Mechanics Savings Bank v. Gish

• Decision Date: 12 May 1925
• Docket Number: 36645
• Citation: 203 N.W. 687,200 Iowa 463
• Parties: MECHANICS SAVINGS BANK, Appellee, v. B. H. GISH, Appellant
• Court: Iowa Supreme Court

203 N.W. 687

200 Iowa 463

MECHANICS SAVINGS BANK, Appellee, v. B. H. GISH, Appellant

No. 36645

Supreme Court of Iowa, Des Moines

May 12, 1925

REHEARING DENIED SEPTEMBER 25, 1925.

Appeal from Hamilton District Court.--G. D. THOMPSON, Judge.

ACTION to recover on a second renewal note executed by defendant to plaintiff. Defendant interposed several defenses. At the close of all the evidence, on motion of plaintiff, verdict was directed in its favor against defendant for the amount of the note. From judgment entered on the verdict, defendant appeals. Facts appear in the opinion.

Affirmed.

F. J Lund, for appellant.

Stipp Perry, Bannister & Starzinger and Henderson & Jones, for appellee.

ARTHUR, J. FAVILLE, C. J., and EVANS and ALBERT, JJ., concur.

OPINION

ARTHUR, J.

I.

Located at Peoria, Illinois, was in operation a plant engaged in the manufacture or assembling and sale of tractors. In May, 1919, a corporation was organized under the laws of Iowa, known as the Peoria Tractor Corporation of Iowa. F. R. Dennis, who was president of the Illinois plant, was selected as president of the Iowa corporation. John H. Gibson was made treasurer. Gibson was a director in plaintiff bank. Robert E. Lloyd and C. W. Lloyd were stock sales agents. The corporation was organized to manufacture or assemble tractors. It opened an office in Des Moines. It was the avowed purpose of the corporation to establish a plant at Des Moines and take over the plant at Peoria, Illinois. The Iowa corporation bargained for an industrial site in the city of Des Moines, but purchase was never completed. Dennis and the Lloyd Bros. engaged in selling stock in the Iowa corporation, and solicited defendant to buy stock. In October, 1919, defendant subscribed for 100 shares of preferred stock, at the par value of $ 100 each, and signed a subscription contract for the $ 10,000 of stock, and signed three notes of $ 1,000 each, and delivered them to Lloyd Bros., to represent a cash payment of 30 per cent on the stock purchased, and signed two other notes of $ 3,500 each, which he delivered to Dennis, president. On October 25, 1919, plaintiff bank bought the two notes of $ 3,500 each which defendant had signed and delivered to Dennis, president of the corporation, paying therefor the sum of $ 6,682.50. These notes drew 6 per cent interest, and ran for 6 months, and were indorsed by the Peoria Tractor Corporation of Iowa. On May 10, 1920, Gish paid the plaintiff, as interest on his notes to April 23, 1920, the sum of $ 210. On September 29, 1920, defendant executed a new note directly to plaintiff bank for $ 7,000, maturing October 23, 1920, to take the place of the two original $ 3,500 notes. At the same time, defendant paid the bank $ 280, being the interest to October 23, 1920, and the two $ 3,500 notes were canceled and returned to defendant. On December 18, 1920, defendant, by a written instrument, sold and assigned his subscription for 100 shares of the capital stock of the Peoria Tractor Corporation of Iowa, to F. R. Dennis. The consideration recited was that Gish received from Dennis two notes for $ 5,300 each, signed by Dennis, payable to Gish.

At a meeting of the stockholders in the latter part of 1920 or the fore part of the year 1921, it was decided to suspend operations, on account of the general economic depression then existing. Defendant retained in his possession the two Dennis notes of $ 5,300 each, until March 8, 1921, when he indorsed and delivered them to plaintiff as collateral security for the payment of his first renewal note of $ 7,000. On June 28, 1921, defendant executed and delivered to plaintiff a second renewal note for $ 7,000, which is the note in suit. At the same time, he executed and delivered to plaintiff a note for $ 388.58, in payment of the interest on the first $ 7,000 note, and the old note was returned to him. $ 500 was collected on the Dennis notes and applied in payment of the interest note which he had given, and the balance was credited on the note in suit.

This action was begun to collect the balance due on the last $ 7,000 note executed by defendant. The petition was in the ordinary form. The defenses pleaded in the answer were, briefly stated, fraud in the sale of stock and consequent fraud in the inception of the notes executed in purchase of the stock; want of consideration; conditional delivery of the notes, including the note in suit; payment of the obligations held by the bank; and rescission. A counterclaim was also filed, alleging fraud, as in the answer proper. After the close of the evidence, the counterclaim was withdrawn. In reply, plaintiff denied generally the defenses claimed, and pleaded ratification, waiver, and estoppel, and that it became holder in due course of the notes in question.

II. Many errors are assigned, which all center around the ultimate question presented on this appeal, which is whether the trial court should have directed a verdict in favor of plaintiff for the amount due upon the note in suit. In substance, the assignments are that the court erred in striking certain evidence offered by appellant in support of allegations of fraud in the transactions; that it was error not to submit to the jury the issues of fraud in the several defenses pleaded, and to hold, as a matter of law, that the evidence was not sufficient to sustain said defenses; and that it was error to hold, as a matter of law, that the acts of appellant constituted waiver and estoppel.

III. The answer was in the usual and ordinary form, and contained the essential allegations of an action based on fraudulent representations. Defendant admitted signing the note in suit and the former notes, but avers that there was fraud in the inception of said notes, and that they were delivered conditionally only, and without consideration. The answer alleges that appellant was induced to purchase stock in the tractor company and to execute his notes therefor by certain representations made by the officers and agents of the corporation and officers of appellee. Gish testified to representations made to him, which he claimed induced him to purchase stock in the corporation and to execute the original $ 3,500 notes, in substance as follows: That Dennis, president of the company, and Robert Lloyd and C. W. Lloyd, stock salesmen, stated to him, in substance, that the Peoria Tractor Corporation of Iowa owned a factory at Peoria, Illinois, which was in operation in the manufacture of tractors; that the corporation had bargained for a site at Des Moines, and that the plant at Peoria would be moved to Des Moines; that the plant at Peoria was worth $ 250,000, and was free from incumbrance; that the Illinois plant had been in operation for eight or ten years; that at first a small tractor was made, which from time to time was improved, until they were making a certain tractor called "Model L," on which a profit was being made of from $ 300 to $ 400 a tractor, and that three or four tractors a day were being turned out; that "Model L" was covered by patents which were held by the Iowa corporation; that "Model L" and the patents connected with it were worth $ 2,000,000; that "Model L" would revolutionize the tractor industry of the country.

The Lloyd Bros. stated that Dennis was a millionaire, and did not require other people's money to run the plant, but wanted to get the farmers interested and to buy stock to assist in selling the product of the factory; that they wanted the farmers to buy stock and put up notes to run until the plant was located at Des Moines; that, after the plant at Des Moines was in operation, the earnings would yield enough to the farmers who bought stock and gave their notes for it to retire their notes; that such purchasers of stock would only need to pay interest on their notes until the plant got in operation, and then the earnings would pay the notes.

Dennis stated that the Illinois plant was in a sound financial condition; that it had assets to the amount of $ 250,000, and was paying an annual dividend of 8 per cent; that the Illinois plant was owned by the Peoria Tractor Corporation of Iowa; that, at the suggestion of Dennis, he went to Des Moines and saw MacKinnon, then president of appellee bank that MacKinnon told him that Dennis was a millionaire, was financially all right, and that what he said could be relied upon, and that the corporation was going to have one of the greatest manufacturing plants in the middle west located in Des Moines; that he saw John H. Gibson, who afterwards became treasurer of the Iowa corporation, and who was then a director in appellee bank; that, in conversation, Gibson told him of various industries which were coming to Des Moines, and especially about the Peoria Tractor Corporation of Iowa, and mentioned the financial standing of F. R. Dennis. He said Dennis was a millionaire; that Dennis and the Peoria Tractor Company were financially good. He pointed out the good features of the "Model L" tractor, and said it was one of the best tractors on the market; that the plant was supposed to be moved to Des Moines in the spring of 1920. With reference to the notes that would be given for stock, Gish testified that Gibson said, "as to the notes for stock, in regard to the payment of these notes, he said these notes would not have to be paid; that they would retire themselves. You had to keep any interest paid until the factory got in operation, then from there on, the notes would take care of themselves, after the plant got in operation;" that Dennis stated that, in the event the plant was not built in Des Moines, Gish would not have to pay the notes,--they would be canceled. Witness testified that Dennis and the stock salesmen stated that, if he, Gish, purchased stock, th...