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given by said Murray, and held, as alleged, by the defendants or some of them, and for the cancellation and delivering up of said notes, and for an injunction to prevent the assignment of said notes or the entry of judgment thereon. On the report by the master of the evidence and of his conclusions, Murray amended his bill and the defendants filed amendments to their answers. The issues as made were found in favor of Murray, the master finding that the allegations of the bill were in substance fully sustained, and the court decreed accordingly. This decree was reversed in the Appellate Court for the First District and the bill ordered dismissed. From that judgment Murray has taken this appeal.
The record is voluminous, and we cannot undertake to set out here anything more than the bare substance of the case as we find it to be.
It appears that Tolman was the president and principal stockholder of the Chicago Trust and Savings Bank, which, for convenience, is called the bank. Murray was a manufacturer of tents, awnings, etc., and had occasion to borrow money on short time, and had borrowed money from the bank through Tolman. Afterward, and before such borrowed money was repaid, Tolman called upon Murray at his place of business and represented to him that he was getting up a company to accommodate such men as he, who needed money on short time; that the company was on the mutual principle of building and loan associations, and organized to guarantee the payment of moneys which should be borrowed by its members. Murray had never before heard of the Midland Company, and knew nothing of its object, its organization or of the value of its stock, except what he was told by Tolman. The conversations on the subject sought and had by Tolman with Murray were three or four in number, and extended over a period of about three weeks, in April, 1888. He represented to Murray that members of the company could borrow money on its guaranty at six
per cent, and while they would pay to the company one per cent per month for its guaranty, the dividends they would receive as stockholders would amount to twentyfive per cent, and proceeded to demonstrate to Murray how the plan would work out the results as stated by him. Murray testified that Tolman figured it out to his satisfaction at the time, but that he could not himself reproduce or explain it. Murray replied to Tolman that he did not need to borrow money in that way, but that he could get all the money he wanted at his bank. Tolman assured him, however, that it was a profitable investment anyway; that there were other men in it whose names he knew who did not need to borrow money; that it would pay twenty-five per cent on the money invested, and so figured it out to him; represented that the stock was then worth $150 for each share of $100; that Murray could sell it for that if he got tired of his bargain, and that he would himself buy it back at that figure. The promise to repurchase was repeated more than once. Without any other information of the company, its charter powers or the value of its stock than that given to him by Tolman, and relying upon its correctness and the truth of Tolman's statements and promises, Murray signed a paper produced by Tolman, reading as follows: "The Midland Company having been established with a capital stock of $100,000, divided into one thousand shares, we, the undersigned, hereby subscribe for and agree to purchase of D. H. Tolman the number of shares of stock of said company set opposite our respective names, paying therefor $150, and to take delivery at the Chicago Trust and Savings Bank May 5, 1888." This paper was eventually signed by upwards of one hundred persons. The articles of incorporation were not, nor was any writing purporting to show the purpose of the incorporation or its charter powers, produced or shown to Murray, but he relied entirely upon the truth of the statements and representations of Tolman without making any independent inquiry
or investigation. Some time afterward Murray applied to Tolman to redeem his promise and to repurchase the stock, but was told by Tolman that he had all of the Midland stock he wanted then, but that Murray should come again in the spring. In the spring he refused to buy, and afterward, about two and one-half years after obtaining the stock, Murray tendered it back to Tolman and demanded the return of the purchase money, but was refused. Soon thereafter this bill was filed.
Prior to signing the paper above mentioned by Murray, Tolman had caused an application to be made to the Secretary of State for articles of incorporation of said company, showing that its object was to guarantee commercial paper and to deal therein, but the application had been refused by the secretary, with the information that articles of incorporation would not be issued on such a statement. He then caused another application to be made for a charter, containing the statement that the object for which the corporation was formed was to secure information and furnish statements concerning the responsibility of persons and corporations, to conduct a merchandise commission business and to contract in respect thereto, so that Tolman knew that his representations to Murray as to the object, purposes and charter powers of the Midland Company were false. He had special information and knowledge also on that subject which he concealed from Murray. The application for incorporation was made at the instance of Tolman, by employees in his bank. The company was paid for its stock by a check on the bank of $50,000 by Tolman for the stock subscribed for by him, and by his checks given to four others who, at his instance, had subscribed for the other $50,000 and which checks they turned over to the company, and the whole $100,000 was placed to the credit of the company on the books of the bank. Tolman parceled out the stock to those who, like Murray, had agreed to purchase from him at an advance of fifty per cent, and
in this way realized a profit of $50,000 almost as soon as the company was organized, and by subsequent purchases and sales before its final collapse an additional amount of more than double this amount. It does not appear that he was possessed of the same confidence in the eventual success and dividend-paying power of the company that he was able to inspire in others, for when the final collapse came he did not own any of the stock, -at least not any considerable amount of it. Of this $100,000 placed to the credit of the company it seems that $62,500 was invested in the purchase of $50,000 of the capital stock of the bank, although such stock was paid up only to the extent of sixty per cent of its face value, and the other $37,500 was consumed in taking up and paying to the bank the paper of its members which it had guaranteed and which they had failed to pay.
As soon as the company had been organized, it proceeded, under the direction and management of Tolman, to engage in a business for which it was not incorporated, viz., the guaranteeing of the commercial paper of its members, and although it charged and received one per cent per month for such guarantees the promised dividends were not forthcoming, but Tolman and the bank soon became possessed of substantially all that was valuable of its capital. Borrowers were charged usurious rates of interest,-often as high as two and one-half per cent per month; and it is apparent from the evidence, that, aside from the merely speculative purposes of Tolman in dealing in and manipulating the shares of stock, the purpose of the corporation was to afford a cover and blind for the charging and collection of usurious rates of interest, and to insure the safe collection of loans by having an indorser under the same management as the bank, which would be financially responsible as long as its capital, supplied by the borrowers, should hold out. It is also clear that Tolman knew, when he represented to Murray that the stock was worth $150 per share and
would earn twenty-five per cent in dividends yearly, that such representations were false. Not only so, but he must have known that the stock could not long remain at its face value, but that under the management which he then had in contemplation, substantially the entire capital of the company would eventually pass to himself or to the bank, of which he was the principal stockholder, and that the whole purchase money would be lost to Murray. Not only so, but he knew at the time that Murray was ignorant of these facts and of his contemplated fraud, and relied upon his statements and representations, and reposed confidence in him as the president of the bank at which he had borrowed money and as the promoter and principal stockholder in the Midland Company, and as one trusted by many others whom he knew; and the evidence warrants the conclusion, that in order to dispel any doubts which Murray might have, and to prevent any independent inquiry or investigation, and with the fraudulent intent of breaking his promise and of swindling Murray, he promised Murray he would repurchase the stock at the same price whenever he, Murray, should tire of his bargain. In this view we think the promise proper to be considered. Cooley on Torts, 487.
We are disposed to agree with the views expressed by Mr. Justice WATERMAN in his dissenting opinion in the Appellate Court, that Tolman was in a position to know what the value of the stock was, and necessarily had knowledge of its value which no other person could obtain except with his consent and assistance, and that, in view of all the circumstances, Murray did as men of ordinary business experience would likely do under such circumstances if they decided to take the stock,-that is, decided to take it relying upon the statements and representations of Tolman,-and that cases of this character fall within well recognized exceptions to the general rule that the vendee is not authorized to rely upon the statements of the vendor as to the value of the subject matter