Neff v. Engler

PRESTON, J.

Defendants appeal from judgment in favor of plaintiff in an action involving an alleged fraud on their part in accepting from plaintiff certain real property in exchange for a sum of money and some practically worthless stock.

The complaint, with its amendment, alleges that on February 4, 1925, plaintiff, the owner of said real property, which was of the reasonable value of $6,500, subject to a $1,700 mortgage, exchanged it for personal property owned by defendants as follows: $800 in cash and 400 shares of the preferred capital stock of Income Builders, Inc., a corporation, together with 500 shares of the common stock of said corporation held in escrow for their benefit. It further alleges that prior to said exchange, for the purpose of cheating and defrauding plaintiff, defendants made various statements to her, enumerating them, respecting said stock, which they knew to be false but which plaintiff believed to be true, and solely by reason of her reliance upon them consummated said exchange; that on April 17, 1925, plaintiff first discovered their falsity and knew of her -right to rescind said contract.of exchange; that thereafter, on April 23, 1925, she served notice and offer of rescission upon defendants. The amendment to said complaint alleges the suppression by defendants from plaintiff of .certain facts known to them relative to the condition of said corporation; the complaint is in two counts, one stating a cause of action for rescission, the other for damages in the sum of $5,100. During the trial plaintiff elected to stand on her action for fraud and dismissed the first count in so far as it concerned rescission.

The court found that the reasonable value of plaintiff’s said property did not exceed $5,500, subject to said $1,700 mortgage; that on February 4, 1925, the parties entered into the said agreement of exchange; that defendants did not make all of the untrue statements alleged, specifying them; that they did not state that said stock was bonded,

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secured, or guaranteed by the state of California, but that plaintiff understood their statements to mean that said stock was guaranteed by the state of California; that, however, prior to said exchange, for the purpose of cheating and defrauding plaintiff, defendants did state to her that said preferred stock was then worth $3,200 and that they were receiving and had been paid semi-annually dividends on it at the rate of eight per cent per annum, which statement was, and defendants knew it was, untrue, but that plaintiff believed and relied upon it and solely by reason of such reliance agreed to said exchange; that at the time said statement was made said corporation had issued and outstanding $108,070 of its capital stock, and owed about $500 in accounts payable, while its assets consisted of not to exceed $1,800 in money and $14,208 in unsecured accounts and notes receivable, which were for balances due by subscribers to the preferred stock of said corporation, it being extremely probable that no portion thereof would ever be paid; that defendants did not suppress such facts from plaintiff, but that they knew in part of the financial condition of said corporation and by the exercise of ordinary care, reasonable diligence and prudence, could have ascertained all said facts; that if said statement made by defendants had been true, said stock would have been worth $3,200, but that its actual value, based on said assets, did not exceed $200; hence, by reason of said false statement, plaintiff was damaged in the sum of $3,000. Judgment accordingly went for plaintiff, awarding her $3,000 as damages, with interest from April 24, 1925, and defendants have appealed.