Peters v. Lohman

• Decision Date: 05 May 1913
• Citation: 156 S.W. 783,171 Mo. App. 465
• Parties: PETERS v. LOHMAN et al.
• Court: Missouri Court of Appeals

156 S.W. 783

171 Mo. A. 465

PETERS v. LOHMAN et al.

Springfield Court of Appeals. Missouri.

May 5, 1913.

1. FRAUD (§ 13) — ACTIONABLE MISREPRESENTATIONS.

One who makes representations professedly not of personal knowledge, but from information from others on which he relies, is liable for misrepresentations where he misstates the information, or where he knows or has reason to know that it is not correct.

2. CONTRACTS (§ 94) — FRAUD (§ 13) — FRAUDULENT REPRESENTATIONS — RELIEF AT LAW AND IN EQUITY.

An action at law for fraud in making false representations and a suit in equity for rescission of a contract on the ground of misrepresentations are founded on distinct theories, and a representation, though false, if innocent and made without any intention to defraud and under the belief that it is true, does not support an action at law for fraud, but will justify a relief in equity for the rescission of a contract induced thereby.

3. FRAUD (§ 13) — ACTIONABLE MISREPRESENTATIONS.

One who makes a representation of a material fact of his own knowledge, when in truth he has no knowledge on the subject, either of the truth or falsity of the representation, is liable in an action at law for fraud in making a false representation, but one who has received information of a fact from a reliable source, and which he has every reason to believe and does believe, is not liable at law for fraud when reporting the fact as true.

4. FRAUD (§ 13) — SALE OF CORPORATE STOCK — FRAUDULENT REPRESENTATIONS.

Directors of a corporation who make representations inducing a purchase of unissued stock are not liable at law for fraud where the representations are in accordance with information obtained from a reliable source, and are honestly believed to be true by the directors, whether the representations are oral or are made in a prospectus.

5. FRAUD (§ 58) — SALE OF STOCK — FRAUDULENT REPRESENTATIONS — EVIDENCE.

In an action at law for fraud inducing a purchase of unissued corporate stock, evidence held not to show the falsity of representations as to the corporation holding leases on natural gas and coal lands.

6. FRAUD (§ 58) — EVIDENCE — SUFFICIENCY.

In an action at law for fraud against the directors of a corporation, inducing a purchase of unissued stock based on misrepresentations, an inadvertent admission of a director testifying by deposition, received in evidence to impeach his positive evidence on the trial, which he had promptly repudiated on being informed that he was mistaken, is not sufficient proof of the misrepresentations.

7. FRAUD (§ 27) — SALE OF STOCK — FRAUDULENT REPRESENTATIONS — PAID AND NONASSESSABLE STOCK.

A representation that the stock of a corporation is fully paid and nonassessable, made to induce a purchase of unissued stock, is merely a representation that the stock, when issued and paid for, is of the kind properly denominated fully paid and nonassessable, and is not a representation that any stockholder has paid full par value for the stock.

Appeal from Circuit Court, Jasper County; Carr McNatt, Special Judge.

Action by Louis F. Peters against L. C. Lohman and others. From a judgment for defendants, plaintiff appeals. Affirmed.

Plaintiff instituted this suit against the defendants, alleging that the Guthrie Mountain Portland Cement Company, hereinafter called the company, was a West Virginia corporation organized for the purpose of erecting and operating a cement plant and a brick plant, of which defendants were directors; that the capital stock was 10,000 shares of preferred and 10,000 shares of common stock, each of a par value of $100 per share; that at the time the corporation was formed only a small part of the capital stock was subscribed and paid for, and the defendants as directors were chiefly engaged in the sale of said stock.

The action is one for fraud and deceit in making false representations as to the property owned by the company, whereby plaintiff was induced to purchase 50 shares of the preferred and 50 shares of the common stock in said company, for which he paid $5,000. The petition alleges and the evidence shows that soon after plaintiff purchased this stock the company failed, went into bankruptcy, and plaintiff's stock proved worthless. Plaintiff sues for $7,500, which he says would be the value of his stock, provided the representations made to him by the defendants had been true. Defendants are not accused of making false representations in order to sell stock owned by them individually, but in order to sell the unissued stock of the corporation of which they were directors. The representations made by defendants, which plaintiff alleges to be false and on which he went to the jury on his own instructions, were made in part orally and in part by a printed prospectus issued by the company by the procurement and with the assent of the defendants as directors.

The false representations contained in the printed prospectus on which plaintiff relies for his cause of action are as follows:

"(a) The Guthrie Mountain Portland Cement Company owns 670 acres of raw material deposits, perfectly adapted to the manufacture of a high-grade Portland cement, situate near the town of Mapleton, Bourbon county, Kansas.

"(b) In addition to the raw material deposits owned by this company, it also holds perpetual leases on over 2,000 acres of natural gas and coal land, lying immediately adjacent to the raw material property.

"(c) This company has contracted with the Goodspeed Gas & Oil Company, whose holdings amount to over 4,000 acres of good gas and oil land with a present production of over 35,000,000 cubic feet per day and capable of further development when needed. This company has agreed to furnish gas for fuel to run our entire plant at a cost of three cents per thousand cubic feet, which will bring the fuel cost of manufacture on an equal basis with the plants already in operation in the Southern Kansas District where gas is used for fuel.

"(d) Further, should the company elect at any time in the future to use coal for fuel, it is in a position to do so at a much cheaper cost than other plants in the middle west due to the fact that it controls valuable coal lands whose output will be sufficient to run the plant for years to come."

"(f) There were 580 acres on the plateau covered with an upper strata of limestone which varies from 16 to 21 feet in thickness.

"(g) That you have an abundance of natural gas which is the cheapest fuel as yet used in the manufacture of Portland cement and effects a large saving over the use of coal."

It appears, however, that the plaintiff practically abandoned the allegation that the representation contained in paragraph "c," relating to the contract for a supply of natural gas, was in fact false.

The oral representations on which plaintiff relied as being made and being untrue were limited to the defendant Schifferdecker, and are as follows:

"(a) That Schifferdecker and Geissinger has each purchased $40,000 of the preferred stock of said company.

"(b) That said company then held leases on 4,000 acres of gas land in the Kansas gas belt near their works near Mapleton, Kansas, and that said company had then developed on said gas leases owned by them gas wells of a daily capacity of 30,000,000 cubic feet of gas per day.

"(c) That said company had then developed on said land owned by said company at its plant near Mapleton, Kansas, three veins of coal, one of which was cannel coal."

The petition alleges that said statements and representations as made to plaintiff by said directors on behalf of themselves by and through their said prospectus and by certain agents selling stock of the company "were false and untrue, and that these defendants knew that said statements and representations were false and untrue at the time they were made." Plaintiff further alleged and testified that said stock was of no value at the time he purchased it, and that he would not have purchased the same except for the statements and representations so made as aforesaid by and on behalf of said defendants. The defendants answered separately, but each answer is merely a general denial. The trial was had by a jury and resulted in a verdict for the defendants.

The company's property and the proposed brick and cement plants were located in Bourbon county, Kan. The principal office of the company was at Kansas City. The plaintiff and defendants Schifferdecker and Geissinger all lived at Joplin. The defendant Lohman, who was president of the company during most of the time of this controversy, lived at Jefferson City. None of the defendants were the original organizers or promoters of this company, but each became a stockholder by purchase of stock after its organization; Schifferdecker to the amount of $30,000, Geissinger $15,000, and Lohman, with some personal friends, $10,000. The company seems to have been organized with very little of its stock actually subscribed or paid for. The stock was to be issued as sold. There is no doubt but that for a year or more the directors of this company gave considerable attention to the matter of selling its stock. It was necessary to do this in order to obtain funds with which to build and equip the brick and cement plants, and to develop its natural resources. This company seems to have been organized at a time when the cement business was on a boom, resulting in the building of plants throughout the country and much speculation in this line of business. The business of this particular company was one of large possibilities and authorized capital, but that was all. The company owned 443 acres of land, which the evidence shows contained large quantities of natural cement and brick material and was located in or near the Kansas natural gas belt. It had a contract with a gas company to supply it with natural gas in large quantities and at a low rate. It appears that the main purpose of the company was to manufacture cement...