179 Ky. 54 | Ky. Ct. App. | 1918
Opinion of the Court by
Affirming,
On the 15th day of August, 1913, the appellant, J. I. Palmer, bought from the Citizens Bank of Murray, twenty shares of its capital stock, of the par value of $50.00 each, and gave for it the sum of $55.00, per share, or $1.10 for each dollar of the par value of the stock. He paid for the stock by transferring to the bank: certain
The Citizens Bank was a financial institution, which had been in existence for a number of years, with a paid up capital stock of $20,000.00, and on June 20th, 1912, the capital stock was increased by a resolution of the board of directors .to $30,000.00, and afterwards, on May 31st, 1913, a resolution of the board of directors was adopted, providing for the increase of the capital stock to $40,-000.00 and it was twenty shares of the new stock ordered to be sold at the latter date, which appellant bought. The last statement previous to the purchase of the stock by Palmer wras published on the 18th day of June, 1913, as of June 4th, previous thereto. At the time this statement was published the capital stock was $29,400.00. About fourteen months after Palmer purchased the twenty shares of stock, the bank became in an unsatisfactory condition, and its board of directors placed it in the hands of the banking commissioner, and thereafter it was in charge of J. D. Rowlett, a deputy banking commissioner, who undertook to convert its assets into money and .to pay the liabilities of the institution, and h¿ testifies that
Although about fourteen months had expired after Palmer had purchased his stock until the bank went into liquidation, it does not appear that he ever received any dividend upon his stock, and whether he had any reasonable opportunity of discovering the financial condition of the institution at the time of his purchase, before it went into liquidation is conjectural. Hence, the first question to be determined in this entire case is, whether or not the stock was materially less in value at the time Palmer purchased it, and the further question is, whether he was induced to do so by any false representations by the cashier of the bank, upon which he was induced to become the purchaser. While Palmer testifies to having seen the statement published by the officers of the bank of its financial condition, as of June 4th, 1913, he explicitly says twice in his testimony that he did not rely upon that in his purchase of the stock, but that he relied alone upon the representations made to him by the cashier of the bank. He says that the statement showed that the stock of the bank was worth one hundred and fifteen cents to the dollar of its par value, but in this he is evidently mistaken, because the statement shows that the liabilities and assets of the bank balance, and the statement further shows, that the bank at that time did not have any surplus assets, but does show that it had undivided profits to the amount of $1,318.00 with a capital stock of $29,400.00. Hence, if the other items of the statement of the assets and liabilities were correctly given, the stock, according to the statement, was worth about five cents to the dollar in excess of its pah value. The cashier of the bank, whose testimony was given, states that was the value of the stock when the statement was made, and there was no effort made to show that any item of the statement was incorrect, or that any of the assets were of less value than given in the statement. No reasons are given for insisting that the statement was incorrect, but it is drawn from the testimony of the cashier and a former president of the bank, that several years previous to the purchase of the stock by Palmer, the bank loaned funds to the amount of $5,000.00, which were considered “bad” debts, and that some portion of this sum was charged off the
The real and only decisive question is, was the stock practically of the value, which it was represented to be by the cashier on August 15th, 1913, the date of its purchase by appellant? The fact, that it thereafter became worthless or deteriorated in value, would not constitute a ground for rescission; if it was really of the value stated at the time of the sale. Goad v. Lewis, 174 Ky. 394. The principle, which applies to a transaction of this kind is, if a stockholder is induced by false or fraudulent representations of the officers of a corporation to buy its stock, he may, while the corporation is solvent, by an action brought within a reasonable time after the fraud is discovered by him, secure a rescission of his purchase upon such terms as are equitable, or recover such damages as he has sustained by the fraud. He can not obtain relief if the action is not commenced until the corporation has become insolvent, or until proceedings have been instituted for the liquidation of its affairs, unless he had become a stockholder so recently before the insolvency that he had not had reasonable time or opportunity to investigate its affairs and discover the fraud, and had not received any dividend or, other return for his investment in the stock. The reason given for the latter part of this rule is, that if he waits until the corporation becomes insolvent or its affairs are in course of liquidation, his attempt to secure a rescission or damages for the fraud, which had been perpetrated upon him, would affect the rights of the creditors of the institution. Reed v. O. S. B. Co., 141 Ky. 451; Kentucky Mutual Investment Co. v. Shaefer, 120 Ky. 227; Smith, Banking Commissioner, etc., v. Jones, 123 Ky. 776; Deppen v. German American Title Co., 24 R. 1876. Although the appellant states in his counter-claim, that the cashier of the bank represented to him that the book value of the stock at the time of his purchase was one dollar and ten cents, he states in his deposition, that the representation made to him by the .cashier was that its value was one dollar and fifteen cents. He, however, says that the cashier told him that the bank had agreed to sell the stock during that year at one dollar and ten cents. The cashier contradicts this statement to the extent that he represented to him that the value of the stock was one dollar and fifteen cents, and assigns as a reason for it, that there was no reason for him making
The judgment is therefore affirmed.