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U.S. Supreme Court

Equitable Life Ins. Co. v. Halsey, Stuart & Co., 312 U.S. 410 (1941)

Equitable Life Ins. Co. v. Halsey, Stuart & Co.

No. 291

Argued January 15, 16, 1941

Decided March 3, 1941

312 U.S. 410


1. In an action in a federal court for damages resulting from sales of securities on representations of fact affecting their value alleged to have been false and fraudulent, the right of recovery is governed by the law of the State in which the representations and sales were made. P. 312 U. S. 420.

2. Stipulations by which one attempts to avoid the consequences of false statements fraudulently or recklessly made are strictly construed in the courts of Iowa. P. 312 U. S. 419.

3. Assuming that a dealer in securities who offers bonds by a printed circular containing false representations is protected from liability for them, and for like statements made later, by a "hedge clause" in a circular reading:

"All statements herein are official, or are based on information which we regard as reliable, and while we do not guarantee them, we ourselves have relied upon them in the purchase of this security,"

the protection does not extend to misrepresentations of other and different facts made after submission of the circular to the purchaser. P. 312 U. S. 419.

4. A buyer of bonds who relies to his injury upon material false representations by the seller of conditions affecting their value is not, under Iowa law, precluded from recovering his damage by his failure to make his own investigation to ascertain whether the representations are true. P. 424.

5. The trial court correctly instructed the jury, in conformity to Iowa law, that, to find a verdict for the purchaser of the bonds, it must find that the untrue statements were known by the seller to be untrue or were made as true with no reasonable ground for believing them to be true, and it correctly submitted to the jury the question whether such statements, including those in the hedge clause itself, were recklessly made without reasonable ground for believing them to be true. P. 312 U. S. 420.

6. Upon evidence that the seller of bonds had induced their purchase by exhibiting to the buyer the balance sheet of a corporation which had guaranteed the payment of the bonds without disclosing circumstances known to the seller indicating that, since the

Page 312 U. S. 411

date of the balance sheet, the financial condition of the corporation had been seriously impaired, held that the trial court, in conformity to Iowa law, correctly submitted the evidence to the jury with the instruction that it could find the seller liable for fraud or misrepresentation from such partial disclosure accompanied by willful concealment of material facts inconsistent with those Stated in the balance sheet. P. 312 U. S. 425.

112 F.2d 302 reversed.

Certiorari, 311 U.S. 626, to review a judgment reversing a recovery of damages in the District Court. The action was based on fraud practiced in sales of public improvement bonds.

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