Am. Bldg. & Loan Ass'n v. Rainbolt

• Citation: 48 Neb. 434,67 N.W. 493
• Court: Nebraska Supreme Court
• Decision Date: 19 May 1896
• Parties: AMERICAN BUILDING & LOAN ASS'N v. RAINBOLT.

48 Neb. 434

67 N.W. 493

AMERICAN BUILDING & LOAN ASS'N

v.RAINBOLT.

Supreme Court of Nebraska.

May 19, 1896.

Syllabus by the Court.

1. The right to rescind a contract on the ground of fraud must be promptly exercised upon the discovery of the ground therefor. The continued use or employment of property will, in such case, be construed as an election to affirm the contract under which it was received.

2. A stockholder who has for three years acted as a director of a corporation, taking an active part in its management, with notice of its business methods and financial condition, cannot thereafter, in an action against such corporation, recover the money originally paid for his stock on the ground that his subscription therefor was procured by means of the fraudulent representation of the defendant's agents.

3. Nor can he in such case recover as assignee of like claims of other stockholders represented by him as agent, and whose interest as such he was bound to protect, since, by reason of their relations towards him, such stockholders are chargeable with the knowledge possessed by him respecting the affairs of the corporation.

4. Facts which merely disprove the allegations of the adverse party do not necessarily constitute new matter, within the meaning of the Code, and are as a rule admissible in evidence under a general denial.

5. Evidence examined, and held not to prove the breach by the defendant, a foreign building and loan association, of an alleged agreement to maintain at the plaintiff's home a local board of directors.

6. Not every breach of a contract by one party thereto will authorize the other to treat it as rescinded. The failure to perform an independentstipulation collateral to the main consideration, not amounting to a condition precedent, and not such as to prevent the performance, by the party so in default, of the principal undertaking, although attended by some loss or inconvenience to the other party, does not absolve the latter from liability, or authorize him to treat the contract as abandoned.

7. The mere mismanagement of the affairs of a corporation by its officers or agents does not warrant the withdrawal therefrom of stockholders, or the repudiation of the obligations assumed by them as such.

8. The act of 1891 relating to building and loan associations (Comp. St. §§ 148a–148r, c. 16) provides that it shall not be lawful for any foreign building and loan association to transact business in this state without first having filed with the auditor of public accounts a copy of the act under which it was organized, together with its charter or articles of incorporation, a statement under oath showing its resources and liabilities, also the number and cash value of its shares, and appointed an attorney in each county in which it may transact or solicit business, on whom service of process can be made, and with authority to acknowledge service in its behalf, and that any person or corporation doing business in this state as agent for any such association which shall not have complied with the provisions of said act shall be deemed guilty of a misdemeanor, and shall, upon conviction therefor, be fined, etc. Held, (1) that the primary object of said statute is to bring a designated class of foreign corporations within the jurisdiction of the courts of this state in order to protect persons dealing with them from fraud and imposition; (2) assuming that the purpose of said act was to declare illegal contracts of noncomplying building and loan associations, it is, as to agreements existing at the time of its enactment, a clear invasion of constitutional rights, as impairing contract obligations.

Error to district court, Madison county; Jackson, Judge.

Action by Napoleon A. Rainbolt against the American Building & Loan Association. There was a judgment for plaintiff, and defendant brings error. Reversed.

Barnes & Tyler and C. M. Cooley, for plaintiff in error.

John S. Robinson and Powers & Hays, for defendant in error.

POST, C. J.

This was an action in the district court for Madison county by the defendant in error, Rainbolt, to recover money paid by himself and his assignors, Mary R. Rainbolt, James H. Brown, John F. Newhall, and S. H. Overholser, as subscribers for the capital stock of the plaintiff in error, the American Building & Loan Association of Minneapolis, in the state of Minnesota, hereafter called the “Association.” The theory upon which the cause was prosecuted to judgment in the district court is that the contracts of subscription had been rescinded by the several subscribers named, on account of the fraud of the defendant therein, and on account of the violation by the latter of the terms and conditions of the agreement under and by virtue of which the money sued for was paid. The allegations of the petition, which is exceedingly voluminous, are, by counsel for the association, properly grouped under three heads: (1) Fraudulent representations as inducements to the subscription for said capital stock; (2) the violation of an agreement by said association to the effect that all money paid by subscribers in the city of Norfolk and certain contiguous territory, after the payment of necessary expenses, should be credited to a fund to be known as the “Loan Fund,” the proceeds of which were to be applied in payment of the stock of such subscribers; (3) the failure of the defendant below to comply with the provisions of the act relating to building and loan associations which took effect April 4, 1891 (Laws 1891, c. 14). The stock to which reference is made was, according to the petition, subscribed for in the months of July, October, and November, 1888, and payments thereon made at the rate of 60 cents per month for each share of the par value of $100, up to and including the month of April, 1891. The charge of fraud sufficiently appears from the following quotation from the petition: “That, at the time of said subscription for stock by said parties, the defendant proposed to use said moneys so paid in by said parties in payment for said stock in making loans to holders of stock in the defendant, secured by mortgage upon real estate held by them, upon applications to be made and to be submitted to a local board of the defendant, to be constituted of stockholders in the defendant, residing in the city of Norfolk and said county of Madison, and to use all the money so paid for said stock, except sufficient to carry on the expenses, for the creation of a loan fund to be used in making loans upon real estate to the stockholders of the defendant at the rate of interest of six per cent. per annum, which loans made to any of the stockholders in said counties of Madison and Pierce were to be approved by the local board of the defendant, consisting of stockholders residing in the city of Norfolk, Nebraska, and agreed to create such local board at Norfolk, Nebraska, which should have a treasurer to whom subscribers for stock could pay their assessments thereon, and subsequently, and soon after said subscriptions of stock had been made, did create such local board at Norfolk aforesaid, and a local treasurer or collector to whom the assessments or payments upon said stock could be made by said subscribers thereto, and to whom said payments were made, which agreement was published in a circular by the defendant, which it distributed to said parties, as well as many others, and which said circulars contain the statement, as an inducement, and which was an inducement, to said parties to subscribe for said stock, that the affairs and management of the defendant were and should be supervised by an advisory board consisting of a large number of well–known and eminent citizens of the states of Minnesota and Iowa, among which was the name of an ex–governor of the state of Iowa and the lieutenant governor of the state of Minnesota, and others of equal prominence in the country; that said representations so made by the defendant were false and fraudulent, and known by it so to be at the time the same were made, and the said parties so subscribed for said stock as aforesaid believing the same to be true, and were induced thereby to make said subscriptions for said stock; that the defendant agreed, as part of said contract of subscription, that all of said money paid upon said stock, except enough to pay the expenses of the defendant, should be placed in a fund to be called the ‘Loan Fund,’ and that the proceeds thereof should be applied in payment of said stock. It was also agreed by the defendant, in said contracts of subscription with said parties, that any moneys remaining in the expense fund after paying the salaries of the officers, as fixed by the board of directors, and the other expenses of the association, the surplus so remaining shall be turned into the loan fund, as profits.” “The plaintiff further says that said representations in regard to the advisory board were false, fraudulent, and untrue, and known by defendant so to be at the time the same were made, and when said subscriptions to said stock were made; that for some time after said subscriptions of stock were made, and until August, 1891, the defendant had a local board in the city of Norfolk, with its treasurer, to whom said payments or assessments upon its stock were made by said parties, and in the month of August, 1891, the defendant abrogated the same, and withdrew the power or authority from said local board and its treasurer, and demanded that said parties should make future payments upon their stock at the office of the defendant, in the city of Minneapolis and state of Minnesota.”

It will be observed, from a careful reading of the foregoing excerpt, that the only false assertions charged with respect to existing matters are those which relate to the so–called advisory board, and which are expressly controverted by the answer. There is apparently much force in the argument that the law raises no presumption of...