Nat'l Bank of Merrill v. Ill. & W. Lumber Co.

• Decision Date: 22 November 1898
• Parties: NATIONAL BANK OF MERRILL v. ILLINOIS & W. LUMBER CO.
• Court: Wisconsin Supreme Court

101 Wis. 247

77 N.W. 185

NATIONAL BANK OF MERRILL

v.ILLINOIS & W. LUMBER CO.

Supreme Court of Wisconsin.

Nov. 22, 1898.

Appeal from circuit court, Waupaca county; Charles M. Webb, Judge.

Action by the National Bank of Merrill against the Illinois & Wisconsin Lumber Company. From a judgment for plaintiff, defendant appeals. Affirmed.

This is an action for money had and received. On the 26th of August, 1896, the defendant borrowed $5,000 of the plaintiff, and gave its note therefor, due November 3, 1896; and when this note fell due it was renewed by the giving of a new note due January 22, 1897. On the 11th of January, 1897, the plaintiff returned the note, and stated that the contract was rescinded on the ground of fraudulent representations in the procurement of the loan, and immediately commenced this action and attached the defendant's property. All fraud was denied by the defendant, and hence it was claimed that the debt was not yet due. Upon the trial the evidence showed that the defendant was an Illinois corporation formed early in March, 1892, with an authorized capital stock of $60,000; the intention of the corporators being to manufacture and sell lumber at Merrill, Wis. The corporation was formed by W. W. Schultz and C. B. Flinn, of Chicago, and C. H. Werden, of Merrill. Prior to the formation of the corporation, and on the 17th of February, 1892, Schultz, Flinn, and Werden, acting together, bought a saw-mill and planing-mill plant of the Wisconsin Valley Lumber Company, at Merrill, Wis., for the agreed consideration of $20,000. They paid no money down, but contracted to pay $5,000 90 days from date, and the remaining $15,000 in three equal annual installments; the whole sum being secured by a mortgage upon the property. On the 11th of March, 1892, they deeded the mills thus bought and the real estate to the defendant corporation; and the corporation issued to them paid-up stock for $60,000, and assumed the mortgage of $20,000. The new corporation proceeded to buy timber and operate the mill, and continued so to operate it for five seasons, beginning with the season of 1892, and manufacturing an average of 19,000,000 feet of lumber per year. The evidence tends to show that during the years 1892 and 1893 large profits were made, which amounted to more than $40,000 in March, 1894, at which time they increased the capital stock to $100,000, by capitalizing $40,000 of this surplus, and issuing shares to the stockholders proportionately therefor. The evidence further tends to show that in 1894 there was a profit of $205.13; in 1895 a loss of over $7,000, and in 1896 of about $35,000. In January, 1897, immediately after the commencement of this action, a voluntary assignment was made by the corporation. The evidence shows that financial dealings between the corporation and the plaintiff bank began in 1893, at which time Mr. Werden, on behalf of the corporation, applied to the cashier of the plaintiff bank for a loan of $10,000, and also for further loans from time to time, and represented to the cashier that the corporation had a paid-up capital stock of $60,000, and was doing a good business. This representation was reported to the plaintiff's directors, and the loan applied for was made by the bank; and thereafter, from time to time, further loans were made, and in July, 1895, the loans amounted to $20,000. There were times when the loans were all paid up; and the loan represented by the sum in suit in the present action was made August 26, 1896, the previous loans having been all paid at that time. The evidence tended to show that in July, 1895, when the application for the loan of $20,000 was made, Schultz stated to the officers of the bank that the corporation had a paid-up capital of $100,000, and was doing a good business and making money; but this statement was denied by Schultz. In addition to this testimony, the evidence showed that a number of statements were made by the corporation to Dun's and Bradstreet's commercial agencies in 1892, and 1894, 1895, and 1896, as to its capital and assets, which represented the capital to be $60,000 fully paid prior to 1894, and $100,000 fully paid after that date, which statements were relied upon by the plaintiff as a basis of credit. There was a large amount of evidence given tending to show that the sawmill and planing-mill property of the defendant was not worth more than $20,000 when it was purchased, and, on the other hand, there was considerable evidence tending to show that it was worth from $50,000 to $75,000. The representations made by Werden were not denied, and the evidence tended to show that they were not discovered to be untrue until the day before the attempted rescission. The jury returned a verdict for the plaintiff for the full amount claimed and interest, and from a judgment on the verdict the defendant appeals.

Ryan, Hurley & Jones, for appellant.

Van Hecke & Smart and Curtis & Reid, for respondent.

WINSLOW, J. (after stating the facts).

The appellant makes three general contentions: (1) That the evidence does not sustain the verdict; (2) that the court erred in admitting evidence; and (3) that the court erred in its charge to the jury.

1. The gist of the action was fraud. Unless the evidence showed that the loan was made in reliance upon materially false representations as to the capital and financial condition of the corporation, there could be no recovery, because the debt was not due; and hence the first and fundamental question is whether there was sufficient evidence tending to show such fraud, and to sustain a verdict to that effect. The representation admittedly made by Werden to the plaintiff's cashier in March, 1893, when applying for a loan and a line of credit at the plaintiff bank, was, in effect, that the defendant had a paid-up capital of $60,000, and was doing a good business. The evidence is very full to the effect that this representation was reported to the discount committee of the bank, and was relied upon in making the first loan to the defendant in the spring of 1893, as well as in making the subsequent loans. It appears that substantially the same statement was made by Schultz and Flinn to Dun's and Bradstreet's commercial agencies in 1892 and 1894, with some additional statements as to liabilities and assets, and that the directors of the plaintiff in making loans to the defendant also consulted and relied upon the reports of the commercial agencies. The manner in which the $60,000 worth of capital stock was fully paid has been detailed in the statement of facts. In brief, it was as follows: Schultz, Flinn, and Werden purchased a saw and planing mill, with adjoining real estate, at the nominal price of $20,000, and gave their notes for that sum, secured by a mortgage on the property. At the same time they organized the defendant corporation in Illinois, with an authorized capital stock of $60,000. Acting in their capacity as corporators and directors of the corporation, they agreed with themselves in their individual capacity to purchase the saw and planing mill for $80,000, paying therefor by issuing $60,000 full-paid capital stock to themselves; the corporation assuming the $20,000 mortgage on the property. Thus it is claimed that the corporate stock became fully paid. And it is said in support of this claim that the statute authorizes the issuance of stock for property estimated at its true value, as well as for money (Rev. St. § 1753), and that there was evidence to show that the saw and planing mill property, though bought for $20,000, was in fact worth $75,000 or $80,000. This, of course, is true; and it is also true that if stockholders honestly and in good faith put property instead of money into a corporation, and receive stock therefor, the fact that the property may have been overvalued will not prevent the stock issued from being full-paid stock, even as against a creditor of...