Teachout v. Van Hoesen

• Decision Date: 30 October 1888
• Citation: 76 Iowa 113,40 N.W. 96
• Parties: TEACHOUT v. VAN HOESEN.
• Court: Iowa Supreme Court

76 Iowa 113

40 N.W. 96

TEACHOUT

v.VAN HOESEN.

Supreme Court of Iowa.

October 30, 1888.

Appeal from district court, Polk county; JOSIAH GIVEN, Judge.

The plaintiff was surety for the defendant upon a promissory note, and on the 14th day of December, 1886, paid the same, which then amounted to some $3,800. He brought this action to recover the sum so paid. The defendant admitted his liability to reimburse the plaintiff, but set up a counter-claim, in which he alleged that the plaintiff was liable to him in damages for false and fraudulent representations made in the matter of the organization of a corporation in which they were stockholders. The burden of proof was on the defendant to establish his counter-claim. There was a trial by jury. When the defendant had completed the introduction of his evidence, the plaintiff interposed a motion to direct the jury to return a verdict for the plaintiff for the full amount claimed by him, without regard to the counter-claim of the defendant. The motion was sustained, and a judgment was rendered for the plaintiff, and defendant appeals.Mitchell & Dudley and Finkbine & McClelland, for appellant.

Read & Read and Baylies & Baylies, for appellee.

ROTHROCK, J., ( after stating the facts as above.)

1. The ultimate question to be determined is, was the court correct in holding as matter of law that upon the issues presented by the counter-claim and the evidence introduced in its support the defendant was not entitled to recover any damages? It is not necessary to set out the counter-claim in full. In its substance it charges the plaintiff with fraudulent representations to the damage and injury of the defendant preliminary to and at the time of organizing a corporation known as the “Des Moines Ice Company.” The stockholders of that corporation were three in number. They were the plaintiff, (who held his stock in the name of one Myers,) one Branson, and the defendant. The alleged false and fraudulent representations consist in inducing the defendant to become a stockholder by representing that certain real estate upon which there were ice-houses, and certain personal property used in carrying on the ice business, had been purchased by Teachout and Branson from one Grefe for the sum of $20,000, and it was put into the enterprise at that valuation, when in truth and fact the purchase was made for the sum of $14,000, and that Teachout and Branson thereby secured an advantage in the organization of the corporation to the amount of $6,000. There was a reply to the counter-claim, and notice and demurrer were filed and determined by the court. It is not necessary to notice the pleadings further, nor the rulings on the motions and demurrers, as the question presented for determination by the appeal will be apparent from a statement of the facts which the evidence tended to establish.

It appears from the evidence that the plaintiff was engaged in the ice business at Des Moines for several years prior to 1883, and the defendant was during the same time engaged as manager of the butter and egg business of Schermerhorn & Co. at the same place. The parties were well acquainted, and had more or less business relations, which consisted in the purchase of ice by defendant from plaintiff for use in the said business. On the 16th day of July, 1883, the firm of Branson & Co. entered into a written contract for the purchase of the real and personal property theretofore used by Grefe in conducting the ice business. The purchase price was $14,000, of which $2,050 was paid at the execution of the contract. The further sum of $2,950 was to be paid in cash on the 1st of November, 1883, at which time Branson & Co. were to take possession of the property sold; and the remainder of the purchase price, being $9,000, was to be secured by mortgage upon the property. Teachout was not known in this transaction. But from the inception of the enterprise he was one of the real parties in interest, and its most active promoter and managing spirit. The defendant had some money which he desired to invest, and frequently consulted Teachout, who was a successful business man, on the subject of business investments. After the contract was made for the Grefe property, and about September, 1883, the plaintiff proposed that defendant should take an interest in the Grefe property and ice business. Teachout was then engaged in the business at another place in the city, and desired to keep his interest in the new venture secret from the public, lest a rival company should start up, and he exacted a promise of secrecy from defendant as to the exact nature of the enterprise. He then told the defendant that he could have an interest in the business and property at cost. He represented to the defendant that the Grefe property and business cost $20,000, of which $11,000 was to be paid by November 1, 1883, and the deferred payment of $9,000 was to be secured by mortgage on the property, and paid in easy payments. Defendant had on hand about $1,500, and he agreed to invest that amount on the basis of the cost of the Grefe property, with the privilege of increasing his interest to one-third, and thereby hold an equal interest with Branson and Teachout. Afterwards the plaintiff proposed to defendant that the parties in interest should form a stock company or corporation instead of a partnership. The Grefe property and business were to be turned into the company on the same basis as it was to be turned into the partnership--at cost. The corporation was organized with a capital stock of 300 shares of $100 each, amounting to $30,000. One hundred shares of the stock were issued to Branson, the same number to Myers for the benefit of Teachout,and at that time 15 shares to the defendant. All of the money paid by the stockholders at that time was $1,500 paid by the defendant. The Grefe property was conveyed to the corporation. Teachout and Branson paid for their stock $5,500 each, by turning over their interest in the Grefe property, and the Des Moines Ice Company obligated itself to pay the $9,000 deferred payment to Grefe. The defendant had an option to increase his subscription to place him on an equality with the other two corporate members, which he afterwards did by paying the further sum of $4,000 in cash. The defendant was induced to pay in $5,500 in cash in the belief that Teachout and Branson had each paid out that sum in the purchase of the Grefe property, when in truth and fact they had paid but $5,000 in the aggregate. It thus appears from the evidence that Teachout and Branson each obtained a one-third interest in the corporation by the payment of $2,500, and the defendant paid for his one-third interest the sum of $5,500. That he was induced to do so by the representation made by Teachout that the Grefe property cost $20,000 is not only sustained by the evidence, but as the plaintiff introduced no evidence it is uncontradicted. It further appears from the evidence that before this suit was commenced the defendant had sold his stock, and he is not now a stockholder in the corporation, and that the corporation paid dividends and was prosperous in its business during defendant's...