Champion Funding & Foundry Company v. Heskett

• Decision Date: 03 June 1907
• Citation: 102 S.W. 1050,125 Mo.App. 516
• Parties: CHAMPION FUNDING & FOUNDRY COMPANY, Appellant, v. J. W. HESKETT, Respondent
• Court: Kansas Court of Appeals

102 S.W. 1050

125 Mo.App. 516

CHAMPION FUNDING & FOUNDRY COMPANY, Appellant, v. J. W. HESKETT, Respondent

Court of Appeals of Missouri, Kansas City

June 3, 1907

Appeal from Cole Circuit Court.--Hon. William H. Martin, Judge.

AFFIRMED.

Judgment affirmed.

W. S Pope for appellant.

(1) The judgment of the court is complained of by plaintiff in motions for rehearing and in arrest, and should be reversed for defendant will not be permitted to retain the fruits of his venture and avoid its burdens. 24 Am. and Eng. Ency., p 624, et seq; Robinson v. Siple, 129 Mo. 220; Jenkins v. Life Ins. Co., 79 Mo.App. 55; Bank v. Hunt, 76 Mo. 439; Wade v. Ringo, 122 Mo. 322; Fleckenstein v. Inv. Co., 160 Mo. 649; Brown v. Norman, 65 Miss. 369; Johnson v. Cooperly, 33 Ind. 153; Buena Vista F. & V. Co. v. Tuohy, 107 Cal. 243; Stephenson v. Allison, 123 Ala. 447; Stromberg v. Construction Co., 86 Ill.App. 270; Merrill v. Wilson, 66 Mich. 232. (2) Every opportunity was afforded defendant to investigate the business in which he was about to engage before he gave notes for the stock, patent rights and agency contract. He made such investigation. He was convinced that the enterprise would be a profitable one. He went into it, with the others, for the purpose of making money, and because it has not succeeded as rapidly and profitably as he expected, is no reason why he should be relieved, especially as his failure to pay the notes is partly the cause of plaintiff's embarrassment and failure to push the enterprise. Jones v. Rush, 156 Mo. 364; Wade v. Ringo, 122 Mo. 322; Harrison v. Walden, 89 Mo.App. 164; Chase v. Rusk, 90 Mo.App. 25; Davis v. Insurance Co., 81 Mo.App. 264; Basye v. Jamison, 124 Mo. 551; Black v. Epstein, 93 Mo.App. 459; McMealy v. Baldridge, 106 Mo.App. 11. (3) A representation to vitiate a contract must be in regard to some past or existing fact. A promise is not a representation. Assertions made in regard to what property would produce or its future prospect will not avoid the purchaser's note, given therefor. The representation of an inventor, as to the effect of his mechanical devices and as to improvements over the other devices in that line, do not constitute such fraud as will warrant the setting aside of a contract of sale. Wade v. Ringo, 122 Mo. 322; Bank v. Hunt, 79 Mo. 439; Lewis v. Land Co., 124 Mo. 672; McFarland v. Railroad, 125 Mo. 253; Anderson v. McPike, 86 Mo. 292; Dunn v. White, 63 Mo. 181; Bailey v. Smock, 61 Mo. 313; Wannell v. Ken, 57 Mo. 478; Herman v. Hall, 140 Mo. 270; Jones v. Rush, 156 Mo. 364; Cornwall v. Real Estate Co., 150 Mo. 377; Black v. Epstein, 93 Mo.App. 459; Morris v. McMahan, 75 Mo.App. 494; Davidson v. Hobson, 59 Mo.App. 130; Hotel Co. v. Tiernan, 8 Mo.App. 596; Nauman v. Oberle, 90 Mo. 666; Terry v. Insurance Co., 3 Mo.App. 595. (4) In equity cases the court is not bound by the findings of the trial court, but will review the evidence and render such judgment as good conscience dictates. This is settled law in this State. Hoeller v. Haffner, 155 Mo. 597. (5) The evidence discloses that defendant overestimated his ability to sell to others the same kind of property he had bought; that his judgment was faulty in estimating the ease with which he could reach "easy street;" that he is more grieved in not being able to sell to others than by any fraud practiced upon him by his "Brethren;" all of the promoters, defendant included, were too sanguine as to results, that they expected too much too soon.

Silver & Brown for respondent.

(1) The representations were not statements of opinions but of existing facts, and if falsely made, as the evidence abundantly showed, made out a case of fraudulent misrepresentations which entitled defendant to the relief asked in his answer. Coulter v. Clark, (Ind.), 66 N.E. 739; Economic Heater v. American Co., 32 F. 735; Schofield, etc., Co. v. Schofield, 71 Conn. 17; Henry v. Dennis, 93 Me. 106; Hubbard v. Briggs, 31 N.Y. 518; Barrington v. Ryan, 88 Mo.App. 85; Paquin v. Miller, 163 Mo. 79. (2) One who issues a prospectus of a corporation which is intended to influence purchasers in the market as well as subscription for shares, is liable to one who is thereby induced to purchase shares. 1 Page on Contracts, sec. 114, note; Bank v. Phillips, 22 Mo. 85. Fraud is not merged in a written contract. Gooch v. Connor, 8 Mo. 392; Leiches v. Keeney, 98 Mo.App. 405; Culp Co. v. Powell, 68 Mo.App. 238; Liebke v. Methudy, 14 Mo.App. 66. (3) A false representation need not be the sole cause of the contract in order to authorize its rescission; it is sufficient if such representation was one of the inducements for making it. Burnham-Hanna Co. v. Ellmore, 66 Mo.App. 617; Saunders v. McClintock, 46 Mo.App. 216; Wannell v. Kene, 57 Mo. 478. (4) The declarations and statements of Knight are properly treated as those of the plaintiff, his principal. McLachlin v. Barker, 64 Mo.App. 526; Costigan v. Transportation Co., 38 Mo.App. 219; Dickinson v. Kempinking, 90 Mo. 253; Bishop v. Sealm, 87 Mo.App. 256; Culver v. Smith, 82 Mo.App. 397; Lovelace v. Suter, 93 Mo.App. 440. (5) The defendant as plaintiff, under the evidence in this case, showing the false and misleading statements made by Knight, its president and in its literature, could have successfully maintained an original suit for the cancellation of the notes sued on by plaintiff. Beland v. Brewing Association, 167 Mo. 593; Paquin v. Millikin, 163 Mo. 79; Barrington v. Ryan, 88 Mo.App. 85; 2 Story's Equity Jurisprudence (13 Ed.), secs. 694-700; More v. More, 133 Cal. 489; R. S. 1899 secs. 604-5; Joyce v. Growney, 154 Mo. 253.

OPINION

JOHNSON, J.

Action to recover judgment on three promissory notes executed by defendant. In the answer, defendant admitted the execution and delivery of the notes, but alleges they were procured by fraud and prays for their cancellation and for other equitable relief, the nature of which will be disclosed in the statement of the facts of the case. The learned trial judge, sitting as a chancellor, heard the evidence, found the issues in favor of defendant and entered judgment accordingly, from which plaintiff appealed. The facts pertinent to the issues raised by the pleadings are somewhat involved, but must be fully stated in order to discuss intelligently the questions of law presented.

In February, 1903, Archie H. Rife, of Dallas City, Illinois, the inventor of a certain type of carburetor obtained United States letters patent covering his invention and in July of the same year duly assigned the same to the Champion Funding Company, a corporation organized under the laws of Iowa for the purpose of selling territorial rights to vend the device. The stockholders contributed five thousand dollars in cash to the capital stock and the company sold some county rights realizing proceeds that brought its net assets, exclusive of the value of the patent, to about eleven thousand dollars. The sales were made with the agreement on the part of the company that when it should become possessed of funds to the amount of fifty thousand dollars, it would erect a suitable factory and proceed to manufacture the device to supply the demands of those who had purchased county rights. Without waiting for the consummation of this purpose and with affairs in the condition stated, its five stockholders, who owned all of the capital stock, concluded to form a new corporation to conduct the business on a different plan from that being pursued.

Accordingly on the fourteenth day of January, 1904, these stockholders succeeded in incorporating the present company under the laws of Arizona with an authorized capital stock of six hundred and fifty thousand dollars, which was distributed as follows: Three hundred thousand dollars was given to the five stockholders of the old company in consideration of the assignment and transfer to the new company of the "patents and improvements, patent rights, unsold territory, factory site, office equipment, business, copyrights and moneys in bank" owned by the old company; fifty thousand dollars was set aside for the re-purchase by the new company of certain territorial rights, which had been sold; and the remaining three hundred thousand dollars was placed in the treasury for the purpose of being sold to raise funds for the uses of the corporation. The three hundred thousand dollars of stock given in purchase of the assets of the old company was divided in this manner: The assets transferred by the old to the new company (exclusive of the patent) which, as stated, amounted to eleven thousand dollars, were deemed to have paid for one hundred and fifty thousand dollars of this stock, and each of the five stockholders in the old company received thirty thousand dollars as his share thereof, for which he was accounted to have paid the sum of two thousand and two hundred dollars. The remaining one hundred and fifty thousand dollars of this stock was divided into five portions of thirty thousand dollars each and it was proposed to sell each portion to some person whom the five original stockholders desired to have associated with them in the control of the corporation at the price of two thousand and two hundred dollars cash for each portion, so that the corporation would be controlled by a board of ten members, each of whom would own thirty thousand dollars of stock, for which he would have paid two thousand and two hundred dollars. The proceeds to be derived from sales of such portions were to go into the treasury of the company, so that, in effect, the members of the old concern received one hundred and fifty thousand dollars in stock of the new corporation for all of the assets transferred, including the patent, and the remainder of the stock was to be sold for the benefit of the corporation.

A...