One of the important questions in this case is whether or not a confidential relationship existed at the time of the sale of appellant's interest to respondent, and during the time of the negotiations between the parties leading up to the sale.
The business started as a partnership in 1921. In 1931 it was incorporated by the formation of two corporations, the purpose of which was to avoid partnership liability and to comply with the restrictions of the parent Coca-Cola company prohibiting the sale of both fountain and bottled Coca-Cola by one concern. *Page 789
The parties continued to conduct the business in the same manner and on the same basis as prior to incorporation. The respondent was the managing head, and in sole charge of the business during both periods of time, and after incorporation the business was treated by both parties as one concern, one set of books being used to record the transactions of the business, in the same manner as before incorporation, and generally the affairs of the concern were handled on the same basis and in the same manner as before.
For the purpose of differentiating between the responsibility of respondent to appellant prior to incorporation, and subsequent thereto, respondent has pointed out the distinction between a corporation and a partnership, and has cited authorities stating the general rule to the effect that an officer or director does not sustain a fiduciary relation to individual stockholders with respect to his stock, which we believe correctly states the general rule. However, these authorities are not persuasive on the claim of respondent that by reason of the formation of the corporations, and the operation of the business thereunder, his responsibility to appellant in the matter of the disclosures and statements of the corporations' business was not as it was before the incorporation.
Under the facts disclosed in this case, respondent owed the same duty to appellant with respect to these matters as he did prior to incorporation. The undisputed evidence discloses that appellant had very little to do with the operation of the business. He was away from the scene of operations much of the time and engaged in other business activities. Respondent was at all times in full charge and control.
The respective positions of the parties to this suit, therefore, as between them, for all practical purposes, continued the relationship of partners, and likewise continued the duty and responsibility of partners, bottomed on high principles of morality, right, equity and justice.
"Confidential relations exist wherever confidence is reposed and accepted, and the one has it in his power in a secret manner, for his own advantage, to sacrifice those interests of the other which he is bound in honor and good conscience to protect. (1 Story, Eq. Jur., Sec. 323.) The rule embraces both technical fiduciary relations, and those informal relations which exist whenever one man trusts *Page 790 in and relies upon another. (Coghill v. Kennedy, supra, p. 658, 659 of 119 Ala. (24 So. 468); Raney v. Raney, supra, p. 34 of 216 Ala. (112 So. 316); Ziegler v. Coffin, Ala., 123 So. 22, 63 A.L.R., at 945.)"
See also Restatement of Law, Restitution, p. 676; 23 Am.Jur., 763 and 764, Sec. 14; 23 Am. Jur., p. 858 and 859, Sec. 81; Addis v. Grange, Ill., 192 N.E. 774, 96 A.L.R. 611, 13 Am. Jur., and the following cases referred to in 84 A.L.R., see p. 608 to 628; Hotchkiss v. Fisher, Kans., 16 P.2d 531;Buckley v. Buckley, 230 Mich. 504, 202 N.W. 955; Bollstrom v.Duplex Power Car Co., 208 Mich. 15, 175 N.W. 492; Saville v.Sweet, 254 N.Y. Supp. 768; Voellmeck v. Harding, 166 Wn. 93,6 P.2d 373; 84 A.L.R. 608; Lightner v. Hill, 258 Mich. 50,242 N.W. 218, 84 A.L.R. 601.)
Having formed the conclusion the confidential relationship existed, it placed upon respondent, as the managing agent of the business, the duty to disclose to appellant fully all matters within his knowledge in connection with the business at the time of the negotiations for the sale of appellant's interest to respondent. There can be no doubt that respondent's knowledge of the business, and its intimate details, its growth and development, and opportunities for the future, was much greater than that of appellant, even though appellant did make some independent investigation of the affairs of the concern by the employment of an auditor to examine the books and by some inquiry of others.
Even though it be conceded respondent made no false statements in connection with the business affairs of the concern to appellant, I still think in the matter of the negotiations for the sale of appellant's stock, his relation to appellant was such that he was not in a position to offer to purchase, or to purchase, his stock for less than its then value, without, at the time, disclosing to appellant all matters in connection with the corporation's business which affected or related to the value of the business at that time.
In the case of Lightner v. Hill, 258 Mich. 50, 242 N.W. 218, 84 A.L.R. 601, the Supreme Court of Michigan quoted with approval from the case of Strong v. Reptide, 213 U.S. 419,29 S.Ct. 521, 53 Law Ed. 853, a case where the president of the corporation purchased stock at much less *Page 791 than its par value as known to him and due to conditions unknown to stockholders, as follows:
"If it were conceded for the purpose of argument that the ordinary relations between directors and shareholders in a business corporation, are not of such a fiduciary nature as to make it the duty of a director to disclose to the shareholder the general knowledge which he may possess regarding the value of shares of the company before he purchases any from a shareholder, yet there are cases where by reason of the special facts, such duty exists. The Supreme Court of Kansas and Georgia have held the relationship existed in cases before those courts because of special facts which took them out of the general rule and that under those facts a director could not purchase from the shareholder his shares without informing him of the facts which affected their value."
In the case of Stewart v. Harris, 69 Ks. 498, 77 P. 277, 66 L.R.A. 261, 105 Am. St. Rep. 178, 2 Ann. Cas. 873, the third syllabus by the court reads as follows:
"A director or managing officer of a corporation having a knowledge of the condition of the affairs of such corporation, because of the trust relation and the superior opportunities afforded for acquiring information, before he can rightly purchase the stock of one not actively engaged in the managing of its affairs must inform such stockholder of the true conditions of the affairs of the corporation."
In the opinion, the court said:
"Defendant suggests that plaintiff should have himself exercised more diligence in investigating the affairs of the bank; that the books of the bank were open to him. By this we are asked to say that in this case of means of knowledge is equivalent to knowledge; that a clue to the facts, which if diligently followed up would lead to a disclosure, is equivalent to discovery. Plaintiff could not be required to make an investigation of the books of the bank to determine its financial condition simply because it was in his power to do so. The diligence required by one to protect his interests is only such as a person of ordinary prudence would exercise under like circumstances. In a case like the one under review, the trust relation existing between the parties, the superior opportunities of defendant to know the condition of the affairs of the bank, and his actual knowledge of its affairs, required no such diligence *Page 792 of inquiry on the part of plaintiff as is contended for by defendant. Plaintiff had the right to rely upon the belief that defendant would disclose to him the true condition of the affairs of the bank, and that he would not be called upon to investigate the condition of its affairs before he could with safety sell to defendant his holdings of stock. It is not the intent of the law to place a restraint on the affairs of business, when conducted fairly, honestly, and openly, nor to deprive one party to a contract of the advantage which superior judgment, greater skill, or better information may give; but it cannot give its approval to a course of dealing that will permit those occupying a trust relation to be unmindful of the trust, betray the confidence reposed, and profit by such betrayal."
It appears from respondent's testimony that on August 30, 1938 he and Mr. Lloyd engaged in a conversation with respect to the sale of the stock, and at that time Mr. Lloyd told Mr. Anderson he had made up his mind he was going to sell the stock; that Mr. Anderson asked him what he wanted for his stock, and Lloyd said he thought it was worth $20,000.00 and that Mr. Anderson replied he would give him $18,000.00; that in reply to this, Mr. Lloyd said he thought he ought to have $20,000 and Mr. Anderson then said, "I will give $20,000.00."
With respect to the negotiations for sale, Mr. Anderson testified further, in part, as follows: "Well, we talked in general terms about the deal; I brought up the question, and one reason also was that I owed money at the bank, and if I should take and buy the lots, I would have to borrow, then, $2000, or buy his stock I would have to borrow that $2000 and if I bought the lots, I would have to borrow that, and Cleo-cola was in with its bottling works. Pepsi-cola was just coming in. I believe they had just opened up, just before, and with soda water, and they had nothing but big 12 oz. bottles. I felt it might be that they would even cut prices, and I didn't know whether I could make the payments and I would come out broke. I had no other investment."
Further, in answer to the question, "What else was said there?", Anderson testified: "I don't recall. That was about all. We just talked back and forth. Tom said he didn't see how business conditions would make any change and (interruption) about the business conditions, Tom said he *Page 793 couldn't see there would be any material changes, and I didn't have to worry about that as far as he could see."
When asked further what was said at the time, Anderson testified in substance, as follows: "I don't think I can remember anything particular outside of that, only that we talked about the deal in general terms." Then he went on to explain: "Perhaps I should have said in connection with buying his stock."
Anderson remembered he had mentioned about Pepsi-cola and Cleo-cola, and said he might have mentioned Royal Crown and Dr. Pepper, competitive drinks. Further, Anderson said they talked about general conditions with relation to the various competitors of Coca-Cola. He also said he mentioned the cutting of prices and things of that nature, and how they would materially disturb the sale of soda water, and that he was worried. Further, Anderson testified that in this conversation nothing was said with respect to the volume of the Coca-Cola which had been bottled by the business. In the evening conversation of the same day, with respect to the business, Anderson stated nothing concerning the business of the company was discussed, outside of what he had mentioned. He was sure they didn't discuss the amount of Coca-Cola that had been bottled. There was nothing said about beer, and if there had been he would have told them it was a losing business; he had told him (Mr. Lloyd) a number of times before, he thought it would be much better to discontinue the beer.
As further appears from the record, Anderson was in touch with, and had personal supervision of, the business every day. He therefore knew all the facts in connection with the business. This business was showing a steady, healthy increase year by year, especially from the year 1936 on. Anderson was familiar with and knew the developments in the bottling business generally, and knew the business was gaining generally, and he had full and complete knowledge of all things pertaining to the Twin Falls business, and pertaining to the Coca-Cola and bottling business in general, and particularly in the Northwest. He attended various bottling conventions and Coca-Cola meetings; he met their representatives and likewise distributors from other places.
It would appear from the foregoing testimony that Anderson was trying to buy Lloyd's stock as cheaply as he could. To say the least, his statements with respect to *Page 794 the business matters of the concern did not reflect, and were not intended to reflect, a very optimistic viewpoint. As a matter of fact, the word picture as painted by him, was discouraging. Under my view of the law, he was in duty bound not only to say nothing that would have the effect of depreciating the value of the business, and Lloyd's interest therein, but he was under obligation to disclose to Lloyd his real opinion as to the business, and also the real facts in connection with its value. While it may be conceded there were probably no express misstatements; nevertheless it seems to me there was an overreaching.
The following finding of the trial court, to-wit: "The sum of $25,000.00 was not below the fair and reasonable market value of defendant's stock at the time of the sale," is assigned as error. I think this finding is not supported by any competent, creditable or substantial evidence. The testimony of the value of the business at the time of the sale fixes the value all the way from $70,000.00 to $263,-000.00.
Respondent testified in effect in answer to a question as to his idea of the market value of the business on December 6, 1938, that he was of the opinion it was from $70,000 to $75,000, and that Mr. Lloyd's one-third interest in the stock of the two corporations at that time was of the value of from $18,000 to $20,000.
As against this expression of value on December 5, 1938, I cannot overlook the fact that some fifteen months later, with an additional investment in equipment of only from $29,000 to $30,000 the business sold for the sum of $200,-000.00 and that some of respondent's "expert" witnesses testified that at the time of this second sale the business was worth from $180,000 to $200,000, the gross amount that was received, out of which indebtedness of the business in the sum of approximately $44,000 was to be paid.
In addition to the testimony of respondent himself, as to his idea of the value, it is apparent from respondent's brief and the oral argument, that he relies upon the claim the evidence supports the finding of the trial court as to the value of the testimony of his experts Bogard, Harper, Simmons, Chaffee and Cobb. The testimony of each of these witnesses as to the value of the business was based on similar hypothetical questions, and each one of these questions was, in my opinion, insufficient from the standpoint *Page 795 of law, and objections to the questions should have been sustained.
The value of testimony of this nature depends upon the facts considered by the expert in arriving at the answer. In other words, the answer must be based on the question; if a question as to the value of a business fails to enumerate important, substantial items which are necessarily a part of the assets, then the answer is bound to be erroneous.
The questions asked these "experts" omitted items necessary to be considered in reaching the valuation of the business, i.e., cash on hand, notes and accounts receivable, and real estate.
At the close of the business in 1938, it appears there was cash on hand in the business, in the sum of $3,340.69; the accounts and notes receivable figured on the books in the sum of $23,946.51; the land and buildings were valued in the sum of $7,287.65. Here is a total ascertained value of over $34,000.
Neither did the opinion of the experts take into account the indebtedness of the business, which must necessarily also be considered in determining what a business is worth.
The opinion answers of the experts to the hypothetical question, are therefore of no probative value because necessary elements were omitted. The rule is:
"The weight to be given expert testimony hinges on, among other things, the expert's means of knowledge; his competency, extent of experience and study of witness, whether witness is biased, the facts upon which the opinion is based, and of course, the integrity of the witness." (Hull v. City of St.Louis, 138 Mo. 618, 40 S.W. 89, 42 L.R.A. 753; Stroscheim v.Shay, 63 Idaho 360, 120 P.2d 267 at 271.)
"In Sharp v. Baker, 22 Tex. 306, the court, referring to evidence which was introduced without objection, said: 'the admission of such evidence without objection does not add any weight to it, if intrinsically it had none, and should have been excluded, upon objection. Evidence does not have weight because it is admitted, but it is admitted because it deserves to have weight.' " (Evans v. Cavanagh, 58 Ida. at 333.)
"An opinion is not conclusive even though uncontradicted but should be weighed by the trier of the facts, and judged in view of all the evidence, including in the case *Page 796 of land, a view, if any was afforded. Probative value depends on the facts on which the opinion is based, and if devoid of substantial factual support, the opinion is entitled to little or no weight, and will be insufficient to support a verdict or finding or to take the issue to the jury. * * *
"They are to consider such facts — that is, the facts mentioned in the hypothetical question, whether such facts do actually exist, whether there is evidence on which to base them — because if one fact supposed to be true, included in the question, is untrue, not supported by the evidence, then the opinion is valueless. The opinion is given upon a certain state of facts supposed to be true, and the jury cannot tell what the opinion would have been if one of these facts had been withdrawn." (Jones, Commentaries on Evidence, 1913 Ed., Vol. 2, p. 975, 976.)
That the finding of the trial court, under discussion, is not supported by the evidence, is clear from the following extracts from the testimony of the various expert witnesses:
Mr. Bogard testified in effect he valued the Coca-Cola business in 1938 at $77,000 and the only item in estimating the value, that he considered, was the amount of Coca-Cola syrup bottled during the year 1938; he considered no other item and he did not place any value on the list of machinery and equipment mentioned in the hypothetical question. He testified further, the value of the Coca-Cola franchise and the plant, was at the rate of $10 per gallon. Further, the method of arriving at the value of Coca-Cola bottling plant is generally $10 per gallon for the amount of syrup bottled during the year, the only variation being where the equipment is particularly outstanding, or the population is unusually dense or unusually sparse, and that these facts would affect the $10 per gallon valuation, and he made no variation with respect to the Twin Falls plant, and he made no allowances one way or the other; that the place was just mediocre. And, in answer to the question as to whether the list of equipment mentioned in the hypothetical question affected his valuation of $77,000, he stated the plant was not included in the franchise. Further, he was asked to assume the plant was not included in the franchise, as to his opinion as to the valuation of the franchise, to which he replied that it would be between $70,000 and $75,000 and this figured the value of the franchise excluding the plant, and that the difference between this figure and the $77,000 estimate of the value of the business, would be $2,000, *Page 797 assuming that the franchise was valued at $75,000. Further, he said the remainder of the business over and above the value of the franchise, had very little value. It is evident the witness considered the business conducted by the Twin Falls company, outside of its Coca-Cola business, worth very little; however he finally admitted when pressed, that such business would have a value. Again, on re-direct examination, Mr. Bogard testified that the values placed on Coca-Cola plants at so much per gallon included everything that goes with the bottling plant in the conduct of the business, including the soda water business, equipment, stock of merchandise on hand. He thought that the reasonable value of appellant's one-third interest in the stock was $20,000; when asked what the price included, that is, the $20,000 price of the one-third interest, and also the value on the business as a whole, he testified it included the stock in the company with all the assets which had been enumerated in the hypothetical question. The hypothetical question did not include tangible assets which have heretofore been enumerated in this opinion. A second hypothetical question, as to the value of the business on June 7, 1940, was asked of Mr. Bogard, as follows:
"Now, Assume that at Shoshone the same bottling equipment was there in June, 1940, as has heretofore been related to you, and assuming that the plant is as it was in 1940 — as it was in 1938 — as I enumerated to you, and assuming that the plant had purchased new equipment and machinery and spent money in improvements at an additional cost of between $29,000 and $30,000, and assuming that on July 7th, 1940 there was bottled 6674 gallons of Coca-Cola, I would ask you, what, in your opinion, would be the reasonable market value of the business on July 7, 1940?" Mr. Bogard answered to the effect that the plant would have a value of around $200,000.00.
Mr. Harper, in his testimony as to the value, which was virtually the same as that fixed by Mr. Bogard, did not take into consideration cash on hand, notes and accounts receivable, real estate, etc. Neither did he take into consideration Coca-Cola coolers, nor the value of the machinery and equipment belonging to the company and located at Shoshone, and at Burley. He thought the good will of the soda water business, outside of the Coca-Cola business, would have a value. He didn't know what the value of the general jobbing business done at Twin Falls would be, and *Page 798 did not take into consideration, or place any value on the sale of the Coca-Cola fountain syrup, and, in giving the estimate of the value of the Twin Falls business, he did not include the beer business to have any value.
Mr. George Chaffee, another expert called by respondent, who was in the bottling business at Pocatello, testified in reply to a hypothetical question similar to that asked of witnesses Bogard and Harper, that he considered the business as being worth around $75,000. It will be noted that this question likewise eliminated physical assets such as real estate, accounts and notes receivable, cash, etc.
Mr. Cobb, manager of the bottling works at Twin Falls, was asked a hypothetical question similar to that propounded to the other expert witnesses. His estimate of the value of the business was between $75,000 and $76,000. He estimated the value of the business as of June 7, 1940, to be $200,000.00. His value was placed on the franchise, and that included the entire operation. In the matter of valuation he estimated the trucks to be worth between $4,000 and $5,000, equipment between $6,000 and $7,000, and merchandise on hand between $14,000 and $15,000. He did not take into consideration the physical assets such as real estate, cash on hand, notes and accounts receivable.
The testimony of Mr. Simmons, another expert witness called by respondent, is in substance as follows: He is a resident of Idaho Falls and had been a bottler of Coca-Cola. He quit the business in 1940. He judged the business to be worth between $70,000 and $75,000. His estimated value placed on the equipment was the sum of $23,000 and that included trucks, equipment and inventory. He fixed the value of the inventory as about $9,000 and about $6,000 as the value of the trucks, and on the bottling machinery and equipment, about $8,000.00. And, he took into consideration that they had 23,000 bottles on hand. But, he did not take into consideration the matter of cash, real estate, and accounts and notes receivable.
For the reasons above stated, the judgment should be reversed, and the cause remanded for a new trial.
I am authorized to say that Holden, C.J., concurs in this dissenting opinion. *Page 799