Appeal from the District Court of the United States for the Southern District of New York.
Before MANTON, SWAN, and CHASE, Circuit Judges.
One of the suits was brought by the plaintiff as receiver of the Harriman National Bank & Trust Company to recover the amount due on a promissory note for $1,500 made by the defendant Lucinda Shops, Inc., on December 21, 1932, payable, and delivered, to the above-named bank and indorsed by the defendant A.D.H. Holding Corporation and by the appellant before delivery.
The other suit was on three causes of action; an overdraft on appellant's account with the bank to the amount of $3,560.78; a promissory note for $25,000 indorsed by the appellant; and an overpayment of $1,301.03 made on a continuing guarantee by the appellant to the bank on the account of defendant Lucinda Shops, Inc.
The appellant did not contest his liability on the causes of action alleged, but did rely upon three counterclaims, which were the same in both suits, alleging that he had been defrauded by the bank when he was induced to purchase of it 40 shares of its capital stock in 1930 by the false representations of its president; that appellant paid $59,185 for the 40 shares; and that upon discovering the fraud in 1933 rescinded the sale and demanded the return of the purchase price which was refused to his damage to the amount thereof.
The appellee answered the counterclaims with complete denials of the fraud, and the two actions went to trial together on the issue so raised and upon another raised by an amendment of appellee's answer alleging that the bank was closed on March 3, 1933; never thereafter opened; a conservator appointed on March 13, 1933; the bank declared insolvent on October 16, 1933; and a receiver appointed. It was contended that the rescission, which was after March 3, 1933, was in any event too late to be effective.
After trial on the merits, the court directed a verdict for the plaintiff for the amount due on his causes of action and dismissed the counterclaims on the ground that no fraud had been proved.
Apparently the defense to the counterclaims raised by the amendment was futile in view of Oppenheimer v. Harriman Nat. Bank & Trust Co., 301 U.S. 206, 57 S. Ct. 719, 81 L. Ed. 1042, but we need not go into that, for the reason that a majority of the court agrees with the trial judge that the appellant failed to prove that he was defrauded when he purchased the stock and so had no just ground for rescission at any time.
The appellant dealt with J. W. Harriman, the present of the bank, in buying the stock. His grounds for rescission are that Mr. Harriman made false representations to him regarding the stock which induced him to buy it and failed to disclose to him that the bank and Harriman were artificially maintaining the price of the stock far above its actual value by "rigging" the market. The stock was an unlisted one bought and sold in small quantities. The purchases by the appellant were in three lots. On March 19, 1930, he bought 15 shares at $1,417 per share, which was charged to one of his accounts at the bank. On May 6, 1930, he bought 10 additional shares at $1,525 each and paid for them in a similar way. On October 24, 1930, 15 shares were purchased at $1,512 per share and paid for as before.
The evidence as to the representations made by Harriman to the appellant upon which he relied in buying the stock is found in the testimony of the appellant himself and the following quotations show the gist of it:
"He (Harriman) first called me on the telephone and said that he would like to have me as a stockholder of the bank and that he thought he could get a hold of a small amount of stock, it was very difficult to get, and he would like to have me buy it.
"He also said that the stock would have a material increase in value and he thought it was a good investment and they were anxious to have some of their important depositors, stockholders, and I told him I supposed it would be all right to buy a few shares. Subsequently he deducted some money from one of the accounts and bought some stock. He told me it was worth considerably more than the price. He said it was selling for fourteen or fifteen hundred dollars a share or thereabouts -- I have forgotten. He thought it was worth considerably more. I then authorized him to purchase the stock for me. I vaguely did. I didn't pay much attention to it."
He further testified that in response to a telephone call from the bank later when he talked either with Mr. Harriman, or with one of two vice-presidents, Mr. Austin or Mr. Noble, he couldn't remember, he bought 10 more shares in the same manner but didn't testify to any ...