Addis v. Swofford

• Citation: 180 S.W. 548
• Decision Date: 17 November 1915
• Docket Number: No. 15963.,15963.
• Parties: ADDIS v. SWOFFORD.
• Court: Missouri Supreme Court

180 S.W. 548

ADDIS v. SWOFFORD.

No. 15963.

Supreme Court of Missouri.

November 17, 1915.

Rehearing Denied December 8, 1915.

In Banc. Appeal from Circuit Court, Jackson County; John G. Park, Judge.

Action by W. T. Addis against J. J. Swofford. Judgment for plaintiff for 817,500, and defendant appeals. Reversed, and cause remanded.

Robinson & Goodrich and Reed & Harvey, all of Kansas City, for appellant. Cowherd, Ingraham, Durham & Morse and Hale Houts, all of Kansas City, for respondent.

BROWN, C.

Suit to recover damages in the amount of $30,000 for false representations made in connection with a trade of mining stock by defendant to plaintiff. The petition was filed May 18, 1906, and states, substantially: That on June 29, 1904, the plaintiff owned certain real estate in Kansas City worth $60,000, which was incumbered by a mortgage of $30,000, for his interest in which defendant offered to trade him 25,000 shares, of the par value of $1 each, of the capital stock of the American Copper Company, an Arizona corporation owning mines in Yavapai county in that territory, and, to induce plaintiff to make the trade, represented to him, among other things:

"That underground work in the mines of said company to the extent of 6,000 or 7,000 feet had been done, and that ore of the value of $15,-000,000 had been blocked out; that a stamp mill was then in operation at said mine of the capacity of 80 to 100 tons per day and was producing gold enough or more to then pay all the running expenses of the said mine, or about $5,000 per month; that about $400,000 had been expended by said company for equipment and development of said mine; that said company had no debts, except possibly some small amounts for current mining expenses which were usually paid up once a month."

That plaintiff, relying on the truth of said representations, and being influenced and induced thereby, made the trade, received and accepted the stock, conveyed all his interest in the land to defendant, and paid him $5,000. It concludes as follows:

"Plaintiff further alleges that said representations so made by the defendant to plaintiff were not only false, but were known to be so when made by him; that the plaintiff was ignorant of the falsity of said representations when so made by defendant; that the said representations were made with the intention that the same should be acted upon by the plaintiff.

"Plaintiff further states that, at the time the said representations of defendant to plaintiff so made as aforesaid, the said mining company was largely indebted, and was in fact then in an insolvent condition—a fact which was then well known to defendant and unknown to plaintiff.

"Plaintiff further states that, by reason of the falsity of said defendant's representations so made as aforesaid, he was thereby entrapped and induced to transfer and convey his said real estate to defendant and to take and receive in part exchange therefor said mining stock, which was of no value—absolutely worthless—to his damage in the sum of $30,000, and for which he asks judgment."

The answer admits the trade, denies every other allegation of the petition, and pleads specially as follows:

"But defendant denies that he made to plaintiff any of the statements or representations in said petition set forth. On the contrary, he says that he did not himself have personal knowledge as to the several matters about which it is alleged in said petition that he made representations to plaintiff, and that he expressly and distinctly so informed plaintiff, and told plaintiff who the active officers of the company were, and advised him to consult with them and get information from them in regard to all of the matters pertaining to said company about which he desired information; and that, for the purpose of giving plaintiff an opportunity to obtain such information, the closing of the trade between them was postponed for a period of 30 days."

It also pleads by way of counterclaim:

"That, in order to deceive defendant and induce him to make said trade and pay to plaintiff said sum of $5,000 and turn over to him said 25,000 shares of stock, plaintiff falsely and fraudulently represented to defendant that the said real estate and improvements thereon were worth $30,000 above the incumbrance; that the expenses of taking care of, keeping in repair, and renting the said property amounted to only $1,-150 per year, while the net income from the rents of said property amounted to $5,500 per year; that defendant relied upon said false and fraudulent representations made to him by plaintiff, as aforesaid, and was thereby induced to make said trade and to pay and turn over his property aforesaid for said real estate and improvements; that instead of said real estate being of the value of $60,000, as represented by plaintiff, its actual value did not exceed $30,000, the amount of the incumbrance thereon; and that instead of the expenses of taking care of, renting, and keeping said property in repair amounting to $1,150 per year, the expenses exceeded the rents, so that there was no income whatever from said property, but, on the other hand, an actual loss resulting therefrom; and that said plaintiff knew said representation in regard to the value, expenses, and income of said property, were false at the time he made the same."

For this the defendant asks judgment for $30,000. Issue was joined by replication.

The American Copper Company was organized some time in 1901 apparently to acquire, own, and operate mining properties then owned by the Howell Mining Company. It paid for the property with its entire capital stock, 5,000,000 shares of the par value of $1 each, 1,000,000 of which were immediately transferred to the witness Mr. Kimberley and Mr. Burnham, in trust for the copper company. There is something in the purely conventional method adopted in making payment of the $1,000,000 which reminds one of the action in a certain Chinese drama, where the queen-heroine enters and trips lightly across the stage flourishing a whip, while the crier announces that the queen is on horseback. In the imagination of the sympathetic oriental audience a prancing steed, all saddled, bridled, and caparisoned in keeping with the station of its royal rider, takes shape beneath her dainty person, and the equestrian act is as good as done. So in this typical case we may mention the entire capital stock as fully paid. The 1,000,000 shares of trust stock was reserved by the company for purposes of development, and, up to the time of the trade by which the plaintiff acquired from defendant the 25,000 shares about which he is now complaining, 650,000 shares of the "treasury stock," as it is called in the record, had been sold at par or better, and $400,000 of the proceeds had been expended upon the property. The disposition of the remainder of the proceeds of these sales does not clearly appear. About 300,000 shares of the stock was held or represented in Kansas City, and the remainder of the 5,000,000 shares, including the 350,000 remaining unsold of the million of original "treasury stock," seems to have been represented in New York. To what extent the stockholders of the American Copper Company were interested in the Howell Mining Company does not appear, nor does it appear what disposition had been made by the latter company of its 4,000,000 shares in the former, except that the $50,000 held by defendant was a part of it.

On February 20, 1904, the proceeds of sales of the treasury stock seem to have been exhausted; for on that day the beard of directors held a meeting at the office of the company in New York, at which it was resolved:

"That the company borrow thirty thousand dollars for six months at six per cent. interest per annum, and that the president and secretary are hereby authorized to give the company note therefor."

The note was given on the same day to Mr. R. R. Miner, corresponding in time, interest, and amount with the resolution, and the sum of $30,000 was charged to him, which he paid as follows: On that day, $7,000; on March 1, 1904, $10,000; on March 15th, $5,000; and on April 1st, $8,000.

At the same meeting it was likewise resolved by the board as follows:

"On March 1, 1904, the price of the treasury stock of the American Copper Company will be advanced to $1.25 per share. During the month of March 100,000 shares of said stock will be placed upon the market at above mentioned price. On April 1st the remaining shares will be advanced to $1.35. During the month of May 50,000 shares will be offered at $1.45. On the first of June, the price will be advanced to $1.75 per share, and on the first of July, any stock remaining unsold, will be advanced to $2.00."

No explanation of this resolution, adopted at a time when the proceeds of former sales had been exhausted and the company seemed in urgent need of money, is attempted. Very soon afterwards a single sale was made of stock from the company's treasury at $1,25. and there is no evidence that any more was ever sold at any price. Nor is there any evidence of private dealings in the same stock.

On June 7th the company was still hard up, and called a meeting of the board in New York to devise ways and means to make ends meet. The following resolution was passed:

"Upon motion duly made and carried, the action of the officers in borrowing $40,000.00 to pay the debts of the company is hereby approved and ratified and that the president and secretary are hereby authorized to issue the company's notes for same, drawing interest at 6 per cent. per annum. It is understood that the above is in addition to the $30,000.00 borrowed in February, 1904."

On the 9th the Miner note for $30,000, although not due until August 20th, was taken up, and another for the same amount and bearing the same rate of interest, due in four months, was given him, and the company borrowed $20,000 more, for which its notes were given, bearing the same date and...