Hart v. Zaitz

• Decision Date: 04 December 1922
• Docket Number: 10164.
• Citation: 211 P. 391,72 Colo. 315
• Parties: HART v. ZAITZ.
• Court: Colorado Supreme Court

211 P. 391

72 Colo. 315

HART v. ZAITZ.

No. 10164.

Supreme Court of Colorado

December 4, 1922

Department 3.

Error to District Court, Lake County; Francis E. Bouck, Judge.

Action by H. W. Hart against Frank Zaitz. From a judgment for defendant, plaintiff brings error.

Affirmed.

H. L Lubers and W. E. Clark, both of Denver, for plaintiff in error.

John A Ewing, of Denver, and Paul W. Crawford, of Leadville, for defendant in error.

CAMPBELL, J.

This is an action of deceit, based on false representations and promises said to have been made by the defendant to the plaintiff, to the damage of the latter in the sum of about $26,000. No material evidence was taken at the trial. Plaintiff's first witness was asked a few preliminary questions, of no importance in this review, when defendant objected to any further evidence, on the ground that the complaint did not state facts sufficient to constitute a cause of action. The court, upon argument, sustained defendant's objection and ordered the action dismissed at plaintiff's cost. In view of the errors assigned and argued, it will shorten the discussion and at once bring into view the theory of the plaintiff if the allegations of the complaint are summarized.

That pleading alleges:

That plaintiff and defendant were the organizers of, and caused to be incorporated under the laws of this state, the Hart-Zaitz Mercantile Company, and shortly thereafter mercantile establishments were opened in the city of Leadville and in Redcliff. The business thereafter, and down to the present time, prospered and enhanced in value. A few years after incorporating the plaintiff sold to C. T. Menzel his interest, represented by 1,767 shares, of a total of 4,000 shares, of the capital stock of the company. In October 1916, the defendant Zaitz, with intent to cheat, defraud, and injure the plaintiff, came to the city of Pueblo, where plaintiff then resided, and was engaged in the banking business, and fraudulently represented and stated to the plaintiff that the said Menzel was trying 'to do him, the said Zaitz, up,' and therefore he desired to get rid of Menzel, and requested plaintiff to purchase the latter's share of the corporate stock and again associate himself with defendant in the active management and conduct of the business, whereas, in truth and in fact, no such condition as stated existed, but, on the contrary, Menzel had theretofore agreed to give to the defendant $2,500 for his services in the event that he secured some person to purchase from Menzel his capital stock in the company. That this stock, though having a par value of only $10 per share, had an actual and book value in excess of $30 per share. That at all times the defendant owned the majority of the capital stock, the total of which was $40.000.

The plaintiff, when approached by the defendant with this proposition of buying Menzel's stock, stated to defendant that he had not sufficient money to pay for it; whereupon the defendant stated that the company had a large surplus in excess of the sum of $100,000, and, although no dividends had theretofore been declared or paid, the defendant then said that, if plaintiff would purchase the Menzel stock, he, the defendant, as the owner of the majority, and as controller of the affairs of the company, would thereafter annually declare and pay on such shares dividends of at least $6,000 or $8,000 a year, and that he would assist plaintiff in the making of payments to Menzel on account of the purchase, and as evidence of his ability to render this assistance he exhibited to the plaintiff his bank book showing a deposit to his credit in a Denver bank of more than $70,000. That the plaintiff, believing the representations of the defendant, so made, to be true, induced wholly thereby and relying thereon directly negotiated with Menzel, without the aid of defendant, and purchased his stock for a total sum of $35,340, which purchase price he agreed to pay in installments, part in cash and part in promissory notes and equities in certain real estate. Deducting the amount thus to be paid in cash and equities, the deferred payments amounting to $26,900 were evidenced by his promissory notes to Menzel, bearing interest at the rate of 7 per cent. per annum, and these deferred payments were secured by the capital stock so purchased. That before the consummation by plaintiff of the purchase the defendant was fully informed and advised by the plaintiff of the terms and conditions thereof, in the event the purchase was made, and the defendant thereupon advised the plaintiff to consummate it, as he, the defendant, would either cause, as already stated, annual dividends to be declared and paid upon this stock, or would otherwise advance money with which to make the deferred payments as they became due, and, relying upon these promises, the plaintiff made the purchase from Menzel upon the terms and conditions stated.

As paragraph 12 of the complaint, which the plaintiff considers vital, was stricken from the complaint on motion of the defendant, and as it will be referred to later in the opinion, it is quoted here in full:

'(12) Plaintiff further avers the fact to be that it is his belief that the defendant then and there entertained a mental reservation to not furnish to this plaintiff in any of the ways alleged money with which to meet said payments, or any thereof, but that he was then and there determined to cheat and defraud this plaintiff out of his interest in said business as evidenced by said capital stock in the event of its purchase by this plaintiff, and in particular to cheat and defraud this plaintiff out of the money and property which he then and there knew this plaintiff was to pay and convey to said Menzel.'

After acquiring ownership of the Menzel stock, the plaintiff entered actively into the affairs of the company and continued thereafter until the month of July, 1918, a period of nearly two years. As the deferred payments of the purchase price, evidenced by the notes, were about to become due, plaintiff reminded the defendant thereof and asked that the arrangements for declaring dividends or furnishing money, as hereinbefore mentioned, should be made so that these notes might be paid. The defendant refused the request and stated that he would not permit any dividends to be declared or paid by the company, and advised the plaintiff to try to raise money from some other source with which to pay the maturing debt.

Plaintiff was unable to secure money from other persons, and, upon information and belief, alleges that his inability to secure loans of money was thwarted by the wrongful acts of the defendant, and that the persons applied to by the plaintiff for loans were informed by the defendant that, though the mercantile company had a large surplus from which dividends might lawfully be declared and paid, he, the defendant Zaitz, would not permit any dividends whatever to be declared nor would be furnish money to the plaintiff to make any of the payments on the notes evidencing the purchase price, except the sum of about $10,000, which was furnished to him by the defendant on condition that the plaintiff should surrender, for cancellation--which he did--500 shares of his capital stock in the amount of $10,000, and an additional $700 which the defendant assisted the plaintiff to borrow from a bank in Leadville with which to pay accumulated interest, by virtue of which forced arrangement the plaintiff's shares in the company were reduced from 1,767 to 1,267 shares; that, though this book or actual value, at the time of this retirement, was in excess of $30 per share, nevertheless, by reason of these false and fraudulent representations, as hereinbefore alleged, made by the defendant, the value of plaintiff's stock holdings were reduced in value more than $5,000, to his damage in such sum.

The plaintiff, however, was able to secure temporary extensions from Menzel until June, 1918, when Menzel demanded the payment of the past-due debt and threatened foreclosure of the collateral stock which he held if payment was not made. Plaintiff thereupon advised the defendant of this attitude of Menzel and again urged him to keep his former contract with the plaintiff, and either cause dividends to be declared or otherwise furnish money with which to make payment to Menzel. The defendant refused to do so, and then stated to the plaintiff that he believed he knew of a man who would purchase the plaintiff's stock. He thereupon left the plaintiff, but subsequently returned and stated that, by telephone with one Deidesheimer, he had induced the latter to purchase this stock and pay to Menzel the money owing to him by plaintiff and to pay the bank the interest money, and directed the plaintiff to advise Menzel to come to his, defendant's, place of business, where all of said outstanding notes that were due, and also the notes not due, would be paid in full, and then and there furnished to the plaintiff a draft with which to make such payment, representing at the time that the money had been furnished by Deidesheimer.

Plaintiff says that the fact was that the money evidenced by this draft, which was used to make payment of the Menzel debt represented money belonging to the defendant himself, and not to Deidesheimer, and defendant, then and there, by such transaction, became the owner of the stock, which transaction was in furtherance of the intent of the defendant to cheat, defraud, and injure the plaintiff; that the defendant at the time of making such false and fraudulent statements knew that they were untrue, and that by reason of said false and fraudulent representations about the money furnished to the plaintiff for paying off the Menzel indebtedness plaintiff was compelled...