McClelland v. Linton

• Decision Date: 22 November 1915
• Docket Number: 2
• Citation: 180 S.W. 482,121 Ark. 79
• Parties: MCCLELLAND v. LINTON
• Court: Arkansas Supreme Court

180 S.W. 482

MCCLELLAND v. LINTON

121 Ark. 79

No. 2

Supreme Court of Arkansas

November 22, 1915

Appeal from Washington Chancery Court, T. H. Humphreys, Chancellor affirmed.

Decree affirmed.

L. A Palmer and J. W. Grabiel, for appellants.

1. This is an action for deceit. The allegations are not sufficient to state a cause of action. To make McClelland liable for fraud his misrepresentations must have been false as to a past or present fact, material in nature, which operated to deceive, and which were relied upon. Any statements as to the future plans of profits of the Company were immaterial and if false, they were not fraudulent. 1 Cook on Corp. 292; Story Eq. § 193; 116 Mo. 313; 91 Ark. 324; 95 Id 131; 83 Id. 403; 100 Id. 144.

2. Delay in the enterprise or abandonment cannot be set up. 40 Pa.St. 237; 29 La. 579; N.Y. 454; 47 Oh. St. 302; 80 Pa.St 31; 20 Ark. 204, 443; 97 Id. 248.

3. The appellees were stockholders in the corporation. There is no testimony that the Palmers ever received any money for stock, or converted same. 1 Cook on Corp. 157-9, 193; 65 Minn. 324.

4. There was no fraud inducing the subscription. But if any it was on the corporation. The burden was on plaintiffs. Harvey on Rights of Min. Stockholders, 35-37. The corporation was not a party to the suit.

5. No attachment can issue in a tort. Kirby's Dig. § 344.

6. McClelland's agreement to bind the corporation is not binding. 96 Ark. 5; 91 U.S. 61; 96 Ark. 291; 97 Id. 254; 20 Cyc. 19.

7. It was error to overrule the motion to transfer. This was a plain suit at law.

Fred S. Wham and H. S. Pearson, for appellees.

1. The suit was properly brought. This was a conditional subscription for stock dependent upon the performance of a condition precedent. This condition was never performed, and appellees did not become shareholders and could not be compelled to turn the lands over to the company. Clark on Corp. p. 296; 24 Md. 563; 26 A. 113; 38 Ill. 215; 8 S.W. 842; 24 N.E. 882; 2 Thompson on Corp. § 1332.

2. Only $ 2,750.00 was used in the purchase of lands. Appellants are clearly liable for the $ 1,250.00. Palmer was not entitled to any profit.

3. An equitable cause of action was stated and there was no error in refusing to transfer.

4. There was a misjoinder of parties. 90 Ark. 484; 84 Id. 556; 88 Id. 128; 86 Id. 138; 83 Id. 290; 145 U.S. 285.

5. McClelland was personally liable. 22 Ark. 517; 60 Id. 66; 48 Id. 188; 2 Id. 338; 87 Id. 434; 92 Id. 535; 3 Am. & Eng. Ann. Cas. 217.

6. The attachment was properly sustained. The injury resulted from breach of contract. 30 S.E. 968; 8 N.Y.S. 45; 44 P. 281; 32 N.W. 43; 21 S.W. 291; 62 Ark. 326; 24 Oh. St. 481.

7. The findings of the chancellor are not against the preponderance of the evidence and they should be sustained. 68 Ark. 314; 71 Id. 605; 68 Id. 134; 72 Id. 67; 67 Id. 200.

OPINION

MCCULLOCH, C. J.

Appellant F. C. McClelland, and certain other persons associated with him undertook to promote and organize a corporation for the purpose of developing fruit orchards in the Ozark mountain district in this State, and did in fact organize such a corporation under the laws of the State of South Dakota. A board of directors and officers were elected and an office was opened in the city of Chicago for the purpose of selling stock, but it does not appear that any sales of stock were made for cash. Options were secured by those interested on land in Washington County, Arkansas. Appellant was acquainted with appellees, John C. Linton and H. C. Lemmerman in South Dakota and enlisted their interest in the enterprise referred to above. They finally came to Arkansas and decided to invest as much as $ 4,000.

The testimony adduced in this action by appellees tends to show that when they came to Arkansas for the purpose of looking into the proposition they were met by appellant and other parties and shown over the locality, and that the plan for carrying out the scheme was fully outlined to them. It was a part of the plan that for every thousand dollars of stock subscribed the company would, as a bonus to the subscriber, give him the use for five years of five acres of apple orchard, to be cultivated and cared for by the corporation during the term. The testimony tends to show further that it was represented to them by appellant and his associates that they had options on certain lands which were about to expire, and that money was needed for immediate purposes in order to buy the lands before the expiration of the options. The proposition was made to appellees, so they testified, that if they would agree to take stock, and would advance the price therefor, lands on which options were held would be purchased and the title conveyed to appellees as security for the money so advanced; and that when enough of the stock should be sold to put the corporation on a working basis, appellees would turn the lands over to the corporation and take stock. Appellees accepted the proposition and agreed to advance $ 4,000 to be taken in stock, and said sum was paid over by them to appellant, McClelland, who purchased three tracts of land and took conveyances from the respective owners. In the deeds which were executed by the grantors the name of the grantee was in each instance omitted and a blank space left for the insertion of the name. The deeds were duly acknowledged by the grantors and their wives and they were forwarded to appellees at their homes in South Dakota. Subsequently, the names of appellees were inserted in the conveyances by agreement between them and appellant and the deeds were forwarded to Washington County and placed of record. The transaction between appellant and appellees occurred in the month of June, 1911, and nothing further transpired between them except written correspondence. The corporation stock was never delivered to appellees, nor did they ever turn over the lands, to which they held title, to said corporation. The corporation was organized, as before stated, in the year 1911, prior to said transaction between these parties, but it does not appear from the testimony that it has ever been put on a working basis or that anything has been done except in the way of am effort to sell stock. In other words, it has never reached the point of doing business according to its corporate authority.

The present action is one instituted by appellees against appellant in the chancery court of Washington County, in which it is alleged that the said sum of $ 4,000 was by appellees placed in the hands of appellant as their agent and trustee to use the same only for the purchase of lands which were to be deeded to appellees, and that appellant had only used the sum of $ 2,750 for that purpose, but had conspired with certain other parties, namely, L. A. Palmer, Mrs. L. A. Palmer and L. G. Palmer, to deceive and defraud the appellees and to convert the remainder of said money to their own use and purposes. The complaint contains a further allegation that appellant and the other defendants made false representations to appellees to induce them to pay over said money to the effect that said parties owned and controlled large tracts of land to be used in the establishment of said orchard, and that they would finance and carry on the work until all of the stock had been sold at par. The original owners of said lands were made parties defendant and the prayer of the complaint was that a lien be declared in favor of appellees on said lands and that the same be sold, and that if the proceeds of sale prove insufficient to reimburse appellees for the amount they had paid over to appellant that they have judgment against him for the unsatisfied balance. Appellant McClelland filed an answer, in which he denied all charges of fraud and misrepresentation and alleged that appellees agreed to purchase $ 4,000 of the capital stock of said corporation; that said money was paid over to him as the representative of said corporation in payment of the price of the stock, and that the whole of said sum was used in the purchase of said three tracts of land which were deeded to appellees. Appellant also filed a motion to transfer the cause to the circuit court. On a final hearing the chancellor found that there had been no false representations made by appellant and his associates to appellees, but that appellant had only paid the sum of $ 2,750 for the lands which were procured and conveyed to appellees, and rendered a decree against him in favor of appellees for the balance of $ 1,250 with interest. An attachment had been issued against appellant's lands and the court sustained the attachment. Appellant McClelland prayed an appeal to this court from that part of the decree against him, and appellees prayed an appeal from so much of the decree as denied relief against the other defendants.

All of the parties interested in the litigation testified at considerable length, and there is a voluminous record. It will be unnecessary to detail said testimony but it is sufficient to say that we have carefully considered it and we are of the opinion that the chancellor's finding, that only $ 2,750 of the money paid over by appellees was used in the purchase of land and that the balance was wrongfully converted by appellant to other uses, is not against the preponderance of the testimony. The testimony warrants the conclusion that appellant purchased three tracts of land, designated in the record as the Mart land, for which he paid...