Hancock v. Luke

• Decision Date: 09 March 1915
• Docket Number: 2665
• Citation: 148 P. 452,46 Utah 26
• Court: Utah Supreme Court
• Parties: HANCOCK v. LUKE, et al

148 P. 452

46 Utah 26

HANCOCK v. LUKE, et al

No. 2665

Supreme Court of Utah

March 9, 1915

Appeal from District Court, Third District; Hon. Geo. G. Armstrong Judge.

Action by George B. Hancock against Francis G. Luke and another.

Judgment on the pleadings for plaintiff. Defendants appeal.

REVERSED AND REMANDED.

Chris Mathison, A. L. Hoppaugh and S. P. Armstrong for appellants.

M. E Wilson and Bismark Snyder for respondent.

FRICK J. STRAUP, C. J. concurring. McCARTY, J. dissenting.

OPINION

FRICK, J.

This is an appeal from a judgment on the pleadings. The plaintiff, an attorney at law, commenced this action in the district court of Salt Lake County on March 29, 1913, to rescind a contract entered into by him with the defendants in December, 1908. The plaintiff alleges in his complaint:

"(1) That heretofore, to wit, on or about the 12th day of December, 1908, at Salt Lake City, Utah, plaintiff and defendants entered into a contract in writing, by the terms of which defendants agreed to sell to plaintiff, and plaintiff agreed to purchase from defendants, five shares of the capital stock of the Merchants' Protective Association, a corporation under the laws of Utah, for the sum of $ 2,500, and that a certificate or writing, purporting to be certificate No. 33 of said the Merchants' Protective Association, for said five shares of stock, was thereupon delivered to plaintiff, and plaintiff thereafter paid defendants the said sum of $ 2,500.

"(2) That in and by the terms of said contract it was further agreed that plaintiff should be employed for an indefinite period by said the Merchants' Protective Association, at an agreed monthly salary, the defendants assuming to act for and represent said corporation to the extent of making said contract for such employment; and that, in accordance with the said provision of said contract, plaintiff entered into the employ of a collection business purporting to operate as and in the name of the Merchants' Protective Association, on or about the said 12th day of December, 1908, and continued in its employ until on or about the 1st day of January, 1913, during which time he received the monthly salary prescribed in said contract.

"(3) That immediately before and at the time said contract was executed, and as an inducement to plaintiff to execute the same, defendants stated and represented to plaintiff that a certain collection business then being conducted by defendants was owned by the Merchants' Protective Association, a corporation under the laws of Utah, with a total authorized capitalization of 100 shares, of which the defendants were the owners of not less than 85 shares, they having purchased all said stock from the original incorporators of said corporation and their assignees; that defendant Francis G. Luke was the general manager of said corporation, and that it was in an exceedingly prosperous condition, so much so that its stock, which had a par value of only one dollar per share, had increased to an actual value of $ 500 per share; that it was the owner of judgments against various individuals amounting to at least $ 1,000,000, all of which could and would be collected, and the proceeds of which, when collected, would belong to said corporation; that it had a large reserve fund, amounting to not less than $ 10,000 on deposit with McCornick & Co., Bankers, of Salt Lake City, Utah; that it was not indebted to any of its clients in any sum whatever, but had always kept its collections of money belonging to clients fully paid up as fast as such collections were received by it; that its business standing in the State of Utah and elsewhere was firstclass, which would enable it to increase its business in the future, and that it had unsettled business in its possession, which, without any new business whatever, would enable it to continue operations and pay dividends of not less than 12 per cent. per annum upon its stock, valued at $ 500 per share, for many years.

"(4) That plaintiff relied upon said representations so made to him by defendants, and believed the same and each and all of them to be true as stated, and such representations formed the sole and only consideration and inducement to plaintiff to enter into said contract with defendants, which he would not have executed and entered into, had he not believed said representations and each of them to be true."

The plaintiff, in substance, further alleged that the representations set forth were false and were known to be so by the defendants; that they were not, at the time said contract was entered into or at all, the owners of the capital stock aforesaid; that said collection business was not as represented by them; that the defendants did not, nor did said Merchants' Protective Association, own collectible solvent judgments to the value of $ 1,000,000, or any other sum in excess of $ 100; that neither the defendant Francis G. Luke individually, nor said association, had on deposit with McCornick & Co., Bankers, or elsewhere, any moneys, and that said capital stock was not worth in excess of one dollar per share; that in the month of June, 1912, he obtained the first intimation or information that the representations made by said defendants respecting the extent and value of their business and the amount of their assets and the value of said stock were false, and that they knew that said representations were false when made; that said capital stock was and is worthless, and plaintiff, in the month of January, 1913, and before bringing this action, tendered said stock to said defendants and demanded repayment to him of said $ 2,500 paid therefor, which demand defendants refused. The plaintiff did not set forth the contract, but contented himself with stating its effect.

The defendants filed an answer in which they admitted the formal parts of the complaint and explained and denied the allegations of the complaint in the following terms:

"(2) The defendants deny that they procured said agreement from the plaintiff by fraud and misrepresentation, as alleged in paragraph numbered 3 of the plaintiff's complaint, and deny, particularly, that, immediately before and at the time said contract was executed, they made any or all of the following representations: That the stock of said Merchants' Protective Association had an actual value of $ 500 per share; that the said association was the owner of judgments, amounting to $ 1,000,000, all of which could and would be collected, or that the proceeds of each judgment would, when collected, belong to said corporation; that it had on deposit with McCornick & Co., Bankers of Salt Lake City, Utah, a large reserve fund amounting to not less than $ 10,000; that said Merchants' Protective Association was not indebted to any of its clients in any sum whatever, or that it always kept fully paid up its collections of money belonging to clients as fast as such collections were received by it; that it had unsettled business in its possession which, without any new business whatever, would enable it to continue operations and pay dividends of not less than twelve per cent. per annum upon the stock, valued at $ 500 per share, for many years.

"(3) And, on the contrary, the defendants say: That, at the execution of said contract, the plaintiff well knew, and for two months prior thereto had known, that, by an agreement between the defendant Francis G. Luke and the said Merchants' Protective Association, the said defendant was entitled to all the earnings, profits, and income of the said association, including its proportion of any and all judgments owned or controlled by it; and the defendants did not, at any time before or at the execution of the said contract between the defendants and plaintiff, represent or agree that the proceeds of such judgments, or the proportionate share thereof belonging to said Merchants' Protective Association, should be set aside as a surplus fund or to increase the capital and assets of the said corporation, or that the same should be paid out as dividends to its stockholders, all of which said plaintiff well knew; and the defendants show that it is recited in said contract that said corporation, Merchants' Protective Association, does not pay dividends, and at the execution of said contract the plaintiff understood and knew that he was not, and would not, be directly interested in the business of said corporation or in the profits of the same, whether as dividends or interest or by whatever name they might be called, but, on the contrary, the plaintiff knew that defendant Francis G. Luke was entitled to all the income, earnings, and profit of said Merchants' Protective Association by reason of the agreement hereinbefore mentioned, and accepted the personal covenants of the defendants to pay him the monthly salary stipulated for in said agreement, and to pay the interest on the $ 2,500 so invested by the plaintiff; and the defendants further allege that before and at the time of the execution of said contract between plaintiff and defendants, and before and at each and all the times plaintiff paid to defendants the installments of said $ 2,500, as stipulated in said agreement, the plaintiff had full knowledge of the true value of said stock, of the course of business between the said Merchants' Protective Association and its clients, and of the resources, assets, liabilities, and actual condition of said corporation.

"(4) The defendants deny each and every other allegation in the said complaint contained."

The defendants then proceed to set forth, with much particularity and detail, the acts and conduct of the parties with respect to the contract referred to by the plaintiff. The relation of the defendants to the collection business of said...