The El Dorado National Bank v. Eikmeier

• Decision Date: 03 July 1931
• Docket Number: 29,778
• Citation: 300 P. 1085,133 Kan. 412
• Parties: THE EL DORADO NATIONAL BANK, Appellee, v. FRED E. EIKMEIER, MARY EIKMEIER and H. H. FAULDERS, Appellants
• Court: Kansas Supreme Court

300 P. 1085

133 Kan. 412

THE EL DORADO NATIONAL BANK, Appellee, v. FRED E. EIKMEIER, MARY EIKMEIER and H. H. FAULDERS, Appellants

No. 29,778

Supreme Court of Kansas

July 3, 1931

Decided July, 1931.

Appeal from Butler district court; GEORGE J. BENSON, judge.

Judgment reversed.

SYLLABUS

SYLLABUS BY THE COURT.

1. BILLS AND NOTES--Defenses--Fraud and Failure of Consideration--Evidence. In an action by the holder by assignment from the payee of nonnegotiable promissory notes the defendants pleaded failure of consideration and fraud which induced their execution. The record is examined and it is held the evidence tending to support those defenses should have been submitted to the jury.

2. SAME -- Defenses -- Partial Failure of Consideration -- Determination of Amount. If the consideration of nonnegotiable promissory notes consisted of two things, one of which failed, and the amounts are unliquidated, failure of consideration should be determined as unliquidated sums or damages in other cases.

3. FRAUD -- Actionable Fraud -- What Constitutes -- Prospective Promise. A promise to do something in the future, by which the promisor obtained something of value, if the promisor had no intention of performing his promise at the time he made it, amounts to deceit and actionable fraud.

4. BILLS AND NOTES -- Waiver of Defenses. A contract between the original parties to rescind the transaction in which the notes were given is examined, and held to have no substantial effect on the rights of the parties in this action.

F. Dumont Smith, J. N. Tincher, Don Shaffer, Clyde A. Raleigh and Mabel Jones Shaffer, all of Hutchinson, for the appellants.

C. L. Harris and F. J. Leasure, both of El Dorado, for the appellee.

OPINION

HARVEY, J.:

This is an action by the assignee and holder of nonnegotiable promissory notes against the makers and assignor. The makers, whom we shall speak of as defendants, admitted executing the notes, but pleaded failure of consideration and fraud which induced their execution. The trial court sustained a demurrer to their evidence and they have appealed. Broadly speaking, the question for our determination is whether there was evidence which should have gone to the jury.

The action was on two notes for $ 3,000 each, dated October 31, 1925, due in one year, signed by Fred E. Eikmeier and Mary Eikmeier, made payable to H. H. Faulders, and by him indorsed. The notes were in the usual form of negotiable promissory notes except that each of them contained this statement: "This note is given in payment of shares in the Sparta Petroleum Co." Under our statute (R. S. 17-1220) this rendered the notes nonnegotiable "and subject to all laws governing nonnegotiable commercial paper." Plaintiff alleged, in substance, that the notes were made for a valuable consideration, that plaintiff purchased them for value before maturity, and that they were due and unpaid; set up copies of the notes, and prayed for judgment. Defendants answered, admitted signing the instruments sued upon, denied they had ever received any consideration for signing the notes, alleged that they were not negotiable, and that plaintiff had no rights thereunder greater than H. H. Faulders had, and that they were induced to sign the notes by the false and fraudulent representations of Faulders: (1) That the shares of stock in the Sparta Petroleum Company were worth more than one hundred cents on the dollar, when in fact he knew the shares had no value; (2) that the Sparta Petroleum Company was a going concern, had large and extensive property holdings, and was operating in the oil business on an extensive scale, when in fact it was not operating at that time, its charter to do business was forfeited, and that Faulders had no authority to sell stock in the company; (3) that Faulders represented that the Sparta Petroleum Company, as a consideration for the notes, would drill a well on land owned or controlled by defendants in Pawnee county, and would begin drilling within thirty days, which representation was known by Faulders to be false at the time it was made. Plaintiff, in a reply, denied the defenses set up in the answer, alleged that in fact the shares of stock of the Sparta Petroleum Company were delivered to defendants, that they knew the stock was being issued and sold for the purpose of raising money to complete a well then being drilled on a leasehold in Butler county owned by the corporation, and knew it was the purpose and intent of the payee to sell and transfer the notes in order to get money to carry on the operations of the corporation; that with such knowledge, and to assist the payee in selling the notes, the defendants, about the time the notes were purchased by plaintiff, made and caused to be delivered to plaintiff a property statement in writing showing they had property sufficient to justify plaintiff in purchasing the notes, and that by reason thereof plaintiff was induced to and did purchase them from Faulders in good faith, and paid therefor their face value, less a discount of eight per cent; that the proceeds of the notes were in fact used by the corporation for its operations; that shortly after the execution of the notes and the delivery of the stock Fred E. Eikmeier became a director and vice president of the Sparta Petroleum Company, and as such officer took part in its direction and management, by reason of which facts defendants are estopped to deny the validity of the notes and their liability thereon to plaintiff.

Plaintiff's evidence was that it purchased the two notes, one November 6, the other November 12, 1925, and paid the face value thereon, less an eight per cent discount; that the notes were purchased from H. H. Faulders, and the amount paid for them was credited to his personal checking account (whether the money was still in that account, or had been checked out, and, if so, for what purpose, is not shown by the record); that the Sparta Petroleum Company did not come into the matter, so far as plaintiff was concerned; that plaintiff required a property statement from defendants before it purchased the notes, and that Faulders brought to plaintiff a property statement which had been executed by defendants, which showed they had property in sufficient amount to justify plaintiff in purchasing the notes; that plaintiff's officers did not see defendants, but transacted all their business with Faulders.

Other evidence tended to show substantially the following facts: The Sparta Petroleum Company was incorporated under the laws of this state with an authorized capital of $ 500,000, of which shares representing about $ 250,000 had been issued. H. H. Faulders held half or more of the issued shares. He was president and general manager of the company, and apparently controlled or dominated its activities. The assets of the company appear to have consisted of oil and gas leases on two forty-acre tracts of land in Butler county, on which E. H. Faulders, wife of H. H. Faulders, had an overriding royalty. These assets appear to have been encumbered by a mortgage to the plaintiff bank for $ 20,000, although the date of that mortgage is not shown by the record. The company never paid any dividends on its stock. At the time the notes sued on in this action were given a well had been drilled on one of the forty-acre tracts and was producing oil--the amount of which was not shown--and another well was being drilled.

Defendants lived in Pawnee county, where they owned 1,280 acres of land and other property, and were ambitious to have oil development in their locality and a well drilled on their land. One of their neighbors and friends was T. H. Crumley who had made a study and practice for some years of locating places to drill for oil or gas. Sometime in September, 1925, Crumley, at Faulders' request, met him in Wichita. Faulders had Crumley go to Butler county and locate places to drill two wells on leases held by the Sparta Petroleum Company. Perhaps Crumley made two trips to see Faulders. On the trips, or one of them, Faulders told Crumley that he knew what the state law was; that if he, Crumley, brought to Faulders anyone who would buy stock he would pay Crumley ten per cent. He asked Crumley to see defendants and see if they would buy ten or twenty-five thousand dollars' worth of Sparta Petroleum stock. Crumley said he would not do this; that the only proposition defendants would consider would be to have a block leased near their premises and a well drilled on their property. Faulders said he would do that. On returning to his home Crumley conveyed this information to defendants. They asked Crumley to have Faulders come to Pawnee county to see them. This was done. Perhaps Faulders saw them there more than once. At any rate, on October 31, 1925, the defendants, Crumley, Faulders, and a man by the name of Kelly, who appears to have been associated in some way with Faulders, met at a hotel in Larned. Faulders talked to defendants about selling them stock in the Sparta Petroleum Company and represented the company to be in good shape, its stock to be worth 100 cents on the dollar, and that at the first of the year there would be a 12 per cent dividend paid. Defendants told him they did not want to buy stock and were not interested in the Sparta Petroleum Company, but were interested in a well being drilled on their land; that they were then buying a certain half section of land and wanted the well drilled on that land. They told Faulders that if he would block up land for leases and drill a well on their property they would take $ 10,000 worth of the stock, if all the money they paid for it would go into the well on their land. Faulders said he would do that. He stated he had a drilling rig in Chase county--about...