West v. King

• Decision Date: 16 March 1915
• Citation: 163 Ky. 561,174 S.W. 11
• Parties: WEST v. KING. [d1]
• Court: Kentucky Court of Appeals

174 S.W. 11

163 Ky. 561

WEST v. KING. ^[d1]

Court of Appeals of Kentucky.

March 16, 1915

Appeal from Circuit Court, McCreary County.

Action by Burrell King against John F. West. Judgment for plaintiff and defendant appeals. Reversed and remanded, with directions.

Stephens & Steely, of Williamsburg, for appellant.

W. N Flippin, of Somerset, and H. C. Gillis, of Williamsburg, for appellee.

CLAY C.

In June, 1908, plaintiff, Burrell King, purchased 5 shares of stock in the Pine Knot Banking Company. Claiming that he was induced to purchase the stock by the defendant, John West who guaranteed that he would receive 6 per cent. dividends thereon, payable in advance, and that if, at the end of any year, he became dissatisfied with his stock, he (West) would take the stock off his hands at its par value, plaintiff brought this action to recover the par value of the stock and certain unpaid dividends. In addition to denying the agreement, defendant pleaded the statute of frauds and res judicata. A trial before a jury resulted in a verdict and judgment for plaintiff. Defendant appeals.

According to the evidence for plaintiff, the Pine Knot Banking Company was organized in the year 1906, with a capital stock of $15,000, divided into 150 shares of the par value of $100 each. Defendant purchased 5 shares of the stock, and was elected a director. For some time he sought to induce plaintiff, his father-in-law, to take stock in the bank. Plaintiff declined to do so, on the ground that he knew nothing about the banking business. Finally, in January, 1908, on the faith of the promise of defendant that he would guarantee that the stock would pay plaintiff 6 per cent. interest in advance, and that he would, at the end of any year, take the stock off plaintiff's hands at its par value if plaintiff desired to dispose of it, plaintiff purchased the stock in question. The stock was dated September 23, 1907. He thereupon paid the cashier the sum of $250, and the cashier, at the direction of defendant, paid plaintiff $15, the interest on said sum for one year in advance, and delivered to him the certificate of stock. On September 23, 1908, plaintiff paid the remaining sum of $250, and, upon the direction of the defendant, the cashier paid plaintiff $30 interest, it being the interest on $500 for one year in advance. The stock so sold, together with 15 or 20 other shares, stood in the name of Barber McAfee, the cashier. McAfee had executed his note to the bank for the stock, with the understanding that it was to be carried by him until the stock was disposed of. Both McAfee and plaintiff testified to the foregoing facts.

On the other hand, defendant denies that he tried to induce plaintiff to purchase the stock, or that he made the promise relied on by plaintiff. He claims that the stock was still in the name of McAfee and was his property, and the sale was made by McAfee, and that he had no interest in the stock, and no connection whatever with the transaction.

As there was sufficient evidence to take the case to the jury, and as the instructions are as favorable as defendant could have demanded, there is left for consideration only the validity of the alleged agreement, and the plea of res judicata.

It is first insisted that the undertaking of the defendant was a mere oral agreement to answer for the debt, default, or miscarriage of another, and therefore clearly within the statute of frauds. A decision of this question depends on whether defendant's promise was original or merely collateral. If original, it is not within the statute; if collateral, it is. It is not contended that the bank actually obligated itself to pay defendant in advance, or to redeem the stock at par. Nor was it under any implied obligation to do so. The bank is not liable for dividends until they are earned and declared. It is never under any implied obligation to redeem its stock. After the purchase of the stock the bank owed to plaintiff no duty, except the general obligation which it owed to all shareholders, to use reasonable care and prudence to conduct its affairs in a fair and impartial manner. There being no substantive liability on the part of the bank, either express or implied, there was no debt default, or miscarriage for which the defendant agreed to answer. He alone made the contract. That contract induced the purchase. Under these circumstances, the contract was original, and not collateral. This precise question was before the court in the case of Kilbride v. Moss, 113 Cal. 432, 45 P. 812, 54 Am.St.Rep. 361, where it was held that, if a person is induced to purchase stock in a corporation by the request and verbal promise of...