Master v. Jones

• Decision Date: 30 December 1920
• Docket Number: No. 20490.,20490.
• Citation: 286 Mo. 56,226 S.W. 885
• Parties: MASTER v. JONES et al.
• Court: Missouri Supreme Court

226 S.W. 885

286 Mo. 56

MASTER v. JONES et al.

No. 20490.

Supreme Court of Missouri, Division No. 1.

December 30, 1920.

Appeal from St. Louis Circuit Court; Vital W. Garasche, Judge.

Action by Charles C. Master against Breckinridge Jones and others. Judgment for defendants, and plaintiff appeals. Affirmed.

Goodbar & Tittmann, of St. Louis, for appellant.

Jesse McDonald and Arnold Just, both of St. Louis, for respondent Lemp.

Jourdan, Rassieur & Pierce, of St. Louis, for other respondents.

JAMES T. BLAIR, P. J.

This is an appeal from a judgment entered after a demurrer had been sustained to the petition and appellant had refused to plead further. The petition seeks rescission of a contract of purchase of 11 bonds of the United States Independent Telephone Company into which it is alleged appellant was induced to enter by false representations of persons alleged to have been acting as agents and representatives of respondents and others who are designated as "the promoters." The petition is long. In order that the questions presented may be understood it will be necessary to incorporate a summary of its allegations.

It is alleged that the United States Independent Telephone Company (hereinafter referred to as the Independent Company) was a New Jersey corporation, which, in September, 1905, increased its capital stock to $50,000.000, divided into shares of $100 each; that October 2, 1905, it authorized the issuance of $25,000,000 5 per cent. collateral trust gold bonds to mature in 20 years, $17,000,000 of which were authorized to be issued immediately; that respondents and others named were the promoters and organizers of the Independent Company; that Thos. W. Finucane was its president and Albert O. Ferris was the paid agent of the promoters to solicit and receive subscriptions for the bonds; that Fenner was vice president and cashier of the Alliance Bank of Rochester, and others of the promoters were directors thereof; that the bank was employed as the agent for the issuance of bonds, receipt of moneys therefor, and in other ways, and that all the promoters were known to plaintiff as men of high financial standing, and that their connection with the matter induced full credence in the representations made; that a prospectus was issued wherein it was falsely represented that $17,000,000 of bonds had been sold or underwritten and that the Independent Company would have $5,000,000 in its treasury for corporate uses as a result thereof; that the Independent Company had acquired from the city of New York a valid franchise for the construction and operation of an independant telephone plant in that city; that the Independent Company had acquired the stock of a telephone manufacturing company, and it was falsely represented that this company was in prosperous condition and had been paying large dividends; that the report of accountants respecting the manufacturing company's condition was suppressed or misrepresented; that it was falsely represented that $41,303,000 of the stock of the Independent Company had been issued and that $17,000,000 of the Independent Company's bonds had been sold on a cash or property basis; that $8,000,000 of the Independent Company's bonds were to be held in escrow to acquire other properties; that important facts were concealed; that these representations were misleading and false and made to deceive appellant and did mislead and deceive him and induce him to purchase, on December 13, 1005, 11 of the $1,000 bonds of the Independent Company; that he paid $11,000 therefor and received 11 bonds and a voting trust certificate for $4,400, representing stock in the Independent Company of the par value of $4,400.

It is further alleged that before the mortgage to secure the $25,000,000 in bonds was executed it was known to respondents that only $3,000,000 of the bonds had been sold and only $2,500,000 realized therefrom, and known to the respondents that the enterprise could not succeed because of failure to secure sufficient working capital, but that this was concealed from appellant, and his money was accepted in payment for the bonds for which he had subscribed; that the standing and reputation of respondents and their counsel induced confidence and belief in all the representations made.

Plaintiff also alleges that he never was a stockholder in the Independent Company, and had no right to inspect its books, and that the books were so kept that he would not have discovered the fraud even had he examined the books.

"Plaintiff states that in 1913, through letters and conversations with other persons, he first suspected that he had been deceived and defrauded by the misrepresentations of said promoters as herein set out;" that because of the magnitude and complexity of the matters involved, and because the Independent Company had been dissolved and its officers and directors were widely scattered, plaintiff had great difficulty in discovering the facts and the truth; that as soon as he "had become convinced" that he had been defrauded, plaintiff "employed counsel to negotiate a settlement of his claim; that before and ever since the discovery of the fraud the bonds and voting trust certificate have been worthless, but plaintiff has been ready and willing and is now so, and now offers to deliver back the bonds and voting trust certificate, together with installments of interest received, together with other payments received and interest thereon; that appellant received semiannual interest payments of $275 each on April 1, 1908, and October 1, 1906, and "thereafter and on or about the 11th day of March, 1908, there was paid on each of the bonds so issued by Henry W. Conklin, referee, the sum of $15.16 as a pro rata share of the net proceeds of a sale under the foreclosure of an indenture or mortgage which secured, or purported to secure, the said bonds; and thereafter, on April 24, 1916, plaintiff accepted the sum of $1,375 from the estate of Busch as consideration for a covenant not to sue on his claim against that estate.

The petition further alleges that—

"By reason of the premises the plaintiff desires an equitable rescission of the aforesaid contract between plaintiff and the promoters of the syndicate because of the fraud and deceit practiced by them on this plaintiff, and an accounting with respect to all moneys received by them or any of them from this plaintiff, and the payment to plaintiff of any amount found due plaintiff upon such accounting, and plaintiff brings this action because plaintiff has no remedy at law."

(1) That the court decree that the subscription for and sale of the bonds and certificate to plaintiff be rescinded and respondents be required to take them back and "restore to plaintiff the consideration" paid by plaintiff therefor.

(2) That respondents be required to account to plaintiff for the moneys received from him, less the interest payments received by him April 1 and October 1, 1906, and the payment made plaintiff by the referee in the foreclosure proceedings in March, 1908, and less, also, the sum received from the Busch estate; and

(3) For such other and further relief as seems just.

Some further details of allegations above epitomized appear in the opinion.

The grounds of demurrer were: (1) That the petition did not state facts sufficient to constitute a cause of action; (2) that the petition shows on its face that the alleged cause of action is barred by the five-year statute of limitation; (3) because an action in equity does not lie to set aside for fraud an executed sale of a chattel where an adequate remedy at law exists; (4) because the petition does not properly and affirmatively show that this action was commenced promptly after discovery of the alleged fraud, and the right to rescind the contract for fraud must be executed promptly upon the discovery of fraud, otherwise the party complaining of the fraud will be deemed to have affirmed the contract and to have elected to stand on his right to sue for damages; (5) because the petition shows a settlement with a joint tort-feasor, and therefore a release of all; (6) because the petition shows the bonds sought to be tendered back are no longer in existence, but had been extinguished by foreclosure proceedings and merged in a deficiency judgment in favor of all bondholders and creditors.

The demurrer was sustained, the judgment was entered, and this appeal follows.

Appellant contends: (1) The facts stated show the case falls within the exception to the fifth clause of the five-year section of the statute of limitations (section 1889, R. S. 1909); (2) the suit is properly brought in equity; (3) laches does not inhere in the facts stated: (4) the covenant not to sue the Busch estate does not bar this suit; and (5) that there has been no failure to tender which bars the suit.

In his brief appellant confines himself solely to an effort to show that the allegations of the petition make it good as against the several grounds of respondents' demurrer.

Appellant's first endeavor is to show that the allegations of the petition are sufficient, as made, to bring the case within the exception to the fifth clause of section 1889, R. S. 1909. The applicable part of this section, which prescribes the time within which certain actions shall be brought, reads:

"Within five years, * * * fifth, an action for relief on the ground of fraud, the cause of action in such case to be deemed not to have accrued until the discovery by the aggrieved party, at any time within ten years, of the facts constituting the fraud."

Appellant does not contend that the exception to the statute becomes applicable merely because he did not discover the fraud or all the facts constituting it, but...