McGrath v. C.T. Sherer Co.
| Decision Date | 14 May 1935 |
| Citation | 195 N.E. 913,291 Mass. 35 |
| Parties | McGRATH et al. v. C. T. SHERER CO. et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Suit in equity by John T. McGrath and another, special administrators, against the C. T. Sherer Company and others. From an interlocutory decree overruling demurrers by defendants, from a final decree, from an interlocutory decree granting a motion filed after a suggestion of the death of Theodore T. Ellis, the original plaintiff, permitting John T McGrath and George H. Mirick, special administrators, to appear and prosecute in his stead, and from interlocutory decrees overruling pleas in bar, defendants appeal.
Final decree and interlocutory decrees affirmed.
Appeal from Superior Court, Worcester County; Lummus, Dillon, W. A Burns, and Williams, Judges.
C. C Milton, F. L. Riley, G. S. Taft, and M. S. June, all of Worcester, for appellants.
G. H. Mirick, D. Whitcomb, and P. R. O'Connell, all of Worcester, for appellees.
This is a bill in equity seeking to rescind a contract whereby the plaintiff purchased stock of the defendant corporation relying upon alleged fraudulent material misrepresentations of fact. The representations were made to him by the defendant Joseph F. Sherer with the knowledge and approval of the defendant Herbert W. Estabrook, the respective treasurer and president of the defendant company. The defendants demurred to the bill. After motions to amend the bill and answer had been allowed, the demurrer was overruled and the defendants appealed therefrom. A hearing was had on the merits, the evidence being reported pursuant to G. L. (Ter. Ed.) c. 214, § 24, and rule 76 of the Superior Court (1932). The judge made certain findings of fact and rulings of law as well as an order for a final decree, which in due course was entered, ordering rescission. From this decree the defendants appealed. Subsequently the plaintiff died. The special administrators of his estate entered a suggestion of death and moved that they be allowed to appear and prosecute the suit. This motion was allowed ‘ without prejudice’ to any rights the defendants ‘ may have to raise the question by plea in bar or otherwise, whether the cause of action survives.’ From the interlocutory decree entered in pursuance of this motion the defendants appealed. Thereafter each defendant entered a ‘ plea in bar’ and moved to have the suit dismissed on the ground that it did not survive. These pleas were overruled and the defendants appealed. The case is now before this court on the defendants' appeals from the interlocutory decree overruling the demurrer, from the final decree, from the decree allowing the special administrators to appear and prosecute, and from the decrees overruling each ‘ plea in bar.’
The bill alleges, in substance, that the defendants Sherer and Estabrook, the respective treasurer and president of the C. T. Sherer Company, a Massachusetts corporation conducting a large department store in Worcester, in order that they might effect a sale of their interest in the corporation, or a sale of the business which they controlled through stock ownership thereof, sought to solicit the financial aid of the plaintiff. To this end the defendant Sherer, with the full knowledge and acquiescence of the said Estabrook and as agent of the corporation, interviewed the plaintiff on or about January 21, 1929, and on the strength of a balance sheet of the C. T. Sherer Company as of December 31, 1928, which balance sheet the defendant Sherer then exhibited to the plaintiff, represented as follows: ‘ (a) That several chain stores, at least three in number, had already approached the officials of the C. T. Sherer Co., seeking to buy out the business of said corporation or the stock control thereof; (b) That by reason of the large bank indebtedness owed by the corporation, evidenced by notes, a sale upon advantageous terms could not be effected; (c) That the C. T. Sherer Co. had never been through a banker's hands; (d) That it was undercapitalized; (e) That a plan of reorganization was proposed by which capital stock was to be issued against the old capital stock, the surplus and the amount of the note indebtedness owed banks; that every other item on the balance sheet or schedule of assets and liabilities would remain exactly as it was before the reorganization was effected; (f) That the C. T. Sherer Co. had made over One hundred thousand dollars ($100,000) every year with but one exception, for the past twenty years, and had paid dividends as high as fifty to one hundred per cent per annum; (g) That the value of the assets of the company were conservatively figured, with a setup of proper reserves to take care of bad debts and slow moving merchandise; (h) That if the plaintiff would advance the sum of Two hundred fifty thousand dollars ($250,000) to the corporation and accept Sixty-two hundred fifty (6250) shares of the capital stock to be issued on the reorganization, the defendants Sherer and Estabrook would between them advance the sum of Eighty thousand dollars ($80,000), which would be sufficient to pay up and effect the cancellation of the note indebtedness owed by the company to the bank; (i) That the plaintiff would be made a director of the corporation * * *; (j) That a sale of said business or of the stockholders of the plaintiff in the C. T. Sherer Co. would be effected within a reasonable time, provided he furnished capital to the extent of two hundred fifty thousand dollars ($250,000), and that he could be guaranteed six per cent on his investment in any event and a handsome profit on the sale of the business of the C. T. Sherer Co. or the stockholdings of the plaintiff and those of the defendants, Sherer and Estabrook therein, which should net the plaintiff fifty per cent on his investment; (k) That the salaries of the president and treasurer should not be increased over and in excess of the amount which they had formerly received from the corporation.’ The foregoing representations are set forth in paragraph 5 of the bill. The bill alleges that in reliance upon the said representations which were in part untrue and known to be false, the plaintiff paid to the C. T. Sherer Company the sum of $250,000 on January 30, 1929, and received a receipt on account thereof. After the plan of reorganization of the C. T. Sherer Company was consummated the plaintiff received permanent stock certificates for six thousand, two hundred and fifty shares.
It is specifically alleged in the bill that the defendants Sherer and Estabrook had, at or about the close of the calendar year 1928, owed the C. T. Sherer Company $40,731.08 for moneys advanced or merchandise purchased and charged to both or either of them, which indebtedness was cancelled by writing up the fixture account of the corporation a corresponding equal amount, and by other false and improper entries made in the records of the company; that a rent bill owed by the corporation and payable in advance, totaling $8,950.91, was not included or considered as a liability in the report of schedules of assets and liabilities as explained to the plaintiff; that merchandise, consisting of refrigerators, victrolas and radio sets, was carried in the inventory at full value although the individual defendants knew of the necessity of making provision for losses due to depreciation and obsolescence. It is further alleged in the bill that the balance sheet made no provision for doubtful and uncollectible accounts, and that other items were listed as assets, when they could not properly be considered as such.
The demurrer will first be considered. The defendants contend the demurrer should be sustained on the following grounds: that the bill sets out no cause of action entitling the plaintiff to relief; that the plaintiff has a plain and adequate remedy at law; that the plaintiff has been guilty of laches; and lastly that the bill is multifarious. We are of opinion that the demurrer was properly overruled. The main contention of the defendants under the first ground of demurrer is that the bill does not contain a sufficient allegation of the material elements of fraud to entitle the plaintiff to rescind. The defendants contend that as to the allegations in paragraph 5, (a) to (k) inclusive, there is no subsequent allegation that these alleged representations were false and known to the defendants to be false. They contend that although paragraph 6 specifically sets out that these representations ‘ were in part untrue and known to be false,’ nevertheless there is no allegation that these representations were false and known to be false because the plaintiff then proceeds to particularize, setting out that the tentative balance sheet and the statements with reference thereto were false and fraudulent. It is sufficient to say that the allegation that the representations ‘ were in part untrue and known to be false’ was not nullified or rendered ineffective by the subsequent particularization. Whether allegations in other paragraphs of the bill concern matters of judgment or opinion, or were promissory in nature, is not necessary to consider. It is plain that the bill contains a sufficient allegation of the material elements of fraud to entitle the plaintiff to rescind.
The defendants contend under the first ground of demurrer that the allegations in paragraph 6, that the false statements of the defendant Sherer were made with knowledge of the defendant Estabrook, are not sufficient to charge the latter with the alleged fraudulent acts of Sherer. This contention is without merit. The bill alleges ...
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