Amort v. Tupper

Decision Date27 April 1955
PartiesPaul AMORT, Appellant, v. Roy B. TUPPER, Respondent.
CourtOregon Supreme Court

William K. Shepherd, Portland, for appellant.

John E. Walker, Portland for respondent.

Before WARNER, C. J., and ROSSMAN, LATOURETTE and PERRY, JJ.

PERRY, Justice.

The plaintiff commenced a suit against the defendant to foreclose a chattel mortgage upon personal property situated in Clackamas county, Oregon, which mortgage was given to the plaintiff by the defendant to secure a promissory note in the original sum of $7,000.

The defendant admits the execution and delivery of the note and the chattel mortgage. He defends on the grounds of want of consideration and fraud, alleging that the note and mortgage arose out of a transaction whereby he purchased from the plaintiff 11 shares of stock in the Contractors Supply Company, an Oregon corporation, for the sum of $12,000; that in the purchase of the stock he relied upon representations of the plaintiff that the business of the corporation from its incorporation in March, 1950, had been conducted on a profitable basis, that the assets of the corporation exceeded the liabilities of the corporation, and that the 11 shares of stock were worth $12,000; that said representations were false, and that the plaintiff falsely and fraudulently withheld from him the books and records of the corporation. Defendant further alleges that, on discovering the fraud, he demanded the return of the moneys he had paid to the plaintiff, and the return of the note. As a further defense and counterclaim, based upon this alleged fraud, the defendant sought damages from the plaintiff in a sum equalling his payments on the purchase, together with interest thereon from the date the payments had been made.

The trial court by its decree ordered the surrender and cancellation of the note and mortgage, and rendered a money judgment for the defendant and against the plaintiff for all payments made. From this decree the plaintiff has appealed.

The evidence in this case shows that in March, 1950, the plaintiff, who was operating an appliance sales company, incorporated 'Contractors Supply Company'. The Contractors Supply Company dealt in building materials, and was principally engaged in the resawing of lumber to specifications for building contractors. The defendant was a sawmill operator, and supplied lumber to the Contractors Supply Company. In June or July, 1950, the defendant and the plaintiff, who had known each other for a period of approximately 10 years, discussed the possibility of the sale of the Contractors Supply Company by the plaintiff to the defendant. The transfer of ownership and control of the company was to be accomplished by the assignment of 11 shares of stock of the company, the other two shares of the capital stock of the company being held by others merely for the purpose of qualifying them as directors. During a portion of the time that the sale was being discussed, a Mr. Uehlinger, who was operating a sawmill and supplying lumber to the Contractors Supply Company, was interested with the defendant in the purchase of the plaintiff's business.

There is a conflict in the testimony as to the date on which defendant took active control and supervision of the Contractors Supply Company. The actual transfer of the stock and the execution of the note and mortgage in question was made on November 2, 1950, but the evidence is quite clear that a Mr. Regula, a representative of the defendant, was handed the books of account, such as they were, in October 1950, and he made a trial balance early in November, 1950. The trial court, we believe, correctly determined the actual sale date as of September 30, 1950. There is no evidence that any of the accounts payable or accounts due were withheld from the defendant.

At the time of the transfer of the stock, and the execution of the note and mortgage, a stockholders meeting was held and a new board of directors elected, consisting of the defendant Tupper, Frank Tawney, who had been acting as manager of the company, and Otto Motejl. At this meeting there was discussed an offer of a franchise made by the F. C. Russell Company, builders of windows, whereby the Contractors Supply Company would receive the exclusive dealership of the windows if the company could meet the financial requirements set down by the Russell Company. Otto Motejl offered to advance $32,000, the necessary amount, upon being satisfied of the financial worth of the Contractors Supply Company. Resolutions were duly passed authorizing the company to enter into a franchise agreement with the F. C. Russell Company, setting up the $32,000 provided by Motejl as a separate fund. On November 3, 1950, an application on behalf of the Contractors Supply Company was sent to the F. C. Russell Company. A special meeting was held by the board of directors of the Contractors Supply Company on November 16, 1950. At that meeting Motejl stated he had been induced to supply the $32,000 on the representations of Mr. Tupper and Mr. Tawney that the company was solvent and its net worth was over $9,000, but that bill collectors had started telephoning and coming to the company, and he was fearful that the money he had advanced would be involved. His agreement was rescinded and the moneys advanced by him were returned. However, he remained as a director of the company. Subsequent to this time the defendant paid to the plaintiff $3,500 on his contract. The defendant continued to operate the Contractors Supply Company until in February of 1951, when he discovered definitely that the company's liabilities exceeded the assets, and he transferred the business to O. A. Hollenbeck on the basis that he would receive all moneys remaining over and above after payment of all claims. Defendant received no moneys from his source and later he repurchased from Hollenbeck the majority of the physical assets of the Contractors Supply Company.

The plaintiff testified that he had invested $7,500 in the enterprise, and, as he remembered the figures, they had shown a profit of $5,200; that he had gone over this matter to show the defendant how he arrived at that figure; that he had asked $12,700, and the defendant said he would pay $12,000; that he thought the books and records of the company as kept by his daughter were accurate.

An audit of the books and records of the Supply Company by the accountants of each of the parties, reconstructed as to the date of the sale, September 30, 1950, showed that the liabilities of the company far exceeded the assets, and the company was in fact, as of that date, insolvent.

We have no hesitancy in saying that under the facts of this case the defendant is not entitled to rescind. The law is well established in this state that 'a party who has been induced to enter into a contract by fraud, has, upon its discovery, an election of remedies. He may either affirm the contract, and sue for damages, or disaffirm it, and be reinstated in the position in which he was before it was consummated. These remedies, however, are not concurrent, but wholly inconsistent. The adoption of one is the exclusion of the other. If he desires to rescind, he must act promptly, and return, or offer to return, what he has received under the contract. He cannot retain the fruits of the contract awaiting future developments to determine whether it will be more profitable for him to affirm or disaffirm it. Any delay on his part, and especially his remaining in possession of the property received by him under the contract, and dealing with it as his own, will be evidence of his intention to abide by the contract. Schiffer v. Dietz, 83 N.Y. 300; Parmlee v. Adolph, 28 Ohio St. 10; Williamson v. New Jersey Southern R. Co., 29 N.J.Eq. 311; Wicks v. Smith, 21 Kan. 412, 30 Am.Rep. 433; Marston v. Simpson, 54 Cal. 189.' Scott v. Walton, 32 Or. 460, 464, 52 P. 180, 181.

From September 30, 1950, the defendant had full possession and control of this corporation; he operated it as his own, creating liabilities and collecting the income without making any offer whatsoever to rescind. Even when he was placed on notice by Motejl that the liabilities might be greater than the assets he continued to make payments upon the purchase price agreed upon by the parties, and he continued the operation of the business until he finally sold and disposed of the company.

The decree of the trial court in entering a money judgment against the plaintiff is upon the theory that active fraud was practiced by the plaintiff in inducing the defendant to enter into the contract for the purchase of the Contractors Supply Company. The elements of actionable fraud...

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