FRANK H. DOWNEY, Respondent,
THOMAS W. FINUCANE and Others, Appellants, Impleaded with EUGENE SATTERLEE and Others.
APPEAL by the defendants, Thomas W. Finucane and others, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Monroe on the 14th day of October, 1910, upon the verdict of a jury for $1,212.93; also from an order entered in said clerk's office on the 27th day of September, 1910, denying the said defendants' motion for a new trial made upon the minutes, and also from an order entered on the 3d day of October, 1910, denying the said defendants' motion for a new trial upon the ground of misconduct on the part of the plaintiff's attorneys and the jury, and that it appears that the jury totally misapprehended the questions in issue submitted to them and upon the ground that certain of said special findings are inconsistent with one another.
John G. Milburn, Joseph W. Taylor, Walter S. Hubbell and Daniel J. Kenefick, for the appellants.
Alton B. Parker, James M. E. O'Grady, Elbridge L. Adams and John Desmond, for the respondent.
The action is for fraud and deceit. The plaintiff had a verdict and the defendants appeal. The primary questions presented by the appeal are (1) whether actionable fraud was established; (2) whether such of the defendants as were personally free from wrongdoing are liable for the misconduct of the others; and generally whether the trial was fair and free from pre-judicial error.
The plaintiff purchased certain bonds and stock, relying, as he claims, upon the statements contained in a prospectus. It is contended by him that the statements were untrue and of such a character, and the prospectus issued under such circumstances, as likely to deceive and that he in fact was deceived thereby; that while the prospectus was issued in the name of one of the defendants, all were interested in putting the bonds and stock on the market, and were associated together for the purpose of carrying through a telephone enterprise, which included the selling of the bonds and stock in question; and that all of the defendants are responsible for the statements contained in the prospectus and liable for any deceit or fraud perpetrated thereby.
It is unnecessary to set forth in full the prospectus which contains the statements alleged to be false. It is entitled: 'Offer of United States Independent Telephone Company Collateral Trust Thirty Year Five per Cent. Gold Bonds and Stock Trust Certificates.' It sets forth that the company was incorporated under the laws of New Jersey, with an authorized capital of $50,000,000, divided into shares of $100 each, for the purpose, among others, of developing and financing the independent telephone business in the United States; that it has acquired a majority of the authorized capital stock of the New York Independent Telephone Company and of the Stromberg-Carlson Telephone Manufacturing Company, and is negotiating for the purchase of other shares of stock of said companies and of other companies. It states the number of shares of its capital stock that have been issued and the number that will be deposited under a voting trust agreement; names the depositary and the persons who have consented to act as voting trustees; that after the performance of all existing contracts there will
remain a certain number of shares of stock which will not be issued for the present; that the corporation has authorized the execution of a collateral trust mortgage to a trustee to secure an issue of $25,000,000 of five per cent collateral trust gold bonds, describing the character of the bonds; that the mortgage will be a first lien on a majority of the capital stock of the corporation and a majority of the capital stock of the other two companies referred to, and such additional shares of such companies or other companies or other property as may be acquired with the proceeds of the bonds; that $17,000,000 of the bonds are authorized under the mortgage to be issued immediately and the balance of $8,000,000 to be held in escrow under carefully guarded restrictions for acquiring other corporate securities or property, as therein stated.
The parts of the prospectus containing the alleged false statements upon which the fraud is predicated are as follows:
(1) 'Such $17,000,000 of bonds are to be issued pursuant to contracts already made by the Company and binding on it, and as a result of the performance of said contract the Company will have $5,000,000 cash in its treasury, in addition to the securities pledged under the mortgage.'
(2) 'New York Independent Telephone Company. This company is incorporated under the laws of the State of New York, with an authorized capital of $50,000,000. It owns a franchise in the City of New York, acquired under the advice of eminent counsel, under which it is its purpose to begin, as soon as practicable, and in the near future, the construction of an independent telephone system in that city.'
(3) 'Stromberg-Carlson Telephone Manufacturing Company. The Stromberg-Carlson Telephone Manufacturing Company was incorporated in March, 1902. Since that time, owing to the growth of its business, it has been found necessary to double its capital stock in order to take care of the increasing demand for its products. From its incorporation this Company regularly paid 7 per cent. dividends on its preferred stock. During the first year of its existence it paid 8 per cent., and thereafter a regular annual dividend ...