Cornish v. Friedman

• Decision Date: 21 March 1910
• Citation: 126 S.W. 1079,94 Ark. 282
• Parties: CORNISH v. FRIEDMAN
• Court: Arkansas Supreme Court

126 S.W. 1079

94 Ark. 282

CORNISH v. FRIEDMAN

Supreme Court of Arkansas

March 21, 1910

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

Appeal from Sebastian Circuit Court, Fort Smith District; Daniel Hon, Judge; reversed.

STATEMENT BY THE COURT.

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 two thousand dollars, due thirty days after date without grace with interest from date at eight 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 two thousand dollars 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. LaGrave, Isaac Kempner and Dave Kempner, were the owners of all the stock of the Merchants' Transfer Company, a corporation in the city of Fort Smith, and that the Crabtrees, LaGrave and Cornish were officers and directors. That the stock of said corporation amounted to five hundred shares of $ 25 each, owned as follows: J. W. Crabtree 120 shares, J. M. Crabtree 120 shares, LaGrave 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, LaGrave 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 $ 2,455, 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 two thousand dollars to said Cornish, the same being part of the purchase price of said stock. That the co-defendant, 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, LaGrave 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 LaGrave 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 Fort Smith, Arkansas.

There were two gentlemen by the name of Crabtree, two by the name of Kempner, and one named LaGrave, and appellant who owned the stock of the company consisting of five hundred shares. The Crabtrees and LaGrave lived in Fort Smith, and they owned three hundred and sixty shares of the stock. Appellant and the Kempners lived in Little Rock, and they owned one hundred and forty shares. The Crabtrees and LaGrave 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 five hundred shares for the sum of fifty-four hundred dollars. The Crabtrees and LaGrave, 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 LaGrave had already signed, that the purchase price of fifty-four hundred dollars should be applied by Friedman as follows, towit: The sum of thirty-four hundred dollars to the payment of a note of the said Merchants' Transfer Company for said sum to the Fort Smith Bank & Trust Company, and the sum of two thousand dollars to the payment of a note of the said Merchants' Transfer Company for the said sum to Cornish and Kempner.

The Crabtrees and LaGrave 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 "for the purpose of paying said indebtedness there shall be used the proceeds of collections of all accounts due said Merchants Transfer Company made prior to this date. If the proceeds of such collections are not sufficient to pay such indebtedness, the parties of the first part (Crabtrees and LaGrave) agree to pay whatever balance may be necessary to pay said indebtedness. If the proceeds of such collections are more than sufficient to pay such indebtedness, the surplus shall go to said parties of the first part."

This was the status of the negotiations when appellant appeared upon the scene at Fort Smith. The parties, it seems, were waiting for him. He would not agree to the arrangement that Friedman and the Crabtrees and LaGrave 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 twelve hundred dollars, and were three hundred and sixty dollars 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 ten per cent.--three hundred and ten dollars--and that leaves twenty-six hundred and ninety, or three hundred and eighty dollars 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 twelve hundred dollars is all the company owes?' And he said, 'Not exceeding twelve hundred dollars; their account will not exceed twelve hundred dollars,' and Mr. LaGrave said, 'I don't see how it can be twelve hundred dollars.' 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 one hundred and seventy-five dollars.' 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 twelve hundred dollars, and three hundred and sixty and seven hundred.' With that we went up to the bank, and I gave my check for $ 750 and $ 360, and gave Mr. Cornish a note for two thousand dollars. That is the note in controversy. I took possession and began paying the debts, and soon found that the accounts ran over twelve hundred dollars. Before my note was due I saw that the accounts were running nearly double the amount--twenty-four hundred dollars--and several accounts had receipted bills for what they had paid. Found that the accounts they owed through the town was twelve hundred 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 proved 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 twelve hundred dollars indebtedness that they owed more than they told me, making $ 1,551.54. I claim credit for that on the two thousand dollar note. The indebtedness of the transfer company before I bought the stock was fifty-four hundred dollars, two thousand to Mr. Cornish the Merchants' Transfer Company owed; that is, he was the indorser for the note given to the trust company. Thirty-four hundred dollars was the stock put up as collateral in the bank, the Fort Smith Bank & Trust Company,...