Stone v. Walker

• Decision Date: 10 May 1917
• Docket Number: 6 Div. 442
• Citation: 201 Ala. 130,77 So. 554
• Parties: STONE v. WALKER et al.
• Court: Alabama Supreme Court

77 So. 554

201 Ala. 130

STONE v. WALKER et al.

6 Div. 442

Supreme Court of Alabama

May 10, 1917

On Application for Rehearing, December 20, 1917

Appeal from City Court of Birmingham; H.A. Sharpe, Judge.

Bill by Kinzea Stone against A.E. Walker, as Superintendent of Banks and another, to rescind contract of subscription to bank stock. From a decree for respondents, complainant appeals. Reversed, rendered, and remanded.

Application for rehearing overruled; Anderson, C.J., and McClellan, J dissenting.

The letter referred to is as follows:

"W.N. Malone, City--Dear Sir: I think it would be a good idea to get a short statement signed by Mr. Jackson and Mr Hutton, too, if here, as trustees for the incorporators showing the following facts so that we can exhibit it to Col Stone: (1) Approximately the amount of cash that will be received by the new bank from the state superintendent of banks; (2) show whether or not the third mortgage bond on the building has been placed so as to enable the building company to pay off its indebtedness to the old bank, and the total amount of cash that will be received by the new bank from this source; (3) the total amount of cash assets on hand when the bank opens for business; (4) the total amount of liabilities of the old bank assumed by the new bank; (5) the appraised value of the real estate, less incumbrances of the old bank, to be acquired by the new bank; (6) the face value of all other assets of the old bank, and the probable amount of same that can be collected; (7) in the last above item please keep the interest in the building company separate from other assets. Yours very truly, James A. Mitchell."

In reply to this letter is the following:

"In reply to your favor of recent date, addressed to W.N. Malone, beg to say that we had a committee of prominent bankers pass upon the commercial loan of the Jefferson County Savings Bank, and this committee of bankers suggested a real estate committee to pass upon the real estate and real estate loans. From the reports and other information which we have received, the following are the facts as we see them: [Here follows the first, second, and third representations as set out by Judge Mayfield in his statement of fact;] (4) the total liabilities of the old bank to be assumed by the new bank is approximately $1,287,000, which is composed of savings and checking accounts; (5) the appraised value of the real estate including old bank building is $179,000, which is carried on the books of the old bank at $140,000; (6) the face value of all the assets of the old bank acquired by the new bank is about $1,800,000, and we feel that there can be collected a salvage of from $300,000 to $400,000. Trusting this information is what you want, I am yours very truly. A.E. Jackson."

Appellant, as a stockholder in the appellee bank, filed this his bill against the bank, and the state superintendent of banks who had taken over the bank to the end of its liquidation under the statute of this state. The purpose of the bill is to rescind the contract of subscription by which complainant purchased his stock, and have refunded to him the amount paid therefor, viz. $10,000.

The alleged ground for rescission is that fraudulent representations were made to complainant by the promoters and incorporators of the bank, touching the financial condition of the bank when organized, its assets and liabilities. These representations were in writing, in the form of a letter written by one of the promoters of the corporation, who, it is alleged, had been agreed on as the president to be elected of the corporation, and who was shortly thereafter elected to the place, and was acting as such official.

It is also alleged that it was agreed among the several promoters and incorporators that the letter in question should be written, and that it was so written, in response to a letter written by appellant's attorney, requesting that the incorporators give a signed statement as to the financial condition and status of the proposed banking corporation, in the way of assets, liabilities, incumbrances, etc. The representations alleged to be false were as follows:

"(1) There will be approximately $250,000 in cash to be turned over by the state superintendent of banks.

"(2) The issue of $400,000 of 6 per cent. third mortgage bonds have been placed on a par basis, which will be, in fact, more than sufficient to pay all the indebtedness of the old bank and the floating indebtedness of the building company, should we find that we need the money.

"(3) Approximately $1,150,000 in cash will be on hand when the new bank opens August 2, 1915."

It is also alleged that the representations were made with the intent to deceive appellant, that he relied upon them and acted upon them, and that they did deceive him. It is also alleged in the bill that before the letter was written, containing the false statements, it had been agreed among the incorporators of the bank that they would send one of their number, viz. one Malone, together with appellant's attorney, who resided in Birmingham, to the home of appellant, in Georgetown, Ky., to induce appellant to subscribe for stock in the new corporation to be formed.

The letter was written (which the reporter will set out), and was written for the purpose of obtaining data to present to appellant, for his information in determining whether or not he would take stock in the proposed corporation. The information was presented to him, as was intended to be done, and he acted on it.

It is also alleged that appellant was a nonresident of the state at the time he was induced to subscribe for the stock, and did subscribe and pay his money therefor; that he was at his home in Georgetown, Ky, ill and confined to his room.

It is alleged that appellant subscribed for his stock on or about the 25th day of July, 1915, and that the bank was organized on the 29th day of July, 1915, commencing the banking business on or about the 2d day of August, 1915, and continued to do business in Birmingham, Ala. until the 28th day of January, 1916, when it was taken over by the state bank superintendent for the purpose of its liquidation in accordance with the state laws.

It is also alleged that appellant did not know of the falsity of the statements made to him, and upon which he relied and acted, until the 21st day of February, 1916, after the bank had been taken over by the state superintendent of banks; that on account of his nonresidence and absence from the state, and of his ill health, he had had no opportunity to learn the true financial condition of the bank, or of the falsity of the statements until after the bank was so taken over.

The bill also alleges that the appellee bank was organized, with the knowledge and consent of the state superintendent of banks, for the purpose of taking over the assets and assuming the liabilities of the Jefferson County Savings Bank, which was then in process of liquidation under the control of the state bank superintendent; that it was therefore the object, in forming this new bank, that it acquire all the assets and business of the old corporation, and carry on its business in the building formerly occupied, and owned and controlled, by the old corporation; and that this purpose or intention was carried out, the new corporation continuing the business of the old, until it was in turn taken over by the state bank superintendent for the purposes of liquidation. The letters (which will be set out by the reporter) will show that the statements related largely to assets acquired from the bank absorbed, and to its liabilities assumed. It is also alleged that appellant was a stockholder in the old bank afterwards absorbed by the new one.

It therefore appears that the object and purpose of the letters in question was to inform appellant as to the assets which would be acquired from the old bank absorbed, as to the liabilities assumed in consequence thereof, and as to the incumbrances upon the property acquired by the absorption of the old bank.

It is therefore made to clearly appear that appellant had a right to rely upon these representations, and that he did rely upon them; and if they were false and resulted to his damage, he ought to have a remedy of some kind, against some person or firm.

James A. Mitchell, of Birmingham, for appellant.

Coleman & Coleman, of Birmingham, for appellees.

MAYFIELD J.

If this were a suit between man and man, or between two individuals, under the facts averred, all would concede that the bill contains equity, and that it was not subject to the demurrer interposed.

The following principles are well settled by the authorities, or are patently correct.

A material false statement, relied upon by the other party in ignorance of its falsity, and which materially influences him to enter into the contract, constitutes a fraud which will authorize a rescission. Sledge v. Scott, 56 Ala. 202; Perry v. Johnston, 59 Ala. 648; Davis v. Betz, 66 Ala. 206; Rice v. Gilbreath, 119 Ala. 424, 24 So. 421; Brewer v. Arantz, 124 Ala. 127, 26 So. 922; Moore v. Barber Asphalt Pav. Co., 118 Ala. 563, 23 So. 798; 7 Mayf. 182.

As a condition precedent to the exercise of the right of rescission, the party complaining must, if practicable restore, or offer to restore, to the other party what he had received from him by virtue of the contract. Cozzins v. Whitaker, 3 Stew. & P. 322; Jemison v. Woodruff, 34 Ala. 143; Young v. Arntze, 86 Ala. 116, 5 So. 253; Rice v. Gilbreath, 119 Ala. 424, 24 So. 421. This obviously has no application, however, where it has become impossible for such party to make such restoration by reason of the conduct or default of such other party. Johnson v. Oehmig, 95 Ala. 189, 10 So. 430, 36...