McDonough v. Williams

• Decision Date: 16 December 1905
• Citation: 92 S.W. 783
• Parties: McDONOUGH v. WILLIAMS.
• Court: Arkansas Supreme Court

92 S.W. 783

McDONOUGH v. WILLIAMS.

Supreme Court of Arkansas.

December 16, 1905.

Appeal from Circuit Court, Sebastian County; Styles T. Rowe, Judge.

Action by George T. Williams against James B. McDonough. From a judgment for plaintiff, defendant appeals. Reversed.

This is an action brought by G. T. Williams against Jas. B. McDonough to recover damages for fraud and deceit alleged to have been practiced by the defendant to plaintiff's injury, in the purchase by defendant from plaintiff of shares of stock in the Montreal Coal Company, a domestic corporation owning and operating a coal mine in Sebastian county. The corporation was organized with a capital stock of $50,000, of which $24,000 was subscribed and issued, $9,000 to the plaintiff Williams, $3,500 to his brother-in-law Oscar P. Bonney, and $11,500 to defendant McDonough. Williams and McDonough resided in the city of Ft. Smith and Bonney in Chicago, Ill. Williams represented Bonney and was authorized to act for him in the sale or disposition of his stock. McDonough was president of the corporation. Bonney was vice president and Williams was secretary, treasurer, and general manager. Williams managed the operation of the mine and the sale of coal and McDonough assisted in making collections and disbursement of funds. On January 14, 1903, the plaintiff sold and transferred his stock and Bonney's to the defendant for the par or face value paid in cash, and on May 11 1903, this suit was commenced to recover damages resulting from the alleged fraud and deceit perpetrated by defendant in inducing the sale of the stock.

The plaintiff alleges in his complaint that by reason of the ties of friendship between himself and defendant and their intimate association as co-owners of the capital stock of the corporation, and managers of its business, a relation of trust and confidence subsisted between them and that by reason of that relation defendant was enabled to successfully practice the alleged fraud and deceit and that on that account he (plaintiff) relied upon the representations made by defendant. Also that he (plaintiff) was absent from the state of Arkansas for some time before the sale of the stock and, for that reason, relied upon the representations of defendant. He also alleged that defendant, knowing that P. A. Ball and T. W. M. Boone had the confidence of plaintiff, by false representations and fraudulent concealment of material facts induced them to advise plaintiff to sell his stock to defendant at par, and said Ball and Boone on the faith of said representations did so advise plaintiff to sell, and that the (plaintiff) relied and acted upon said advice. The said fraud and deceit are alleged to have consisted of the following, viz.: (1) That defendant falsely represented to Ball and Boone that the financial condition of the company was much worse than it was in fact and that the company must go into liquidation unless plaintiff sold his stock to defendant: (2) that he falsely represented to plaintiff and to Ball and Boone that the obligations of the company were more pressing than they were in fact, and that the creditors of the company were making more peremptory demands for payment than were in fact being made by creditors; and (3) that he fraudulently and deceitfully concealed from plaintiff and from Ball and Boone at the time he was negotiating with plaintiff for the purchase of the stock, the fact that he had already entered into a contract with one Franklin Bache for the sale of the entire capital stock of the corporation at a price largely in excess of the par value, which contract was consummated after his purchase from plaintiff. It is also alleged in the complaint that at the time of the purchase of the stock from plaintiff at par that the actual value thereof was greatly in excess of the par value, and damages are claimed in the sum of $15,000 by reason of such false representations and fraudulent concealments, whereby plaintiff was induced to sell his stock.

The defendant filed his answer denying all the allegations of the complaint as to fraud and deceit, or misconduct of any kind, and denied that the market value of the stock at the time of his purchase of plaintiff's stock exceeded the par value; he denied that there was any relation of trust and confidence between himself and plaintiff at the time of the sale or that plaintiff was ignorant of any facts connected with the affairs of the corporation of the sale of stock and he alleged that plaintiff sold the stock to him after a full investigation and with knowledge of all the facts. There is some conflict in the testimony as to what occurred between the plaintiff and defendant prior to December 10, 1902, in negotiating for the sale of the stock, but there are two important facts about which there is hardly any doubt. One is that plaintiff had offered to sell his stock to defendant at par, and the other that defendant had undertaken for himself and plaintiff to find a purchaser for all the stock at the best price obtainable. On the last-named date the plaintiff left the state and did not return until the day on which he transferred the stock to defendant, and the negotiations between them for the sale of the stock up to the final act of consummation of the sale by transfer of the shares was conducted altogether by written and telegraphic communications.

The following correspondence shows the negotiation after that date: On December 20, 1902, defendant, who was managing the business of the company, wrote a letter to plaintiff at Battle Creek, Mich., containing the following: "As to business, I did nothing definite in St. Louis. I could neither borrow money nor any find one that wanted our property. I am doing everything I can. Mr. Ball sent for me to-day and stated that, while the bank did not want to do anything that would hurt us, they would very much appreciate it if we could reduce our debt before the first of the year. I told him I did not think we could do so, but I would do all in my power. My hope still is that I may be able to buy you out, but I am not sure. I would not have any trouble in borrowing all the money that I want but for the fact that our company owes so much." On December 22d the plaintiff replied as follows: "Mr. McDonough, if you still want my stock and Bonney's at par you can take it, but you must decide between now and Saturday, as if my wife's condition will permit I wish to start home some time next week, probably Monday, and if you decide to take it I will stay here with Mrs. Williams until her condition is such that I can safely leave her or bring her home." On December 24th defendant wrote as follows:

"Fort Smith, Ark., December 24, 1903.

"Dr. Mr. Williams, Battle Creek, Mich. — Dear Sir: In reply to your letter of the 22d Monday. It will take some days, probably thirty, for me to arrange to take your stock. If you will sign and return to me the inclosed option contract I think I can raise the money within the thirty days. I saw Van Cleave; tried to sell our plant to the people that bought Boones. Van Cleave showed them our telegram giving him until six o' clock that Thursday. When he failed in that he did all he could to interfere with the sale of Prairie Creek. At least that is what Boone told me. He told Potter that he could have bought the Prairie Creek for one hundred thousand dollars less than he paid. At this writing I have no idea where I will turn for assistance in the premises. Yours truly, James B. McDonough.

"P. S. Mr. Williams, I have not been trying to close the deal with you because I thought you preferred that we sell out together, and of course if we could do that to advantage I wanted you to get the benefit. In other words, if our negotiations with Sengel, Van Cleave or the Central Coal & Coke Company had resulted in anything I knew you wanted the benefit of that sale. Hence, I have not been trying to get my friends to go in with me. I am not sure that I can get the money, but I know I cannot unless you give me the option. It will be necessary to have the writing from you and Judge Bonney before I can be sure. If you want to sell and you and the judge will sign, I feel that I can make the deal."

The plaintiff testifies that, after consultation with Bonney, they declined to give the option and so advised the defendant, and on January 4, 1903, defendant wrote as follows: "I am disappointed in not getting the option from you and Judge Bonney. Those of my friends who are willing to assume this burden with me and try to raise this property from the oppression of the creditor say to me, `will Mr. Williams sell? Have you his agreement in writing?' When I tell him I have not they say they cannot make their arrangements until I have your agreement in writing. The Central Coal & Coke Company wrote that they did not care to buy at all. Garrison of the Big Muddy is out. Van Cleave and Sengel have disappeared from the face of the earth. At this time there is no way to turn to except to my individual friends, and to them I cannot turn except I have this option. If you will give the option I feel sure that I will buy you out. But I do not care much about it. It will be assuming a debt and a burden that I am not anxious to assume. I am willing to put more money into the property and run further risk, which I can do by the aid of my friends, but I will not urge it. I cannot raise $12,500 in a day. I had it last summer, but it takes time, and before I arrange for it from my friends I must know in writing that you will sell. As soon as I know that I will go to work to raise the money."

The following telegrams then passed in the order herein set forth between plaintiff and defendant and between plaintiff and P. A. Ball:

"Ft. Smith, Ark. 1—10—03. Geo. T. Williams, Battle Creek, Mich. Have decided to take your stock and Bonney's at par as stated in your letter. Will pay thirty-five hundred today balance in two weeks. Answer. James B....