Collison v. Ream

• Decision Date: 07 January 1914
• Docket Number: 17,412
• Citation: 144 N.W. 1050,95 Neb. 29
• Parties: JOHN S. COLLISON ET AL., APPELLEES, v. JOHN L. REAM, APPELLANT
• Court: Nebraska Supreme Court

144 N.W. 1050

95 Neb. 29

JOHN S. COLLISON ET AL., APPELLEES, v. JOHN L. REAM, APPELLANT

No. 17,412

Supreme Court of Nebraska

January 7, 1914

APPEAL from the district court for Valley county: JAMES N. PAUL JUDGE. Reversed.

REVERSED.

T. J Doyle, G. L. DeLacy and J. R. Swain, for appellant.

E. P Clements and J. R. Berry, contra.

LETTON, J. BARNES, ROSE and SEDGWICK, JJ., not sitting.

OPINION

LETTON, J.

This is an action to rescind an executed contract for the exchange of stock in two corporations. Plaintiffs succeeded in the action, and defendant appeals.

Many of the facts are not disputed and these will be summarily stated. About September 1, 1908, the plaintiffs John S. and August K. Collison were the owners of a flouring-mill operated by water-power situated at Ord, Nebraska. One William A. Wright, a practical miller and mechanic, was the inventor and patentee of a washing machine, which at the time was being manufactured by the Nebraska Incubator Company, of Fairfield, Nebraska. John L. Ream, the defendant, and Wright had been associated together for some time as partners, under the name of the Wright Washing Machine Company, in procuring the manufacture and sale of the washing machine, and had a written contract with the incubator company for the manufacture of its machines in quantities. The Wright Manufacturing Company, a corporation, was afterwards organized for the purpose of taking over this business; Ream and Wright owning all the stock at the time of the exchange. In August, 1908, Ream met John S. Collison at Ord, and some conversation was had between them, in the course of which Ream stated that he and Wright were in the washing machine business; that Wright was an experienced miller; that they wanted to get an interest in the Ord mill so that the establishment of the Wright Manufacturing Company could be placed at Ord and be operated with the same water-power. The Collisons were not practical millers, and wanted to avail themselves of Wright's experience and ability as a miller and machinist. Shortly afterwards Wright and Ream went to Ord, and the parties made a tentative agreement. Under the arrangement then made, Collison Brothers were to form a corporation which should take over the mill property and business, under the name of the Ord Milling Company, with a capital stock of $ 25,000, $ 13,000 of which was to be issued. Wright and Ream were to receive one share over one-half of the stock issued in exchange for 75 shares of stock of the Wright Manufacturing Company. After making some inquiries as to the assets of the Wright Manufacturing Company, they then went to Mr. Clements, an attorney, to have the contract drawn up, who advised Collison to go to the plant at Fairfield, where the washing machines were under construction, and look over the property of the company. Collision and Ream then went to the incubator factory at Fairfield, and from there to Axtel, Kansas, where the home office of the Wright Manufacturing Company was situated. Collison then returned to Ord, without Ream, and Wright and the plaintiffs closed the transaction in the office of Mr. Clements. Thirty-three shares of the mill company stock were transferred to Ream and 33 to Wright in exchange for the Wright Manufacturing Company stock. Immediately thereafter Wright removed to Ord, took charge of the mill, rearranged the machinery, and made other lasting improvements. The result has been that the grade of flour manufactured has been improved and the business of the mill has materially increased since Wright became miller. Ream, who is a traveling salesman, also helped to bring in new customers and increase the sales of flour. So far the facts seem to be undisputed.

Plaintiffs' petition bases their right to rescission upon the allegations that, at the time of the conversation in Ord, Ream represented that the Wright Manufacturing Company was actively engaged in the manufacture and sale of washing machines, and was earning 30 per cent. upon the capital stock; that that company was the owner of washing machines complete and in process of construction, material, bills receivable, furniture, and other property, all of the value of $ 15,000, and was not in debt, and on the further allegations that afterwards, when Collison visited the plant of the Nebraska Incubator Company at Fairfield, he pointed out a large number of washing machines complete and partially complete, and a large amount of material for their construction, and there represented that all of this property belonged to the Wright Manufacturing Company; that afterwards plaintiffs discovered that the patent was of no value, that the corporation was not actively engaged in the manufacture and sale of washing machines, had never earned any dividends, was heavily in debt, that the washing machines and the property pointed out to him at Fairfield were not the property of the Wright Manufacturing Company but belonged to the incubator company and that the stock of the Wright Manufacturing Company was of no value whatever.

The answer pleads that the mill property, at the time of the transaction, was of little or no value, and was not being operated as a mill; that the Ord Milling Company was incorporated for the purpose of rehabilitating the mill and building up and developing its business; that no misrepresentations were made; that the Collisons had investigated the assets of the Wright Manufacturing Company, and there had been exhibited to them the contract with the Nebraska Incubator Company, and they knew the exact condition of affairs; that they also received from Wright a truthful and correct statement of the assets of the Wright Manufacturing Company. It is also alleged that, after the exchange, both Wright and defendant devoted their time, energy and skill to building up the mill; that plaintiffs refused to furnish any capital for that purpose, but defendant has supplied $ 2,000 in cash to buy grain and pay operating expenses; that, as a result of the efforts of himself and Wright, a lucrative business has been established; that he has received no remuneration for his time and services; that, after the plaintiffs had full knowledge of the exact condition of affairs of the Wright Manufacturing Company and the value of its stock, it induced defendant to spend his money, time and efforts in the interest of the Ord Milling Company, and are estopped by their laches and delay from maintaining this action; and that there is no equity in plaintiffs' bill, for the reason that it does not offer to do equity by reimbursing the defendant for his money and services.

The action is brought against Ream alone to procure the surrender of 33 shares of stock assigned to him. John S. Collison seems to have conducted the exchange on behalf of himself and his brother. He testifies that in the conversation he had with Ream in Ord he was told by him that the Wright Manufacturing Company had assets of the value of $ 15,000; that it was making 30 per cent. on the investment; that the assets were washing machines, material for their manufacture, bills receivable, and money in bank; that, when they went to Fairfield, Ream showed him at the plant of the Nebraska Incubator Company a number of washing machines and a large quantity of material, and stated that it all belonged to the Wright...