Zang v. Adams

• Decision Date: 03 February 1897
• Citation: 23 Colo. 408,48 P. 509
• Parties: ZANG v. ADAMS.
• Court: Colorado Supreme Court

48 P. 509

23 Colo. 408

ZANG v. ADAMS.

Supreme Court of Colorado

February 3, 1897

Appeal from district court, Arapahoe county.

Action by Frank Adams, receiver of the Commercial National Bank of Denver, against Adolph J. Zang. From a judgment for plaintiff, defendant appeals. Reversed.

The action was upon a nonnegotiable promissory note for $3,500 executed by the appellant to the South Galveston Land Company, and by it transferred to the South Galveston Investment Company, and by the latter company transferred to the bank. The execution of the note was admitted, and the defense was that it was given in part payment of a subscription for 200 shares of the capital stock of said land company, which subscription was induced by false representations of the company. The trial was to the court without a jury, which found the issues generally for the plaintiff, and gave judgment against the defendant for $3,986.50, the full amount of the note.

C. E. & F. Herrington and S. L. Carpenter, for appellant.

Thomas Hartzell, Bryant & Lee, for appellee.

CAMPBELL J. (after stating the facts).

In view of an admission by the plaintiff as to notice of the alleged infirmity of the note, this controversy is to be treated as though it were one between the payee and marker. Upon the evidence, in so far as it pertains to the material questions there is no controversy. The only difficulty arises in the application of the law to the admitted facts. The land company was organized for the sole purpose of acquiring title to, and improving and selling, a tract of land known as 'South Galveston,' on Galveston Island, in the state of Texas. This land was all that the company owned, and constituted its sole assets. The capital stock of the company was $500,000, divided into 5,000 shares of the par value of $100 each,--$35 of each share being payable in cash; the balance in installments, payable at stated times and in fixed sums. The defendant bought, at its par value 200 shares of the stock of the company, through George J. Gray, its president; and the proof is that Gray then represented to him that the land cost $425,000. The claim of defendant now is that the actual cost was only $110,000. Zang had never seen the land, knew nothing as to its cost or value, and implicitly relied upon this representation, and would not have bought the stock, had he known what the real facts were. That the controversy between these parties may be more clearly understood, we give, in brief, the contentions of their respective counsel: That of the defendant, as just indicated, is that the admitted facts show a want of consideration for the note. Upon the other land, the plaintiff's contention is that the representations, whether true or false, were made by a promoter of the company, for which the latter is not liable; that, whether true or false, they are substantially expressions of opinion as to the value of the property, and of a character which does not avoid the contract of subscription, even if the same were made upon the faith thereof; that the defendant should not have relied upon them, but might have ascertained the facts in the case by consulting the records in Galveston; that, before he can defeat an action upon the note, he must have rescinded the contract and notified the land company (the payee) that he would not be bound by his subscription, and thereupon delivered or tendered to the company his certificate of stock; that if the representations were made by the company, or by its authorized agent, and if false, and acted upon, were ground for rescission, still the evidence shows that they were true.

The cases like Davis Wheel Co. v. Davis Wagon Co., 20 F. 699, and The Distilled Spirits, 11 Wall. 356, cited by the appellee are not applicable here, though correctly stating the law under the facts of those cases. They go to the point, inter alia, that a corporation is not affected with notice of facts within the knowledge of its promoters, acquired before the corporation was organized. It may be, and doubtless is, true that these promoters perpetrated frauds upon their company by acts committed both before and after the company was incorporated. With these we are not now concerned. In the case at bar, Zang purchased his stock after the company was incorporated, and obtained it directly from the company itself, through its president. If there was fraud in securing the contract of subscription, it was that of the company; and the company is bound, not only because Gray was its agent, and Zang was justified in so believing, but because the company ratified the act of its agent by knowingly accepting Zang's money and applying the same to its own use. If this were not so, a corporation could never be bound, for it can act only through its agents. The statement by Gray, as the agent of the company for the sale of stock, that the land cost the company a certain sum of money, is not a mere expression of opinion by him as to its value. One who relies upon the truth of such a statement may, by a fair interpretation of the language, take it to mean, not that the agent believes the land to be of that value, but that the company actually paid to its grantor that amount. If so, then this is a material fact, which naturally would tend to make the stock, in the eye of a contemplated purchaser, worth more than if the land had cost the company but one-fourth of such sum. We think this representation one of fact,--a material fact; and if relied upon, and it proves to be incorrect, it is a sufficient ground for rescinding the contract of subscription, as against the company, unless the right has been lost through the laches or fault of the subscriber. That this statement was made; that it was relied upon by the defendant; that he had the right to rely upon it; that it was false, and was the inducement for the purchase of the stock,--the testimony leaves no room for doubt. Van Epps v. Harrison, 5 Hill, 63; Henderson v. Henshall, 4 C.C.A. 357, 54 F. 320; Page v. Parker, 43 N.H. 363. The contention that the defendant ought not to have believed Gray, but should have investigated the records at Galveston for the purpose of ascertaining the facts, and that, because he did not do so, he...