Cornish v. Friedman
| Decision Date | 21 March 1910 |
| Citation | 126 S.W. 1079 |
| Parties | CORNISH v. FRIEDMAN et al. |
| Court | Arkansas Supreme Court |
Appeal from Circuit Court, Sebastian County; Daniel Hon, Judge.
Action by Ed Cornish against Lewis Friedman and others. From a judgment for defendants, plaintiff appeals. Reversed.
This was an action upon a promissory note in the Sebastian circuit court, the plaintiff reciting that the defendants, Lewis Friedman and I. Isaacson, had executed to the plaintiff on the 2d day of November, 1907, a promissory note for $2,000, due 30 days after date without grace, with interest from date at 8 per cent. per annum until paid, reciting the nonpayment of the same, protest fees $4.90, and concluding with a prayer for the recovery of said $2,000 and interest and $4.90 protest fees.
Answering, defendants Friedman and Isaacson acknowledged the execution of said note, and that they had failed to pay, and set up in the second paragraph as a defense that the said Cornish, together with J. W. Crabtree, J. M. Crabtree, F. F. La Grave, Isaac Kempner, and Dave Kempner were the owners of all the stock of the Merchants' Transfer Company, a corporation in the city of Ft. Smith, and that the Crabtrees, La Grave, and Cornish were officers and directors. That the stock of said corporation amounted to 500 shares of $25 each, owned as follows: J. W. Crabtree, 120 shares; J. M. Crabtree, 120 shares; La Grave, 120 shares; Cornish, 70 shares; and the two Kempners, 35 shares each. That on the day of the execution of the note Lewis Friedman bought all of said stock from said parties. That Cornish was the agent of the Kempners in said sale. That the Crabtrees, La Grave, and Cornish represented to and assured plaintiff that the bills and accounts payable of said corporation amounted to $2,485, itemized as follows: Overdraft, $360; note, $750; purchase price of horse, $175; and accounts, $1,200. That the said representations and assurances constituted a warranty. That, instead of owing $1,200, they owed $2,445, or $1,245 more than was represented. That at the same time said parties represented to and assured said defendant that the accounts due said corporation amounted to $3,100, when, as a matter of fact, they amounted to only $2,748.46, or $351.54 less than represented. That these representations and assurances on the part of the parties constituted a warranty. That the said Lewis Friedman had no knowledge of the assets and liabilities, and relied solely on the said representations and assurances, and that, relying upon such, he bought the stock and executed the note in suit for $2,000 to said Cornish; the same being part of the purchase price of said stock. That the codefendant, Isaacson, signed said note as surety for said Lewis Friedman. That he did not learn of the discrepancy in the bills payable and bills receivable as set out above until he had paid $1,100 of said indebtedness and had executed the note to Cornish, and that by the said acts he had been damaged in the sum of $1,596.94 and a failure of consideration to that extent. That he would not have purchased the stock or executed the note but for said representations, and prays that the same be taken as a cross-complaint against said Crabtrees, La Grave, and Cornish, and that the defendants be allowed credit on the note for $1,594 as of the date of its execution.
The Crabtrees and La Grave filed answers to the cross-complaint, denying its allegations; but, as they passed out by the instructions and verdict and are not parties here, it is unnecessary to set out their answer.
Appellee Friedman had arranged to purchase the capital stock of the Merchants' Transfer Company, a corporation, doing business at Ft. Smith, Ark.
There were two gentlemen by the name of Crabtree, two by the name of Kempner, and one named La Grave, and appellant, who owned the stock of the company, consisting of 500 shares. The Crabtrees and La Grave lived in Ft. Smith, and they owned 360 shares of the stock. Appellant and the Kempners lived in Little Rock, and they owned 140 shares. The Crabtrees and La Grave were the officers of the corporation and constituted a majority also of its board of directors. The latter as individuals had agreed with Friedman that they would sell him the entire capital stock of 500 shares for the sum of $5,400. The Crabtrees and La Grave in this tentative agreement with Friedman undertook to secure the stock of the Kempners and appellant. It was stipulated in this written agreement which the Crabtrees and La Grave had already signed that the purchase price of $5,400 should be applied by Friedman as follows, to wit: The sum of $3,400 to the payment of a note of the said Merchants' Transfer Company for said sum to the Ft. Smith Bank & Trust Company, and the sum of $2,000 to the payment of a note of the said Merchants' Transfer Company for the said sum to Cornish and Kempner. The Crabtrees and La Grave also agreed that they would pay all of the indebtedness of the corporation other than the two notes above mentioned, and there was a stipulation that: This was the status of the negotiations when appellant appeared upon the scene at Ft. Smith. The parties, it seems, were waiting for him. He would not agree to the arrangement that Friedman and the Crabtrees and La Grave had made, and so it was never signed by Friedman and was not carried out. From the time that Cornish appeared, appellees contend that the further negotiations leading to the consummation of the purchase by them of the transfer company were conducted on the part of the company mainly by Cornish, and that he made certain representations, as to the assets and liabilities of the transfer company, which induced the appellees to consummate the purchase, and which amounted in law to personal and individual warranties on the part of appellant.
The appellee Friedman concerning this, testified, in part, as follows: "He [appellant] showed me that the company owed $1,200 and were $360 overdrawn in the bank and a note for $750 on which Mr. Cornish was indorser; that was all they owed, $2,310. He showed me $3,100 owing them, and said, `You can take off 10 per cent. — $310 — and that leaves $2,690, or $380 to the good.' I looked over the accounts and asked him if they were good, and he said he couldn't tell. He said they were amounts people owed and were accurate. I looked over the names, knew they were all right, and told him I would take the accounts, provided the people owed them. Mr. Isaacson was with us; but, to satisfy myself about the accounts, I asked him, `Are you sure the people owe these?' speaking of one of the large accounts, and he answered, `They are absolutely correct accounts.' And I asked again, I says, `And $1,200 is all the company owes?' And he said, `Not exceeding $1,200, their account will not exceed $1,200.' And Mr. La Grave said, `I don't see how it can be $1,200.' Mr. Isaacson asked him, `Is there anything else the company is indebted for?' And Mr. Crabtree said, `Yes, there is a mortgage on a horse for $175.' He asked me if I was willing to make the deal on that basis, and I said, `Yes, I believe I will do it, if the amount is not over $1,200, and $360 and $700.' With that we went up to the bank, and I gave my check for $750 and $360, and gave Mr. Cornish a note for $2,000. That is the note in controversy. I took possession and began paying the debts, and soon found that the accounts ran over $1,200. Before my note was due, I saw that the accounts were running nearly double the amount — $2,400 — and several accounts had receipted bills for what they had paid. Found that the accounts they owed through the town was $1,200 more than they had stated to me. This representation was made to me by Mr. Cornish straight out; myself and Mr. Isaacson were present. There were several accounts amounting to $354 that the people didn't owe, and they had receipted bills for, that they had failed to get credit for, and some of them had been charged twice through mistake, which was proven between Mr. Crabtree and the people that owed that they really didn't owe it. So when this note came due I refused to pay it. I claim credit for $351.54 that I found on their accounts as due which was not owing to the Merchants' Transfer Company. The other is the $1,200 indebtedness that they owed more than they told me, making $1,551.54. I claim credit for that on the $2,000 note. The indebtedness of the transfer company before I bought the stock was $5,400, $2,000 to Mr. Cornish the Merchants' Transfer Company owed; that is, he was the indorser for the note given to the trust company. $3,400 was the stock put up as collateral in the bank, the Ft. Smith Bank & Trust Company, making $5,400. They owed, in addition, about $2,400 city accounts and outstanding accounts, $360 overdraft, $750 note, and $175 for a horse, making $9,085. We figured their equipment, horses and wagons, harness, feed, and other things used by the transfer company at $5,400, and the accounts due them at $3,100. This was all the assets. They represented it to be $8,500, and represented that they owed an indebtedness of $1,200 less than it really was. Mr. Cornish figured out on a piece of paper the $3,100; there was no question about this. It was the only question discussed whether $1,200 would pay the total liabilities. I asked Mr. Cornish whether he was absolutely sure that $1,200 was all the indebtedness, and he told me it was. This was said in the presence of...
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