Scott v. McWlliams

60 S.W.2d 491, 1933 Tex. App. LEXIS 716

• Court: Court of Appeals of Texas
• Decided: April 27, 1933
• Docket: No. 2816
• Status: Published

Opinions

WALTHALL, Justice..

In this ease George McWilliams sued R. Q.. Scott to cancel a contract involving the purchase by him from R. Q. Scott of certificates, of stock in a corporation, and in the alternative sues for actual and exemplary damages.

In the month of August, 1981, R. Q. Scott owned and contracted to sell to George McWilliams 23 per cent, of the capital stock represented by two certificates of stock, one for 22 shares and one for 24 shares, in Camp Dei Norte, Inc., a tourist camp in El Paso county, for the sum of $13,009, provided, the plaintiff (George McWilliams) on his return-to New York could obtain said amount of money.

McWilliams eventually secured $13,000 and-paid Scott the money and received from him the two certificates of stock. At the same time and under the same conditions McWilliams purchased stock from Scott in the Del Norte Oil Company, Inc., for the sum of $690>. and paid for same. ,

This suit is brought to cancel the sale of the said certificates of stock and recover back the money paid, and in the alternative for damages, by reason of certain alleged representations made to induce said sale which are alleged to have been false, etc.

In the first count, briefly stated, McWilliams alleged that prior to August, 1931, Scott had organized the corporation “Camp Del Norte, Inc.,” which was doing business as a tourist camp in El Paso county, Tex.; that ■on the date mentioned Scott owned more than. 75 per cent, of the capital stock of said corporation, was familiar with its business, its_ assets, liabilities, and its gross and net profits; that being desirous of purchasing an inteiest in said corporation, and Scott being desirous of disposing of said two certificates of stock they conferred together as to said sale; that for the purpose of informing him, as to the financial condition of said corporation and the value of its capital stock he proposed to sell, its assets and liabilities, its net earnings for the next previous year, Scott represented to him, McWilliams, that at such time: (a) Said corporation had assets of the .actual value of $70,000; (b) that the net surplus of said corporation was the sum of $30,000; (c) that said corporation had pro■duced and earned a net profit for the next preceding year of the sum of $13,000.

McWilliams alleged that relying on said representations he agreed to buy said stock for $13,000 provided that on his return to New York he could obtain said amount of money; that on the 9th of October, 1981, he, .McWilliams, being in New York, and said sale not having been consummated, he requested Scott to submit and Scott did submit to him a written statement as to the financial condition of said corporation, in which statement Scott represented that said ■corporation had assets totaling $74,185.25; ■that it had a net surplus of $32,'150.09, and had earned a net profit beginning August 1, 1930, and ending August 1, 1931, of $13,938.-35.

That on or about November 1, 1931, he, McWilliams, purchased from Scott said two certificates of .stock, agreeing to pay and paid in cash therefor, beginning on the 1st of November until about the 1st of March, 1932, $13,000.

McWilliams alleged that the verbal representations made by Scott in August, 1931, and the written representations made on October 9, 1931, were false and untrue and were known by Scott to be untrue when made, .and were willfully and fraudulently made for the purpose and with the intention of inducing him to purchase said stock and pay for same; that said representations were material and the inducing cause and causes of said purchase; that he, McWilliams, relied upon each and all of said representations, believing them to be true and was thereby induced to purchase said stock, and •otherwise he would not have purchased said .stock but for said representations.

Scott answered by demurrers, general and special, general denial, specially denied having made the alleged representations, alleged that McWilliams made his own investigation ;and bought the stock as a result of his own knowledge of the business of the corporation.

The case was submitted to a jury on special issues. The jury found:

I and 2. Prior to and in consummation of the agreement to purchase the 46 shares of stock, Scott represented to McWilliams that said corporation had assets of the actual value of $70,000; that said representation was false.

3. That at the time of said agreement and ?it the time of the payment therefor McWil-liams relied upon and believed such representation.

4. That but for such representation and his reliance thereon McWilliams would not have purchased said stock on the terms he purchased same.

5 and 6. Prior to the purchase of said stock Scott represented to McWilliams that the net surplus of said corporation was $30,000; and that said representation was false.

7 and 8. At the time of the agreement to purchase and the payment McWilliams relied upon and believed such representation to be true and but for such representation he would hot have purchased said stock for the price paid therefor.

9 and 10. Prior to the agreement and purchase of the stock Scott represented to McWilliams that the corporation had produced and earned a net profit for the preceding year, that is, from August 1, 1930, to August 1, 1931, in the sum of $13,000, and that such representation was false.

II and 12. At the time of agreeing to purchase, and at the time of payment, McWil-liams relied on and believed such representation to be true, and but for such representations McWilliams would not have purchased the stock at the price he did purchase it.

13, 14, and 15. On October 9, 1931, Scott represented to McWilliams that the assets of the Oamp Del Norte, Inc., had a value of $74,185.25; such representation was false and made with the intention to induce Mc-Williams to consummate the purchase of said shares of stock.

16. At the time of making such representation Scott was not actually of) the opinion that the assets of said camp were of the value of $74,085.25.

Numbers 17 and 18 not answered.

19, 20, 21, 22, and 23. On October 9, 1931, Scott represented to McWilliams that the net earnings of said corporation from August 1, 1930, to August 1, 1931, were $13,938.35; that such representation was false and was made to induce McWilliams to buy the shares of stock; that McWilliams believed and relied upon such representation at the several times he paid for the stock, and but for such representation he would not have purchased said stock.

Nos. 24 to 27. On October 9, 1931, Scott represented to McWilliams that Oamp Del Norte, Inc., liad a surplus of $32,150.09; that same was false; that McWilliams relied on and believed such representation, and but for such representation he would not have bought the stock on the terms he did.

28. The reasonable value of the stock in Question on the 12th day of January, 1932, was $8,537.11.

On the return of the verdict the court entered judgment for plaintiff, McWilliams, rescinding the sale of the stock of both corporations and in favor of plaintiff for the return of the purchase price.

Defendant Scott’s motion for a new trial was overruled, and he prosecutes this appeal.

Opinion.

The court overruled appellant Scott’s general demurrer and special exception to appel-lee McWilliams’ petition, and appellant complains of the court’s rulings.

Appellee’s petition alleged, as more fully stated thereafter, that on the- day of August, 1931, appellant verbally represented to appellee, as in the special issues submitted, that said corporation had assets of the actual value of $70,000; that the net surplus of said corporation was $30,000, and that the corporation had produced and earned for the preceding year a net profit of $13,000; that on October 9, 1931, appellee requested appellant to submit to him a written statement concerning the financial condition of said corporation and that appellant, in writing, represented to appellee, as more fully stated in the findings, that the corporation had assets totaling $74,185.25; that the corporation had a surplus of $32,150.09, and had earned a net profit for one year beginning August 1, 1930, of $13,938.35.

The special exception is directed to the first group of alleged false representations, that is, the verbal representations as to the value of the assets, the net surplus, and the net profit, the grounds of exception being:

(a) That “it does not appear wherein said representations, or any of them, were false.”

(b) “Because there is no allegation as to wherein either of said representations was false.”

Appellant in his brief enlarges upon his special exception possibly as applying to the general demurrer, and complains that there were no allegations as to the actual values alleged as to the assets, or what their values were, or that their values were less than represented, or that the difference between the represented values and the actual values was material. These matters are not pointed out in the special exception and apply only to the general demurrer.

The petition, we think, sufficiently alleges the representations made, both verbal and in writing, the times when made, and •made during the conference for the sale of the stock, made to inform plaintiff of the financial condition of the stock and its value, its assets and liabilities, its earnings for the previous year, plaintiff’s reliance thereon in making- the payment, that all representations were material, were the inducing causes of plaintiff making the purchase, plaintiff’s reliance on the representations believing them to be true and was thereby induced to purchase, and would not otherwise have purchased but for said representations, that the stock would have been of the value represented ($13,000) had the representations been true, that due to the falsity of the representations the actual value of the stock did not exceed $5,000, plaintiff’s want of familiarity with the matters about which the representations were made and his reliance at all times exclusively upon the representations. The petition alleges that the verbal and written representations were false and untrue and so known to appellant at the times he made them; that appellee did not know of the falsity of the representations until August, 1932, at which time he demanded a cancellation of the sale and tendered and now tenders into court the certificates of stock, and asks judgment for $13,000, with interest.

The rule is well established that in order for appellant to maintain this action for cancellation of the sale of the certificates of stock and return of the purchase price, on the ground of fraud and deceit, it was necessary to show by pleading and proof that appellant made representations as to the certificates of stock; that such representations were material facts; that the representations were untrue at the time made and the falsity of the representations were known to appellant to be untrue; that they were made with the intent and design of deceiving appel-lee and inducing him to enter into the contract ; that appellee in fact relied upon such representations and was induced thereby to buy the stock and but for which he would not have done so; and that he was thereby damaged.

Tested by the above rule, we think the petition was not subject to the general demurrer, or special exception on the ground stated. Avery Co. of Texas v. Harrison Company (Tex, Com. App.) 267 S. W. 254; €., T. & M. C. Railway Co. v. Titterington, 84 Tex. 218, 223, 19 S. W. 472, 31 Am. St. Rep. 39; Baines v. Mensing Bros. & Co., 75 Tex. 200, 12 S. W. 984; Burchill v. Hermsmeyer (Tex. Civ. App.) 212 S. W. 767; 12 R. O. L. 240; 26 C. J. 1062; 20 Tex. Jur. p. 140, § 93, and cases in note.

Appellant complains that the court, over objection, permitted evidence of a financial statement of appellant corporation for the period beginning January 1, 1931, and ending December - 31, 1931. The ground -of objection is to tbe effect that tbe representations complained of as untrue covered tbe period .from August 1, 1930, to August 1, 1931, tbe statement thus covering a period of some five months not covered by tbe representations pleaded.

Tbe statement is lengthy and we think it would serve no useful purpose to copy it here. Appellant, in bis brief, in commenting on the facts shown by tbe statement, says: “As a matter of fact, tbe statement covering a period beginning December 31, 1930, and ending December 31, 1931, showed a gross profit for tbe twelve months of $17,836.52, and a net income for tbe twelve months of $2,805.01.”

We accept tbe comment as showing tbe gross and net income of tbe admitted statement.

There was also introduced in evidence without objection a financial statement of appellant as to tbe same items covering tbe period from August 1, 1930, to August 1,1931. Without copying tbe statement tbe balance sheet óf that statement shows total assets of $61,287,59; surplus $16,557.11; net profit $7,828.05.

While a tentative agreement as to tbe amount to be paid for tbe stock bad been reached, tbe sum bad not been paid, and we have not found in tbe record a stated date when and on which it was agreed tbe consideration was to be paid. Tbe stock bad not been delivered and all of tbe $13,000 was paid after- tbe written statement was made. The’first statement was verbal, tbe second, tbé. statement objected to, was tbe written statement of date October ⅛, 1931, and made pending tbe execution of tbe contract and before it was finally consummated and made in response to a request by McWilliams while in 'New York for such financial statement. The request for tbe statement, as shown by the record, was made by letter of date October §, 1931. We do not find the letter in tbe record. Its substance was stated by McWil-liams, as-follows:"' “I asked him in the letter to give ⅛ á statement of tbe condition of tbe camp as of approximately that date, or as near thereto as possible, and also tbe earnings for tbe past year.”

Tbe reply," inclosing tbe financial statement, was of date'October 9, 1931. In tbe body of the statement occur these words: “Condensed statement of earnings of Camp del Norte, August 1st, 1930, to Aug. 1st, 1931.”

As to said statements, verbal and written, the petition alleges: “That the verbal representations made by defendant to tbe plaintiff in August, 1931, as above alleged, and tbe written representations made by defendant to tbe plaintiff in tbe letter of October 9th, 1931, as above alleged, were false and untrue,” etc.

It is true, as suggested by appellant, that while tbe letter called for a statement “approximately of that date,” October 5, 1931, the report as to “tbe condensed statement of the earnings” of appellant given apparently covered tbe period from August, 1930, to August, 1931.

On tbe trial all of tbe statement was gone into very thoroughly by both appellant and appellee. Both McWilliams and Scott testified as to it, as also did tbe auditor who made one of tbe reports. Tbe auditor also on examination by appellant identified tbe books used to make up tbe various statements and testified that “each and every item listed there is on those books there,” and “correctly taken off.”

Tbe financial statement bad been so thoroughly gone over, by both parties, and tbe auditor with tbe books from which tbe several reports were made, being in court and compared by tbe auditor, we think it was not error to admit tbe statement, it being and containing but transcribed items testified to as shown by tbe books themselves.

Tbe record shows that from and afterj the statement of October 9, 1931, appellant commenced to call upon appellee to make payments on tbe purchase price of tbe stock, and which was done at times during several weeks next thereafter.

By several propositions appellant submits that appellee having pleaded and tbe evidence having shown that tbe agreement as to tbe sale and purchase of tbe stock was definitely made in August, 1931, and tbe petition pleaded and tbe evidence showed that tbe representation made as to tbe actual value of tbe assets of tbe corporation were made prior to such agreement, it was error to submit, over objection, tbe first special issuei as to the representation of appellant that tbe actual value of tbe assets was $70,009; that likewise it was error to submit tbe fifth special issue, referring to tbe representation made as to net surplus of ..$30,000: ■ Dikewise it was error to submit tbe ninth special issue inquiring whether appellant bad made the representation of an earned net profit of $13,-000 between tbe dates stated.

The several assigned errors are based on tbe insufficiency of tbe pleading to justify tbe submission of tbe issues indicated.

We have heretofore discussed tbe sufficiency of the pleading and stated it at length in considering tbe general and special exceptions, and in considering these propositions we refer to tbe statement of tbe petition there made. Tbe propositions are overruled.

No question is made as to tbe sufficiency of tbe evidence to sustain tbe several findings of tbe jury and tbe judgment of tbe court.

The case is. affirmed.