Everding & Farrell v. Toft

• Decision Date: 21 November 1916
• Citation: 82 Or. 1,160 P. 1160
• Parties: EVERDING & FARRELL v. TOFT ET AL.
• Court: Oregon Supreme Court

160 P. 1160

82 Or. 1

EVERDING & FARRELL v. TOFT ET AL.

Supreme Court of Oregon

November 21, 1916

Department 2.

Appeal from Circuit Court, Multnomah County; C. U. Gantenbein Judge.

Action by Everding & Farrell against John F. Toft and others. From a portion of the judgment in favor of defendant J. L. Hoffman plaintiff appeals, and from a portion in favor of plaintiff against defendant John F. Toft, the latter appeals. Reversed and remanded.

The Colombian Timber Company is a corporation, and it will be mentioned by its name or as the timber company. Everding &amp Farrell is likewise a corporation, but it will be referred to either by its corporate name or as the plaintiff. The Colombian Timber Company sold 5,000 shares of its capital stock to J. L. Hoffman who paid for it by executing a note for $5,000 dated August 7, 1912, payable one year after date to the order of the timber company at the Merchants' National Bank of Portland, Or. Everding & Farrell purchased the note, on September 13, 1912, from the Colombian Timber Company for $4,000. When the paper was delivered to the plaintiff it bore the indorsements of John F. Toft, the Colombian Timber Company, and John F. Shorey in the order named. Payment having been demanded and refused, the paper was protested, and the plaintiff then commenced this action to recover the full amount of the note, naming as defendants J. L. Hoffman, the maker, and John F. Toft, Colombian Timber Company, and John F. Shorey, the indorsers. The timber company and Shorey defaulted. Hoffman and Toft filed separate answers, each claiming that the plaintiff purchased the note with knowledge of fraud. The complaint alleges that Hoffman executed and delivered the note, and that the paper was "in due course of business, indorsed by the defendants J. F. Toft, the Colombian Timber Company, and John F Shorey."

The defendant Toft defends by saying that W. E. Douglas as agent for the corporation came to him and "stated that the Colombian Timber Company was trying to raise some money by making a sale of said note, and as defendant John F. Toft was a business man on Front street, in Portland, Or., that if he (Toft) would indorse said note that the Colombian Timber Company could readilly sell the same." The answer continues by alleging that the corporation through its officers and especially through its stock salesman W. E. Douglas represented that it owned logging equipment and machinery which could not be duplicated for less than $50,000, and that it owned a contract, "which will no doubt run into millions of dollars," to log and ship for a price of $50 per 1,000 feet board measure upwards of 5,000,000,000 feet of mahogany and Spanish cedar timber located on the Martello estate in the United States of Colombia, South America, and that for the purpose of raising funds with which to install "its machinery on the ground and commence actual operations of logging and shipping under the terms of its contract" it was offering to sell 50,000 shares of its treasury stock. Continuing, the answer recites that while acting for the Colombian Timber Company, Douglas represented that it owned property which was reasonably worth $50,000, and was free from incumbrances, and that Shorey was worth $100,000, and that the Hoffman note was accompanied by a negotiable instrument for $10,000 which was held as collateral security. After charging that all the representations were false and that he indorsed the note in reliance upon them, Toft alleges that the timber company offered to sell the Hoffman note to Everding & Farrell, and that afterwards Thomas Farrell, who is a representative of the plaintiff--

"interviewed the defendant John F. Toft as to the genuineness of said promissory note, and at said time the said Thomas Farrell asked (stated to) said John F. Toft that said note had been offered to him (Thomas Farrell) for $4,000, or $1,000 less than the face value thereof, and that he was thinking of purchasing the same, whereupon the defendant John F. Toft made the following statement to Thomas Farrell: 'If the Colombian Timber Company was offering you that note for $1,000 less than the face of the note there is something wrong with it. It certainly doesn't look good to me. You better investigate it further. There would be no occasion to sacrifice this note if the statements made to me by W. E. Douglas, the agent of this company, which were that the company had property of the reasonable value of $50,000, and that John F. Shorey, the president of said company, was possessed of property of the reasonable value of $100,000 were true. There is something radically wrong about this transaction. You better be careful. I am going to investigate the matter myself. Don't buy this note expecting me to pay it, I never will."'

Toft avers that notwithstanding the warning and information given by him the plaintiff "thereafter went and purchased said promissory note from the Colombian Timber Company," and consequently with "due notice that the note and indorsement by the defendant John F. Toft had been procured by fraud."

The answer filed by Hoffman sets forth that the timber company made false representations, substantially the same as those made to Toft, concerning the logging equipment, the timber contract, and the purpose for which the treasury stock was to be sold, but he goes further and alleges that "John F. Toft was at the time acting as agent of said defendant corporation" in the sale of its corporate stock, and that he conspired with W. E. Douglas, who was a stock salesman and promoted the sale to Hoffman, to induce a purchase of the stock, and told Hoffman that Douglas was reliable, and that "he (Toft) had carefully examined into the said proposition of defendant corporation, its properties and the value thereof, that it owned the properties" represented to be owned by it, and "that he had invested of his own money in the corporate stock in the said corporation the sum of $5,000," and "that said capital stock was worth the par value thereof"; and Hoffman then avers that Toft never invested any sum in the capital stock, and that the only stock ever received by him was as a commission for inducing Hoffman to buy the 5,000 shares. Hoffman says that he relied upon the fraudulent representations of the corporation, and also upon the statements made by Toft, and on that account purchased the stock and gave his note. After stating that the plaintiff had purchased the note at a discount of 20 per cent., Hoffman then avers:

"That recently he has been informed, and therefore alleges the fact to be, that prior to the purchase of said note by plaintiff, plaintiff was warned that there was something wrong about the note, and advised to investigate the same; and that sufficient of the circumstances surrounding the transactions hereinbefore alleged was brought to the knowledge of the plaintiff, so that plaintiff was not and is not a purchaser for value in good faith, without notice of the facts hereinbefore set forth."

Plaintiff replied to both answers by denying any fraud or notice of the alleged infirmity in the note. A trial resulted in a verdict in favor of the defendant J. L. Hoffman, but at the same time the jury found for the plaintiff and against the defendant Toft for the full amount of the note. The plaintiff appealed from that part of the judgment which was favorable to Hoffman, while Toft appealed from that portion which is against him.

C. A. Bell, of Portland (Reed & Bell, of Portland, on the brief), for appellant. E. B. Seabrook, of Portland (Malarkey, Seabrook & Dibble and Walter G. Hayes, all of Portland, on the brief), for appellant John F. Toft. A. E. Clark, of Portland (M. H. Clark, of Portland, on the brief), for defendant J. L. Hoffman.

HARRIS, J. (after stating the facts as above).

The plaintiff appealed because the court: (1) Denied a motion to strike out all evidence relating to the charge of fraud; (2) refused to direct a verdict for the plaintiff; and (3) instructed the jury that "under the evidence in this case, you may find a verdict in favor of the defendant Hoffman, although you may find the plaintiff is entitled to recover against the defendant Toft." The appeal prosecuted by Toft is predicated upon the theory that the discharge of the maker of the note necessarily operates as a discharge of the indorser.

The nature of the questions involved in the two appeals makes it proper to take some notice of the testimony before attempting to discuss the assignments of error. The Colombian Timber Company issued a printed prospectus and employed W. E Douglas to sell its capital stock. The prospectus stated that the timber company owned tools, machinery, and equipment for logging, "and in fact complete equipment for the woods" which "could not be duplicated for less than $50,000," and that "the company also owns the contract for logging the property of the Fearon & Martello Company, the value of which cannot be estimated, but which will no doubt run into millions of dollars." The prospectus recited that the timber company "will engage in the business of logging mahogany and Spanish cedar timber exclusively, and by virtue of a logging contract which it holds covering upwards of 5,000,000,000 feet of timber," and it is also represented that "the Colombian Timber Company offers for sale 50,000 shares of its treasury stock, fully paid and nonassessable, at par, $1 per share. The funds realized from the sale of this stock will be used to install its machinery on the ground and commence actual operations of logging and shipping under the terms of its contract as hereinbefore set forth." The statements appearing in the prospectus were false. The timber company did not own any logging tools, machinery, or equipment, nor...