Dodd v. Boles

• Decision Date: 06 May 1933
• Docket Number: 31103.
• Citation: 137 Kan. 600,21 P.2d 364
• Parties: DODD v. BOLES.
• Court: Kansas Supreme Court

21 P.2d 364

137 Kan. 600

DODD v. BOLES.

No. 31103.

Supreme Court of Kansas

May 6, 1933

Syllabus by the Court.

1. The pleadings in this case considered and it is held that the nature of the cause of action arising out of statement of facts pleaded characterizes the action as an equitable one to cancel and rescind a contract of purchase of corporate stock and recover the purchase price paid therefor, and that the defendant was therefore not entitled to a trial by jury as a matter of right.

2. In an action for the rescission of an oral contract of purchase of shares of stock in a corporation and for the return of the consideration paid for the same, described as $3,500, an amendment describing the consideration paid as being $500 in money and a note and mortgage for $3,000 to conform to the facts proved on the trial, does not change substantially the claim of the plaintiff and is authorized by R. S. 60--759 and such amendment relates back to the commencement of the action and the action is therefore not barred by the two-year statute of limitations as expressed in the third subdivision of R. S. 60--306.

3. The ruling in Bice v. Nelson, 105 Kan. 23, 180 P. 206 181 P. 558, adhered to and followed to the effect that misrepresentations and false statements of fact made by a seller to induce a sale and relied on by the buyer are actionable, without regard to whether or not the seller knew the statements to be false or intended to deceive the purchaser.

4. Where the buyer of corporate stock first seeks the judgment and advice of an acquaintance of long standing as to the financial condition of the company of which the acquaintance had been a director and officer for a year or more, although not intemately connected with its management, and for the expressed purpose of negotiating for the purchase of stock from a third party, and later the inquirer examined the books of the company as suggested by the acquaintance and still later purchased stock of the acquaintance, there being no showing that the buyer was in any way familiar with the line of business of the company, such buyer and his acquaintance are not under these circumstances dealing with each other at arm's length nor with equal opportunities.

5. The delay between the discovery that the representations, made by defendant and confirmed by the books, were false, and the time tender was made and rescission demanded, was not unreasonable under the circumstances outlined in this opinion.

Appeal from District Court, Seward County; Roscoe H. Wilson, Judge pro tem.

Action by J. S. Dodd against Frank G. Boles. From a judgment in favor of the plaintiff, the defendant appeals.

Chas M. Tucker, Chas. Vance, both of Liberal, and C. E. Vance, of Garden City, for appellant.

H. W Stubbs and J. D. Dye, both of Ulysses, for appellee.

HUTCHISON Justice.

The defendant in this action appeals from a judgment rendered against him rescinding a contract of purchase of thirty shares of stock in the Charles E. Davis Furniture Company and ordering the return to the plaintiff of the money paid and the note and mortgage assigned as the purchase price thereof. The grounds for rescission alleged by the plaintiff, and found by the court, were representations made by the defendant as to the financial condition of the company, which were later found to be incorrect and false.

The first and most serious question raised by the appellant concerns the very nature and character of the action and whether or not the pleadings present a jury issue. The appellant contends that the action was originally one in assumpsit for money had and received, being for the recovery of $3,500, the purchase price paid by plaintiff for thirty shares of corporate stock, and was later by amendment changed to an action for the recovery of personal property, $500 paid in cash and indorsement and assignment of a note and mortgage for $3,000.

The petition alleges that the plaintiff on April 6, 1929, purchased from defendant thirty shares of stock in the Charles E. Davis Furniture Company and paid for the same the agreed price of $3,500; that the defendant at and prior to the time of purchase made certain representations as to the financial condition of the company, of which he was a director, and referred the plaintiff to the books of the company as a verification of his statements; that an examination of the books and records of the company substantiated the statements of the defendant, but both the statements and the books were later and after the purchase found to be incorrect and false; that there were found to have been at the time of the representations bills payable and accounts payable not listed or shown in the books or records of the company in excess of $13,000; that instead of having earned a profit of $7,000 the preceding year, as the statement and the books indicated, the company had sustained a loss; that he had relied upon the representations of the defendant and the books referred to by him, in making the purchase; that immediately after learning of the falsity of the representations made to him by the defendant and of the books to which he was referred by the defendant, the plaintiff tendered to the defendant the certificate of stock so purchased and demanded repayment of the money paid by him for the same, and the defendant refused to accept the tender of the stock and repay the money; that plaintiff has at all times since kept good his tender and renewed it with his petition. The petition concluded with a prayer "that said rescission be by the court approved and confirmed and that plaintiff have judgment herein against the defendant, for the sum of $3,500.00, together with interest."

The answer was a general denial and special denials to the effect that he never solicited nor in any way attempted to induce plaintiff to purchase the stock; that plaintiff was informed by defendant, and he well knew that defendant had no part in the active management of the company and had no knowledge of its affairs except as disclosed by its books and records; that on the contrary plaintiff informed defendant that he had thoroughly examined the books and records and knew its financial condition; and that defendant's stock was worth $3,500 and defendant believed plaintiff's statement and relied upon it and sold him the stock for the amount he said it was worth. Defendant then charged plaintiff with mismanagement of the company after assuming charge thereof, and final abandonment of the property, and alleged that, if the representations and books were incorrect, plaintiff could have discovered such condition by the exercise of ordinary care long before he made the tender; that he failed to make a tender within a reasonable time and having thus elected to retain the stock, he had "estopped himself from any equitable right he might have claimed to rescind the sale of said stock."

Appellant in a very comprehensive and learned manner distinguishes between legal rescission and equitable rescission, and quotes eminent text-writers as to the restrictions on the resort to equitable proceedings, limiting them to cases where the remedy at law is inadequate, and argues that in the case at bar there are no allegations or proof that the defendant was insolvent, or a judgment for $3,500 could not be collected from him, or that a lien upon the stock would not have been effective, further emphasizing his contention by pointing to the fact shown by the pleadings and proof that the contract in question was an executed and not an executory one.

R. S. 60--201 provides that: "The distinction between actions at law and suits in equity, and the forms of all such actions and suits heretofore existing, are abolished, and in their place there shall be hereafter but one form of action, which shall be called a civil action. ***"

In the case of Minch v. Winters, 122 Kan. 533, page 539, 253 P. 578, 581, it was said: "It should not be forgotten that in the simplification of our Civil Code and the statutory abolition of distinctions between actions at law and suits in equity (R. S. 60--201), the Legislature was not engaged in curtailing the essential powers of our courts of general jurisdiction. The legislative purpose was rather to emancipate the courts from those ancient artificialities of procedure which handicapped them in dealing out whatever measure of redress, legal or equitable, justice in any case required." In the case of Farney v. Hauser, 109 Kan. 75, 198 P. 178, it was held: "In this jurisdiction, where all distinctions between forms of actions at law and of suits in equity are abolished, all matters of justiciable controversy arising between the same parties, whether legal or equitable, and whether already liquidated or merely capable of ascertainment, may be tried and adjudicated in one action." (Syl. par. 5.)

It has regularly been held in this state that the issues raised by the pleadings determine the nature of the action. Estey v. Holdren, 126 Kan. 385, 267 P. 1098. It was said in Houston v. Goemann, 99 Kan. 438, 162 P. 271, that the form and the essential nature of the action characterized it as an equitable one. In the case of Carbondale Investment Co. v. Burdick, 67 Kan. 329, 72 P. 781, it was held that the manner of enforcing a cause of action must of necessity depend upon the nature of the cause of action arising out of the state of facts pleaded. To hold that this is an action in assumpsit to recover money had and received would require the court to disregard and entirely ignore the several allegations about rescission which are found not only in the petition but also a specific denial of them in the answer.

The nature of this action is the cancellation of the oral contract as to the sale and...