Southern Ins. Co. v. Milligan

• Decision Date: 03 June 1913
• Citation: 154 Ky. 216,157 S.W. 37
• Parties: SOUTHERN INS. CO. et al. v. MILLIGAN.
• Court: Kentucky Court of Appeals

157 S.W. 37

154 Ky. 216

SOUTHERN INS. CO. et al. v. MILLIGAN.

Court of Appeals of Kentucky.

June 3, 1913

Appeal from Circuit Court, Butler County.

Action by G. H. Milligan against the Southern Insurance Company and the Woodbury Deposit Bank. From a judgment for plaintiff defendants appeal. Affirmed on the appeal of defendant Insurance Company, and reversed on the appeal of defendant Bank, with directions.

W. A Helm, of Morgantown, and Logan & Hazelip, of Frankfort, for appellant Southern Ins. Co.

Herdman & Gardner, of Bowling Green, for appellant Woodbury Deposit Bank.

G. V Willis and N. T. Howard, both of Morgantown, for appellee.

CARROLL J.

On September 7, 1911, the appellee, Milligan, subscribed for 100 shares of the capital stock of the appellant Southern Insurance Company, and signed two subscription papers, each being for 50 shares of stock, and each a duplicate of the other except as to the maturity of the notes given by appellee in payment of the subscription. The subscription paper reads: "Stock subscribed to the Southern Insurance Co., Nashville, Tenn. Par value of each share, ten dollars. Surplus on each share, twenty dollars. Authorized capital stock, five hundred thousand dollars. I, G. H. Milligan, of Round Hill, Ky. hereby subscribe for fifty shares of the capital stock of the Southern Insurance Co., to be fully paid and non-assessable, for which I agree to pay fifteen hundred dollars, being at the rate of $30 a share. No certificate of stock shall be issued until the company has received payment in full for the shares herein subscribed for at the prices named herein. No conditions or agreements other than those printed and written herein shall be binding on the company. This subscription is subject to acceptance by the company. Payments to be made: Fifteen hundred dollar note to be paid on or before March 7, 1913. Witness, A. A. Streit. Date, Sept. 7th, 1911."

The two notes executed by appellee were worded the same, except as to the time of payment; each note being for $1,500, one maturing 6 months after date and the other 12 months after date. A few days after the execution of these notes, they were purchased from the insurance company, in the regular course of business, by the Woodbury Deposit Bank, and soon thereafter there was issued to appellee two certificates of stock in the insurance company, each showing that he was the owner of "50 shares of $10 each of the capital stock" of the insurance company. In November, 1911, appellee brought this suit against the insurance company and the Woodbury Deposit Bank, tendering to the company the certificates of stock issued, and asking that the notes executed by him be canceled, and that the Woodbury Deposit Bank and the insurance company be restrained from transferring or disposing of the notes.

This relief was sought upon the ground that A. A. Streit, the agent of the insurance company, with whom the contract was made, at the time of the transaction falsely and fraudulently represented that the par value of the stock that would be delivered would be $3,000, when in fact the par value of the stock was $1,000; and that the insurance company was paying an annual dividend of 27 per cent. on the stock, when in fact it had never paid any dividend; and that John M. Carson and others had purchased stock in the company, when in truth Carson had never purchased any stock; and that the value of the stock would double in 12 months; and that the price of the stock would advance, and that if he did not buy at once he could not get it later at $30 a share, when in fact the stock both after and since had been sold by the company at less than $30 a share. He further averred that when the contract was entered into he had no information, and no means of obtaining information, except from the agent Streit as to the truth of any of the representations that he made, and that he was induced by these representations to enter into the contract. For answer to this petition the insurance company denied that its agent made any false or fraudulent representations to appellee, or that appellee was induced to enter into the contract by reason of any false representations or statements made by the agent. It further set up that appellee, at the time he subscribed for the stock, was fully advised of the condition of the company and the value of the stock, and there was no fraud or overreaching or misrepresentation practiced in selling the stock to him. The Woodbury Deposit Bank also filed an answer in which it asserted that it purchased the notes in good faith, for a valuable consideration, before maturity, and asked that it be protected in its purchase. Upon hearing the case the lower court entered a judgment canceling the notes and also the certificates of stock, as well as the certificates of deposit issued by the Woodbury Deposit Bank to the insurance company. From this judgment the insurance company and the bank prosecute this appeal.

No person was present when the sale of the stock to appellee was made, except himself and the agent Streit. Appellee testifies that Streit, who was a stranger to him, came with a letter of introduction from his friend, Dr. Cherry; that Streit showed him papers and circulars setting forth the standing of the company, and told him that John M. Carson and others had bought stock, and that the stock would double itself in value in 12 months, and was worth $30 a share; that the stock was non-assessable and was paying 27 per cent. dividend, not on the par value of the stock, but on the investment, and that the company would pay the next dividend in January, 1912; that he bought 100 shares and was to pay $30 per share for it, and was under the impression when he bought the stock that the par value of the stock was $30 per share, and did not learn that it was only $10 per share until some time later; that at the time he bought the stock he did not have any means or opportunity of learning the value of the stock or the financial condition of the company, or of ascertaining the truth of what Streit told him, and relied on the representations made by Streit.

A. A. Streit testified that he was selling stock for the company, and that he told appellee that the company was in a position to pay a dividend the 1st of January, but did not tell him it would do so, and further told him that the company was on a gross earning basis of 27 per cent. on the par value of the stock, and that as near as he could figure from the statements the dividends would be 12 per cent. or 15 per cent. on the par value, but that the matter of paying dividends was entirely with the board of directors. He further said that he did not tell him that the stock would double in value in 12 months, but did tell him that John M. Carson had taken 25 shares of stock.

John M. Carson testifies that Streit tried to get him to purchase some of the stock, but that he declined to take any of it.

It is also shown by the evidence that the company, although a solvent and going concern when the transaction was had with appellee and when the evidence was taken in May, 1912, had never declared or paid any dividends, and, although it had a paid-up capital stock of $166,450, its surplus fund in 1911 was only $17,533.13. It will thus be seen that there is not material difference between the evidence of appellee and Streit as to the...