Bushey v. Coffman

• Citation: 173 P. 341,103 Kan. 209
• Decision Date: 08 June 1918
• Docket Number: 21507
• Parties: BUSHEY v. COFFMAN.
• Court: United States State Supreme Court of Kansas

173 P. 341

103 Kan. 209

BUSHEY v. COFFMAN.

No. 21507

Supreme Court of Kansas

June 8, 1918

Syllabus

The evidence adduced by plaintiff to support his cause of action for damages sustained through defendant’s false and fraudulent representations touching the financial condition of a bank, whereby the plaintiff was induced to purchase defendant’s stock-a controlling interest-in the bank examined, and held sufficient against a demurrer.

The pleadings and plaintiff’s evidence to support a cause of action for rescission of a contract made under duress for the purchase of land and for the return and cancellation of plaintiff’s note given therefor examined, and held sufficient against a demurrer to plaintiff’s evidence; and held, also, that the issue of duress and consequent illegality of the note raised by the pleadings and established prima facie by plaintiff’s evidence made it improper to render judgment for defendant on his cross-petition, although plaintiff’s answer to the cross-petition was not verified.

The opinions of well-informed bankers and business men touching the financial reliability of persons of their community and the promptness and ability of such persons to pay their debts may be of some evidentiary assistance to a jury in determining the worth or worthlessness of such persons’ notes as assets of a bank.

Plaintiff’s evidence tended to prove the following facts: The defendant organized a bank, controlled its stock and conducted its business for several years. He represented to plaintiff that the bank was prosperous that the book value of its stock was worth $125 per share or better; that the bank was successfully maintaining a salary list of $5,000 per annum; that its profits for the current year would allow 10 per cent. for dividends, and would allow the charging off of $1,000 per annum for bad notes and leave $2,000 per annum to carry to undivided profits; that he did not believe there was $500 worth of bad paper in the bank’s assets of $140,000 to $150,000 in loan notes. He sold his controlling interest in the bank to plaintiff after enjoining plaintiff not to make an independent local investigation of the status of the bank and its business, and both orally and in writing defendant told plaintiff, “You will have to take my word for it.” In reliance on these representations plaintiff paid $23,700 for defendant’s stock. The representations were altogether false, some $45,000 of the bank’s notes were worthless and were mostly mere renewals of uncollectible loans. The state bank commissioner ordered these loans charged off as worthless, and gave the stockholders but a few hours in which to collect from among themselves an assessment of $140 per share to avert the closing of the bank, and the plaintiff’s investment was a total loss. These and minor related incidents considered and held to be competently probative of a cause of action for damages against defendant.

Appeal from District Court, Labette County.

Action by Allen H. Bushey against George M. Coffman. Demurrer to plaintiff’s evidence in support of his first cause of action sustained, and judgment on the pleadings and on plaintiff’s evidence rendered for defendant on the second cause of action, and plaintiff appeals. Reversed, and cause remanded for a new trial.

John Madden and C. E. Cooper, both of Wichita, and Fred A. Sabin, of La Junta, Colo., for appellant.

H. P. Farrelly and T. R. Evans, both of Chanute, W. R. Cline, of Erie, and W. D. Atkinson, of Parsons, for appellee.

OPINION

DAWSON, J.

This appeal chiefly concerns the sufficiency of the plaintiff’s evidence to establish his two causes of action against defendant; the first count being for damages sustained by plaintiff in the purchase of worthless bank stock in reliance on false and fraudulent representations of the defendant, and the second being for rescission of a contract for the purchase of land by plaintiff under duress. In the second, also, plaintiff asked for the return and cancellation of a note for $2,500 given to defendant in payment for the land purchased. To the second cause of action the defendant filed a cross-petition in which he prayed judgment for the amount of the note. A demurrer to plaintiff’s evidence in support of his first cause of action was sustained; and judgment on the pleadings and on plaintiff’s evidence was rendered for defendant on the second cause of action. The errors assigned relate to these rulings.

Touching the first cause of action, the evidence for plaintiff tended to prove the following facts:

In July, 1913, the plaintiff, who had been chiefly engaged in school work for thirty years, sought to change his vocation and engage in the banking business. To that end he called on a Denver broker, A. J. Smith, who informed him that a controlling interest in the People’s Home Bank of Rocky Ford, Colo., was for sale by its owner, the defendant, George M. Coffman, who was the founder, president, director, and principal managing officer of that bank. Plaintiff went to Rocky Ford and interviewed Coffman, and the latter discussed the bank’s condition, its earnings, and the price of the bank stock, and Coffman gave his failing health and that of his wife as his reason for selling. Bushey, the plaintiff, returned to Kansas, and shortly afterwards he opened a correspondence with Coffman with a view of purchasing Coffman’s bank stock. On August 5, 1913, the defendant Coffman wrote to Bushey: "Yours at hand, and I want to say that I think you are needlessly alarmed about my notes; I never saw a bank that had $140,000 or $150,000 worth of notes, that some of them were not at least doubtful. I don’t believe we have over $500 worth, but what are good, and if handled properly can be collected and yet it might be more than that amount would prove bad, but that is all in the game. Our gross earnings this year will be $15,000 or more; that means that after all expenses are paid together with 10 per cent. dividend, we will have over $3,000 to take care of bad paper to carry to undivided profits. I figure that we can pay all expenses which includes $5,000 a year salary, 10 per cent. dividends, carry $1,000 a year to surplus, and then have $2,000 left, either to take care of bad paper or to carry to undivided profits. That is the kind of a business I have. The book value is better than $125. I could sell all my stock to local parties inside of six months in small lots at $130. If I should sell to you at $150 and pay Smith of Denver $5 a share, that would leave me about $2,000 profit for building up this business, and then you want me to guarantee all notes. I would not think of it for a minute. If you should come here as you suggest, some one would start a rumor that I was trying to sell, and then if you should decide not to buy, they would say that there was something wrong with the bank. No; Mr. Bushey, you have every chance to find out whether I am a man of my word, and when I tell you we have a good business, that we have a good class of notes, you will have to take my word for it, or not. Since you was here, we collected $810 charged off paper, and carried that to undivided profits. We have 200 or 300 that are more than six months past due, that we are charging off. Some of them we hope to have paid before the end of the year. If you want a good business in a good town, you could afford to charge off $1,000 a year bad paper, and then have a splendid business. Of course I don’t think there is any danger of any such loss, but if there was you would be away ahead of the game."

Other excerpts of letters from Coffman to Bushey read:

"August 16, 1913.

Yours of the 14th inst. at hand, and in reply would say you would have to take one hundred fifty-eight shares (158). *** Of course if I remained as president I could not give possession of house while I remained as president, as that would give away the deal. The boys and I would stay with you until you had a chance to get acquainted, and the run of the business. Of course while we remained, we would expect same salary we are drawing now. *** I would have no objection to have Mr. Smith of Denver meet you here on the Sunday you come, if Mr. Smith is careful not to let these other bankers get onto the reason of him being here. You see we are crowding the other banks very close on the business, and they are very jealous, and would seize on anything to stop our growth. In fact, if you or Mr. Smith let this out, I will deny the whole thing and it will be all off. *** I inclose statements of the three banks. You will notice we have $10,000 more deposits than the First and only $20,000 behind the Rock Ford National, so we can’t afford to take any chances. Things are looking so good that I am sorry I ever made this offer, and I will be very thankful if you decide not to take it, but my word is passed, and I always make good."

"August 23, 1913.

*** You are certainly a suspicious man. I am willing to be perfectly fair with you, and if you come here again, and really desire a good business, I am satisfied you will find that I will treat you fairly and will advise you honestly, what I think the best way to handle the business, so as not to lose any of the business that I have worked so hard to get. Of course, you can put this off as long as you see fit, but I will not consider myself under obligation to hold the business for you. Other parties want it, but, frankly, I am not at all anxious to sell. I think I am making a mistake in selling at price I have made you."

"8-27, 1913.

*** Yours just received and will...