Opinion
43303.
ARGUED JANUARY 10, 1968.
DECIDED JANUARY 30, 1968.
Action for damages. Screven Superior Court. Before Judge Usher.
W. Colbert Hawkins, for appellants.
L. H. Hilton, for appellee.
1. A petition for damages for fraud and deceit which does not affirmatively allege or contain allegations of fact from which it may be inferred that the plaintiff was diligent to protect himself in the transaction does not set forth a cause of action.
2. When the evidence presented with the defendants' motion for summary judgment on their cross action does not support the allegations of the cross action, denial of the motion for summary judgment is not error.
ARGUED JANUARY 10, 1968 — DECIDED JANUARY 30, 1968.
The defendants appeal from judgments overruling their general demurrer to the plaintiff's petition and denying their motion for summary judgment based upon their cross action. The plaintiff sued the defendants for damages for fraud and deceit, alleging that in the course of negotiations which led to a contract on July 23, 1965, for the purchase by the plaintiff of the defendants' corporate stock, the defendants made several specified false and fraudulent representations to the plaintiff concerning the values of the corporation's inventory on hand, real estate, paid-in surplus, undivided profits, excess of assets over liabilities, and book value of the shares. At the time of the alleged transaction the defendants were majority stockholders, directors, and president and secretary and treasurer of the corporation. The plaintiff was a minority stockholder, owning one-third of the shares, and a director and vice president. The petition alleged that due to the fact that the plaintiff was a resident of and engaged in business in Atlanta he took no active part in the operation of the corporation, which was located in Sylvania, Georgia.
1. The plaintiff's petition. — The allegations of the complaint present us with the problem of alleged fraud on the part of the defendants and lack of diligence on the part of the plaintiff. "The policy of the courts is on the one hand, to suppress fraud and, on the other, not to encourage negligence and inattention to one's own interests. The rule of law is one of policy. Is it better to encourage negligence in the foolish, or fraud in the deceitful? Either course has obvious dangers." 23 AmJur 948, § 146. The majority of jurisdictions hold that "judicial experience exemplifies that the former is less objectionable and hampers less the administration of pure justice." Id. See also 37 CJS 274, § 30 (c). Nevertheless, in Georgia a plaintiff cannot recover where he could have prevented the fraud by the exercise of ordinary care. Brim v. Couch, 184 Ga. 310 ( 191 S.E. 94). "In seeking to choose between a fraudfeasor and a negligent party, the Georgia law unfortunately goes with the alleged crook." Cole v. Cates, 113 Ga. App. 540, 545 ( 149 S.E.2d 165).
The question of whether the plaintiff could have protected himself by the exercise of ordinary diligence is usually left to the jury. A. M. Kidder Co. v. C. A. Evans Co., 111 Ga. App. 484, 490 ( 142 S.E.2d 269); Blanchard v. West, 115 Ga. App. 814 ( 156 S.E.2d 164). However, where "the petition does not affirmatively allege that the plaintiff was diligent or contain averments of facts from which his diligence may be reasonably inferred, the petition sets forth no issue to be passed upon by the jury." Scott v. Fulton Nat. Bank of Atlanta, 92 Ga. App. 741, 744 ( 89 S.E.2d 892). See also Roley v. Coffey, 220 Ga. 447, 448-449 ( 139 S.E.2d 290).
"A director in dealing with another stockholder for the purchase of his stock is under the same duties as partners, agents, and other fiduciaries to make a full disclosure of all material facts relative to the value of the corporate property under his control, known to him and unknown to the selling stockholders." However, "A director in buying [or selling] the stock is not under such duty to the corporation or the other directors." King Manufacturing Co. v. Clay, 216 Ga. 581, 586 ( 118 S.E.2d 581). Since the petition shows on its face that the sale was between co-directors of the corporation, and the only allegation made as to the plaintiff's failure to ascertain the insolvency of the corporation being that he resided in another locality and "took no active part in the corporation," the trial court erred in overruling the defendants' general demurrer to the petition. See Dortic v. Dugas, 55 Ga. 484, 496 (6).
2. Defendants' cross action. — "Generally a cause of action exdelicto cannot be set off against an action ex contractu, and vice versa." Gillespie v. Georgian Finance c. Corp., 113 Ga. App. 134 ( 147 S.E.2d 465). While the plaintiff raises this point in his brief in this court (plaintiff sued in tort for fraud — defendants' cross action is in contract), the record discloses no such attack upon the cross action in the trial court. The only question before us on the cross action is whether the trial court erred in denying the defendants' motion for summary judgment.
The theory of the defendants' cross action appears to be an anticipatory breach of contract. The alleged contract of July 23, 1965, for the purchase of the stock provided for payments for the purchase price to become due 90 days, two years, and three years after date, and for the shares to be pledged to the defendants as collateral security with the right in the defendants, in the event the plaintiff should default in payment, to sell the security at public sale to pay such indebtedness. The cross action alleges that the plaintiff has failed and refused to pay the first payment which has become due under the terms of the contract and they fear that he will fail and refuse to pay the sums to become due in the future. The contract contains no provision for acceleration of the remaining payments in the event of default, but the defendants allege in the cross action that the plaintiff has made the corporation insolvent and caused their security to become worthless. The defendants do not allege that the plaintiff himself is insolvent. The defendants do not cite authority for their position that the facts alleged give them a right to recover a personal judgment for the full amount of payments to become due under the contract. Assuming, but not deciding, that the facts alleged give the defendants grounds for the relief sought, the evidence presented by the defendants with their motion for summary judgment does not support the allegations of the cross action set out above. The trial court did not err in denying the defendants' motion for summary judgment on their cross action.
Judgment overruling defendants' general demurrer to the petition reversed; judgment denying the defendants' motion for summary judgment affirmed. Bell, P. J., and Quillian, J., concur.