Hunter v. French League Safety Cure Co. of Sioux City

• Decision Date: 22 January 1896
• Parties: HUNTER v. FRENCH LEAGUE SAFETY CURE CO. OF SIOUX CITY ET AL.
• Court: Iowa Supreme Court

96 Iowa 573

65 N.W. 828

HUNTER

v.FRENCH LEAGUE SAFETY CURE CO. OF SIOUX CITY ET AL.

Supreme Court of Iowa.

Jan. 22, 1896.

Appeal from district court, Pottawattamie county; H. E. Deemer, Judge.

Action in equity to rescind and cancel a certain contract for shares of the capital stock in the defendant company on the ground of fraud, and for judgment against the defendants for $5,000, paid for said stock, with interest. Defendants answered, in effect denying generally the allegations of fraud and alleging a settlement, whereby plaintiff is estopped from maintaining this action. Plaintiff replied, denying each allegation of the answer. The case was tried to the court, and a decree rendered finding the fraud alleged, and also finding that, after acquiring knowledge of the fraud, plaintiff was guilty of laches, and acquiesced therein to such an extent as to preclude him from exercising the right of rescission and from relief in a court of equity, wherefore his bill was dismissed. Plaintiff appeals. Reversed.Harl & McCabe, John Y. Stone, W. H. C. Jaques, and J. C. Mitchell, for appellant.

Wright & Baldwin, A. W. Askwith, and John P. Organ, for appellees.

GIVEN, J.

1. This case and the case of one C. C. Cook against the same defendants were submitted together in the district court, a great part of the evidence being alike applicable to both cases. The evidence as to both is so blended that it was impracticable to separate it in making the abstracts, but we have eliminated from consideration all that which relates exclusively to the case of Cook, as that case is not before us. There is but little, if any, controversy as to the law applicable to this case, and the contentions may be reduced to two inquiries, namely, whether the plaintiff has so established his allegations of fraud as to be entitled to relief, and whether the defendants have so established their defense of estoppel as to defeat plaintiff's right to relief. Plaintiff's cause of action is stated in a lengthy petition, and in several amendments thereto, the material parts of which are, in substance, as follows: He alleges that said personal defendants, acting as promoters of, and engaged in the preliminary steps for the organization of, the defendant company, and for the purpose of inducing plaintiff to take and pay for stock in said corporation, represented and caused to be represented to him as follows: That distinguished and scientific French physicians, as the result of years of investigation, discovered a formula of great efficacy in the cure of drunkenness; that said remedy had been tested by an experience of 11 years under control of the French League in France; that records of cases and cures were reported to the register general in France, sworn to, which records showed the great efficacy of the treatment; that said remedy was a secret, known only to the discoverer, and entirely unknown in the United States, except to said defendants; that they had bought and paid for said remedy the sum of $50,000, and were the sole owners in the United States of said remedy, and had the sole right to use the same therein; that said defendants proposed to plaintiff to sell to him and to said Cook, for $5,000 each, one-fifth of the stock in said company, the said company to be organized upon a basis of a capital of $500,000; that said defendants further represented that they had subscribed for the balance of said stock, and paid therefor $40,000 in cash, thus making a paid-up capital of $50,000 in cash, and that said remedy would be assigned and sold by them to the company without any further consideration therefor; that, relying upon said representations, the plaintiff did subscribe for 500 shares of said stock, and paid to the defendants therefor $5,000 in cash, receiving certificates Nos. 6, 24, 26, and 28. Plaintiff alleges that said representations were false and fraudulent, and known to be such by the defendants at the time they were made. He alleges that neither of said personal defendants had subscribed or paid for stock; that they had not paid any consideration for the stock issued to them; that at the time plaintiff and Cook paid said $10,000 it was not the intention of the defendant persons that said money should go into the treasury of the company, but that it should be secretly taken and divided among them; and that it was divided, and was not used to pay for the said pretended formula. Plaintiff further alleges that at the time of receiving said money said personal defendants were acting as promoters and officers of said corporation, and thereby became the trustees of the plaintiff for the disposition of said money, and still hold the same in that capacity. Plaintiff prays for a decree rescinding his subscription for said stock and canceling the contract by which the same was sold to him; that the defendants be decreed trustees of plaintiff as to said money; that they be ordered to pay over the same to plaintiff, and that he have judgment against the defendants for said sum of $5,000, with interest.

Defendants answered, denying every allegation in the petition and amendments thereto, and alleging as follows: That at the time of purchasing said stock the plaintiff knew the nature of the enterprise and of the remedy; that he waived his right to bring this action, for the reason that with knowledge of the facts he made a complete settlement of all matters relating thereto on the 12th of July, 1892, and affirmed the contract of the purchase of said stock, “and because of his failure to revoke said contract”; that because of said full and final settlement defendants had “expended large sums of money and incurred personal obligations, by reason whereof plaintiff is barred and estopped from maintaining this action, and waived the right of rescission of the purchase of said stock and to sue for return of the money.”

2. Upon both the issue of fraud and of estoppel the evidence is so voluminous that it cannot be set out in detail within the proper limits of an opinion. It will be sufficient, however, that we state in general terms our conclusions upon the controlling questions presented. We are in no doubt but that the defendant Campbell, to induce the plaintiff to join in this enterprise, repeatedly made representations to him, substantially as alleged, concerning the origin, tests, and efficacy and cost of the cure, and that it was a secret. We are equally satisfied that defendants Campbell, Kingsnorth, and Davis made similar representations to C. C. Cook, with the expectation and intention that they would be communicated to the plaintiff, and for the purpose of influencing the plaintiff and said Cook to take stock in the corporation. It does not appear that the defendant Palmer ever made any of said representations, but we think it does fairly appear that he and all of the...