156 N.W. 540 | N.D. | 1916
In February, 1911, plaintiffs purchased of defendant his •one half of the corporate stock of a corporation known as the Lowry Mercantile Company, in Minnesota. Eor it they gave two farms in North Dakota. Plaintiffs claim, and the trial court found, that in the trade defendant made false representations as to the value of the merchandise stock, and that dividends had been declared and paid on it, and that the corporate stock was worth par, and that the business was in a prosperous and profitable condition, while in fact the business was in an insolvent condition and the stock was worthless. Plaintiffs took possession in April, 1911, of the merchandise business with its stock of goods. One of the plaintiffs had spent a week or more in the store of the mercantile company before dealing, and had gone over its books and merchandise stock in. a general way to ascertain the worth and financial condition of the institution before buying in. After such examination the deal was made, and the possession of the corporate stock delivered, and the merchandise business taken over by plaintiffs. Erom April, 1911, to November, 1911, the plaintiffs managed and controlled the
However, after the fire, the plaintiffs distributed the proceeds of the insurance among the creditors, collected accounts, and wound up the business. Only the lots on which the building stood remain unsold. During all of this time they seem to have made no complaint that they were-dissatisfied, and defendant remained in possession of the farms given in exchange for the stock. On July 26, 1912, a year and a half after the-sale, a letter was written defendant by the attorneys for plaintiffs, notifying him for the first time that the plaintiffs rescinded the purchase of
The evidence would seem to establish conclusively that ordinary business prudence would have caused plaintiffs, within a reasonable time after their purchase, to have taken stock of what they had bought, and ascertained their liabilities. They allege that the stock of goods was worth much less than represented, and have offered the testimony that a year and a half before this sale the values of the goods as carried upon the inventories taken greatly exceeded the market price of secondhand goods. In this way they would reduce the‘price of the stock on hand sufficient to establish the insolvency of the corporation. Then they argue that an insolvency once shown to exist is presumed to continue, or at least to cast the burden upon defendant to establish the contrary to escape imputation of insolvency at the time of the sale. But the proof made as to this is far from conclusive. Doubtless the apparent value of any second-hand merchandise stock could be similarly depreciated. Plaintiffs should have inventoried the stock and have been in position to make proof of their cause of action, instead of depending upon infer
And it is significant that plaintiffs found no fault with their deal until eight months-after the fire, and until after they had disbursed the entire proceeds of the insurance and collections made. And they must have been fully aware of any fraud perpetrated on them in the sale of this stock by November, 1911, at the latest. They then realized that the business was insolvent, and, holding 50 per cent of the corporate stock, voted to place the concern under a trustee for benefit of its creditors. Had they then promptly rescinded, a court of equity might perhaps have overlooked their palpable negligence in conducting the business for eight months prior without ascertaining its financial condition. But with bankruptcy thus confronting them in November, they were required to make an immediate rescission or waive the right to rescind. Thereafter it was not a matter of conducting the business, but instead using the stock to pay creditors in winding up affairs in settlement of corporate
Albert Rosenwater, manager of the business, testifies:
Q. Upon the building and stock you didn’t carry enough insurance. Isn’t that a fact ?
A. I thought so at that time.
Q. And the fire cost you and Iver Selleseth a good deal of money didn’t it ?
A. Yes, sir.
Q. Do you know how much money was received from the insurance companies, that is, how much the insurance policies were for ?
A. I know what they were in force for.
Q. What was the amount ?
A. Fifteen thousand seven hundred dollars.
Q. What was done with this much money?
A. I suppose it went to pay the creditors.
From hearsay sources it may be inferred that the amount of insurance received paid two thirds the total liabilities, but who they were paid by does not appear. The amount of the loss occasioned by the fire is not shown, although admittedly considerable. So much for the facts.
This action is one in equity for a rescission of the sale and cancelation of the deeds and note, to the end that by decree in equity plaintiffs may recover all the real estate and property given in exchange for the corporate stock. The right to recover upon any fraud practised by the defendant upon plaintiffs is based upon the rescission upon discovery that they had been victimized. Among the grounds urged for a reversal, appellant contends : (1) “Plaintiffs, not having rescinded promptly on discovery of the alleged fraudulent acts, have waived their right to rescind;” .and (2) “plaintiffs have never restored to the defendant the consideration for the contract which they asked to have rescinded, and that therefore the court is without authority to grant plaintiffs equitable
Indeed, if rescission can be bad in tbis case, under these facts, it is bard to conceive when it would not be allowable. To permit it would disregard the statutory requirements exacting promptness, return of consideration received, and tbe placing of tbe parties in statu quo as a condition precedent to rescission. It would likewise be in disregard of all that bas been said upon those questions in tbe many previous decisions of tbis court. Tbe judgment appealed from is ordered reversed and the action dismissed.