American Building & Loan Association v. Rainbolt

• Decision Date: 19 May 1896
• Docket Number: 6476
• Citation: 67 N.W. 493,48 Neb. 434
• Parties: AMERICAN BUILDING & LOAN ASSOCIATION v. NAPOLEON A. RAINBOLT
• Court: Nebraska Supreme Court

67 N.W. 493

48 Neb. 434

AMERICAN BUILDING & LOAN ASSOCIATION v. NAPOLEON A. RAINBOLT

No. 6476

Supreme Court of Nebraska

May 19, 1896

ERROR from the district court of Madison county. Tried below before JACKSON, J.

REVERSED AND REMANDED.

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

John S Robinson and Powers & Hays, contra.

POST C. J. HARRISON and NORVAL, JJ., concurring.

OPINION

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upon which the cause was prosecuted to judgment in the district court is that the contracts of subscription had been rescinded by the several subscribers named, on account of the fraud of the defendant therein, and on account of the violation by the latter of the terms and conditions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, ch. 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 sixty 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 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 said 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 funds 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 damage on account of the non-existence of such a board, and that the allegations of the petition, so far as they relate to that subject, are wholly immaterial. The question does not, however, call for discussion in this connection, since there is upon the issue presented an entire failure of proof. A copy of the document mentioned in the petition is attached to the bill of exceptions and referred to by witnesses and counsel as the "blue circular," in which, after a statement of the authorized capital and names of officers and directors of the defendant association, appears the following:

"ADVISORY BOARD.

"Hon. John H. Gear, Ex-Governor, Iowa; Hon. A. E. Ricehient, Governor, Minn.; Hon. John De Laittre, Minneapolis, Minn.; Hon. E. W. Trask, Minneapolis, Minn."

Said circular contains a statement in detail of the purpose of the defendant association, a summary of its business methods, and the advantages claimed for it as a means of investment, but containing no reference to an advisory board, except as shown above. Its articles of incorporation provide for a president, secretary, treasurer, and board of six directors, and declare that the government of the association and management of its affairs shall be vested in said officers and directors. In the by-laws of the association, which were introduced in evidence by the plaintiff below, we find this provision: "Advisory boards may be appointed by the board of directors to such an extent and at such times as it may deem best. They shall advise with the board of directors upon important topics whenever called upon to do so, and shall furnish said directors with information relating to the matters of the association in their particular localities as they may from time to time require."

The plaintiff below, according to the testimony given by him in his own behalf, visited Minneapolis about July 30, 1888, for the purpose of attending the stockholders' annual meeting, at which time he was chosen as a director of the association, and in which capacity he continued to serve until the month of July, 1891, at the same time acting as agent for the other stockholders in Norfolk and vicinity in their relations to the association. He testified further that he learned from the president, Mr. Rundell, the day succeeding the day of his election as a director, that there was in fact no advisory board, although it was customary to print in the advertising literature, as members of such board, the names of influential persons, in order to assist agents in securing business for the association. The record however, fails to disclose any substantial change in the management of the affairs of the association during the defendant in error's term of office as a director. There was, according to his express admission, during said period, no action taken by the directors for the appointment of an advisory board; and it is certain that no steps were taken by him, either in his own behalf or for those whom he represented, toward a rescission of the contracts under which the stock in question was issued until after the annual meeting in July, 1891, with which, for reasons not disclosed, his official relation to the association terminated. It will thus be seen that there is not a mere failure of proof upon the issue, of rescission within a reasonable time, but that the plaintiff by his conduct deliberately waived whatever right, if any...