96 Wis. 222 | Wis. | 1897
It is assigned, first, as error that the court erred in holding that the complaint states a cause of action. This is based on the theory of counsel for appellants that respondent’s counsel purposed stating a cause of action to redress a wrong to the corporation, and that necessary allegations are wanting to justify the plaintiff, as a stockholder, in prosecuting such an action, in that there are no allegations to the effect that the corporation or its officers were requested to prosecute for the wrong and that they refused to comply therewith, or that such a request, if made, would have been useless. That such allegations are requisite to such an action does not admit of question. Doud v. W., P. & S. R. Co. 65 Wis. 108; Palmer v. Hawes, 73 Wis. 46; Eschweiler v. Stowell, 78 Wis. 316; Pomeroy, Eq. Jur. § 1095. But that principle clearly does not apply to this case. Appellants’ counsel misconceived the character of the action. It was not intended by the complaint to state a cause of action in favor of plaintiff and others similarly situated to redress a wrong to the corporation caused by the fraudulent acts of Warner, Warner, and Wambold, but to state a purely personal cause of action in equity against them and the corporation, as parties jointly liable for fraudulent representations and conduct, whereby plaintiff was induced to subscribe for $3,000, par value, of the stock of the defendant corporation. The theory was that the fraudulent scheme was entered into by Warner, Warner, and Wambold, and was carried out to the knowledge of the officers of the corporation in such a way as to render it a guilty'party thereto; hence that plaintiff had his election to remain a stockholder and sue at law for damages, or to tender back what he received and sue in equity for a rescission of the contract'of subscription to the capital stock and the agreement men
The court, after properly holding that the complaint states a cause of action in equity for a rescission of the contract whereby plaintiff incurred the obligation to pay $3,000 for stock in the corporation, and paid thereon $1,120, proceeded to determine the rights of the parties in such a way that we cannot understand definitely upon what theory the judicial mind acted, consistent with any known rules of law or equity.
Many exceptions were taken by appellants to the findings of fact, but, in so far as such findings determine facts, properly so called, we are unable to say that there is not sufficient evidence to support them; therefore, they cannot be disturbed.
It is, in effect, determined that the stockholders of the «company, at a regular meeting, in ignorance of the contemplated fraud of Warner, Warner, and Wambold, authorized them to purchase the land from Siegert for $45,000, in accordance with the plan of the promoters, upon which plaintiff’s subscription was secured by such promoters; that thereafter such purchase was consummated, the land being transferred to the corporation ostensibly at a cost of $45,000, when in fact the cost of the property to such promoters was but $32,727; that they realized the difference as profits, without the knowledge of stockholders of the corporation other than themselves; that the corporation was not connected with the fraud in any way, hence not liable, and was entitled to have the complaint dismissed as to it, but without costs.
If the corporation was in no way connected with the fraud, yet was brought into court charged as a guilty party, it is difficult to perceive why the complaint was dismissed as .to it without costs; but that question is not here. Refer
The construction which the court gave to the paper signed by respondent, whereby he originally became a party to the scheme to form a corporation to purchase the property, may furnish some explanation of what followed. Such paper, omitting the description of the land, is in the following words: “We, the undersigned, hereby subscribe to the amount set opposite of our respective names in a corpora-' tion to be formed and known as the Wauwatosa Park Co., for the purchase and selling of the following property, . . r for the sum of forty-five thousand dollars ($45,000),'and
It follows from the foregoing that it was error to hold that plaintiff could recover of the appellants on the rescission of a contract made with a third person, the corporation.
But if the contract of subscription, so called, contained in the paper referred to, could be considered a contract with appellants to buy the land, and if it were true that the $1,120 was paid to them (two very necessary elements for a recovery on a rescission in equity), it must yet be borne in mind that such an action will not lie unless the defrauded .party is in a condition to restore the person charged with the fraud to his former situation. Potter v. Taggart, 54 Wis. 395 ; Churchill v. Price, 44 Wis. 540. The interest in the land which plaintiff acquired, if any, was conveyed to the corporation, and thereby placed beyond the control of respondent; hence it was impossible for him to restore such interest to appellants. Therefore, necessarily, his cause of action to-rescind the contract and recover back his money, if it ever existed, is gone.
Looking at the case in the most favorable light for respondent, Getty v. Devlin, 54 N. Y. 403, 70 N. Y. 504, appears to touch it' ict every point, and unfavorably to appellants. . The facts there were that four persons had acquired some oil lands at an expenditure of not to exceed $30,000. They combined to form a corporation for the purpose of selling such lands thereto for $126,000. In furtherance of such scheme they prepared and sent out a subscription paper,, signed by each of them, for $5,000, worded as follows: “We,, the undersigned, do hereby subscribe and agree to pay forthwith the amount set opposite our names for the purchase of property in Washington, Monroe, and Athens counties, Ohio, as per memorandum annexed, . . . at the sum of. $126,000; payments to be made to Daniel Devlin, Esq., at
The doctrine of the case, which we approve, may be stated as follows; If a person invites others to join with him in the purchase of property at a given price, falsely representing that the purchase is to be made of a third person, and that all are to share equally in the cost and equally in the benefits of the enterprise, and such others join with such person on the faith of such representations, and the purchase is made accordingly, each of the bona fide purchasers paying his portion of the money, and such person acquires secretly' a profit to himself by reason of having obtained the property after the making of the mutual agreement at a much less sum than the price to his associates, or by reason of having acquired the property at a much less sum before such sale, it is a fraud upon such others, and each may, by restoring such person to his original situation, rescind the contract and recover back his money in an action at law; or he may offer to restore, and, by keeping such offer good, sue in equity for a rescission of the contract and for a recovery of his money; or, without restoring, he, or all similarly interested joining, may sue in equity to charge such person as a trustee of the profits fraudulently retained by him, and for an accounting; or each may sue such person at law for damages for the fraud to the extent of the enhanced value he paid by reason thereof. A person so circumstanced stands in a relation of trust and confidence to all his bona fide associates, and holds all profits secretly made for the common benefit of all engaged in the common enterprise, in proportion to their respective interests. A violation of his duty in that regard constitutes actionable fraud, and such is the case whether the purchase be made before or after the agreement for the mutual enterprise.
It is evident from what has preceded that there was no contract between respondent and appellants other than the mutual arrangement that they should take stock in the corporation to be formed to buy the land. It was error to adjudge a rescission of it: First. Because respondent was not in a position to restore the appellants to their former position. An assignment of stock to them which they never owned did not accomplish such restoration. Second. Because the money was paid by respondent, not on the mutual agreement to take stock, made with appellants, but on the contract of subscription to the capital stock of the corporation, made with it.
It follows from the conclusions reached that the judgment must be reversed, though not that plaintiff is not entitled to any relief, on the facts found and facts disclosed by the evidence, for the wrong done him. In our opinion, the complaint states a cause of action, in equity for an accountings and a recovery of profits retained by the promoters, which in justice and equity belong to plaintiff, and that the allegations in that regard are fully covered by the findings of fact. Such was the determination of the court in Getty v. Devlin, supra, and is supported by Brewster v. Hatch, supra; Petrie v. Torrent, 88 Mich. 43; Pomeroy, Eq. Jur. §§ 910, 912; Hill v. Lane, L. R. 11 Eq. 215. Says Mr. Justice Rapallo,
In our opinion, plaintiff is entitled to recover in this action upon another principle, well established in equity jurisprudence, and broadly applied where the distinction between courts of equity and courts of law has been abolished, as in this state. Such principle is that, if a person in good faith brings an action in equity, alleging facts sufficient to constitute a good cause of action within some recognized principle of equity jurisprudence, but fails to establish some fact essential thereto, yet does establish a state of facts entitling him to some relief by way of damages or otherwise, the court' will not dismiss the bill, and thereby render further litigation necessary, but will retain it and render such judgment as will do complete justice between the parties. Hall v. Delaplaine, 5 Wis. 206; Tenney v. State Bank, 20 Wis. 152; Kelley v. Sheldon, 8 Wis. 258; Combs v. Scott, 76 Wis. 662; Cole v. Getzinger, post, p. 559 ; Wyckoff v. Victor S. M. Co. 43 Mich. 309.
The court found that the appellants made out of the scheme a clear profit of $12,272. Such profits obviously consisted largely of full paid stock, but which, under the circumstances, should be accounted for at its par value in money, though without interest up to the time of the commencement of the action; and the cash profits should be accounted for without interest as well, inasmuch as plaintiff paid only ■a little over one third upon his stock, and is not liable for interest on the balance until in default on calls. On that basis, on a just and true accounting, plaintiff, as owner of ■one fifteenth of the stock, is entitled to one fifteenth of the profits, or $851.47, with interest at the rate of six per cent, per annum from the time of the commencement of this ac
By the Oourt.— The judgment of the circuit court as to the appellants is reversed, and the cause remanded with directions to enter judgment in accordance with this opinion.