Moe v. Lowry

• Decision Date: 06 December 1920
• Docket Number: 9598.
• Parties: MOE et al. v. LOWRY et al.
• Court: Colorado Supreme Court

194 P. 363

69 Colo. 371

MOE et al. v. LOWRY et al.

No. 9598.

Supreme Court of Colorado, En Banc.

December 6, 1920

Rehearing Denied Jan. 10, 1921.

Error to District Court, City and County of Denver; Julian H Moore, Judge.

Action by Walter B. Lowry and others against Leonidas L. Moe and another to cancel stock of defendant Moe in the defendant corporation. Judgment for the plaintiffs, and defendants bring error.

Affirmed.

Teller Scott and Bailey, JJ., dissenting.

Edwin H. Park and Thomas H. Gibson, both of Denver, for plaintiffs in error.

Dana Blount & Silverstein, of Denver, for defendants in error.

DENISON, J.

The defendants in error were plaintiffs below and had a decree canceling certain stock of defendant Moe in the defendant corporation, the Molybdenum Mines Company.

The material facts are as follows: One Cohen gave defendant Moe an option on certain mining property at $3,000. Moe and plaintiffs, Lowry, Deane, and Jackson went in together to purchase the property, plaintiffs to pay half and take half and Moe to pay half and take half, but he told them the price was $6,000. At the time the deed was delivered and the money paid Moe carried out the deception by giving his check for $3,000 to Cohen, while the remaining $3,000 was paid to the latter by plaintiffs, and Moe and Cohen then immediately went to the bank where Cohen repaid to Moe in currency the amount of the check, less some small adjustments between them.

The suit was based on the above transaction, the plaintiffs taking the ground that they and Moe were joint adventurers, and that therefore he owed them absolute good faith, open and honorable dealing, free from deception and concealment. In this they were right. The cases sustaining their position, if any were needed, are very numerous. The following are some of them. Reyer v. Blaisdell, 26 Colo.App. 387, 143 P. 385; McEwen v. Shannon, 64 Vt. 583, 25 A. 661; Gamble v. Loffler, 27 S.D. 239, 133 N.W. 288; Grant v. Hardy, 33 Wis. 668; Walker v. Pike Co. L. Co., 139 F. 609, 71 C.C.A. 593; Getty v. Devlin 54 N.Y. 403; s. c., 70 N.Y. 504; Bentley v. Craven, 18 Beav. 75; Shoufe v. Griffiths, 4 Wash. 161, 30 P. 93, 31 Am.St.Rep. 910. But defendant Moe claims that the decree canceling his stock was not the proper remedy.

The mining property was conveyed to Lowry as trustee for himself, Deane, Jackson, and Moe. The defendant corporation was formed, Lowry transferred the property to it, and the stock was then issued and divided, one-half to Moe and one-half to the plaintiffs in proportion to their respective payments on the purchase price. Moe's half was thus obtained without payment; consequently he got his interest in the land and his stock for nothing, and plaintiffs alone paid for it. They were, then, in equity, the sole owners of the mining claims, and therefore should have been the sole stockholders. The court might have ordered the defendants to transfer the Moe stock to them, and the decree could not have been questioned, but exactly the same effect was produced by the cancellation of Moe's stock, because in either case the plaintiffs are left the sole stockholders and so the whole equitable owners of the mining property, which is a correct enforcement of their rights as shown by the evidence.

In case of a secret profit by a joint adventurer he must disgorge 'all that he surreptitiously acquired.' It would be 'a reproach to the law' were it otherwise. Walker v. Pike Co. Land Co., 139 F. 609, 71 C.C.A. 593.

What did Moe surreptitiously acquire? It was the whole of his interest, because he got it for nothing, his coadventurers paying the whole price, he falsely pretending he was paying an equal amount.

In the above case, which was essentially like the present, the court decreed a payment of the money, which had been secretly taken and granted a lien on defendant's stock to secure such payment. In that case, however, his stock had been paid for by defendant, and the surreptitious profit was additional thereto and in cash. Here the surreptitious acquisition is the defendant's stock. The decree compels him to disgorge it, and, in effect, gives it to plaintiffs who really paid for it. It 'equitably belongs to those who have paid the money.' Getty v. Devlin, 54 N.Y. 403, 415; s. c., 70 N.Y. 504, 511; Grant v. Hardy, 33 Wis. 668, 677.

It is suggested that Moe put his option into the joint adventure or syndicate, and that, when he is required to account for his surreptitious acquisitions, he should be allowed something for such option. Why? He asked nothing for it, but agreed to pay his half of the price on equal terms with plaintiffs. When caught in his deceit why should he be permitted to change front and say he ought to be paid or allowed something that the agreement did not contemplate?

It is also suggested that, since the secret profits should be accounted for to the syndicate, and Moe is one of the syndicate, he should share in the property accounted for. That would be true if he had received back from Cohen only part of his share of the price, but when he got all back he was left with no interest in the joint adventure.

It is claimed that the plaintiffs cannot retain the property and also recover secret profits. That proposition is a corollary of the law of rescission, but where, as here, rescission has become impossible, the wronged parties are not barred from all remedy, and that remedy is proper which gives them what the consideration furnished by them actually purchased. The property had all been transferred to the corporation when the fraud was discovered. Getty v. Devlin, 54 N.Y. 403.

There is no room here for the application of the rule that a stockholder must demand action by the company before suit. This is a suit by stockholders against stockholders, and the company is a nominal or formal party. Nothing is taken from it. The decree leaves it neither richer nor poorer than before.

The complaint stated that Moe had expended $98, which should be repaid to him, and tendered it. At the conclusion of the evidence the court granted plaintiff leave to withdraw this statement and tender. This grant is urged as error on the ground that the statement was a judicial admission, incontrovertible in this case. The authorities are that a pleading may be amended to conform to the proof, even to the extent of withdrawing an admission. 16 Cyc. p. 964. We do not think that the court abused its discretion on this point, and therefore this was no error.

The misjoinder, if there was one, was waived by answer. Springhetti v. Hahnewald, 54 Colo. 383, 131 P. 266, and many other cases in this court.

The judgment should be affirmed.

SCOTT, BAILEY, and TELLER, JJ., dissent.

TELLER J. (dissenting).

The majority opinion seems to me to misconceive the foundation of the action. While fraud is alleged, this is not an action to rescind; neither is it an action for deceit, for that action can be maintained only when the plaintiff has suffered damage from the deceit. Here the plaintiffs, on an investment of $3,000, obtained a half interest in a property worth, by their own admission, more than $6,000.

The judgment entered is, in effect, a judgment for damages, since it penalizes Moe by taking from him all the stock issued to him. It gives to the other members of the syndicate the entire profit made by Moe, in a suit based upon an equitable principle that a member of a syndicate making a profit, in a matter in which all are interested, must share that profit with his associates.

The suit is properly for an accounting by Moe for profits, which because of the fiduciary relations between the parties as joint adventurers, he ought to have shared with them. They were members of an association or syndicate, and all profits made by any member thereof belonged to the syndicate. Moe defrauded the plaintiffs, not as individuals dealing with him for the purchase of the property--since it was worth its purchase price--but as members of an association of which he was a member. The majority opinion states that Moe put nothing into the enterprise, because, we suppose, he furnished no part of the money paid Cohen for the property. Right here is the error in the opinion. If I could agree with that statement, I would concur in the opinion. Moe owned an option on the property;...