Miskimins v. City Nat. Bank of Fort Smith

Decision Date29 June 1970
Docket NumberNo. 5--5011,5--5011
Citation456 S.W.2d 673,248 Ark. 1194
PartiesR. S. MISKIMINS, Appellant, v. The CITY NATIONAL BANK OF FORT SMITH, Arkansas, Appellee.
CourtArkansas Supreme Court

Bethell, Stocks, Callaway & King, Ft. Smith, for appellant.

Thomas Harper, and Don A. Smith, Ft. Smith, for appellee.

FOGLEMAN, Justice.

The summary judgment appealed from in this case was rendered in a suit by appellee against appellant seeking a declaration of appellee's rights and appellant's liability for a $9,000 balance remaining unpaid on a $25,000 loan. Appellant borrowed the money to pay for stock in Investors Thrift Corporation (hereinafter referred to as ITC), and used it for that purpose. The proceeds of the sale of stock by ITC were to be used in the purchase of stock of American Home Builders, Inc., (hereinafter called AHB), which in turn owned the controlling stock in Peoples Loan and Investment Company (hereinafter called PLI) and other corporations. Appellant pledged 100,000 shares of the capital stock of ITC as sole security for the loan. It was made on October 29, 1965, and was payable in installments of $5,000 in June 1966, $10,000 in June 1967 and $10,000 in June 1968. Appellant filed an answer and counterclaim alleging that a vice-president of appellee had worked out a fraudulent scheme whereby appellant, with others, would purchase the stock of AHB, one-third of which was owned by the vice-president, with funds borrowed from appellee. He alleged that appellee knew, or should have known, that it was participating in a scheme whereby appellant would purchase stock in an insolvent corporation.

Appellant filed a motion for leave to file a cross complaint against additional cross defendants. There is nothing in the transcript before us to indicate that the court ever granted permission to appellant to file this pleading. In the transcript there appears a pleading which is unsigned but bears an endorsement of the clerk of the trial court indicating that it had been filed.

After appellee filed its motion for summary judgment, its attorney wrote the circuit judge with reference to the appellant's motion saying:

A review of this file indicates there is pending a motion by defendant for leave to file a cross complaint which defendant's counsel states 'could better be styled cross complaint and amended counterclaim.'

We are compelled to reject the contention by appellee that this pleading was not before the court for consideration on the motion for summary judgment. While appellee is correct in its statement that the record fails to show that the trial court ever ruled on the motion for leave to file the cross complaint, the pleading, as to appellee, did constitute, in effect, an amended counterclaim and appellee's supplemental motion for summary judgment incorporated 'the cross complaint or amended counterclaim filed herein by defendant with motion for leave to file same.' The judgment of the trial court refers to appellee's motion as one 'for a summary judgment granting the relief prayed in plaintiff's complaint and dismissing defendant's amended counterclaim against the plaintiff.' Incorporated in this judgment is a finding that appellee's motion for summary judgment granting the relief prayed in its complaint and 'dismissing defendant's counterclaim, as amended, should be granted.' There is a further finding that appellee was entitled to the relief prayed in its complaint and to a dismissal of the defendant's counterclaim, as amended. It was adjudged that appellant should 'take nothing on his counterclaim.'

In this amended counterclaim, Miskimins alleged that the bank, through its officers and agents, represented to him or his representative that the net worth of AHB, exclusive of the value of PLI stock owned by a subsidiary, was at least $340,000, that PLI had the capacity to buy all mortgages that AHB could produce, that controlling interest in PLI was worth an additional $1,000,000, that AHB was producing a net profit of at least $1,500 per house sold, that AHB and its subsidiaries were producing and selling 350 houses per year at a net profit of $525,000 per year, and that both PLI and AHB with its subsidiary corporations were highly profitable, financially sound, going businesses. He asserted that he obtained the loans involved, in reliance upon these representations, in order to make an additional investment in ITC. He alleged that he had invested $107,625 of a total of approximately $947,300 of capital for the purchase of stock of AHB by ITC and had authorized Markham to enter into a contract to purchase such stock. Miskimins further alleged that he came to Fort Smith to obtain loans for additional investment in ITC, in order to enable that corporation to make deferred payments on the contract of purchase as they became due, a part of which were for the purpose of retiring indebtedness of AHB, partially guaranteed by Hall. According to this pleading, Miskimins applied to appellee for the loan because he had been advised by Markham that this bank would readily make the loan. Miskimins charged that the bank represented to him that the purchase being made was a good investment, although it knew or should have known that the purchaser of the stock had been provided with false or misleading information, in order to insure continuity of business with PLI and AHB. He further alleged that appellee aided and abetted Sexton, Hall, Smith and Gatlin in employing a manipulative scheme and artifice to defraud him in violation of Rule 10b--5 promulgated by the Securities and Exchange Commission.

The transcript in this case consists of some 600 pages, and the briefs contain a total of 315 pages. For the purposes of this opinion, we will view the supporting and controverting affidavits, depositions and admissions in the light most favorable to appellant, as it is our duty to do.

The series of complicated transactions leading up to the loan made by the appellee to appellant commenced some time in 1965. One Maurice W. Markham, Jr., who had practiced as a veterinarian in Platte, South Dakota, had established a concern called Markham Homes, Inc., which was engaged in building shell homes in the northeast Oklahoma area. When the capital of this corporation became tied up in shell home financing, its mortgages were sold to savings and loan associations in areas in which the homes were built. Markham discontinued his veterinary practice and moved to Pryor, Oklahoma, where the corporation opened a lumber yard and continued building houses. A search for outlets for mortgages on shell homes revealed information about People Loan and Investment Company of Fort Smith, which had bought numerous mortgages from AHB, a concern which was also in the shell home business. AHB was owned by Jim Hall, Executive Vice-President of appellee, Huie Smith and Sam Sexton, Jr., each owning one-third of the outstanding capital stock. Markham then contacted one Austin Gatlin of Mountainburg, who had formed PLI. Gatlin informed him that he had sold PLI to AHB and had subsequently established Arkansas Loan and Thrift Corporation in Van Buren. Gatlin advised the formation of an institution identical with Arkansas Loan and Thrift Corporation for the financing of shell homes. Markham then employed Gatlin to set up such a corporation and to render advisory services to it for a period of one year. Gatlin indicated that he was in contact with numerous investors who would buy stock in such a corporation. It was contemplated that certain investors in South Dakota would also take stock and Gatlin agreed with Markham to go there to talk with them.

The first meeting of the incorporators of Investors Thrift Corporation was held at the Diamond G Ranch, owned by Gatlin and his wife, at Mountainburg, Arkansas, on August 10, 1965. Appellant was represented at this meeting by his proxy, Markham. His subscription was shown to be for 100,000 shares of class A stock. Markham and Gatlin were two of the three directors elected. While Gatlin was transacting business in the PLI offices on some date after his employment by Markham, Sexton asked Gatlin if he thought Markham would be interested in buying AHB. Gatlin promised to determine whether Markham was interested. After a trip to South Dakota, Markham expressed interest but did not want to buy AHB without also acquiring the control of PLI. On September 9, 1965, Hall, Smith and Sexton granted an option to ITC and Markham to purchase all of the shares of stock of AHB. Sexton had offered Gatlin $50,000 to sell AHB. Gatlin said that he advised Markham of that fact. Sexton had written a letter to Gatlin, dated August 3, 1965, regarding the condition of AHB, which was delivered to Markham.

The agreement for sale required the payment of $150,000 in cash for an option to purchase and $157,500 on or before January 10, 1966, if the option was exercised. It also required the payment of $300,000 to Texas Capital Corporation by the same date and an additional $400,000 (or such lesser sum as might be due from AHB) before June 30, 1966. ITC was granted full access to the books and records of AHB, PLI and all subsidiaries under the agreement. The cash payment was to be forfeited as consideration for the contract if the option was not exercised. 1

Markham became general manager of AHB, at least nominally, on the date of the contract. Sexton and Gatlin managed PLI, at least until the option was exercised on November 2, 1965. It appears that Sexton did not actually leave until November 8. Thereafter, the management was vested in Markham and Gatlin, with the latter serving as a consultant until February 6, 1966, according to his agreement.

Soon after the contract was entered into, Markham discovered that the requirements made by Texas Capital were in excess of those set out in the option. These requirements were finally set out in a letter of November 1. Texas Capital, to whom the corporation stock to be transferred was...

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