{ "id": 8627615, "name": "H. B. EDWARDS v. SOUTHERN STATES FINANCE COMPANY et al.", "name_abbreviation": "Edwards v. Southern States Finance Co.", "decision_date": "1929-01-09", "docket_number": "", "first_page": "462", "last_page": "466", "citations": [ { "type": "official", "cite": "196 N.C. 462" } ], "court": { "name_abbreviation": "N.C.", "id": 9292, "name": "Supreme Court of North Carolina" }, "jurisdiction": { "id": 5, "name_long": "North Carolina", "name": "N.C." }, "cites_to": [ { "cite": "160 N. C., 592", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 11272410 ], "opinion_index": -1, "case_paths": [ "/nc/160/0592-01" ] }, { "cite": "78 S. E., 507", "category": "reporters:state_regional", "reporter": "S.E.", "opinion_index": 0 }, { "cite": "162 N. C., 333", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 11271187 ], "opinion_index": 0, "case_paths": [ "/nc/162/0333-01" ] }, { "cite": "73 S. E., 206", "category": "reporters:state_regional", "reporter": "S.E.", "opinion_index": 0 }, { "cite": "157 N. C., 393", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8657984 ], "opinion_index": 0, "case_paths": [ "/nc/157/0393-01" ] }, { "cite": "41 S. E., 8", "category": "reporters:state_regional", "reporter": "S.E.", "opinion_index": 0 }, { "cite": "130 N. C., 147", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 11272864 ], "opinion_index": 0, "case_paths": [ "/nc/130/0147-01" ] }, { "cite": "119 S. E., 497", "category": "reporters:state_regional", "reporter": "S.E.", "opinion_index": 0 }, { "cite": "186 N. C., 297", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8653495 ], "opinion_index": 0, "case_paths": [ "/nc/186/0297-01" ] }, { "cite": "76 S. E., 623", "category": "reporters:state_regional", "reporter": "S.E.", "opinion_index": 0 }, { "cite": "90 S. E., 414", "category": "reporters:state_regional", "reporter": "S.E.", "opinion_index": 0 }, { "cite": "172 N. C., 378", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 11254068 ], "opinion_index": 0, "case_paths": [ "/nc/172/0378-01" ] }, { "cite": "85 N. C., 82", "category": "reporters:state", "reporter": "N.C.", "opinion_index": 0 }, { "cite": "160 N. C., 592", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 11272410 ], "opinion_index": 0, "case_paths": [ "/nc/160/0592-01" ] } ], "analysis": { "cardinality": 555, "char_count": 11504, "ocr_confidence": 0.455, "pagerank": { "raw": 1.2533959344427176e-07, "percentile": 0.6107386955764602 }, "sha256": "f864b38a273eeae714abbc6cd5c7d07d9536ca5e17d5ee4a7cca406eca2cfc98", "simhash": "1:f8fa0b2c2c17849f", "word_count": 1892 }, "last_updated": "2023-07-14T19:28:30.620798+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "H. B. EDWARDS v. SOUTHERN STATES FINANCE COMPANY et al." ], "opinions": [ { "text": "BeogdeN, J.\n(1) In a suit for damages against the directors of a bankrupt corporation, upon the ground of fraudulent and false representations in the sale of stock, is evidence of false representations made by stock salesmen of the corporation, not in the presence of the directors sued, competent against such directors?\n(2) In such an action, in the .absence of allegation or proof warranting punitive damages, is it competent to offer in evidence the financial worth of one of the defendants?\nThe plaintiff seeks to recover from the defendants upon two theories, to wit:\nFirst, that the defendants and stock salesmen of the corporation entered into a conspiracy to defraud the plaintiff and others, and that therefore the act or declaration of one conspirator is effective against all.\nSecond, that the defendants personally made false representations with respect to the financial condition of said corporation, and furthermore, concealed and suppressed with fraudulent intent the true condition of said company.\n\u201cIn the case of the charge of a combination to defraud,\u201d remarks a recent writer, \u201cthe declarations of each of the parties to such combination, relating thereto, are evidence against the others, though made in the absence of the latter, provided the parties were at the time of the declarations in the furtherance of the common design. . . . Slight evidence of collusion or concert is sufficient to let in the declarations of one of the parties as evidence against all, hut there must be some evidence of the combination.\u201d Hauser v. Tate, 85 N. C., 82.\nThe record discloses that evidence was offered by the plaintiff to the effect that the salesmen, Hinman and Helvenston, represented to him that the common stock was selling at $2.50 a share, and was earning a dividend'as high as 16% net. Ashcraft was not present at this conversation. Later on a salesman named Quimby came to solicit plaintiff, and tbe plaintiff was permitted to testify tbat tbis salesman told bim that \u2018Dr. Ashcraft had sent him and they were making money hand over hand \u2014 couldn\u2019t take care of the business, and that if there was any possible chance for me to raise any money, he would be glad; he needed it, and all I could send him, . . . and that Dr. Ashcraft said that the common stock was then selling for $10 a share, and I subscribed for $500 worth \u2014 gave notes for $200 and $300.\u201d\nThe court told the jury: \u201cThe answer of the witness, gentlemen, will not be received by you a.t present as tending to prove that Quimby was sent by Dr. Ashcraft unless the plaintiff\u2018introduces testimony showing that Dr. Ashcraft had something to do with it, and will not consider Quimby\u2019s statement that he was sent by Dr. Ashcraft.\u201d\nThere was other evidence of like tenor. Such evidence was competent against the defendant, Ashcraft, and other directors, provided a conspiracy was shown. Ordinarily, a director of a corporation is liable for false and fraudulent representations made by him or his agent, within the scope of his employment, or for such as were approved or ratified. The rule governing such liability is thus expressed in Anthony v. Jeffress, 172 N. C., 378, 90 S. E., 414: \u201cIt is immaterial whether the defendants (directors) were cognizant of the insolvent condition of the company or not. The law charges them with actual knowledge of its financial condition, and holds them responsible for damages sustained by stockholders and creditors by reason of their negligence, fraud, or deceit.\u201d\nIt must be borne in mind that the stock salesmen, who made the fraudulent representations complained of, were not the agents or employees of Ashcraft and his codefendant directors, but were the agents and employees of the corporation which was a third party. These fraudulent representations made in the absence of Ashcraft and the other directors, by stock-selling agents of the corporation could, therefore,' be competent against the individual defendants only upon the theory of a conspiracy. The issue of conspiracy was essential to the competency of such evidence. The trial judge failed and omitted to submit the issue of conspiracy tendered by the defendants, and the exception of the defendants to such ruling is sustained.\nThe plaintiff relies upon the cases of Ins. Co. v. Knight, 160 N. C., 592, 76 S. E., 623, and Bank v. Sherron, 186 N. C., 297, 119 S. E., 497. In the Knight case, the agents of the plaintiff made fraudulent representations to the defendant. The action was between the principal and the defendant. Certainly, when the principal sued the defendant upon a transaction procured hy his own agents, the representations made by the agents in procuring the contract would he- competent. The same reasoning applies to the Sherron case, because the plaintiff in that ease claimed to be an innocent purchaser and holder of a note made by the defendant, the defendant asserting that plaintiff\u2019s title to said instrument was derived from a third party, and that the agents of such third party had made false representations in procuring the instrument, and the evidence was offered for the purpose of affecting plaintiff with notice under the negotiable instrument statute.\nThe witness, Fannin, testified that the defendant, Ashcraft, had made certain representations to him in an effort to procure the wife of witness to buy stock, and that the defendant, Ashcraft, among other things, had stated that he would return the money upon notice of thirty or sixty days after such return was desired. Thereupon, witness was asked the following question: \u201cIn that conversation with him, did Dr. Ashcraft make a statement ? If so, what did he say about his own financial worth and responsibility?\u201d The witness replied: \u201cHe said he was worth a hundred to a hundred and fifty thousand dollars; if he got my money and my wife\u2019s money he would see we didn\u2019t lose.\u201d There was no allegation in the complaint seeking punitive damages, and no such issue was submitted to the jury.\nThe defendant objected to the testimony elicited, and the exception to such evidence is sustained.\nEvidence of the financial condition of a defendant is inadmissible except in cases warranting the award of punitive damages. Tucker v. Winders, 130 N. C., 147, 41 S. E., 8; Arthur v. Henry, 157 N. C., 393, 73 S. E., 206; Carmichael v. Tel. Co., 162 N. C., 333, 78 S. E., 507.\nThe record covers four hundred and two pages, and there are two hundred and ninety-two exceptions. There are other exceptions not discussed worthy of grave consideration; but, as a new trial must be awarded, we deem it inadvisable to enter into a discussion of them for the reason that they may not arise again, and the further reason that it is practically impossible, in a lengthy discussion of alleged errors, to guard against possible intimations that might be confusing to the trial judge upon another hearing.\nNew trial.", "type": "majority", "author": "BeogdeN, J." } ], "attorneys": [ "Vann & Milliicen and H. B. Adams for plaintiff.", "W. B. Love for B. G. Newsome.", "J. G. Sikes for J. E. Ashcraft.", "Armfield, Sherrin & Barnha/rdt for Ashcraft, Cherry and Rhyne." ], "corrections": "", "head_matter": "H. B. EDWARDS v. SOUTHERN STATES FINANCE COMPANY et al.\n(Filed 9 January, 1929.)\n1. Corporations \u2014 Stock\u2014Actions.for Fraud in Procuring Subscriptions to Stock \u2014 Conspiracy.\nThe fraudulent misrepresentations of an agent of a corporation in the sale of stock therein are not competent evidence against the officers and directors, sued individually, when the representations were not made in their presence nor afterwards ratified by them, in the absence of an issue of conspiracy to thus defraud the plaintiff. Insurance Go. v. Knight, 160 N. C., 592, cited and distinguished.\n2. Same \u2014 Issue of Conspiracy.\nIn an action against the officers and directors of a corporation to recover damages for having been induced to subscribe to shares of stock in the corporation by fraudulent representations of others acting as sales agents of the corporation, which were not made in the presence of the defendants nor afterwards ratified by them, and there is evidence of a conspiracy to thus defraud, it is reversible error for the trial judge to refuse to submit the issue as to the conspiracy to the jury for their determination.\n3. Damages \u2014 Punitive Damages \u2014 Evidence of Financial Worth, of Defendant.\nWhere punitive damages are not recoverable upon the pleadings, evidence as to the financial worth of the defendant is incompetent.\nCivil actioN, before Harwood, Special Judge, .at Eebruary Term, 1928, of UNION.\nThe plaintiff instituted an action against the Southern States Finance Company, J. E. Ashcraft, J. R. Cherry, R. C. Newsome, A. P. Rhyne, J. C. Walker, J. B. Elliott and W. W. Morris, wbo were officers and directors of said corporation.\nPlaintiff alleged that the defendant, J. E. Ashcraft, was president and director of the Southern States Finance Corporation; that the defendant, Cherry, was secretary thereof, and the other defendants directors thereof.\nPlaintiff further alleged that the defendant, Ashcraft, entered into a conspiracy with certain stock salesmen of the corporation to defraud the plaintiff, \u2019.and in pursuance thereof, represented to him that said corporation was stronger than any bank; that \u201cit was backed by a $15,000,000 company\u201d; that the common stock had earned as much as 16%, and that if he purchased stock in said company and needed his money, it would be refunded to him upon a notice of sixty days.\nPlaintiff testified that he relied upon these representations, and as a result thereof, bought $4,200 worth of stock. Dividends were paid for a certain period and were then discontinued. Plaintiff made demand for the return of his money, which was declined. Thereafter, the company became bankrupt and the plaintiff\u2019s investment was lost. Thereupon, he instituted the present suit against the officers and directors named, to recover from them damages, to the amount of money which he had invested in stock of the company.\nThe plaintiff also offered evidence tending to show that the defendant, Ashcraft, and other defendants had personally made false representations with respect to the condition of said company.\nLn apt time the plaintiff tendered issues arising upon the pleadings, including an issue of conspiracy in the following language:\n\u201cDid the defendant, Ashcraft, and the salesmen, Quimby, Hinman, Meyer and Helvenston, enter into a conspiracy to defraud plaintiff as alleged in the complaint ?\u201d\nThe trial judge declined to submit an issue of conspiracy, but submitted the following issues:\n\u201c1. Was the plaintiff, H. B. Edwards, induced to subscribe for and purchase stock in the Southern States Finance Company by means of misrepresentations and fraud practiced by the defendants or any of them, as alleged in the complaint?\n2. If so, did the Southern States Finance Company participate therein, as alleged in the complaint?\n3. If so, did the defendant, J. E. Ashcraft, participate therein as alleged in the complaint ?\n4. If so, did the defendant, J. R. Cherry, participate therein as alleged in the complaint?\n5. If so, did the defendant, A. F. Rhyne, participate therein as alleged in the complaint?\n6. If so, did tbe defendant, E. C. Newsome, participate therein as alleged in the complaint ?\nI. What amount, if any, is plaintiff entitled to recover ?\u201d\nAll of the issues so submitted were answered in the affirmative, the seventh issue having been answered as follows: \u201c$4,200, less dividend. No interest. $132 dividend.\u201d\nJudgment was entered upon the verdict.\nThe defendants appeal, assigning errors.\nVann & Milliicen and H. B. Adams for plaintiff.\nW. B. Love for B. G. Newsome.\nJ. G. Sikes for J. E. Ashcraft.\nArmfield, Sherrin & Barnha/rdt for Ashcraft, Cherry and Rhyne." }, "file_name": "0462-01", "first_page_order": 542, "last_page_order": 546 }