Tinker v. Kier

• Decision Date: 29 March 1906
• Citation: 94 S.W. 501,195 Mo. 183
• Parties: TINKER v. KIER et al.
• Court: Missouri Supreme Court

94 S.W. 501

195 Mo. 183

TINKER v. KIER et al.

Supreme Court of Missouri, Division No. 2.

March 29, 1906.

1. CORPORATIONS—SUBSCRIPTIONS TO STOCK— FRAUDULENT REPRESENTATIONS.

One without experience in the business of lead mining may, when solicited to purchase stock in a corporation about to engage in the business, rely on the representations made by the promoters of the corporation.

2. SAME—WHAT CONSTITUTES FRAUD.

In a suit to rescind a sale of corporate stock on the ground of fraudulent representations, the evidence showed that the promoters represented to the buyer that the corporation was to engage in mining operations on a tract of land, and that the corporation was free from debts. There was a deed of trust of over $100,000 covering the land, executed by a third person. Held that, though the corporation was not liable for the debt secured by the deed of trust, the representation that it was free from indebtedness was a fraudulent representation.

3. APPEAL—FINDINGS—CONCLUSIVENESS.

Unless the record discloses that the findings of a chancellor who heard the testimony of the witnesses are wrong, the Supreme Court on appeal will not disturb them.

4. CORPORATIONS—SUBSCRIPTIONS TO STOCK— FRAUDULENT REPRESENTATIONS — EVIDENCE —SUFFICIENCY.

Evidence, in a suit to rescind a sale of corporate stock, on the ground of fraudulent representations made by the promoters of the corporation, examined, and held to justify a finding that the promoters made fraudulent representations which the buyer relied on in making the purchase, authorizing the court to cancel the sale.

Appeal from St. Louis Circuit Court; Horatio D. Wood, Judge.

Action by Zachariah W. Tinker against William F. Kier and others. From a judgment for plaintiff, defendants appeal. Affirmed.

This cause is here upon appeal from a judgment and decree rendered in the circuit court of the city of St. Louis. The cause of action upon which this decree and judgment rests is thus stated in the petition: "Plaintiff, for cause of action, by attorney, states that heretofore, to wit, on or about the 5th day of June, 1901, the defendants, being the owners of 2,500 shares of the capital stock of the Kier Lead Company, a corporation organized under the laws of the state of Missouri, desired to sell the same to plaintiff for the sum of $8,000; that, in order to induce and persuade plaintiff to purchase the same, they represented to plaintiff that said Kier Lead Company had a capital stock of $750,000, divided into 75,000 shares of the par value of $10 each, and that said stock was fully paid up and nonassessable; that the said company had a tract of land in the county of St. Francois, and state of Missouri, of great value; that the company had no indebtedness save some inconsiderable debts owing to a few persons, amounting in the aggregate to less than $8,000, and that it was for the purpose of paying off and discharging such indebtedness that they desired to sell said shares of stock. The defendants further stated to plaintiff that they themselves had invested in the company more than $70,000, $20,000 of which had been expended in boring said land in St. Francois county. Plaintiff further states that, believing the said representations and statements to be true, and being influenced thereby, he did, on said 5th day of June, 1901, purchase from the said defendants the said 2,500 shares of stock, being certificates No. 120 for 1,000 shares, No. 121 for 1,000 shares, and No. 122 for 500 shares, paying them, the said defendants, therefor, the sum of $8,000, which sum was paid in the following manner: $2,000 in cash on said 5th day of June, 1901, and $6,000 in the shape of a draft or acceptance for said amount dated June 5, 1901, at four months, drawn by the defendant Henry L. Whitman on plaintiff and by plaintiff accepted. Plaintiff further states that each and every of the said representations and statements made by defendants to plaintiff as aforesaid was false, and was known by defendants to be false at the time the same was made, and that said false representations and statements were willfully made by defendants, for the purpose of deceiving, misleading, cheating, and defrauding plaintiff; that said Kier Lead Company's stock was not fully paid up and but a trifling amount had been paid thereon; that its property in St. Francois county had a speculative and unsubstantial value only, and was subject to a deed of trust made to secure the payment of $100,000, being almost the entire purchase price thereof; that the company had no assets save the equity of redemption in said St. Francois county land; that the defendants had not invested $70,000 in said company, but had invested only $1,250 each, and had never expended a dollar in boring said land; that defendants did not desire the said $8,000 for the purpose of paying debts of the company, but for their own private use, and plaintiff avers that they did apply the cash and the proceeds of said draft for $6,000, which they discounted, to their own private uses. Plaintiff further states that upon the maturity of the said draft he refused to pay the same, and it was duly protested for nonpayment, and has since been taken up and is now held by defendants. Wherefore, and on account of the premises, plaintiff herewith tenders defendants said 2,500 shares of stock and prays for a decree of this honorable court rescinding the said sale, ordering and requiring defendants to pay back to plaintiff said sum of $2,000, with interest thereon from June 5, 1901, ordering and directing defendants to surrender said draft or acceptance to plaintiff for cancellation, and enjoining and restraining them from negotiating or otherwise disposing of the same, and for such other and further relief as to the court may seem just and proper."

The answer to this petition in substance avers that plaintiff purchased this stock on May 3, 1901, paying for it on June 5, 1901, as alleged in the petition, and that the 2,500 shares of stock stood on the books of the company in defendants' names, and that they were authorized to sell and did sell them for themselves and as agents or trustees of William H. Miltenberger, all of which plaintiff well knew. Further answering, defendants deny the other allegations of plaintiff's petition generally, and in addition set up a counterclaim for the amount of the draft, $6,000, which they were obliged to take up at maturity, and $240 statutory damages because of its nonpayment. The reply denies the allegations of the answer in extenso, and repeats the allegations of the petition.

The evidence introduced by plaintiff was substantially as follows: In December, 1900, Jacob Day was, and for many years had been, the owner of a certain tract of land in St. Francois county, Mo., known as the "Day Farm," and containing 358 acres. It was situated in the lead district of St. Francois county, was of small value for agricultural purposes, but of considerable value for lead mining purposes, if the fact that it contained lead in quantities justifying mining operations could be satisfactorily established. From time to time various parties, some three or four in number, had secured options on the land, and had bored or drilled it with diamond drills. The result in each and every case was that each of the parties abandoned his option and contented himself with the loss of the money paid for the option and expenses in boring or drilling. During that year Wm. H. Miltenberger and Wm. C. Doak, two promoters, learning of the situation, secured an option on the land, paying so much a month therefor, and later decided to take a deed for the land, give a deed of trust back for the unpaid purchase money, form a corporation with a large capital stock, convey to it their ownership in the land, and then sell stock. In order to raise the amount of cash required to make a payment on this land, and not desiring their names to be used in connection with it, it was necessary to associate others with them. The men selected for the purpose were the defendants in this case, Dr. Kier, a practicing physician of the city of St. Louis, and Mr. Whitman, the secretary of an agricultural machine manufacturing company. The plan agreed upon and carried out by these four people was as follows: They were to contribute $1,250 each and thus raise the $5,000 required for the cash payment. The $5,000 was to be paid to Jake Day, a deed for the land was to be taken in the name of W. S. Browning, and Browning was to execute notes to Day and a deed of trust securing them for the remaining $104,800 of the purchase price. Browning was then to convey the land to the defendants Kier and Whitman, who, in turn, were to convey it to a corporation to be organized with a capital stock of 75,000 shares, of the par value of $10 each, in full payment for such shares. Of these 75,000 shares 50,000 were to belong to the four promoters organizing the corporation, 12,500 to each. Twenty-two thousand five hundred shares were to be set aside, they said, for the purpose of raising a fund for sinking and equipping a shaft and constructing a plant (estimated to cost about $200,000), and paying off the $104,800 mortgage. The remaining 2,500 shares were to be sold and the proceeds distributed between the four promoters to reimburse them for their outlay of $5,000 and such incidental expenses as they might incur in the way of office rent, printer's bills, corporation fees, etc. On December 21, 1900, Day deeded the land to W. S. Browning, receiving $5,000 in cash and a mortgage for $104,800. The $5,000 was furnished to Browning by Whitman, and was contributed in equal portions by Kier, Doak, Miltenberger, and himself. Browning on the same day deeded the property to Whitman and Kier subject to the Day deed of trust and an additional deed of trust held by Doak for $5,000. The corporation was formed by Kier and Whitman and F. A. Wind as incorporators. All of the stock was subscribed, save 10...