1. If one of the stockholders of a corporation agrees to sell
out his shares to the others for such price as a fair examination
into the condition of the company may show the stock to be worth,
he is entitled to have the investigation which he has bargained
for.
2. If any fraud or deception is practiced upon the stockholder
which induces him to transfer his shares for less than they are
worth, he may be relieved in a court of equity.
3. But the burden of proving the charge of fraud is upon him who
makes it, since fraud cannot be presumed in a court of equity any
more than in a court of law.
4. Where an account is settled by parties themselves, and where
there is no unfairness, and where all the facts are equally well
known to both sides, their adjustment is final and conclusive.
5. Where the case is between vendor and vendee, the rights of
the parties must be measured by the terms of the agreement under
which the sale and purchase were made.
John D. Hager brought his bill in the Circuit Court for the
District of New Jersey against John R. Thomson, Edwin A. Stevens,
James Neilson, and the said John R. Thomson, Edwin A. Stevens,
James Neilson, Robert F. Stockton and Richard Stockton, trustees of
the New Brunswick Steamboat & Canal Transportation company. The
material averments of the bill are substantially as follows:
The complainant was the owner of seven and two-thirds shares of
the capital stock of the New Brunswick Steamboat & Canal
Transportation company, a corporation of the State of New Jersey
created by law in the year 1831, and as a stockholder in the
corporation he filed his bill in the Court of Chancery of the State
of New Jersey against Thomson, Stevens and Neilson, three of the
present defendants, charging them with divers breaches of trust and
frauds in the management of the company's business and praying for
an account and other relief. The bill was answered and a
replication filed. But before all the witnesses were examined, the
defendants
Page 66 U. S. 81
proposed to compromise, and it was agreed through R. F.
Stockton, who was the agent of the company and of the defendants,
that the suit should be settled. At that time the defendant was the
owner not only of the seven and two-thirds shares of stock which he
had had from the beginning of the company's existence, but of
one-third of four other shares which he had purchased after the
commencement of the suit. The company, from the time of its
organization in 1831, had been engaged in transporting passengers
and freight between New Brunswick and New York, and in the year
1835 carried goods, coal &c., between New York and Philadelphia
by way of the Camden & Amboy railroad and the Delaware &
Raritan canal. Abraham S. Nelson, of New Brunswick, was the
treasurer, but kept no account of any business except that which
was done by the company between New Brunswick and New York. The
defendants, after the bill was filed in the Chancery Court of New
Jersey, presented an abstract account of the business of the
company which they represented as containing a true and just
account of all the business of the company, its receipts and
expenditures. The complainant with his counsel attended at the
office of the treasurer, Mr. Nelson, at New Brunswick, and examined
certain books of account for about six hours without being able to
ascertain the correctness of the abstract. The original books of
entry were not present. The company have a set of books kept in
Philadelphia by one Gatzner and others, and another in New York,
kept by one Anderson, from which, and from the manifests, waybills,
receipts and vouchers, the monthly and other settlements were made
out and carried to the books kept by Gatzner in Philadelphia. No
books except those of Anderson were submitted to the complainant,
and they were false, fraudulent, and intended to deceive the
stockholders. R. F. Stockton, on the 2d of September, 1847, agreed
with the complainant that the company and the defendants in the
chancery suit should purchase the complainant's stock for such
price as, upon a fair examination of the assets, it should be found
that the stock was worth, and on the 13th of January, 1848, Mr.
Stockton met the complainant at Princeton Basin to carry out
the
Page 66 U. S. 82
agreement of compromise, Anderson and Gatzner being present. The
partial examination by the complainant of Anderson's books, and the
assurances of Stockton, Anderson, and Gatzner induced the
complainant to believe that the abstract from the books of Anderson
was correct and contained a fair statement and just and honest
account of the receipts and disbursements of the company. But the
books of the company kept in Philadelphia were not produced, nor
did not complainant know at that time that there were any such
books or in what manner the books kept by Anderson were made up. He
assumed that the abstract was right and did not question its
correctness, because he believed at the time that he was dealing
with men of integrity. Acting upon this belief, he agreed that the
balance of profits -- forty-two thousand one hundred and fifty-six
dollars and sixty cents -- was the correct balance. A valuation was
then agreed upon by the complainant and Stockton of the property,
real and personal, belonging to the corporation, which being added
to the net earnings, made the assets about two hundred and
eighty-nine thousand dollars. The complainant's proportion or part
of the last mentioned sum was paid to him, and he transferred his
stock to the company. After this compromise was made, the
complainant discovered that the abstract account upon which he had
based his agreement was false and fraudulent in a great many
particulars. The bill set forth specifically the false credits and
fraudulent charges, and prays that a just and accurate account be
taken of the company's business, profits and property, and the
defendants decreed to pay him such additional sum as it shall be
ascertained that his stock was worth.
The answer denies the allegation that there was any important
error in the accounts or abstracts of accounts or books submitted
to the complainant or that any assurance was falsely given by the
defendants of their correctness, or that there was any fraudulent
or deceptive means used to procure the plaintiff's assent to the
compromise.
The statements in the answer do not materially vary from that
contained in the bill concerning the terms and conditions upon
which the purchase of the complainant's stock was made by
Page 66 U. S. 83
R. F. Stockton for the company. The contract was that the
complainant should be paid such price as, upon a fair examination
into the condition of the company, it might be found to be
worth.
A large number of witnesses were called -- more than twenty --
but their testimony needs not to be stated here, since the effect
of it upon the case can be seen in the opinion of MR. JUSTICE
CLIFFORD.
The circuit court dismissed the bill, and the complainant took
an appeal to this Court.
Page 66 U. S. 85
MR. JUSTICE CLIFFORD.
This was a bill in equity, and the case comes before the Court
on appeal from a decree of the Circuit Court of the United States
for the District of New Jersey dismissing the bill of complaint. It
was filed on the eighteenth day of May, 1852, and was brought by
the appellant.
Some brief reference to the introductory allegations of the bill
of complaint and to the transactions out of which the controversy
has arisen is indispensable in order that the foundation of the
claim made by the complainant may be fully understood.
It appears that the New Brunswick Steamboat & Canal
Transportation company, usually called the New Brunswick company,
was incorporated on the eighteenth day of January,
Page 66 U. S. 86
1831, and that the charter expired, by its own limitation, on
the eighteenth day of January, 1852. Shortly after the charter was
granted, the company was duly organized, with a capital of
twenty-five thousand dollars. Seven and two-thirds shares of the
stock were taken by the appellant, and he was elected secretary of
the company. They purchased a steamboat in 1831, which was employed
in the transportation business between New Brunswick and the City
of New York, and they also purchased a sloop, which was employed in
carrying wood for the steamboat and was also engaged in the
transportation of merchandise on the Raritan River.
Two other companies were also created by the Legislature of the
State of New Jersey and authorized to engage in the transportation
business. One was called the Delaware & Raritan Canal company,
incorporated in 1830, and the other the Camden & Amboy Railroad
company, incorporated contemporaneously with the New Brunswick
company. Those companies were united in 1831, and were subsequently
known as the joint companies. Most or all of the respondents were
largely interested in those companies, and in 1834 they purchased
about four-fifths of the stock of the New Brunswick company, but
the complainant still retained his shares and his position as
secretary of the company and clerk on the steamboat. Whatever might
have been the object of the purchasers, it is evident that the
transfer of the shares had the effect to impart new energy and
efficiency to the management of the company, for they increased the
capital stock to fifty thousand dollars, making the par value of
the shares two hundred and fifty dollars, and, during the early
part of the year 1835, made an arrangement with the joint companies
for transporting freight through the canal and over the railroad
between New York and Philadelphia and other intermediate places on
the route. Under this arrangement, they also built and procured
canal boats and barges and ran them on the Delaware and Raritan
Rivers and through Staten Island Sound to the City of New York,
operating them by means of steam tugs furnished by the joint
companies. They also did a large business on the Camden & Amboy
railroad, using the locomotives, cars, and
Page 66 U. S. 87
steamboats of the railroad company for that purpose. Throughout
this period, they also continued to operate their steamboat line
between New Brunswick and New York, and in 1837 they engaged in the
coal business, purchasing and transporting coal to market as is
more fully set forth in the pleadings. Large profits were made by
the company under these various arrangements, but they also
incurred very large expenses, and the complainant became
dissatisfied with the management of the company. Failing to get any
redress for his supposed grievances, he, on the twenty-fifth day of
March, 1847, filed a bill in equity in the chancery court of the
state against three of the present respondents, charging them, as
directors of the company, with divers frauds and breaches of trust
in the management of its affairs and praying for an account of all
the business of the company. To that bill of complaint the
respondents in the suit made answer denying the charges and
exhibiting what they alleged to be the actual circumstances of the
case. Pending that suit, the complainant, with two other persons,
purchased four additional shares of the stock of the company, and
the same were held in the name of one of those persons for the
equal benefit of the purchasers at the time the suit was
brought.
With these explanations as to the origin of this controversy, we
will proceed to state the foundation of the claim made by the
complainant. Among other things, he alleged, that after he had
proceeded to take testimony in that suit in support of his bill of
complaint, propositions of compromise were made in behalf of the
defendants, and that the propositions so made were entertained by
him in the spirit of conciliation. Those propositions of
compromise, he alleged, were made to him through R. F. Stockton,
one of the respondents in this suit, who was the agent of the
company and of these respondents; and he also alleged that it was
agreed and arranged that the suit should be compromised and settled
in the manner and upon the basis set forth in the present bill of
complaint. Both parties agree that the suit was settled in
consequence of that arrangement and that the stock of the
complainant, including the four shares purchased during the
pendency of that suit, was transferred
Page 66 U. S. 88
to the company; but they differ in some respects as to the terms
of the agreement providing for the transfer, and still more widely
as to the circumstances under which the transfer was made.
As alleged in the bill of complaint, R. F. Stockton applied to
the complainant about the second day of September, 1847, to
ascertain whether there could not be an amicable settlement of the
matters involved in that suit, and that the conference resulted in
an agreement that the company and the defendants in that suit
should purchase his stock in the company and pay him therefor such
price or sum as, upon a fair examination of the affairs of the
company and a proper and fair estimate of the money, property, and
assets of the company the stock should be found to be worth. Having
set forth the supposed agreement, the complainant proceeded to
allege that he and R. F. Stockton accordingly met at Princeton, on
the thirteenth day of January, 1848, to carry out and complete the
same for the sale and purchase of the stock; that from a partial
examination of the books kept by the treasurer and from assurances
there given by R. F. Stockton and others that a certain abstract
account there exhibited, and which was taken from the books, was
correct, and contained a fair statement of the business of the
company and of the moneys received and of the disbursements made,
and not knowing that there were other books of the company not
produced at the time the abstract was prepared, he was induced to
believe that the account was true and correct, and consequently
did, upon the payment of his proportionate part of two hundred and
eighty-nine thousand dollars, transfer the stock owned by him,
including the four shares purchased during the pendency of the
suit, to the company, and received pay for the same from the
company's funds. But he alleged that he had since discovered that
the abstract account was false and fraudulent in very many
particulars, as specified in the bill of complaint, and therefore
insists that he is entitled to have the settlement corrected and
reformed, and to have an account taken of the entire property and
estate of the company, and to be paid such additional sum for his
stock as the same, upon such accounting, be found
Page 66 U. S. 89
to have been worth. On the other hand, the respondents, in their
answer, admitted that they, by virtue of their being the last
president and directors of the company, became and were the
trustees of the corporation, with full power to settle the affairs,
collect the outstanding debts, and divide the moneys and other
property of the company among the stockholders, after paying the
debts due and owing from the corporation; but they allege that the
agreement was that the complainant should sell the stock, held and
represented by him, at such price as the same should be found to be
worth, upon a fair valuation of the property of the company, and
that the complainant, if he desired it, should have an opportunity
of examining the company's books to satisfy himself of their
correctness. Substantially adopting the language of the bill of
complaint, they admitted that the complainant and R. F. Stockton
met at Princeton, on the thirteenth day of January, 1848, to make a
valuation of the property, and carry out the agreement, but aver
that the counsel of the complainant and the defendants in that suit
were present, as well as several other directors and the treasurer
and clerk of the company. According to the answer, all those
persons, with others connected with the company, were present to
aid and assist in making the valuation and statement of the
property, and in such examination of the books of the company as
the complainant or his counsel might desire to make. In this
connection, they also allege that the books of the company were
produced at the meeting and were examined by the complainant and
his counsel as fully and for such length of time as they desired,
and that all such explanations of the same as the complainant or
his counsel required were fully and freely given by the persons
present, who were the persons best qualified to make such
explanations. It was at that meeting that the valuation was made,
and the respondents alleged that all of the property of the
company, according to the best of their judgment, information, and
belief, was fairly and liberally appraised, and to the satisfaction
of the complainant, and they also alleged that he finally agreed
that the settlement should be made on the basis that the books were
correct as they stood on the
Page 66 U. S. 90
second day of April, 1847, when the abstract exhibit was made
out, without taking into the account any subsequent transactions.
One matter only, and that not now in dispute, was left in doubt,
and provision was made for its satisfactory adjustment. Assuming
the abstract to be correct, it showed a balance in favor of the
company of forty-two thousand one hundred and fifty-six dollars and
sixty cents. That sum, added to the appraised value of the
property, ought to have been taken, as the respondents alleged, as
the true value of the capital stock of the company; but they
alleged that, at the suggestion of the complainant and by mistake
on their part, the sum of fifty thousand dollars, being the whole
amount of the original capital, was added to that amount as the
basis of the settlement, making the sum of two hundred and
eighty-nine thousand dollars, as alleged in the bill of complaint.
Pursuant to that settlement, the company paid to the complainant
one thousand four hundred and forty-five dollars for each share,
paying therefor, as they alleged, two hundred and fifty dollars on
each share more than they ought to have paid according to the terms
of the agreement, and they denied that there was any fraud or
deception practiced by them or their agents in any part of the
transaction. Some eighteen witnesses were examined by the
complainant in support of the allegations of the bill of complaint,
but the respondents took no testimony, and, after a full hearing in
the circuit court, a decree was entered dismissing the bill of
complaint.
1. It is contended by the complaint that the agreement obligated
the respondents to pay him such price for the stock he transferred
to them as, upon a fair examination of the affairs of the company
and a proper and fair estimate of the moneys, property, and assets
of the same, the stock was found to be worth, and if the
examination of the books at Princeton was not a fair examination of
the affairs of the company, and the estimate there made of the
moneys, property, and assets of the company was not a proper and
fair estimate of the same, and in consequence thereof he was
induced to accept a less price than the agreement authorized him to
expect and demand, then he is entitled to have an examination of
the books and
Page 66 U. S. 91
the accounts, and to be paid such additional sum for his stock
as it may be found to have been worth upon such restatement.
Suppose the proposition to be correct as a general rule of law,
still it remains to be ascertained whether the theory of fact on
which it is based is sustained by the evidence. Undoubtedly, if
there was any fraud or deception practiced upon the complainant, as
alleged in the bill of complaint, to induce him to transfer his
stock for a less price than he was entitled to receive upon the
reasonable fulfillment of the condition of sale to which he had
agreed, and in consequence of such fraudulent acts or
misrepresentations, he actually parted with the stock at less than
its value on the basis of the agreement, then clearly he would be
entitled to relief; but the burden of proving the charge of fraud
is upon the complainant. Fraud cannot be presumed or inferred
without proof in a court of equity, any more than in a court of
law; and in both the rule is that he who makes the charge must
prove it; and there are some circumstances in this case, besides
the fact that the charge is denied in the answer, that render the
application of that rule peculiarly proper. As appears by the
complainant's own showing in the present bill of complaint, he
became dissatisfied with the manner in which the affairs of the
company were conducted as early as the twenty-fifth day of March,
1847; and he accordingly alleges, that on that day he filed his
bill in the chancery court of the state of New Jersey against three
of the present respondents, charging them, as directors of the
company, with divers frauds and breaches of trust in the management
of its affairs. Answer was made to that suit by the respondents,
and the complainant continued to prosecute it until the thirteenth
day of January, 1848, when the settlement took place, and he
transferred his stock. Most of the substantial matters now in
controversy were more or less involved in that litigation; and,
during the pendency of the suit, both the complainant and his
counsel, on two or more occasions, were allowed to inspect the
books of the company, and his own testimony shows that they
examined them as fully and for such length of time as they desired.
On one occasion the treasurer and book-keeper appeared before the
master in
Page 66 U. S. 92
chancery, and, in obedience to a subpoena
duces tecum,
produced the books, and they were examined for several days. His
own testimony also shows that he was present at the meeting of the
stockholders on the third day of April, 1847, when the abstract in
question was made; and several of his witnesses testify that the
books were produced and submitted to the examination of the
stockholders. No suggestion was made that any other books or
vouchers, not produced, were necessary to a full exhibition and
understanding of the affairs of the company; and none of the
circumstances elicited on the various occasions, when the books
were produced, afford any countenance whatever to the theory that
any concealment, deception, or evasion was practiced by the
respondents. On the contrary, they furnish indubitable evidence
that the complainant had every reasonable facility, and the most
ample means, to ascertain the true state of the accounts. Whatever
means of information the respondents had upon the subject appears
to have been laid before the complainant, and surely he had no
right to ask for more; and he is equally unfortunate, if the
testimony adduced by him, as to what occurred at Princeton on the
thirteenth day of January, 1848, be compared with the allegations
of his bill of complaint. It was at that meeting, it will be
remembered, that he accepted the propositions of compromise, and
transferred his stock, and the witnesses substantially agree that
the allegations of the answer are correct; that his counsel was
present, and that he examined the books to his satisfaction,
without even suggesting that any others were desired. Complaint is
now made that the books of the agents in New York and Philadelphia
were not produced on that occasion; but his own witnesses testify
that he called for no others at the time; expressed himself as
satisfied with the examination; and the bill of complaint admits
that he agreed to the settlement, accepted the estimated price of
his stock, and transferred it to the company.
Looking at the whole evidence, therefore, it is obvious that the
charge of fraud and deception is wholly unsustained by proof, and
we think the allegations of mistake, so far as the complainant is
concerned, are equally unfounded. But it is
Page 66 U. S. 93
fully proved that a mistake in his favor was made in the basis
of the settlement to the amount of fifty thousand dollars. That
mistake, as appears by the evidence, was made by adding the capital
stock to the estimated amount of all the moneys, property, and
assets of the company, when, in point of fact, the whole of the
capital stock had been expended in purchasing the property already
included in the valuation. Before the consideration was paid for
the stock, the mistake was discovered and the complainant was
requested to consent to the correction by a corresponding reduction
from the basis of the settlement, but he replied that it was too
late to correct errors. That refusal is a circumstance of some
significance, plainly indicating that the complainant did not then
think it for his interest to rescind the contract or that he had
been circumvented by the respondents. He who seeks equity should do
equity is a maxim in equity jurisprudence, and we think that rule
has some application to this case.
2. Numerous mistakes in the basis of the settlement are alleged
in the bill of complaint, and some eighteen in number were urged
upon the attention of the Court at the argument by the counsel of
the complainant. It was held by this Court in a case between
creditor and debtor that a settled account is only
prima
facie evidence of its correctness; that it may be impeached by
proof of unfairness, or mistake in law or fact, and if it be
confined to particular items of account, it concludes nothing in
relation to other items not stated in it.
Perkins v.
Hart, 11 Wheat. 256. Granting the correctness of
that principle as applied to the case than before the Court, still
it is obvious that it cannot have any very direct application to
the case under consideration. Much the largest number of
controversies between businessmen are ultimately settled by the
parties themselves, and when there is no unfairness and all the
facts are equally known to both sides, an adjustment by them is
final and conclusive. Oftentimes a party may be willing to yield
something for the sake of a settlement, and if he does so with a
full knowledge of the circumstances, he cannot affirm the
settlement and afterwards maintain a suit for that which he
voluntarily surrendered. But the present case is one between
vendor
Page 66 U. S. 94
and vendee, and the rights of the parties must be measured by
the terms of the agreement under which the sale and purchase were
made. Assuming that the agreement was as is alleged in the bill of
complaint, all the complainant could claim was such a price for his
stock as, upon a fair examination of the affairs of the company and
a proper and fair estimate of its moneys, property, and assets, the
stock should be found to be worth. That examination into the
affairs of the company was made by the parties to their
satisfaction, and they also made the estimate; and there is no
evidence of any unfairness, or that they committed any error except
the one already mentioned in favor of the complainant. On this
point the complainant called and examined the agents of the
railroad line, and the agents of the canal lines, and the agents of
the coal barge lines, and they all testified in substance and
effect that the accounts, or the results of the business, as
ascertained by the monthly settlements, were correctly entered on
the company's books. All of the accounts of the steamboat line were
kept by the treasurer, and it has already appeared that those books
were exhibited to the complainant at the time of his settlement.
Nothing need be remarked respecting the steam towing business,
except to say that the matter was fully settled between the two
companies in 1846, and the result of the settlement was duly
entered on the books of the company. Without entering more into
detail, suffice it to say that the gravamen of the bill of
complaint is that the complainant was induced to sell his stock for
less than its worth, but he has not introduced one word of proof to
sustain the allegation, and his own testimony shows that by mistake
he received two hundred and fifty dollars on each share more than
he was entitled to according to the agreement. In view of the whole
case, we are of the opinion that the complainant has wholly failed
to support the allegations of the bill of complaint, and the decree
of the circuit court is accordingly affirmed, with costs.