Whether or not there has been fraud in the purchase of property, due to either affirmative statements or mere non-disclosure, may well depend upon the relation of the purchaser to the vendor. The recent case of Speed v. Transamerica Corporation presents two questions relative to this problem in the purchase of corporation shares: first, whether the price quoted in an offer to purchase can ever be the basis of an action for fraud and deceit; and second, whether the majority shareholder of a corporation occupies a fiduciary relation to minority shareholders in the purchase of their stock. Defendant was the majority stockholder of the Axton-Fisher Tobacco Company and had, pursuant to its written offer, purchased stock of plaintiff, a minority stockholder in such company, at a price quoted in the offer. From the evidence presented in a deceit action brought by plaintiff, the court found that the defendant had devised a scheme whereby it intended to acquire the holdings of the minority shareholders at a price much less than the real value thereof and thereafter to capture for itself the appreciated value of the leaf tobacco inventory of Axton-Fisher by liquidation. The court felt that in making the offer the defendant had impliedly represented the price quoted to be fair, when in the presence of an existing intent to liquidate, the true value of the shares was far greater. The offer, therefore, viewed as a representation as to value, was false and as such was held to be a misrepresentation upon which a common law action for fraud and deceit could be based. The court did not appear to ground its decision on a finding of the existence of any fiduciary relationship nor, as a corollary, a finding of the existence of a duty to make affirmative disclosures. It is not the purpose of this comment to explore all the possible ramifications of either the reasoning of the court or the correctness of the ultimate finding of defendant's liability to respond in damages. Moreover, it will be assumed that the evidence supported the inference that at the time the offer was made there did exist an intent to liquidate. Instead, this comment will concern itself with but two questions: namely, whether the price quoted in the offer to purchase was an actionable misrepresentation, and whether, as a possible alternative ground for recovery, the relation of the parties was such as would convert non-disclosure of the intent to liquidate into actionable fraudulent concealment.
Thomas P. Segerson S.Ed.,
CORPORATIONS-MAJORITY SHAREHOLDER'S FRAUD IN THE PURCHASE OF STOCK,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol50/iss5/6