Coolidge v. Rhodes

• Decision Date: 25 October 1902
• Citation: 199 Ill. 24,64 N.E. 1074
• Parties: COOLIDGE et al. v. RHODES et al.
• Court: Illinois Supreme Court

199 Ill. 24

64 N.E. 1074

COOLIDGE et al.

v.RHODES et al.

Supreme Court of Illinois.

Oct. 25, 1902.

Error to appellate court, First district.

Action by Georgette E. Coolidge and others against J. Foster Rhodes and others to rescind a contract for the sale of corporate stock. From a judgment in favor of defendants dismissing the bill, affirmed by the appellate court (96 Ill. App. 17), plaintiffs bring error. Reversed.

Collins & Fletcher, for plaintiffs in error.

B. Jenks, for defendants in error.

CARTWRIGHT, J.

Georgette E. Coolidge and Walter G. Coolidge, her husband, plaintiffs in error, filed their bill in the circuit court of Cook county against J. Foster Rhodes and Margaret A. Rhodes, his wife, the defendants in error, for the rescission of a contract by which J. Foster Rhodes transferred capital stock to Georgette E. Coolidge in consideration of the conveyance of a lot by plaintiffs in error to Margaret A. Rhodes, and to cancel said conveyance. Defendants in error interposed a general demurrer to the bill, which the court sustained, and plaintiffs in error, being content to stand by their bill, elected to do so, and the bill was dismissed. The branch appellate court for the First district affirmed the decree. and the writ of error in this case was sued out to review the judgment of the appellate court.

The ground for asking rescission of the contract of sale and cancellation of the conveyance was misrepresentation and fraud on the part of the defendant J. Foster Rhodes with respect to the character of the capital stock which constituted the consideration. Counsel for plaintiffsin error confess that the bill is not a model of equity pleading, with the saving clause that it was not filed by them. We agree with them that the bill is not well drawn, and may add that there would have been much less confusion and ground for argument as to its sufficiency if the facts relied upon had been stated in a clear, concise, and orderly manner. However, an analysis of the bill exhibits the following averments of fact, which, for the purposes of the demurrer, are admitted to be true: On September 13, 1885, the complainant Georgette E. Coolidge was the owner of the lot in question, and agreed to sell it to the defendant J. Foster Rhodes for $7,800 in cash. He represented that he owned stock in the Traders' Safe & Trust Company, a corporation of this state; that the stock was good and valid, full-paid, and nonassessable; that the stock was paying a dividend of between 12 and 14 per cent.; that the dividends had been so large that the corporation had increased its capital stock from $250,000 to $300,000; and that every dollar of the stock of the corporation, both the original and increased stock, had been taken and paid for to the corporation in cash, at its face value. He was a director in the corporation. Georgette E. Coolidge, relying upon these representations, and believing them to be true, agreed to accept $7,800 in said stock for the lot, and on September 30, 1885, J. Foster Rhodes delivered to her certificates for 78 shares of the stock, of the par value of $7,800, made out in her name, and she, with her husband, the complainant Walter G. Coolidge, executed a deed for the lot to the defendant Margaret A. Rhodes, wife of J. Foster Rhodes, for the stated consideration of $10,000. J. Foster Rhodes purchased the premises on his own account, and the conveyance was made to his wife in trust for his sole benefit. The representation that the stock was good and valid, full-paid, and nonassessable was untrue, and so known to be by said J. Foster Rhodes. The original capital stock was fixed at $250,000, but only $150,000 was subscribed and paid for. One thousand shares, amounting to $100,000, were subscribed for by Frederick S. Eames, who claimed to have subscribed for the corporation with the understanding that he should not be held on his subscription, and the subscription was so treated by the corporation. The company was indebted $4,500 on its building, and had a bonded debt of $100,000. J. Foster Rhodes was a director of the corporation from August 5, 1884, to January 10, 1888. This being the situation, a stockholders' meeting was called by the board of directors, of which J. Foster Rhodes was one, to increase the capital stock. The meeting was held August 18, 1885, and 1,210 votes were cast in favor of increasing the capital stock from $250,000 to $300,000. There were then 2,500 shares of the original stock. E. W. Shirk, president of the company, made and filed a certificate, subscribed and sworn to before J. Foster Rhodes, as notary public, that at least two-thirds of all the votes represented by the whole stock of the corporation voted for the increase. This certificate was recorded, and J. Foster Rhodes knew it to be untrue. After the stockholders' meeting, a directors' meeting was held, at which J. Foster Rhodes was present and took part as a director, and it was then resolved that the 1,000 shares subscribed for by Eames, together with the 500 shares to be issued to increase the stock, should be sold for $3 per share, the existing stockholders to have the first option to purchase at that price. The 1,500 shares were issued and distributed among the stockholders, and they paid $3 per share of $100 for it, surrendering their old certificates and receiving new ones of two shares for each share surrendered. The corporation received but $4,500 for stock of the par value of $150,000. J. Foster Rhodes was the owner of 255 shares of paid-up stock, and surrendered his old certificate and received a new one for 510 shares. The stock delivered to Georgette E. Coolidge for the lot was a part of the 510 shares so issued to him. He was an active member of the board of directors, and had full knowledge of all the proceedings; knew the number of votes cast for the increased stock, and that the certificate was false. He was one of the movers in the scheme to increase the stock and to distribute the original and increased stock at $3 per share. The complainants first learned of the facts of the fraudulent increase, and that the stock was not fully paid for, within three weeks previous to filing the bill. Georgette E. Coolidge had received in dividends on the stock $838.50, and she brought the stock and these dividends into court, and tendered them to the defendants.

The facts alleged and admitted by the demurrer to be true are that the defendant J. Foster Rhodes sold to the complainant Georgette E. Coolidge $7,800 of the capital stock of a corporation as paid-up stock which was not in fact paid up, although issued as such, and that he participated in the issue. This was a fraud on the purchaser of the stock. Cook, Stock, Stockh. & Corp. Law, § 350. The subscription of Eames was a fictitious and...