Swoboda v. Rubin

• Decision Date: 04 March 1919
• Citation: 169 Wis. 162,170 N.W. 955
• Parties: SWOBODA v. RUBIN ET AL.
• Court: Wisconsin Supreme Court

169 Wis. 162

170 N.W. 955

SWOBODA

v.RUBIN ET AL.

Supreme Court of Wisconsin.

March 4, 1919.

Appeal from Circuit Court, Milwaukee County; E. T. Fairchild, Judge.

Action by Thomas Swoboda against Jacob H. Rubin and another. Judgment for defendants, and plaintiff appeals. Reversed and remanded, with directions.

This is an action for damages growing out of false representations alleged to have been made by the defendants to the plaintiff, which induced him to invest $8,300 in the Racine Underwear Mills. The plaintiff was born in Austria, came to this country about 32 years ago, and for the last 25 years has been in the restaurant, saloon, and hotel business, principally in the city of Milwaukee, in which business he accumulated some money. The Racine Underwear Mills Company was a corporation organized under the laws of the state of Wisconsin in March, 1914. Its business was the manufacture of knit underwear. Its plant and principal place of business was located at Stevens Point, Wis. In March, 1915, it was owned and controlled by the defendant Braun and one Leo. It was in serious financial difficulties. In June, 1915, Rubin advanced the concern $3,000, and as security took a bill of sale of all the assets and resources of the company. Later on there was assigned to him as additional security $13,300 of the capital stock of the corporation. The total capital stock thereof was $25,000. This gave Rubin a controlling interest in the corporation, and thereafter he was the dominating spirit therein.

In July, 1915, the plant was moved to Milwaukee. This required more money, which was advanced by Rubin. After the plant resumed operations in Milwaukee, it was still in financial straits, and Rubin determined to get more capital for the concern. On or about October 9, 1915, the plaintiff and Rubin met. Rubin told Swoboda he heard that he wanted to go into business. He answered that he did, if it was a good business. Rubin then said, I have one, the Racine Underwear Mills, a good profitable business, and I need a good responsible man in the office. Upon plaintiff asking how much money was needed, Rubin answered that that was not the question; what he wanted was a good responsible man, and he knew plaintiff was such a man. Plaintiff told him he knew nothing about the business, and Rubin replied that it was not necessary; that it was a very profitable business; that the money was not the prime consideration; that he (Rubin) was the financier and owned the whole thing. After some further talk, and an inspection of the plant, an inventory was taken, either the same day or very shortly thereafter. Braun and Swoboda were present at the taking of the inventory, and Rubin was there a considerable portion of the time. The principal items of the inventory consisted of yarn and machinery. The yarn was weighed up, and the value thereof set down. The machinery was valued at the prices fixed therefor in a catalogue of the manufacturer of the machinery issued in the year 1913. The evidence tends to show that both Rubin and Braun assured plaintiff that the machinery was as good as new. The machinery was inventoried at $15,265.51 and the yarn at $4,390.18. By this inventory the entire value of the plant was fixed at $23,500, but what items were included in this total outside of the yarn and machinery does not appear. It is reasonably certain that a considerable sum was allowed for good will.

It was then arranged to organize another corporation, with a capital stock of $25,000, of which Swoboda, Rubin, and Braun should each take $8,300, leaving $100 of the stock in the treasury, to which the property of the old corporation should be transferred at the inventoried value. Articles of incorporation were drawn up and filed, and on October 22d the three met and organized the corporation. Swoboda drew and delivered his check to the corporation for $8,300. Rubin and Braun, in form at least, did likewise. These checks were deposited in the Union Bank, of which Rubin was a director. Rubin, by bill of sale, conveyed to the new corporation all the property and effects of the old corporation, and a check for $23,350 upon the deposit so made in the Union Bank was immediately delivered to Rubin in payment thereof. This left the corporation a checking account of about $1,500. It appeared that there were outstanding debts of the old organization amounting to $6,750 for which Rubin was liable, and which were paid out of the $23,350 above mentioned, all of which was unknown to the plaintiff.

Rubin, Braun, and Swoboda were elected directors. Rubin was elected president, Braun secretary, and Swoboda treasurer. Swoboda was given a desk and charged with the somewhat responsible duties of copying orders and signing checks. Braun went out on the road, soliciting orders. Things went badly from the start. Orders filled were returned because unsatisfactory. The bank account was continually overdrawn. Swoboda was asked to sign notes to secure money for the concern, one of which, for $1,000, he signed. The machinery worked badly, resulting in a poor product. The employés left. Credit was refused. Plaintiff demanded that his money be returned. At a stockholders' meeting on January 10, 1916, plaintiff was removed as a director. In March, 1916, Rubin sold his interest at par, and severed his connection with the corporation. In July, 1916, the corporation went into bankruptcy. This action was brought to recover damages because of the false and fraudulent representations of the defendants which induced plaintiff to invest his money, as recited.

The jury returned a special verdict to the effect (1) that prior to October 22, 1915, the defendants, and both of them, represented to the plaintiff: (a) That the Racine Underwear Mills was doing a good and profitable business; (b) that the machinery of the Racine Underwear Mills was as good as new machinery; (c) that the true value of the equipment, stock, fixtures, machinery, and good-will of the Racine Underwear Mills was $23,350; (2) that such representations were false and fraudulent, and made with the intent to induce plaintiff to buy stock in the Racine Underwear Mills; (3) that the plaintiff believed such representations; (4) that the plaintiff relied upon such representations, and was thereby induced to purchase stock of the Racine Underwear Mills; (5) that the plaintiff did not have opportunity to observe and learn the condition and value of the machinery of the Racine Underwear Mills prior to October 22, 1915, or as to whether or not the business of the Racine Underwear Mills was profitable; (6) that the plaintiff was justified in relying upon said representations and in accepting such representations as true, without doing more than the evidence in the case indicates he did do to ascertain the truth or falsity of such representations; and (7) fixed his damages at...