Hotchkiss v. Fischer

Supreme Court of Kansas

Hotchkiss v. Fischer

16 P.2d 531, 136 Kan. 530, 1932 Kan. LEXIS 120

CourtSupreme Court of Kansas

DecidedDecember 3, 1932

DocketNo. 30,794

StatusPublished

Cited by18 cases

This text of 16 P.2d 531 (Hotchkiss v. Fischer) is published on Counsel Stack Legal Research, covering Supreme Court of Kansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

Hotchkiss v. Fischer, 16 P.2d 531, 136 Kan. 530, 1932 Kan. LEXIS 120 (kan 1932).

Pincite

Opinion

The opinion of the court was delivered by

Burch, J.:

The action was one by a former owner of corporate shares to recover damages from the president of the corporation for breach of duty of loyalty to the shareholder, in that the president purchased the shares for much less than their value without making full disclosure of facts pertinent to the transaction. The petition contained some specific allegations of fraudulent representation and concealment. The verdict and judgment were for defendant, and plaintiff appeals.

Plaintiff was a widow who lived at Burr Oak, Kan. On the death of her husband she became owner of 2,300 shares of the capital stock of the Elmhurst Investment Company. The Elmhurst company owned one-half of the capital stock of the Orlando Petroleum Company. The Elmhurst company’s capital stock consisted of 200,000 shares of the par value of one dollar each. The capital of the Orlando company consisted of 50,000 shares of the par value of two dollars each, of which 46,560 shares had been issued. Defendant was a director and was president and a managing officer of each company.

The annual meeting of the Elmhurst company was to occur on January 17, 1927, at Topeka, Kan. Plaintiff was in need of money. If a dividend were declared by the board of directors at the time of the annual meeting, she desired to keep her shares. If a dividend were not declared, it would be necessary for her to sell the shares, and she feared that if a dividend was not declared she would be obliged to sell at a sacrifice. Plaintiff came to Topeka in advance [532]*532of the meeting, to attend the meeting and to obtain information bearing on her situation. She had an interview with defendant on January 12. She had another interview with defendant on January 13, and on January 15 he purchased her shares for $1.25 per share. On January 18 the directors declared a dividend of $1 per share.

The two companies issued statements showing their financial condition as of December 31, 1926. The secretary-treasurer of the Elmhurjst company testified the book value of the Elmhurst stock was about $3.85 per share. A banker who had owned shares and who had bought and sold shares testified the book value was about $3.75 per share. Brokers dealt in the shares, and there was testimony that in 1926 the market price ranged from $1 to $1.15 per share.

At the first and principal interview, plaintiff inquired of defendant whether a dividend would be declared. Defendant replied he could not inform plaintiff whether a dividend would be declared and would have no information on the subject until he conferred with directors of the company who were coming to the meeting from New York.

Both companies were in litigation with the United Statep concerning income taxes. The December 31 statements carried contingent liability items on account of government claims of $138,-649.10 against the Elmhurst company, and $112,248.53 against the Orlando company. The tax claims were pending at the time of the annual meeting in 1926. While a dividend was then declared, there was testimony that the directors were then of the opinion further dividends should not be declared until the question of liability for the tax claims had been determined.

There was testimony that the New York directory left Buffalo on January 14 to attend the 1927 meeting, and arrived in Kansas City, Mo., on January 16. On the way to Kansas City these directors discussed the subject of declaring a dividend, and agreed among themselves that a dividend should be declared. On January 16, the day after defendant purchased plaintiff’s shares, defendant went to Kansais City, met the New York directors, and ascertained their attitude toward declaration of a dividend.

There was conflict between the testimony of plaintiff and the testimony of defendant concerning the manner and extent of defendant’s disclosure to plaintiff of facts concerning the financial condition of the two companies. Defendant testified he produced [533]*533the December 31 statements, placed them on a desk or table before plaintiff, and explained the statements to plaintiff item by item. Defendant testified concerning what he said about various items, testified he told plaintiff the companies were in sound financial condition, and testified as follows:

“I had before us a statement of both the Elmhurst and Orlando companies, which covered to the close of December 31, 1926. ... I told her they were the most recent financial statements of both companies. . . . She made inquiry of me what the stock of her husband’s estate was worth. I then told her, I have told you the condition of the affairs of the company, and I will be glad to furnish you any further information, and I further told her as to the matter of what you regard your stock to be worth, or what it might ultimately prove to be worth, is a matter you have to determine yourself.”

Plaintiff testified defendant did not give the statements to her, and she did not remember that he read anything from them; but he did .tell her different things about the statements — about some oil production which had declined, about drilling some dry holes, about defalcation of an agent who committed suicide, and loss of rent on a building — all of which made a dark picture. Plaintiff testified further as follows:

“He said that the condition of the company he felt sure was better than when he took it over, but he did not say it was in a good condition, and that was where I felt at a loss to know. That was what I was there for, to find out the condition of the company, and whether I felt like I could hold on to my holdings, or whether I had better just let them go before they diminished in value. . . .

“Mr. Fischer had a printed statement, but he didn’t go into details anything like he did here to-day. I don’t know what he did with the statements. . . . It came up face to face like we are talking. We didn’t get right down to business. We were sitting at a table. Mr. Fischer produced a paper. I don’t remember that he said it was a report. We didn’t go into details like he did here. We just talked about it in general.”

The financial .statements of the two companies were introduced in evidence, and were explained to the jury by witnesses not parties to the suit who were competent to explain them. Copies of the statements are appended to this opinion.

The foregoing indicates nature of the testimony sufficiently to form a basis for consideration of the instructions to the jury and the jury’s special findings of fact.

The court instructed the jury concerning the fiduciary relation of defendant to plaintiff and his duty to make full and fair disclosure to her of all the information he possessed and should have possessed, affecting value of the shares, before becoming a purchaser. [534]*534The court then supplemented the instructions already given by the following:

“614.

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