Daly v. Showers

• Decision Date: 04 May 1937
• Docket Number: 15330.
• Citation: 8 N.E.2d 139,104 Ind.App. 480
• Parties: DALY et al. v. SHOWERS et al.
• Court: Indiana Appellate Court

8 N.E.2d 139

104 Ind.App. 480

DALY et al. v. SHOWERS et al.

No. 15330.

Appellate Court of Indiana, in Banc.

May 4, 1937

Kane Blain & Hollowell, of Indianapolis, for appellants.

Miller & Miller, of Indianapolis, for appellees.

WOOD Chief Judge.

The appellants were preferred stockholders of the Weidley Motors Company, a corporation organized and existing under the laws of Indiana. The appellees were directors of said corporation. Appellants brought suit against the appellees by an amended complaint in three paragraphs, to recover damages alleged to have been sustained by the appellants because of the maladministration of the affairs of said corporation by the appellees.

The issues were closed by an answer in general denial. On these issues the cause was tried by the court and a jury, resulting in a verdict and judgment in favor of appellees.

The first paragraph of complaint was dismissed during the trial. Within due time the appellants filed a motion for a new trial, which was overruled, and they appeal assigning this action of the trial court as the only error for reversal. The only causes for a new trial urged as basis for reversal, are the giving of each of instructions Nos. 3, 4, 5, 6, 7, and 8 by the court on its own motion, and the refusal of the court to give instructions Nos. 2, 3, 7, and 8 tendered by appellants.

This appeal is taken under the proviso of section 2-3223 Burns' 1933, section 497, Baldwin's Ind.St.1934. The instructions given by the court on its own motion, those given at the request of the appellees those given at the request of the appellants, and those which the court refused to give at the request of appellants, are incorporated in the record by a bill of exceptions, which recites that the same were applicable to the evidence in the cause. The evidence is not in the record.

The final result of this appeal is largely dependent upon the theory of appellants' amended second paragraph of complaint. Appellants contend that it is upon the theory of constructive fraud, while appellees contend that it is upon the theory of actual fraud and that was the theory adopted by and upon which the cause was tried in the lower court.

The allegations of the amended second paragraph of complaint briefly summarized are as follows: That the Weidley Motors Company was a corporation; that the appellants were owners of preferred stock in said corporation; that the appellees were directors of said corporation; that each of the shares of said preferred stock was of the par value of $100 payable on January 1, 1925; that prior to June 12, 1922, said corporation was the owner of assets of various kinds of the approximate value of $2,000,000 and sufficient to pay all outstanding indebtedness of said corporation and to redeem all of appellants' preferred stock at par in the event of liquidation of said corporation; that on or about the month of June, 1922, appellees proposed a plan of refinancing said corporation by issuing $700,000 worth of mortgage bonds $350,000 to consist of class "A" bonds, the proceeds from which were to be used for the sole purpose of additional working capital for said corporation; $350,000 to consist of class "B" bonds, the proceeds derived therefrom to be used for the purpose of paying existing indebtedness of said corporation; that in June, 1922, appellees represented to appellants that if they would extend the date of maturity of their preferred stock for a period of five years and consent to the issuing of said $700,000 of mortgage bonds, to be a lien upon the assets of said corporation prior to the lien of appellants' preferred stock, that appellees would secure the cancellation of $150,000 of preferred stock and carry out the plan of refinancing said corporation; that appellees represented that if appellants would consent to the proposed plan and extend payment of their preferred stock and said plan was carried out said corporation would be placed on a sound financial basis and make appellants' preferred stock valuable; that the funds derived from class "B" bonds would be sufficient to pay all floating indebtedness of the corporation and dividends on the preferred stock to July 1, 1922; that appellees represented that said corporation had secured or was about to secure a valuable contract from the Auburn Automobile Company for the manufacture of motors which would insure a profitable business to said corporation for a long period of years; that appellants believed and relied upon the representations of appellees, extended payment of the preferred stock and consented to said plan of refinancing said corporation; that thereafter, without notice to appellants and contrary to their representations, appellees canceled or changed the contract with the Auburn Automobile Company, and made a new or modified contract with said company, and entered into a contract with the Stutz Motor Car Company; that said contracts were of no value and could not be performed at a profit to said Weidley Motors Company; that said contracts provided for the manufacture of motors at a loss; that although appellees represented that the Auburn Automobile Company would purchase the $350,000 of class "A" bonds, after appellants had consented to the issuing thereof, appellees refused to carry out said plan by which the Auburn Automobile Company was to purchase said class "A" bonds; that in lieu thereof appellees agreed and promised that they would purchase said class "A" bonds in such an amount as would be adequate to finance the new business of said company; that appellees did purchase $150,000 of class "A" bonds; that a large part of said sum was not used for working capital for said corporation, but was used to pay existing debts of said corporation on which appellees were personally liable and which operated to the direct and personal benefit of appellees, and which said debts it was represented by appellees would be paid from funds derived from the sale of class "B" bonds and accounts receivable of said corporation; that the appellees raised their salaries; that they refused to purchase more class "A" bonds; that thereafter working capital in the sum of $200,000 was needed to continue the operation of said corporation and appellees refused to purchase any more of class "A" bonds as they had agreed to do and caused an action to be brought in the Marion circuit court for the appointment of a receiver for said corporation; that the appellee Fletcher, an officer and director of said corporation, was appointed as receiver; that upon his petition an order for the sale of the assets of said corporation was obtained; that thereafter the assets of said corporation were appraised at the sum of $378,124.17; that if appellees had carried out their promises and agreements the assets of said corporation would have had a value of $2,000.000 as a going concern. "Plaintiffs further allege that the defendants knew that these plaintiffs did not have sufficient assets and would be financially unable to protect their interests in said corporation at any sale of the assets of said corporation had or made by said receiver and that said defendants, or some of them would be enabled to purchase said assets at an amount greatly below the real value thereof."

The amended third paragraph of complaint alleged substanially the same facts as the amended second paragraph, but alleged in addition thereto facts to the effect that the appellees entered into a conspiracy to defraud the appellants, the purpose of which conspiracy was consummated to appellants' damage. It is agreed that the amended third paragraph of complaint was upon the theory of conspiracy to defraud appellants.

"Fraud in its generic sense, especially as the word is used in courts of equity, comprises all acts, omissions, and concealments involving a breach of legal or equitable duty and resulting in damage to another. Fraud has also been...