Cannon v. Farmers' Union Grain Agency

• Decision Date: 27 December 1921
• Citation: 202 P. 725,103 Or. 26
• Parties: CANNON v. FARMERS' UNION GRAIN AGENCY et al. [*]
• Court: Oregon Supreme Court

202 P. 725

103 Or. 26

CANNON v. FARMERS' UNION GRAIN AGENCY et al. ^[*]

Supreme Court of Oregon

December 27, 1921

In Banc.

Appeal from Circuit Court, Umatilla County; Gilbert W. Phelps Judge.

Action by Roy Cannon against the Farmers' Union Grain Agency and others. From judgment for defendants, plaintiff appeals. Affirmed.

This action was prosecuted by Roy Cannon, plaintiff in the circuit court of the state of Oregon in and for Umatilla county against the defendants, for the recovery of the sum of $1,800, with interest thereon from January 17, 1918. The cause of action arose from the sale of stock by defendants to the plaintiff.

Cannon avers that the defendant Farmers' Union Grain Agency sold him 180 shares of stock in the corporation, at the par value of $10 a share, and that this stock so sold to him was a part of an overissue of stock made and sold by the defendants. The case was argued here and submitted with a similar case instituted by one Charles Kirk against the same defendants. The following is a synopsis of the complaint:

Paragraph 1 alleges the corporate character of the Farmers' Union Grain Agency, with the location of its principal place of business, and that the persons named as co-defendants were its officers. Paragraph 2 alleges:

"That on the 17th day of January, 1918, the capital stock of said corporation consisted of 5,000 shares of the par value of $10 per share."

Paragraph 3 avers that the board of directors named as defendants sold and issued to plaintiff its stock certificate numbered 418 for 180 shares of the stock in said corporation, for the sum of $1,800; that defendants sold the stock to plaintiff without obtaining a license from the state of Oregon to sell said stock; that at the time the plaintiff purchased said 180 shares of stock the defendants represented to him that the corporation owned the same, and that the defendants had the right to issue and sell the stock to plaintiff; that said representations were knowingly false, and were made by the defendants with intent that they were to be acted upon by the plaintiff; that the plaintiff relied upon the representations so made, and that he was fraudulently induced to give credit to the corporation and purchase the stock by reason of the false and fraudulent representations and official acts and conduct of defendants, and that plaintiff acted upon the representations and official acts and conduct of the defendants, to his damage in the sum of $1,800, together with interest thereon at the rate of 6 per cent. per annum from January 17, 1918, until paid.

Paragraph 4 alleges that on January 17, 1918, the corporation was unable to pay any dividends, or its debts; that it was being operated at a loss; that it was heavily indebted to W.W Harrah, R.O. Earnheart, and H.J. Rosenberg, its directors and that defendants were attempting to raise money by the sale of stock in order to pay themselves the money that was due them from the corporation and to relieve themselves from all liability upon the negotiable paper that the corporation had issued.

The complaint further alleges that the plaintiff, on the 25th day of October, 1919, first discovered that the representations made by defendants were false, in that at the time the stock was issued and sold to plaintiff by defendants the corporation did not own said stock, nor did defendants have any right to issue and sell any stock certificates the sale of which at par would bring the amount of the stock of the corporation sold to a value in excess of the sum of $50,000 that the defendants had no right to issue and sell shares of stock of the corporation in excess of 5,000 shares; that certificate of stock numbered 418, issued and sold by the defendants to the plaintiff for 180 shares of stock of the corporation, exceeded in value by about $10,000 the sum of $50,000, the amount of the capital stock of the corporation; that by sale of said stock the defendants have perpetrated a fraud upon plaintiff, and have damaged him in the sum of $1,800, with interest from January 17, 1918, and plaintiff demands judgment against defendants for that sum.

The defendants, answering, deny that plaintiff has been damaged by the alleged fraudulent or other acts or conduct of the defendants, or either or any of them. For affirmative defense defendants allege, among other things, that on and prior to the 17th day of January, 1918, the plaintiff, Roy Cannon, Charles Kirk, and other citizens of Athena and vicinity, were endeavoring to induce the defendant Farmers' Union Grain Agency to construct and operate as part of its grain system an elevator at Athena for the convenience and profit of said Roy Cannon, Charles Kirk, and other citizens; that on that date, at the request of the citizens of Athena and vicinity, the defendants met with the plaintiff and a large number of other citizens, who undertook to induce the Farmers' Union Grain Agency to construct, at Athena, Or., an elevator, and as an inducement plaintiff and others attending said meeting proposed to defendants that if the Farmers' Union Grain Agency would cause its capital stock to be increased, they would subscribe for and take from such corporation a large amount of such increased capital stock and pay therefor, in order that funds might be raised for the purpose of constructing a grain elevator; that plaintiff, Roy Cannon, and such other persons, as a pledge of good faith and as an assurance that they would subscribe for, take, and pay for such increased capital stock, proposed and suggested that each of them would deposit with a committee to be selected by themselves a promissory note or a check for the respective amounts proposed to be subscribed by them; that in pursuance thereof plaintiff promised that he would subscribe for 180 shares of such capital stock, in the sum of $1,800, face value, and thereupon made and delivered to such committee so selected his obligation for $1,800.

It was further agreed at such informal meeting that the notes and checks then and there executed by the respective parties should be placed by the committee so appointed with the First National Bank of Athena, Or., to be held by the bank until such time as the defendant corporation should, through due and legal process, cause its capital stock to be increased and issued, and that upon the issuance of the same and the delivery thereof to the First National Bank of Athena, in the amount and for the number of shares respectively agreed upon, the said notes and checks should then be delivered and paid to the defendant corporation. But, in the event the corporation should not succeed in increasing its capital stock, or in issuing and delivering to the bank such shares, then and in that event the notes and checks were to be returned to the persons who had given and caused them to be so placed with the bank. The answer further avers the action taken by the defendant corporation in increasing its capital stock from $50,000 to $200,000, and the issuance by the corporation commissioner of the state of Oregon of certificate of increase of capital stock; that thereafter the defendant corporation caused to be issued to the plaintiff, Roy Cannon, its certificate numbered 418, for 180 shares of the increased capital stock of the corporation and of the face value of $1,800, which certificate was delivered to the First National Bank of Athena for plaintiff, whereupon the First National Bank of Athena, acting for Cannon, received and accepted that certificate of stock, and delivered to the defendant corporation the obligation of Cannon for $1,800 in payment therefor; that the obligation having been dated as of January 17, 1918, the day upon which it was signed and left with the bank, certificate of stock numbered 418 was upon its face dated the same date, to wit, January 17, 1918, in order that the holder thereof might participate in any profits accruing upon the stock represented thereby between the 17th day of January, 1918, and the 18th day of February, 1918, the date of the delivery of the certificate; that thereafter plaintiff received and accepted such certificate of stock, and voted at subsequent meetings of the stockholders of the defendant Farmers' Union Grain Agency; that certificate numbered 418 so taken by the plaintiff was exclusively of the issue of the increased capital stock of the corporation, was not sold to the plaintiff at a profit or on commission, and was not offered for sale to the public. Defendants further allege that the plaintiff induced them to believe that he was acting in good faith in all of such transactions, and, relying upon the good faith of the plaintiff, they proceeded in the manner alleged, and built an elevator plant at Athena, Or., and expended more than $70,000 in the construction and equipment thereof, and that plaintiff ought not now to be heard to dispute or to question the various transactions.

The action was tried by the court without the intervention of a jury. The court made and filed its findings of fact and conclusions of law, based upon which it determined that the defendants were entitled to have judgment against the plaintiff "dismissing this action and the complaint filed herein, and for costs and disbursements. * * * "

Plaintiff excepted to findings of fact numbered 3, 4, 5, 6, 7, 8, 9, and 10, and moved the court to strike out each of said findings of fact, which motion was overruled. Plaintiff likewise excepted to each conclusion of law found by the court, and moved the court to make additional findings of fact. This motion was overruled by the court, whereupon plaintiff excepted.

The plaintiff appeals, assigning error as follows:

In the making and finding of facts numbered 3, 4, 5, 6, 7, 8, 9, and 10, and each and every finding of...