Cattle Raisers' Loan Co. v. Sutton

• Decision Date: 04 March 1925
• Docket Number: (No. 7249.)
• Citation: 271 S.W. 233
• Parties: CATTLE RAISERS' LOAN CO. et al. v. SUTTON.
• Court: Texas Court of Appeals

271 S.W. 233

CATTLE RAISERS' LOAN CO. et al. v. SUTTON.

(No. 7249.)

Court of Civil Appeals of Texas. San Antonio.

March 4, 1925.

Appeal from District Court, Lasalle County; J. F. Mullaly, Judge.

Action by R. C. Sutton against the Cattle Raisers' Loan Company and others. Judgment for plaintiff and defendants appeal. Judgment as to defendant Fanning reversed and rendered. As to defendant Cattle Raisers' Loan Company, judgment is reversed and remanded, unless plaintiff consents to remittitur, in which event it is affirmed.

Dayton Mosee and S. C. Rowe, both of Fort Worth, and Taliaferro, Cunningham & Moursund, of San Antonio, for appellants.

Willson & Cooper, of Cotulla, and Arnold & Cozby, of San Antonio, for appellee.

COBBS, J.

Appellee, R. C. Sutton, brought this suit against Cattle Raisers' Loan Company, a corporation of Fort Worth, Tex., and S. H. Fanning of Dallas, Tex., seeking to recover $10,000, as damages alleged to have been sustained by him by reason of the purchase by him of stock of the par value of $10,000 in a company organized and operating under a declaration of trust, known as Stock Raisers' Loan Company. The plaintiff's petition contained 74 specific averments of fraudulent representations alleged to have been made to him, besides a few other more general charges, one of which was the Stock Raisers' Loan Company, unincorporated, "was not organized for the purpose of financing stock raisers, but was organized and promulgated as a fraudulent stock selling scheme and conspiracy on the part of said Vernor, under a declaration of trust executed by him alone, wherein he was named sole trustee, with full authority and power of every kind, and control of the assets as fully and conclusively as if he was absolute owner."

The theories presented in plaintiff's petition, by which he sought to fix liability upon Cattle Raisers' Loan Company for the alleged fraud of Fanning and Stock Raisers' Loan Company (the trust concern), were briefly stated as follows: (1) That Fanning and the Stock Raisers' Loan Company were promoters of the common-law trust company who assigned to appellant, a corporation organized under the laws of Delaware under the name of Stock Raisers' Loan Company, and its corporate name afterwards changed to Cattle Raisers' Loan Company. (2) That the copartnership, or common-law trust, was operated under the name of Stock Raisers' Loan Company, organized by J. C. Vernor as sole trustee, who transferred and delivered to the appellant corporation all the assets of the said copartnership, or common-law trust, which went out of existence, and Vernor was no longer thereafter connected with the enterprise; that the appellant corporation paid nothing for the assets, only issued its capital stock therefor, of which the corporation had notice at the time it took over such assets and equities of the plaintiff. (3) That the defendant corporation expressly, or impliedly, assumed the liabilities of the unincorporated company, and was charged therewith. (4) That the defendant corporation is the Stock Raisers' Loan Company in an incorporated form, and is the same organization, and the same business, as the copartnership or common-law trust, which it was alleged had ceased to exist. (5) That the assets so transferred constituted a trust fund charged with the liability to plaintiff, and that the assets largely exceeded the indebtedness claimed by plaintiff.

The plaintiff prayed for rescission of his contract with the trust estate, and for judgment against the defendants jointly and severally for $10,000, with interest thereon from the date he parted with his consideration, and the establishment of a lien in his favor on the assets acquired by the corporation from the unincorporated concern, and, in the alternative, he asked for damages.

The appellants, in addition to general demurrers and general denials, specifically denied that it, or any agent or representative, had made any representation to the plaintiff concerning any sale of stock, or had entered into any agreement with him of that nature. It then alleged that it believed the fact to be, that plaintiff and divers other persons had purchased interests in and become members of, and shareholders in, a trust estate, organized by J. C. Vernor, about February 3, 1920, who was residing in the city of Dallas; that said trust estate was created under a declaration of trust by said Vernor, a copy of which was attached to the answer and made part of it. It was in the usual form of a Massachusetts common-law trust, providing for various purposes, among which was the making of cattle loans and specifying that Vernor and the trustee was to receive 39 per cent. of the first money paid in on all stock subscriptions to cover the expense of organization. The defendant also pleaded that Sutton purchased his stock by written applications, each of which contained a reference to the declaration of trust on file in the office of the company at Dallas, as a complement to such application, and each of which contained a stipulation that no conditions or agreements, either written or verbal, other than those contained in the application and the company's literature, should be binding on either party thereto.

The defendant corporation further pleaded that the plaintiff made no inquiry concerning the terms of this declaration of trust, and did nothing to show a desire for such information; and that, by reason of the provision in the application and other matters alleged by it, plaintiff was estopped from claiming that he did not know the terms and conditions of the declaration of trust, and that same were withheld from him. Defendant further alleged that if any fraud was practiced upon plaintiff, it was done by J. C. Vernor, the trustee, duly authorized by the plaintiff to act for him under the terms of the declaration of trust and the agents and representatives of said Vernor. The defendant corporation then alleged its incorporation on June 21, 1920, under the laws of Delaware, and that thereafter Vernor as trustee, acting under the power provided in the declaration of trust, and with the consent of plaintiff and the other shareholders, sold, assigned, and transferred to the defendant corporation all of the assets held by him as trustee, in consideration for the issuance to him by the corporation of 169,181 1/3 shares of its capital stock, to be evidenced by certificate issued to Vernor, trustee. The defendant then alleged the particular provisions of the transfer.

The said defendant further alleged the issuance to plaintiff of a certificate of stock out of the stock transferred to said Vernor, covering the shares of stock subscribed for by plaintiff in the trust estate; and then further alleges various facts relied upon to show notice and knowledge on the part of plaintiff of the matters complained of by him, and the facts relating to the issuance of certificates of stock to plaintiff in the corporation, the voting of proxies given to him, and the reissuance of stock to him at the time the name of the corporation was changed and the capital stock reduced from $2,000,000 to $400,000. The allegations are too lengthy to be copied here. In connection with the same, and based thereon as alleged, said defendant alleged acquiescence, affirmance, ratification, and confirmation by the plaintiff of his said purchases of stock, and estoppel from setting up or claiming that he had been defrauded. The appellant Panning adopted the pleadings of the corporation.

The case was tried with a jury upon ten special issues, and all of them were answered favorably to the plaintiff. Judgment was rendered on March 12, 1924, in favor of plaintiff, against both defendants, for the sum of $12,101.30, together with 6 per cent. interest from March 14, 1924, until paid. The judgment recites that it is one of rescission and requires that the 1,000 shares of stock in the name of Sutton be annulled. It further adjudges an equitable lien in favor of plaintiff in and to all assets obtained by the corporation from the common-law trust known as Stock Raisers' Loan Company, and the proceeds of such assets, and grants a foreclosure of such lien. Then follows a recitation in the judgment, as follows:

"The court, from the undisputed evidence, finds that the plaintiff in purchasing the stock parted with a consideration of the value of $10,000, and that the stock purchased would have been worth such consideration had the representations made to the plaintiff, and which the jury found were false, been true. In response to issue or question No. 11 the jury found that the reasonable value of the stock purchased by the plaintiff in the Stock Raisers' Loan Company, unincorporated, at the time it was purchased was $3,400. These findings and recitations are inserted in this decree so that the appellate court, if this case is appealed, may apply the proper remedy in the event for any reason the remedy of rescission should not be proper remedy to which the plaintiff is entitled."

Briefly stated, J. C. Vernor, the trustee, conceiving a get rich quick scheme, on February 3, 1920, organized one of those so-called Massachusetts common-law trusts, and named it "Stock Raisers' Loan Company," a name to jingle pleasantly to cattle raisers and stockmen. While it has been said "there is nothing in a name" this promoter knew better. He knew his business and fished for and netted such stockmen as appellee. The trust that Vernor organized especially exempted Vernor from individual liability from anything he might promise, do, or say. The title to all the assets and the estate of the trust company was vested in Vernor, who could use or transfer a part or the whole of the estate at any time, free from the claims of any one, and he was accountable for his acts to no one. For his services in promoting the scheme he was to be paid 39 per cent. of the first money paid in on all stock subscriptions. He knew that under the laws of...