Milson v. Gerstenberg

Trial; Deceit, Action of; Direction of Verdict; Fraud, Proof of; False Representation. 1. The trial court is never justified in directing a verdict except in cases where, conceding the credibility of witnesses and giving full effect to every legitimate inference that may be deduced from tlieir testimony, it is, nevertheless, plain that the party has not made out a ease sufficient in law to entitle him to a verdict and judgment (citing Adams v. Washington & G. R. Co. 9 App. D. C. 26, 9 Am. Neg. Cas. 163; Walker v. Warner, 31 App. D. C. 76) ; and this rule applies to an action of deceit as well as to other civil actions. 2. Fraud may he established by a preponderance of the evidence, reasonably sufficient to satisfy the minds of the jury. 3. A person who makes representations of material facts assuming or intending to convey the impression that he has actual knowledge of the existence of such facts, when he is conscious that he has no such knowledge, is as responsible to one who believes and acts upon them as if he had knowledge of their falsity. 4. Deceit may he predicated of a vendor or lessor who makes material, untrue representations- in respect of his own business or property, for the purpose of their being acted upon, and which are in fact relied upon by the purchaser or lessee, the truth of which representations the vendor or lessor is bound, and must be presumed, to know. 5. In an action of deceit by the purchaser against the seller of stock in a company owning a patent, for a pump, where the testimonj' in beliali of the plaintiff was to the effect that the sellers falsely represented, among other things, that a pump constructed by the company had been tested by an engineer in the United States Navy Yard, and found to require 75 per cent less power in its operation than other pumps, and that the plaintiff thereafter made unavailing efforts to have the defendant make a comparative test, and then discovered that the representation concerning the pump’s capacity was untrue, while the defendants introduced testimony in rebuttal of the representations alleged and to show their honest belief in the capacity of the pump as represented by them, — it was held that the lower court erred in directing a verdict for the defendant at the close of all the evidence, as it was for the jury to determine -whether when this representation was made if made, it was untrue, and that the defendants knew it to be untrue by reason of the circumstances attending the test of the pump and the report of the engineers thereon.

Hearing on an appeal by the plaintiff from a judgment of the Supreme Court of the District of Columbia, on a verdict directed bv the court at the close of all the evidence, in an action of deceit. The Court in the opinion stated the facts as follows: This is an appeal from a judgment rendered on a verdict directed for the defendants in ah action to recover damages for fraud and deceit practised upon the plaintiff, Thomas H. Milson, by the defendants, Ernst Gerstenberg and Philip IT. Deis. The latter having died testate, Mary TI. Deis, executrix of his estate, was made defendant in his stead. The plaintiff alleged that defendants were the owners of 2,500 shares of the capital stock of the Deis Pump Company, a corporation organized to exploit a pump, letters patent for which had been issued to Philip II. Deis. Defendants also had a contract with said corporation, entitling them to certain royalties to he paid by the corporation on the manufacture and sale of pumps under said patent. That on March 7, 1907, the defendants, contriving and intending to deceive, defraud, and injure the plaintiff, fraudulently and deceitfully represented to the said plaintiff that one Salmon, or Solomon, a wealthy man, stood ready and willing to pay to said Gerstenberg and Deis a large sum of money, to wit, $150,000, for said shares of capital stock, and tlieir one-tliird interest in the royalties aforesaid, and was then in the city of "Washington, and anxious to effect a .purchase thereof from them on that day, and that they, the defendants, would sell to him, if he, the said plaintiff, would not agree with them at once to buy the said shares of stock; and that they would sell to plaintiff in preference to Salmon, or Solomon, for less price, as they preferred to have the plaintiff associated with them. They further represented that a certain pump, known as the “Deis Pump,” covered by certain letters patent, then and there owned or controlled by said corporation, bad been tested and bad been found to require in its operation 75 per cent less power than pumps in ordinary use; and also that an engineer or engineers in charge of the electrical department of tbe government bad tested said pump, and had told defendants that it required 75 per cent less power than pumps in ordinary use; and, further, that a prominent and well-known engineer, namely J. J. de Kinder, residing in Philadelphia, had, while on a recent visit to the city of Washington, examined the pump and stated to them that it could be operated at a large saving of power over that required to operate pumps in ■ ordinary use, and that he, the said engineer, would make a further and more detailed examination of said pump and a wxdtten report thereon, xxpon which report the defendants woxxld have xxo trouble ixx gettixxg the money xxecessary to financing the marketing of said pump. That thereupon the plaintiff, confiding in the said representatioxxs of the defendants, axxd at their ixxstaxxce axxd request, bargaixxed with them to buy of thexn the said 2,500 shares of the capital stock of the corporation axxd the one-third interest to the royalties, aforesaid. And the defexxdants falsely, fraudulently, and deceitfxxlly pretending and representing to the plaintiff that the said false, fraudulent, axxd deceitful representatioxxs were true, and the said plaintiff believing them to be true, they then and there sold to the plaintiff the 2,500 shares of stock in the corporation axxd the oxxe-third interest in the royalties, for the said sxxm of money, to wit, $35,000; and the plaintiff afterwards, on the saxne day, paid the said defendants the said sum of money for the saxxxe, whereas in truth and in fact neither the said Solomon nor axxyoxxe else was ever ready and willing to pay the said sxxxxx of $150,000 for the capital stock, nor was he, the said Solomoxx, nor anyone else thexx and there in the said city of Washixxgtoxx ready and anxious to effect a pux*chase thereof; nor had said pxxmp evexx been tested and shown to have required in its operation 75 per cent less power than pumps in ordinary use, nor had any engineer nor engineers ixx charge of electrical department of the government tested said pump, nor had any engineer nor engineers told the-defendaxxts that it required in its operation 75 per cent less power than puxnps in ordinary use, nor had the said de Kinder stated to defendants that said pump eoxxld be operated at a large savixxg of power over that required to operate pumps ixx ordinary xxse, axxd that the said de Kinder would make a further aixd more detailed examination axxd written report thereon, xxpoxx which report defexxdants would have no troxxble ixx gettixxg finances to market said pump; and whereas in truth and ixx fact said pump and said letters patent covering the same, and the said shares of the capital stock, and the said agreement to pay royalties, were worthless and valueless, and said pump had never in fact been tested, and was incapable of being operated by Y5 per cent less power than pumps in ordinary use, as the defendants well knew; and that defendants, by means of the promises, falsely and fraudulently deceived the said plaintiff on the said sale, and thereby the said capital stock and the interest in the royalties aforesaid have become of no use and value to the said plaintiff, to his damage $35,000, with interest from March 15, 190Y, which sum he claims, besides costs of suit. Defendants pleaded not guilty, and the statute of limitations of three years. Issue having been joined, testimony was introduced by the plaintiff, which showed that Philip H. Deis was an inventor and the patentee of a certain improved pump; that the Deis Pump Company had been organized with a capital stock of $1,000,000, for which the said Deis transferred to said company the letters patent aforesaid, receiving the whole amount of the capital stock, of which he afterwards transferred 2,500 shares to the corporation, to be held in its treasury as treasury stock; that the corporation entered into a contract with Deis by which it was given certain royalties on the manufacture and sale of pumps under said patent. Plaintiff testified to the representations made by the defendants as alleged in his declaration, and that, putting faith in the same, he paid them the sum of $35,000 for which they transferred to him 2,500 shares of their certificates of capital stock, and also one third interest in said royalty contracts. He also introduced testimony tending to show that neither said Solomon nor anyone else then and there in said city was ready and anxious to effect a purchase of said stock and royalty interest at the time of plaintiff’s pxirchase; also that the pump had not been tested and shown to have required Y5 per cent less power to operate than pumps in ordinary use; nor had any engineer or engineers in charge of the electrical department of the government tested said pump, etc.; and that said de Hinder had never tested the said pump or made the statement in regard to its capacity, nor had he ever subsequently examined and reported the same to the company as represented to the plaintiff. The plaintiff and defendants were to be partners in the promotion and development of the business contemplated, and each of them agreed to retain at least 2,000 shares of the stock, which would enable them to control. Plaintiff also agreed that any improvements to the pump made by him should become the property of the Deis Company, and the defendants were to assign all improvements made by them. At the time of the plaintiff’s purchase the assets of the company consisted in certain letters patent in this country, and Canada and Mexico. Shortly afterwards other patents were taken out in a number of European countries, but aside from the patent rights there was nothing of value among the assets of the company except the Deis pump, or models of it. No pumps had been manufactured for sale, and it was not known just what they could do or for what prices they could be sold. The promotion and development of the company and the pump was to occupy the attention of the plaintiff and his partners. Plaintiff testified that each of, said representations was a material inducement to him to enter into the contract and pay his money. The principal representation was the statement that the pump had been tested by an engineer in the Navy Yard, and found to require 75 per cent less power than other pumps. Plaintiff testified to efforts made to have a comparative test of the pumps made by defendants, and of his discovery of the fact that the representations made concerning the pump’s capacity were untrue. .This was discovered by him in 1908 or 1909. His action was begun March 5, 1910. Defendants introduced testimony in rebuttal of the representations made, and to show their honest belief in the capacity of the pump, as represented to them. Upon the conclusion of plaintiff’s testimony the court overruled a motion of defendants to instruct a verdict, but at the conclusion of the entire testimony he granted the motion, and directed -the jury to return a verdict for the defendants, upon which judgment was rendered, and plaintiff has appealed.