161 Iowa 170 | Iowa | 1913
The defendant corporation was organized about November, 1909, with $50,000 paid-up capital, and proceeded to build its plant. It did some business, in a small way prior to July 4, 1910, but had its opening on that date. About June 26, 1910, plaintiff called to see what defendant was paying for milk and cream. She and her husband were
It is alleged in the petition that the officers of the company, acting as such, for the purpose of inducing plaintiff and her husband to invest in the stock, fraudulently and wrongfully represented to them that the affairs of the company were in a prosperous condition, that dividends had been and were being earned, and that, by reason of the present condition and prospects of said company, stockholders were certain of a dividend of not less than 10 per cent.; that such statements were relied upon; that such statements so made as inducements to * plaintiff and her husband to purchase said stock were false, fraudulent, and wrongful, in this, that at the time they were made and relied upon, the defendant company had sustained large and serious losses, was heavily in debt, and was running behind every day, and unable to continue business unless new capital could be interested. ■ The answer of defendant admits the purchase of the stock; denies that the plaintiff or her husband were induced to purchase said stock by reason of any false and fraudulent representations; and states that plaintiff and her husband, with a full knowledge of all the facts and of the entire situation, invested in the stock.
There are no rights of innocent purchasers alleged, and no rights of creditors to be affected. No estoppel has been plead. Appellee does not dispute the appellants’ legal propositions and has cited no authorities. The learned trial court seems to have decided the case as though it was an action at' law, and found for defendant, because it was not shown that the officers of the company had knowledge that their statements and representations were not true. This is not required
Plaintiff and her husband testify that in July the man
He was president' of other companies, as well as this, and with him as president there was no such thing as fail; that our money would be safe. Again, on August 9th, we met the manager, president, and vice president at defendant’s office. The president said: ‘Are you going to take stock this morning?’ I said, ‘No, not until James comes home.’ He said: ‘It will all be sold by that time; to-day is the last day you will have an opportunity to get stock in this corporation. ’ After some further arguing, Mr. Farnsworth wrote out a check for $500, and the manager said: ‘Why not let your wife have $500? In July we declared a dividend of $700 and we will guarantee 10 if not 20 per cent, on your investment. ’
As we understand the record, the witnesses claim that this statement as to the dividend, was made by the president; but, if this is not so, it was by the manager in his presence. They further testify:
Then, relying upon their guaranty, Mr. Farnsworth wrote and gave the manager a check for $1,000. The stock was delivered to us there in the office. The president was present until Mr. Farnsworth drew the $500 check. He said the business was in a thriving condition and paying and there was nothing to lose. He guaranteed the stock. He left the office before the $1,000 check was made out. The president signed the certificate of stock No. 33 for $500, and the vice president tbh other certificate. We had no knowledge or*176 information in regard to the financial condition of the company except their statement that it was a thriving business and paying profits. The first information we had that anything was wrong was September 11th. "We then called on the vice president and asked if he could tell us what the trouble was, and he said, ‘No,’ the books were being posted.' He said the manager had done crooked work, The next day we called at the plant and were told the same thing. I wanted to know the nature of the loss. He said he did not know, but that the manager’s bondsmen would be responsible and the stockholders would lose nothing. I did not ascertain that there was a serious loss in the business until January 14,1911. I was away in September, and upon making inquiry upon my return in October was told that they would not know about their loss until the annual statement on January 1st. On January 14th the new manager showed me a paper.
The testimony of plaintiff and her husband is not denied by the president, except that he says he did not see her or her husband at all until after they bought the stock. But he admits signing one of the certificates of stock and is unable to explain how that happened. The president testified in reference to this: “I have no distinct recollection about the signing of the stock issued to J. R. Farnsworth; don’t know where it was signed. I cannot say whether I was at the company’s office on August 9, 1910, or not. I am a very busy man, meeting hundreds of people every day.”
We have not set out all the testimony of plaintiff or her witnesses. They are corroborated to some extent by their son as to conversations with some of the officers. We shall now set out a part of the cross-examination of the president of the company, and, without setting out the cross-examination of the other officers, we will only state that their cross-examination is very similar to that of the president, who testified in part:
' I was a member of the board of directors from the beginning ; received statements from time to time showing condition of the business. I think I was present at the meeting on July*177 20th when it was decided to increase the capital stock. Remember Exhibit A being shown at the meeting. Q. You knew as soon as you saw this report and saw the exrent of the liabilities that the company was not solvent, didn’t you? A. Well, our indebtedness was higher than it should be. According to law, it was not solvent. I felt it was perfectly safe because we were guaranteeing making it safe. Q. You ascertained afterwards that report was not true, isn’t that so? A. Why, we found some discrepancy in it, yes. Q. Isn’t it true that the loss increased to a considerable extent because of the discovery- after September 10th of liabilities that you didn’t know about, that existed prior to that time? A. Yes, sir; we found some. Q. You found a large number of liabilities that you didn’t know anything about when this,report was made in July, didn’t you? A. Yes, sir. Q. And from time to time Mr. and Mrs. Farnsworth saw you or saw somebody about the office there asking for information, didn’t they? A. At times; yes, sir. Q. And you told them you wouldn’t give anything definite about the matter until you got an annual statement made out, isn’t that true? A. Yes, sir. Q. And when the annual statement was made and the boobs balanced January 14th, you found that there had been a loss of $25,611.28, didn’t you? A. Whatever the figures are, I don’t know the amount, but there was a loss, whichever it was, whatever the books said. Q. And then Mr. and Mrs. Farnsworth asked you to give back their money? A. Yes, sir. I told them I had nothing to give back to them. Q. As a matter of fact, when you found at your July meeting the condition the company was in, you decided to increase your capital stock'and sell some new stock, didn’t you? A. Yes, sir. Q. When that stock was put on the market for sale, you know now, no matter what you knew about it at the time, that the company was then absolutely insolvent? A. According to the records and books it showed it was not right. Q. And you did ascertain at some time that when these people bought this stock that the company was an insolvent corporation, didn’t you? A. I didn’t know it until afterwards. Q. You did afterwards ascertain that fact? That is the truth, isn’t it? A. Yes, sir. Q. At the time they demanded their money back you then knew they had put their money in there when the corporation was insolvent, didn’t you? A. Yes, sir. Q. And you still refuse to have the company pay it bach ? A. I*178 had no authority to pay it back. Q. If you had authority to pay it back, you would have done so? A. I don’t know. Q. The truth is now that from the time in July when you found the condition of the company, from that time on, you and the other stockholders were trying in some way to raise money enough to keep the company from going into the hands of a receiver, isn’t that true? A. We were raising money to keep the company going, to have it do business. Q. And with that in view, you and your fellow stockholders subscribed for considerable stock? A. Yes, sir. Q. Because you and they were on the promissory notes of the company at the bank? A. Yes-, sir. I guess it is true that none of the new stock was sold to anybody but the Farnsworths. I remember of talking at one time to Mrs. Farnsworth and her son. I told .them I thought the company was all right. I don’t remember all that was talked about. I remember that statement made January 14, 1911. The bills payable of the company at that time were $51,351.96.
The question is so much one of fact, and being compelled to reverse the district court on the evidence, we have set out the testimony somewhat in detail. From a reading of all the evidence, it is to our minds most convincing that the representations were made substantially as alleged, and that they were relied upon, and that the statements as to the condition of the company were not as represented. Nor do we think plaintiff slept on her rights, as the trial court seems to have believed. As we have said, the legal propositions are not disputed, and we shall not discuss them at length, but content ourselves with a brief quotation from some of the cases, and cite others.
The cause is reversed and remanded, that a judgment and decree may be entered in accordance with the opinion, or the plaintiff may, at her election, have a decree in this court —Reversed,