Latimer v. Piper

• Decision Date: 03 January 1933
• Docket Number: No. 47.,47.
• Citation: 246 N.W. 65,261 Mich. 123
• Parties: LATIMER et al. v. PIPER.
• Court: Michigan Supreme Court

261 Mich. 123

246 N.W. 65

LATIMER et al.

v.PIPER.

No. 47.

Supreme Court of Michigan.

Jan. 3, 1933.

Appeal from Circuit Court, Muskegon County; John Vanderwerp, Judge.

Suit by Charles H. Latimer and others against Hilton A. Piper. From the decree, defendant appeals, and plaintiffs cross-appeal.

Modified and affirmed.

Argued before the Entire Bench.Alexis J. Rogoski, of Muskegon, and Norris, McPherson, Harrington & Waer, of Grand Rapids, for appellant.

Butterfield, Keeney & Amberg, Julius H. Amberg, and Harry Shulsky, all of Grand Rapids, for appellees.

BUTZEL, J.

In the spring of 1927, Donald M. Ward, who had formerly been engaged in selling Florida resort property, became interested in the Long Point Hotel property at Mullett Lake, in Cheboygan county. He associated himself with Donald V. Barker of Grand Rapids, an automobile sales agent, with whom he had had previous dealings. They interested defendant Hilton A. Piper of Muskegon, and the three together, taking advantage of Piper's wide acquaintance in Muskegon, sought to interest a number of its prominent residents. They represented that the Long Point property could be purchased for $60,000; that the property consisted of the hotel and the lake frontage on which it was situated, considerable acreage nearby with a high elevation overlooking, but not bordering, the lake, and also additional lake frontage, some 2,000 feet in length, that could be subdivided and sold to great advantage. They sought to form a syndicate or a joint venture to purchase this property from its owners. They proposed to sell six units of $10,000 each, amounting to $60,000, which they represented to be the cost of the property. Defendant Piper stated that he would invest $10,000 for one unit, that one Paul R. Beardsley would invest a like amount, and urged the others to do likewise, even going so far as to tell some of them that he would insure them against loss.

Plaintiff Charles H. Latimer and his wife, Alice, accompanied by Ward and Barker, visited the property. A long strip of lake frontage was pointed out to them as belonging to it. Moving pictures were taken and later exhibitedtothe other plaintiffs, and also to Piper, who had not accompanied them. A syndicate was subsequently formed, Latimer contributing $10,000, Mrs. Latimer, $2,000, William H. Wilson, $10,000, Frank E. McKee, $10,000, and Charles W. Porter, $8,000, making a total of $40,000 of the $60,000 that defendant and his associates represented as the purchase price. Mr. and Mrs. Latimer, Wilson, McKee, and Porter are the plaintiffs herein.

Defendant represented, and still claims, that he invested $10,000 in the enterprise, and that Beardsley also paid a like amount. Ward and Barker were to receive 40 per cent. of the profits made by the syndicate in return for the option that they had secured on the property and for promotion, sales services to be rendered, etc. When the deal was consummated, only $40,000 was forthcoming. Defendant was asked about the amounts that he and Beardsley were each to pay. He replied that he would take care of these payments. Defendant claims that he paid $10,000 in currency to Barker in front of a Grand Rapids brokerage office; that he received the money in bills from his brother Claude, who testified that he had kept this large amount on his person rather than deposit it in the bank, because he feared that the bank would apply the amount, if deposited, towards the payment of his loan. A clergyman who, defendant claims, was present when Claude paid the money, was not called as a witness for reasons that do not appeal to us.

Defendant claims that he paid the money to Barker prior to the closing of the deal; that Ward, without the knowledge of plaintiffs, gave him a note to indemnify him against any loss he might suffer should the enterprise be unsuccessful. Defendant produced a receipt written in pencil by Barker, but its physical appearance aroused suspicion at the trial. A very intimate friend of defendant also testified that he was present when a large amount of money was handed Ward by Barker, with the statement that it came from Piper.

The testimony shows that only $40,000 was paid to the vendors of the property; that, in addition thereto, Ward, Barker, and defendant gave one of two notes for $2,500 to the former owners in order to purchase additional upland acreage to substitute for the long strip of lake frontage. All knowledge in regard to this note and the absence of the additional lake frontage was withheld from plaintiffs. Defendant claims at the time he signed the note he neither knew for what purpose it was given nor that there was not the lake frontage as represented. The option to purchase for $40,000 ran not only to Ward and Barker, but also to defendant who retained a copy.

The record does not clearly show the previous ownership of the property. The long Point Hotel Company was a corporation in which parties by the names of Fuller, Connine, Aldrich, and Batdorf were stockholders owning $40,000 worth of stock, all that had been issued of a total capitalization of $100,000. They are in no way involved in this litigation. The forty-five acres of upland property also belonged to one of them. Fuller signed the option running to Ward, Barker, and Piper in which he agreed to sell them the issued stock for $40,000, and to deed to them, for the $2,500 note, forty-five acres of property which the optionees were substituting, without plaintiffs' knowledge, for the missing lake frontage. When the deal was closed, the former owners transferred the $40,000 of issued stock to Ward, Barker, and Piper, who became the owners of all of the capital stock of the company, by virtue of a later transfer of the remaining 6,000 shares.

An able lawyer who took the money put up by plaintiffs to the bank, where the stock had been placed in escrow, remarked that the deal seemed peculiar. When it was closed, Piper took possession of all of the corporate books and papers. Shortly thereafter another lawyer of high standing drew minutes for a corporate meeting, but the record leaves considerable doubt as to whether it ever actually took place. The minutes show that $60,000 of the treasury stock was issued to Ward, Barker, and Piper in consideration of the transfer to the corporation of the additional acreage purchased with their $2,500 note. The $40,000 issued stock transferred to them, together with the $60,000 treasury stock, was so distributed as to create a set-up in which Piper held 1,000 shares, Beardsley 1,000, the plaintiffs 4,000, and Ward and Barker and remaining 4,000. Plaintiffs' shares were a part of the block of 6,000 shares of treasury stock.

Latimer was elected secretary of the corporation, and some time later, with some of the other plaintiffs, signed the minutes, but paid no particular attention to their contents. They had been drawn by an able attorney so as to show the issuance of the entire $100,000 of stock, and the election of the new officers and directors upon the resignation of the former ones. All of the former owners' stock had been purchased with the $40,000 furnished by plaintiffs, who believed that $60,000 had been paid for it. It was agreeable to them that $40,000 in stock should be turned over to Ward and Barker in consideration of their option and the services they were to render to the corporation. While the minutes of the corporation indicate that the stock turned over to plaintiffs was treasury stock, it was stock in a corporation of which Piper and his conspirators had for the time being become the sole owners by purchase with funds obtained from plaintiffs through misrepresentations. The most that the corporation received for its $60,000 of stock was additional acreage for which Piper, Barker, and Ward had given their $2,500 note. The corporation was not a party to the fraud. Plaintiffs made their investment as joint adventurers with Piper and Beardsley in the belief that $60,000 was being paid into a company that owned a long strip of lake frontage, as was fraudulently represented to them.

Beardsley, who is not a party to the litigation, claims he gave his note for $10,000 to Barker for stock received from him. The proceeds of the note to Barker were not turned over to the sellers or to the corporation, but were kept by Ward and Barker, with the exception of $1,000 which they paid to Piper and one Wilcox for an option on some Manistee county property given by them to Ward and Barker.

The whole project proved a dismal failure. Plaintiffs and defendant advanced large sums of money in addition to their original investment, and also became several guarantors on a bond issue that was placed upon the property. In 1928 plaintiff Porter, while checking up the taxes, found that only one lot fronted on the lake. When this was brought to the attention of defendant, he expressed surprise, and claimed that he had also been deceived. Subsequently, when it was realized that the Mullet Lake property could not be profitably managed and sold, it was by appropriate corporate action exchanged for an equity in some Chicago real estate that the corporation thus acquired. Shortly thereafter this equity was also wiped out. Plaintiffs still had the stock certificates that they originally received and also a large contingent liability.

In 1930 plaintiffs learned for the first time that Piper had deceived them. He went to see Porter in regard to the $2,500 note given by Ward, Barker, and himself for the purchase of the acreage, payment for which was being pressed. He desired to make a counterclaim on account of the shortgage of frontage property. He then for the first time not only disclosed the fact that he had given the note, but he also exhibited the copy of the option running to himself, Ward, and Barker, calling for a purchase price of $40,000, instead of $60,000. When Porter began to make memoranda, Piper hastily snatched the option from the desk and walked out. Plaint...