The opinion
SHACKELFORD MILLER, Jr., Circuit Judge
(dissenting).
I am not in agreement with my colleagues on the question of damages.
The District Judge, in concluding his opinion, made a finding that as a result of the legal misrepresentations of the appellants, the appellee sustained a financial injury and that “The financial injury she sustained was $60,200, which is the difference between the book value of her stock and the amount that she realized, the book value of the partnership interest and stock, both, and the amount she realized from the sale.” Judgment was entered for that amount plus $19,188.72 interest, or a total of $79,388.72. I am of the opinion that the use of the book value of the stock instead of its market value was error.
The general rule is well settled that in an action for damages by a seller of personal property claiming to have been defrauded, who does not elect to rescind, the measure of damages is the difference between the value of the property sold and the value of what was received in exchange therefor, and that the burden is upon the plaintiff to establish such damage by competent evidence. The amount of such loss, if any, cannot be left as a matter of conjecture. Restatement, Torts, Sect. 549(a), Comment c, page 549; Chapman v. Bible, 171 Mich. 663, 667 , 137 N.W. 533 , 43 L.R.A.,N.S., 373.
Under such circumstances, value means market value, the price it would bring in the open market. Restatement, Torts, supra. Bagdasarian v. Gragnon, 31 Cal.2d 744, 753 , 192 P.2d 935 . In the case of corporate stock, it is not book value. Book value is quite different from market value, particularly in the case of a small minority interest in a closely held family corporation. Herpolsheimer v. Michigan Trust Co., 261 Mich. 209, 218-219 , 246 N.W. 81 ; People v. Gilbert, 163 Mich. 511 , 128 N.W. 756 ; Borg v. International Silver Co., 2 Cir., 11 F.2d 147, 152 ; Oertel Co. v. Glenn, D.C.W.D.Ky., 13 F.Supp. 651, 653 .
Appellee’s evidence with respect to the value of her stock related to its book value. No witness attempted to give its market value. I have no disagreement with the finding that the book value of the stock was $80,200. Nor with the finding that “there was nothing included in the book value that actually was not there in the business.” Nor with the finding that the partners transferred their respective partnership interest to the corporation at its book value in exchange for their stock. Such facts pertain to the book value of the stock, not market value. The provision in the Articles of Partnership which required a partner to offer his stock to the other partners at book value before selling to an outsider has no bearing on the question. That merely gave the partners an option to buy the stock at book value; they were not required to buy it at that value. It does not show market value or that market value was the same as book value, but was a common provision used in articles of partnership for the protection of remaining partners.
If the opinion of the District Judge be construed as making a finding that the market value of the stock was the same as its book value, we have this difficulty. The best evidence of market value are sales in the open market. The appellee introduced no evidence as to sales of the stock in the open market. In the absence of such sales, many factors have to be considered, including net earnings record in the past, earnings potential in the future, economic conditions in general and particularly in the field in which the manufactured article will be sold, quality of management, sufficiency of working capital, condition and age of plant equipment including the effect of any new patents, local labor conditions and possible increased labor costs, probable changes in local and national tax laws, possible *304 changes in freight rates or transportation costs, position in .the industry, and present and possible future competition. All these have a material bearing on future earnings which is a much more important factor in establishing market value than is existing book value. In Com. of Virginia v. West Virginia, 238 U.S. 202, 215 , 35 S.Ct. 801 the Supreme Court said “it clearly would not have been just to value the shares on a statement of book cost and surplus without taking into consideration the earning capacity.” See: Group of Institutional Investors v. Chicago, M., St. P. & P. R. Co., 318 U.S. 523, 540-541 , 63 S.Ct. 727 , 87 L.Ed. 959 ; Stern v. United States, 6 Cir., 204 F.2d 647, 649-650 .
The burden of proof to prove market value was upon appellee; it was not incumbent upon appellants to show factually how much it differed from book value. In speaking of the value of the stock of a minority stockholder in a closely held family corporation, the Supreme Court of Michigan said: “Book value is one thing but market value quite another. * * * It is a matter of common knowledge that holdings of this type at best are of uncertain market value.” Herpolsheimer v. Michigan Trust Co., supra, 261 Mich. 209, 218-219 , 246 N.W. 84 . Examples of the application of this rule are shown in Com. of Virginia v. West Virginia, supra, 238 U.S. 202 , 35 S.Ct. 795 , where in fixing the value of stock in several different railroad companies, the Court approved a valuation of $117.43 per share instead of the book value of approximately $150.-00 per share in one instance, a valuation of $32.80 per share instead of the book value of approximately $53.00 per share in another instance, a valuation of $114.-40 per share instead of the book value of $121.86 per share in another instance, and a valuation of $116.95 per share instead of the book value of $131.16 per share in another instance. In another instance, the Court approved a deduction of five per cent from book value, pointing out that to arrive at a fair estimate of actual value there should be some deduction for the expense of liquidation. These valuations did not involve the element of a small minority interest in a closely held family corporation, which unquestionably is a material depressing factor in determining market value.
The Supreme Court in that case also disapproved the statement made in some cases that par value of stock is prima facie actual value and stated “There is no such presumption of law and common experience negatives rather than raises such an inference of fact. * * * Shares represent the proportionate interest of the shareholders in the corporate enterprise, and a rule that this interest in the absence of all supporting evidence should be taken as actually worth the par of the shares would be wholly artificial. There is no exigency in the administration of justice which requires or justifies such an extreme assumption.”
In Borg v. International Silver Co., 2 Cir., 11 F.2d 147, 152 , the Court of Appeals expressly disapproved the contention that the book value of the shares of stock in a corporation was any measure of their actual value. It stressed the importance of earning capacity on which, it. pointed out, balance sheets throw little light.
In Ahlenius v. Bunn & Humphreys,, 358 Ill. 155, 168-169 , 192 N.E. 824, 830 ,. 95 A.L.R. 913 , the Supreme Court of Illinois referred to the numerous material elements that must be considered in determining the value of corporate stock, referred with approval to the ruling in Borg v. International Silver Co., supra, and stated: “The use of book values, especially, to measure the value of corporate shares, owing to the multifarious-uses for which they are employed, is generally condemned as unsound.”
In the absence of such evidence as above referred to and its consideration by the District Judge, a finding that the market value of the stock in question was the same as its book value is so contrary to common knowledge as to make it, in my opinion, clearly erroneous. Ahlenius v. Bunn & Humphreys, supra, 358 Ill. 155, 168 , 192 N.E. 824 .