant is liable in any amount, likewise the agent will be liable in the same amount.” (Emphasis added.) The statement thus made by the court might well have been understood by the jury to mean that since actual damages had been assessed against the corporation in a certain amount, it was incumbent upon the jury to assess damages in the same amount against the defendant Greene; and that the jury so understood the statement would seem apparent from the action it took almost immediately afterwards by bringing in a verdict against Greene for actual damages in the same amount that it had assessed against the corporation. In other words, the effect of the statement was to reverse the direction or flow of liability between principal and agent by making the liability of the agent a consequence of the liability of the principal; whereas in law the liability of the principal, if any exists, is dependent upon and flows from the liability of the agent. After the jury had been sent back the second time counsel for appellants stated to the court that the jury should be fully informed that it could still render a verdict in favor of the defendant Greene, adding, “It seems to me in the present state of the record, the jury has been sent out with the impression that they have nothing more to do but to fill out a verdict against both defendants.” During the discussion that followed the court stated that it would be glad to give any instructions that might be proposed in that regard, and finally stated: “I find that the more explaining there is, the more confusion there is. I am not inclined to give much more in the way of instruction. I think they are fully informed and have been all along. They are confused but they have been completely instructed.” (Emphasis added.) Immediately following that observation the jury re–entered the courtroom, but no further instructions were given, and the verdicts were accepted. In these circumstances it cannot be fairly said that the third and final verdict, whereby actual damages were for the first time, and with obvious reluctance, assessed against the defendant Greene, was not the result of the mistaken insistence of the trial court that “If the corporation defendant is liable in any amount, likewise the agent will be liable in the same amount.”
For the reasons stated it is my opinion that the judgments should be reversed with instructions to the trial court to enter judgments in favor of the defendants.
PETERS, Presiding Justice.
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Docket No: Civ. 12383.
Decided: April 14, 1944
Court: District Court of Appeal, First District, Division 1, California.
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