Merritt v. Ehrman

• Decision Date: 23 June 1897
• Parties: MERRITT ET AL. v. EHRMAN.
• Court: Alabama Supreme Court

22 So. 514

116 Ala. 278

MERRITT ET AL. v. EHRMAN.

Supreme Court of Alabama

June 23, 1897

Appeal from chancery court, Chilton county; J. R. Dowdell Chancellor.

Bill by Rudolph Ehrman against William H. Merritt and others. From a decree overruling demurrers to the bill, respondents appeal. Affirmed.

The facts of the case are sufficiently stated in the opinion. The respondents demurred to the bill upon the following grounds "(1) The said complainant does not offer to do equity by submitting to carry out the first trade, which was rescinded to make the second, and as a part thereof. (2) The complainant does not offer to place defendants in statu quo before the second trade. (3) The complainant does not submit and offer to do equity by paying for the use of the property while in his possession. (4) The complainant's remedy, if he has any, is plain, adequate, and complete at law. (5) The bill shows that complainant has not been, and cannot be injured, and that he has everything he contracted for, and a perfect title and right thereto, and cannot be distributed in the benefit of his contract."

Gunter & Gunter and C. P. McIntyre, for appellants.

Houghton & Collier and S.W. John, for appellee.

COLEMAN J.

The appellee, Ehrman, filed the present bill, praying for the rescission of a contract made and entered into by him and appellants, who are the respondents to the bill. The court overruled a demurrer to the bill, and respondents appealed to this court. The bill avers that in February, 1896, the complainant entered into a written agreement with the Merritt & Bond Lumber Company, a corporation with a capital stock of $12,000, in which there were 120 shares of $100 each, 60 of which shares belonged to W. H. Merritt and 60 to M. J. Bond. The bill avers that the agreement made with the corporation was mutually rescinded, and the parties thereto returned to their former rights and conditions. The bill then avers that complainant and W. H. Merritt entered into another agreement, by which the former became the purchaser of 60 shares of the stock, for which he agreed to pay $5,500; a part of the purchase price was paid in cash, and the remainder secured by notes and collaterals. The bill avers that, as an inducement to the purchase, William H. Merritt, who was the secretary and treasurer and sole manager of the corporation, falsely and fraudulently represented that the corporation was indebted in an amount not exceeding $200, and that there were sufficient assets, consisting of lumber, etc., to pay and satisfy this amount of indebtedness. The bill avers that complainant, "at the time of making said contract and making said payment and delivering said securities, was ignorant of the fact that said corporation was indebted to any person or persons in any greater sum than two hundred dollars, but relied upon the statement of said Merritt in making the trade, and remained in ignorance of any other claim against said corporation until the 8th of July, 1896, when he was informed that said Merritt asserted a claim of four or five thousand dollars, and that on the following day he inquired of said Merritt of the truth of said report, and that Merritt then and there asserted that said corporation did owe him four or five thousand dollars, which he claimed of said corporation." The bill avers that, if the claim of Merritt was enforced, it would reduce the value of his stock $2,000 or $2,500. The bill offers to return the stock to the vendor. This is a substantial statement of the facts upon which the prayer for relief is based.

One ground of demurrer is that the bill is wanting in equity, in that complainant does not offer to carry out the first trade, which was rescinded to make the second, and as a part thereof. We do not think the bill shows that the first agreement was rescinded in consideration of making the second agreement. On the contrary, it is averred that the first agreement failed to effect the purposes intended, that there was a mistake in its provisions, and that it was mutually rescinded. The first agreement was between the complainant and the corporation, to which neither of the stockholders, as such, were parties. The second agreement-the one assailed-was between the complainant and the respondents, as stockholders and individuals, by which the complainant became the purchaser and owner of 60 shares of the stock in the corporation, and not the assets of the corporation, as provided in the first agreement. It may be that the answer of the respondents and proof will show the facts to be different from those stated in the bill, but on this appeal we must treat the averments of the bill as true. All reference to the first agreement might well have been omitted from complainant's bill, so far as he seeks relief from the agreement assailed. The bill shows that complainant went into possession and control of the corporation, and it is insisted on demurrer that complainant should have offered in his bill to account for its use and occupation since the time he secured possession. The corporation is not made a party to the bill, and no relief is sought against it. The object of the bill is to obtain relief as a purchaser of stock from complainant's vendors, to be reimbursed for payments made in the purchase, and discharged from liability for the remainder of the purchase money. No decree rendered in the present case would relieve complainant from a just liability to the corporation. It is contended in argument that the bill does not specifically show that the debt claimed by respondent Merritt existed at the time of the contract of sale. It is sufficient to say that this objection was not raised by the demurrer. It is further contended that the bill shows upon its face that Merritt has estopped himself from setting up any claim against the corporation. We do not clearly see how the corporation can avail itself of the equitable doctrine of estoppel. It has not been induced to take any steps or do any act in consequence of the false representations of Merritt. No wrong was done to the corporation or its franchise, but the wrong was solely that done by the owner of the stock to his vendee, the complainant. It has not been injured in any way. The false representations were made to the complainant. By them, complainant was induced to pay out money and incur additional liability to Merritt, and not to the corporation. The condition of the corporation remains unchanged, as between it and its creditors. If Merritt should sue the corporation in a court of law, we do not see how the corporation could defeat the suit by pleading a fraud perpetrated by Merritt upon complainant in the sale of his stock to him. It may be that if complainant preferred to claim the benefit of the purchase of the stock, and Merritt should attempt to enforce his claim against the corporation, the complainant might invoke the aid of a court of equity to enjoin a recovery of a judgment against the corporation, or its enforcement after judgment, so far as it would affect the rights of complainant.

One ground of demurrer to the bill is that compla...