Howard v. Merrick

• Decision Date: 19 December 1933
• Citation: 145 Or. 573,27 P.2d 891
• Parties: HOWARD et ux. v. MERRICK et ux. [*]
• Court: Oregon Supreme Court

27 P.2d 891

145 Or. 573

HOWARD et ux. v. MERRICK et ux. ^[*]

Supreme Court of Oregon

December 19, 1933

Department No. 2.

Appeal from Circuit Court, Multnomah County; Robert Tucker, Judge.

Action by Fred L. Howard and wife against M. E. Merrick and others. Judgment for defendants, and plaintiffs appeal.

Affirmed.

Henry S. Westbrook, of Portland (Andrew Hansen, of Portland, on the brief), for appellants.

William G. Smith, of Portland (Harold L. Davidson and Joseph K Carson, Jr., both of Portland, on the brief), for respondent Merrick.

Frank H. Hilton, of Portland (Frank G. Smith, of Portland, on the brief), for respondent Smith.

CAMPBELL Justice.

This cause was originally commenced against defendants M. E Merrick and Jacob N. Smith on June 24, 1931. An amended complaint was filed October 14, 1931, making the Superior Service Laundry Company, Inc., a state of Washington corporation, also a party defendant. This latter defendant was not served and did not appear. The action is based on fraud and grows out of a transaction in the exchange of certain stocks and a payment in cash which took place in April, 1927.

It appears that plaintiffs were the owners of seven shares of stock in the Portland Gas & Coke Company, valued at $728. They also had $4,272 in cash. These shares of stock and this cash, they invested in 100 shares of the stock of defendant corporation, the Superior Service Laundry Company, Inc. valued at $5,000. Plaintiffs allege that they were induced to make this investment through the false representations of defendants.

Plaintiffs' allegations of fraud are long, involved, and somewhat redundant. Briefly stated, they allege:

(a) That defendants, M. E. Merrick and Jacob N. Smith, individually and jointly with two others who are not parties hereto, Conners and Monroe, represented that the shares of stock of the Superior Service Laundry Company, Inc., were worth $50 per share and these defendants were familiar with the true value thereof; that when the Superior Service Laundry Company, Inc., had the certificates of stock printed, they had fraudulently inserted into said certificates a clause to the effect that said defendant corporation reserved the right to call in and redeem said stock at a price of $57.50 per share and in the event of the dissolution of said corporation, the stockholders thereof should receive $50 per share. They then allege that said clause and said condition was false and was placed therein for the sole purpose of promoting a sale thereof and of deceiving prospective purchasers thereof and that they had never had any honest intention or purpose to redeem said stock and that this was known to these defendants, Merrick and Smith.

(b) Plaintiffs then allege that these defendants knew that plaintiffs had the money and that plaintiffs were desirous of getting a sound investment and that defendants represented to plaintiffs that the stock of the Superior Service Laundries Company, Inc., was a safe and sound investment, safer than placing money "in a first mortgage on Portland real property," and that the stock was earning 7 per cent. on a value of $50 per share and that part of the time it would earn a double dividend and that Smith exhibited to plaintiffs a check and stated that the check represented a dividend on the stock then owned and held by defendant Smith. Plaintiffs admit that the check was a perfectly good check, but that it was drawn on funds other than actual dividends earned and declared; that no actual dividends were ever earned and declared by said corporation, but that said check was issued and exhibited for the purpose of inducing plaintiffs to purchase the stock.

(c) Plaintiffs then allege that these plaintiffs owned some stock in the Portland Gas & Coke Company and for the purpose of inducing plaintiffs to invest in the stock of the defendant corporation, defendants represented that the defendant corporation was a concern of great wealth and owned a chain of laundries extending up and down the Pacific Coast and an investment in its stock was a safer and better investment than the stock of the Portland Gas & Coke Company.

(d) Plaintiffs then alleged that defendants knew that plaintiff Fred L. Howard was a railroad man and as such owned one share of stock in the Brotherhood Bank & Trust Company which was known as a railroad man's bank and that defendants, Merrick and Smith, represented that they also were former railroad men and as such were honest and trustworthy and dependable and for that reason plaintiffs trusted and relied upon their representations. Plaintiffs then alleged that all such representations were false, fraudulent, and untrue and known to be such by said defendants in that the Superior Service Laundry Company, Inc., was not a sound, established concern; that no actual honest dividends were ever earned, declared, or paid by said corporation; that any moneys declared as such were paid from other sources and were so paid for the purpose of defrauding the purchasers of the stock; that said corporation did not have a chain of laundries on the Pacific Coast and had no laundries established and operating within the state of Oregon; that the stock was not worth $50 per share or anything; that no dividends were declared or paid and that no double dividends or any dividends were declared and paid and that defendants knew that at the time of making said representations; that no double dividends were or ever would be paid; and that all of said statements were made for the purpose of deceiving these plaintiffs and that plaintiffs relied upon them to their damage. Plaintiffs further alleged that said defendants for the purpose of further deceiving the plaintiffs, did, in June and July of 1927 and in October, November, and December of 1929, fraudulently pay unto plaintiffs, sums, falsely represented to be dividends from said corporation, the last payment of which was in December, 1929, in the sum of $10, and falsely represented that said dividends were being held up because of litigation in which said corporation was involved; that on October 15, 1930, plaintiffs investigated and discovered for the first time that the representations were false.

After the usual dilatory motions, defendants, Merrick and Smith, filed separate answers, being in effect a general denial and pleaded the statute of limitations.

Defendant Smith, as an additional answer and defense, pleaded that he had nothing to do with making the sale of the stock but that the sale was made through other parties.

The cause was tried to a jury. At the close of plaintiffs' case, defendants separately moved for nonsuits which were granted, and judgments entered for defendants for costs. Plaintiffs appeal.

It appears from the record that some time during the month of March, 1927, defendants Merrick and Smith came to the home of plaintiffs in company with one Conners, a stock salesman, for the purpose of selling stock of the Superior Service Laundries Company, Inc., hereinafter known as defendant corporation, to plaintiffs. Defendant Smith introduced Conners to plaintiff and then made the statement to plaintiffs that "*** he understood I was looking for an investment and came out there to interview us about buying some Superior Service Laundries stock, and said it was a good investment; they were an established concern well-established, doing a good business, had a chain of laundries on the Pacific Coast and were paying dividends at that time." During the course of the sales talk, the stock of defendant corporation was represented as being better than a first mortgage upon Portland real property and better than the 7 per cent. bonds of the Portland Gas & Coke Company because the gas company's bonds paid dividends only quarterly, whereas the stock of defendant corporation paid dividends monthly. While Conners did most of the talking, it appears that the two defendants, Smith and Merrick, occasionally talked,...