Salmon v. Richardson

The directors of an insurance company fraudulently permitted false statements to be officially made and published by the president and secretary of the company as to its assets and condition, and the plaintiff was induced thereby to insure in the company. The company was at the time utterly insolvent, and after the loss of the property insured the plaintiff was able to get nothing upon his policy. In a suit brought by him against the directors it was held that they were not saved from personal liability for the injury by reason of the fact that they were acting officially. The declaration, after alleging that the insurance company was incorporated and carrying on the business of insurance, and that the defendants were directors of the company, averred “ that the said directors, the defendants, for the purpose of giving the company a fictitious credit, and to increase its business, &c., did falsely and fraudulently represent, &e.,” and that the plaintiff relying upon such representations mfide his contract of insurance with the company. Held, that the declaration was not insufficient, by reason of the manner of alleging the acts of the defendants, for a recovery against them personally. Held that the want of privity between the plaintiff and the defendants, by reason of the fact that his contract was with the company and not with them, did not affect his right of recovery against the defendants, since the action was founded, not upon the contract, but upon the fraud of the defendants in inducing him to make it. Under such circumstances an action would lie although the parties were entire strangers to each other. Ü, one of the defendants, denied his participation in the fraud, and all knowledge that certain bonds belonging to him were represented in the official statements of the president and secretary as the property of the company. Held, that evidence was admissible on the part of the plaintiff to show that the president and another director had shortly before the publication solicited R to make some arrangement by which the bonds could be represented to be the property of the company. Also, that a receipt given by him to the company acknowledging that the bonds were the property of the company and were held by him subject to its order» was admissible. Held also, that acts of R after the plaintiff had taken his policy, not in themselves independent, hut connected with and growing out of the previous fraudulent purpose, were admissible to show his knowledge of and participation in the fraud.

Action on the case, against Joseph Richardson, William H. Noble, Nathan S. Morse, H. W. Chatfield, Nathaniel Green, Daniel Hatch and Russell Tomlinson, for an injury to the plaintiff by the fraudulent representations of the defendants, as directors of the Bridgeport Insurance Company, with regard to the assets and condition of the company, by which he was induced to insure his property in the company. The fourth count of the declaration was as follows :— And the plaintiff further declares and says, that said Bridgeport Insurance Company was duly incorporated under and by virtue of the laws of this state, in the year 1850, for the purpose of carrying on the business of insurance against loss by fire ; that by its charter said company was empowered and required to appoint a board of directors, consisting of nine persons, to be elected annually from among and by the stockholders of said company, whose duty it was to have the care, management and general supervision of the business of the company, and to see that its affairs were mannaged in a proper manner, and to see that all statements relative to its affairs, condition, business and property were properly and truly made; that on or 'about the 7th day of July, 1857, a board of nine persons, .among whom were the defendants, were duly elected directors of the company for the year eqpuing, according-to the provisions of the charter of said company ; that they accepted said appointment, and subsequently, and before the commission of the acts and grievances hereinafter complained of, entered upon the discharge of the duties of said office, and continued in the discharge thereof till on or About the 12th day of October, 1858 ; that on or about the 1st day of February, 1858, for the purpose of giving the company a false and fictitious credit, and to increase the business of said company, and to add to their own profits as stockholders of said company, the said directors, the defendants, did falsely and fraudulently represent and publish to the world, as and for the true condition of the affairs of said company, that said company was possessed of a very large amount of property of great value, to wit, forty-five Harlem railroad first mortgage bonds, seventeen New Jersey Central railroad first mortgage bonds, and thirty-eight Bridgeport water bonds, all of which said bonds were of the par value of $97,000, and various other stocks and properties of great value, to wit, $270,000, all which property was represented by and in the statement aforesaid to be of the value of $367,147.12; that said directors falsely and fraudulently represented said company to be the rightful owners of said property, and to be good and solvent, to induce people to effect their insurance in and by said company, and to increase the business and profits of said company and their own profits as stockholders thereof; that the plaintiff, relying on said representations of the directors, the said defendants, and believing the same to be true, did on or about the 13th day of February, 1858, at the special instance and request of said company, insure in said company a certain building to him belonging; situated in Granby in the state of New York, a patent tannery, so called, of the value of $1,200, on which the sum of $700 was insured by said company, and certain other stock and material of the plaintiff, situated in said tannery building, of the value of $1,000', on which the sum of $300 was insured by said company; and the plaintiff received from said company policies of insurance in accordance with the custom of said company ; and the plaintiff paid to said company for insuring said property the sum of $100, according to the requirements of said company. And the plaintiff says that said policy of insurance has been destroyed by fire, and can not be produced in court; that on the 8th day of October, 1858, and while said policy was in full force, said building, and said stock and materials therein, so insured, without the fault of the plaintiff, were destroyed by fire; that the plaintiff gave notice and proof of said loss to the company, within the time and in the manner and form prescribed by said company and according to law; that he is and was the sole owner of said property so insured, and that said loss has never been paid ; that at the time of said fire, for a long time previous thereto, and at the time of the publication caused and made by the directors as aforesaid, the said company was not the owner of the valuable assets hereinbefore specified and stated in said publication, nor of any valuable assets, but was wholly insolvent; all which the defendants well knew when they thus willfully, falsely and fraudulently uttered and caused to be published said false statement as aforesaid ; that on or about the 4th day of May, 1858, proceedings in insolvency were instituted against said company; that on the 17th day of May, 1858, P. 0. Calhoun was appointed by the court of probate a trustee in insolvency, to take into his hands and possession, for the benefit of the creditors of said company, all the goods and estate belonging to said company ; and that the total amount of all the assets of said company, so delivered into the hands of said trustee for the purposes aforesaid, according to the sworn inventory and appraisal thereof as returned into the court of probate, amounted to the sum of $123.07, and no more. And the plaintiff says that by means of the false- and fraudulent statements so made and caused to be made by the defendants, regarding the assets, property and condition of said company, and his, the plaintiff’s, belief in the same, and consequent insurance in said company as aforesaid, and by reason of the premises aforesaid, he has suffered great loss, to his damage the sum of two thousand dollars, &c. The 'case was tried to the jury in the superior court, on the general issue, before Park, T. Upon the trial the plaintiff offered evidence to prove, and claimed that he had proved, that he made application for insurance upon the property stated to Philip Hart, who was the legal agent of the company in the town of Fulton in the state of New York; that Hart, to induce the plaintiff to insure his property in this company, represented to him that he was well acquainted with many of the assets of the company, and particularly with the value of the stock of the Bridgeport City Bank, which was represented to be a part of its assets ; that the assets of the company were of the first class, and that the company was highly solvent and reliable, and thereupon exhibited to the plaintiff written and printed documents containing full statements of the assets and condition of the company; that by some of these statements it appeared that the company, on or about the 1st day of January, 1858, were the owners, among other property, of the Harlem railroad bonds, the New Jersey Central railroad bonds, and the Bridgeport water bonds, described in the declaration, all amounting to more than $367,000, to which statements all the names of the directors of the company, embracing the names of the defendants, were attached as directors of the company; that the statements so exhibited by Hart were carefully examined and considered by the plaintiff; that being acquainted with the value of many of the securities, and particularly with the value of the Harlem and New Jersey Central railroad bonds, and relying upon the statements as true statements of the assets and condition of the company, he caused his property to be insured in the company. He also offered evidence to prove, and it was not denied by the defendants, that at the time of the application and insurance, and as far back as the 1st of July, 1857, the company was and still continued to be utterly and hopelessly insolvent and unable to pay any losses; and that the defendants, from the 6th day of July, 1857, until the 17th day of May, 1858, were the legally chosen, duly qualified, and acting directors of the company, and that the defendant Joseph Richardson was a director in the company from its organization in June, 1854, until the 17th day of May, 1858, that he attended every meeting of the directors of the company, from the 21st day of November, 1857, until the 1st day of March, 1858, and during all of that period was employed in the business of the company. He also offered evidence to prove that the statements upon the faith of which he took his insurance in the company, and which were uttered and published in the various forms hereinafter described, were made and published with the knowledge and approbation of the directors, embracing the defendants, and that they were falsely and fraudulently made by them, and particularly by the defendants Richardson, Noble and Morse, as such directors ; all of which was denied by the defendants, and particularly by the said Richardson, who claimed to be, and testified that he was, entirely ignorant that any such assets as the Harlem, New Jersey Central, and Bridgeport water bonds, described in the statements, were ever owned or claimed or represented to be owned by the company, and insisted that these bonds were his private property, and had never been owned or claimed or represented by him or the company to be the property of the company to his knowledge, and that he had not on any occasion permitted any person to represent the same as the property of the company directly or indirectly. Upon these claims of the parties respectively the plaintiff offered evidence to prove that during the months of November and December, 1857, Mr. Courtenay, the president of the company, and Mr. Green, one of the directors, repeatedly solicited the defendant Richardson to make some arrangement by which the bonds might become, or be represented to be, the property of the company. The plaintiff also offered in evidence the books of the company, under the date of 31st December, 1857, by which it appeared that the company became the purchasers of the bonds for certain Hudson Paint Manufacturing Company stock, which was proved to be utterly valueless, in connection with evidence that the book was one of the books of the company, kept in the regular course of business by their book-keeper, and that the book was always kept openly and publicly in the office of the company, where the directors were in the.habit of meeting. This evidence was objected to, but admitted by the court. The plaintiff also offered evidence and claimed to have proved that the defendant Richardson, about the first day of January, 1858, left in the possession of the company a receipt under his hand, in which he admitted that he had received the bonds, that he held them as the property of the company, and that he would return them on demand, accompanied with proof that upon the basis of this receipt the secretary of the company made his annual statement of the assets of the company to the comptroller of this state, describing the bonds therein as the property of the company. This statement is set forth sufficiently for the purposes of the present case, ante, page 217. This evidence was objected by the defendants but admitted by the court. The plaintiff also offered evidence to show that, during the months of January and February, 1858, and prior to the 13th of February, the company caused statements of its assets and condition, in which said bonds and other property, amounting together to the sum of over $367,000, were described as the property of the company, to be published in the Bridgeport Daily Farmer, in the Bridgeport Daily Standard, in various daily New York papers, and in various monthly insurance periodicals, over the names of all the directors of the company, signing the same as directors ; that all these newspapers and periodicals were regularly received during this time in the office of the company; that also, during all this time, large packages of circulars and cards containing the same false and fraudulent statements as to the assets of the company over the signatures of the directors were prepared for general distribution, and were made particularly attractive for that purpose, and were deposited in public view upon the desks and tables of the office, to attract general observation, and were extensively circulated among the agents of the company and among the people. The plaintiff 'also offered in evidence a certified copy of a statement made by the company, on the 1st of January, 1858, to the comptroller of the state of New York, in which the same representations were made as to the assets and condition of the company, and as to the ownership of the bonds mentioned. This evidence was objected to by the defendants but admitted by the court. He also offered in evidence an affidavit of Nathaniel Green, then president of the company, before a commissioner acting in behalf of the comptroller of the state of New York, to which was attached the certificate of the defendant Richardson, containing the same representations. This document is set forth sufficiently for the purposes of this case, cmte page 213. This evidence was objected to, but admitted by the court. The plaintiff also offered evidence to prove that in the month of February or March, 1858, the defendant Richardson delivered to Nathaniel Green, in the city of New York, the bonds described in the declaration, in order that he might exhibit the same as the property of the company to the commissioner acting in behalf of the comptroller of the state of New York, in investigating the financial condition of the company, in order to enable the company under the laws of the state of New York to open an office in the city of New York and to effect insurances in that state. To this evidence, which was received subject to objection, the counsel for the defendant objected on the argument before the jury as irrelevant, and requested the court to instruct the jury that it was irrelevant and not to be considered by them. The defendants also requested the court to charge the jury that the plaintiff could not recover unless he proved that the board of directors had authorized the statements upon the faith of which the plaintiff claimed to have acted in causing his property to be insured, or had sanctioned the same, or unless such statements or the import of the same had come to the knowledge of the board when convened as a board of directors. The court charged the jury that it was not necessary for the plaintiff to prove that the statements were made and1 published under a vote of the directors at a meeting legally held for that purpose, but that it was sufficient for him to prove that the statements were made and published by the directors of the company, acting as such at any informal meeting, or in consultation together at any time, and that it was not necessary that there should be any recorded vote on the subject. The defendants further requested the court to charge the jury that ail the acts of the defendants, or any of them, after the plaintiff perfected his insurance, should be laid out of the case. On this subject the court charged the jury as follows : “ If the plaintiff was defrauded by the defendants, the act was accomplished at the time he procured his insurance, and whatever was done by them after that time can have no bearing on the case, and consequently should be dismissed therefrom, unless you are satisfied from the evidence that what was done by them afterwards has a retroactive effect in showing what existed before that time. If, for instance, there was'an agreement previous to this insurance entered into by the directors of the company, and the defendants with them, to defraud the public by scattering abroad the statements that’ came to the knowledge of the plaintiff before this insurance, and the part assigned therein to the defendant Richardson was that he should represent, whenever necessity required, that the company owned these bonds, and afterwards, when it became necessary to satisfy the commissioner sent by the comptroller of the state of New York, of the financial condition of the company, he procured these bonds for that purpose ; if the circumstances attending this transaction—his readiness in procuring these bonds, without discussion or consideration, if the fact was so—tend to show such previous agreement; then, for that purpose, the evidence would be proper, although the transaction was after the plaintiff procured his insurance. The same remarks will apply to the affidavit of Green with Richardson’s certificate attached thereto. It depends altogether upon the character of these transactions whether they were proper to be received or not. If you are satisfied from the evidence that they were independent transactions, brought to the consideration of Richardson then or after this insurance for the first time, they should be banished from your consideration in this case. They can be considered only as the performance of such an arrangement as I have described. If there were any publications as to the assets of the company issued after this insurance, they should be laid out of the case.” The defendants further requested the court to charge the jury, that the entry made in the books of the company by the book-keeper thereof, in December, 1857, as to the purchase of these bonds by the company, and the annual returns made to the comptrollers of the states of Connecticut and New York, in January, 1858, by the secretary of the company, should be-laid out of the case. On these points the court charged the jury that they must be satisfied from the evidence that the directors of the company, and the defendants with them, knew of these transactions before this insurance, and sanctioned their being done, as directors of the company. The jury returned a verdict for the plaintiff, and the defendant Richardson moved for a new trial for error in the rulings and charge of the court. He also moved in arrest of judgment for the insufficiency of the declaration, which motion was reserved with the other for the advice of this court.