Case Name: MISSISSIPPI POWER CO. v. BENNETT
Court: Mississippi Supreme Court
Jurisdiction: Mississippi
Decision Date: 1935-04-29
Citations: 161 So. 301
Docket Number: No. 31503
Parties: MISSISSIPPI POWER CO. v. BENNETT.
Judges: 
Reporter: Southern Reporter
Volume: 161
Pages: 301–315

Head Matter:
MISSISSIPPI POWER CO. v. BENNETT.
No. 31503.
Supreme Court of Mississippi.
April 29, 1935.
Heidelberg & Roberts, of Hattiesburg, J. M. Morse, of Poplarville, Wilbourn, Miller & Wilbourn, of Meridian, and Eaton & Eaton, of Gulfport, for appellant.
Hathorn & Williams, of Poplarville, for ap-pellee.

Opinion:
COOK, Justice.
Appellee sued appellant in .the circuit court of Pearl River county to recover $2,006 paid by him to appellant for twenty shares of its $6 preferred stock, which appellee purchased relying upon certain alleged false and fraudulent representations, promises, and guaranties with reference thereto made to him by the agents of the appellant who sold him the stock. There was a verdict and judgment in favor of the appellee for the amount sued for, and appellant has appealed.
The declaration, as finally amended, was in two counts. The first count charged, in substance, that in order to- obtain funds with which to enlarge and carry on its business, the appellant adopted a fraudulent scheme to beguile the general public into purchasing its stock by representing that after it received the purchaser's money, it would issue and deliver to him "preferred stock in said defendant corporation in a sum equal to the amount of money received by defendant from such persons, and would guarantee to pay such persons sis per cent, per annum on such money, and to refund such money or any part thereof to such persons, at any time they desired to have the same refunded to them, and as further inducement to such persons to withdraw their said funds from bank and turn the same over to defendant in exchange for said stock, said defendant falsely and fraudulently represented to such persons that there was no difference in having their money in bank on savings and having the same with defendant, insofar as being able to obtain or withdraw the same for use at any time, if and when such persons should desire to use the same; when, in point of fact, all of said representations and pretended guaranties were then and there false and untrue and defendant knew the same were false and untrue at the time and had no intention of carrying out and performing the same or any part thereof."
It was further charged that in pursuance of the said fraudulent scheme, and with the intent to defraud the appellee out of $2,000, which he then had in bank on savings account at 4 per cent, interest per annum, the agents of appellant falsely and fraudulently represented to him that if he would purchase $2,-000 worth of its stock, the appellant would "guaz-antee to pay plaintiff six per cent, per annum on said $2,000 and to refund to plaintiff said money or any part thereof at any time plaintiff should desire to have the same refunded to him, and in connection with the aforesaid fraudulent intent and purpose on the part of defendant then and there and thereby to cheat, swindle and defraud plaintiff out of his $2,000 the said defendant further falsely and fraudulently represented to plaintiff at the- same time that there was no difference in plaintiff having the money in the bank to savings account and in having the same with defendant, insofar as being able to obtain or withdraw the same for use at any time, if and when plaintiff might desire to use the same."
It was further averred that none of such representations and pretended guaranties were true, and the defendant knew the same were not true, and had no intention at the time or afterwards of carrying out or performing the same or any part thereof; that -all said representations and pretended guaranties were material, 'but were made by the defendant to the plaintiff with the fraudulent intent and purpose of causing the appel-lee to believe the same to be true, and thereby inducing him to act upon the samé; that plaintiff did believe the same to be true, and was thereby induced to purchase said stock; and that appellant appropriated the purchase price thereof to its own use with no intention on its part, at the time or afterwards, of refunding said money or any part thereof to ap* pellee, if and when he should desire to use the same and request .a refund thereof.
It was further averred that after appellee purchased the said stock, appellant paid 6 per cent, per annum thereon until October 1, 1983; that on December 30, 1933, it notified appellee in. writing that it would not pay the quarterly dividend then due; that thereupon appellee, desiring to use said money, undertook to avail himself of the representations and guaranties of appellant that it would refund the same to him at any time he might desire to have it refunded; that he then called upon appellant to refund his money, and offered therewith to return, the certificates of stock to appellant, and tendered the ¿ame; but that, appellant refused to return) his money and advised him that it would not refund same, and had no intention of returning it or any part thereof; that appel-lee then and there and thereby for the first time discovered the alleged fraud; and that he then promptly elected to rescind the contract of sale by suing therein for such rescission.
The second count of the declaration adopted the language of the first, and averred further that the 'sale of said stock, under the facts alleged, was in violation of chapter 97, Laws 1916 (the Blue Sky Law then in force), and constituted misrepresentations of material facts concerning such stock, and was fraudulent within the meaning of said statute, as construed by the Sup-erne Court of the state. This count sought recovery of the said sum of $2,000, with interest, but did not ask for an allowance of attorney's fees, in accordance with the provisions of the said act'óf 1916.
A motion to transfer the cause to the chan- , eery court was -overruled, and after the declaration was amended by filing a second count, a demurrer to this count was interposed and overruled. Thereupon a motion for continuance on account of surprise and unpreparedness to plead to the second, count haying been overruled, the appellant filed pleas of the general issue to each count of the declaration, and gave notice thereunder of evidence which it would offer to sustain special defensive matters therein set forth.
This notice set forth that the stock certificates expressly provided that the said stock was subject to. the charter and by-laws of appellant, and that upon receipt of the stock certificates sued on, appellee was "charged with knowledge of all the provisions thereof, and of the charter and by-laws of appellant, and of the rights, privileges, restrictions and liabilities arising out of appellee's ownership of stock in the appellant company; and that it was the right and duty of appellee, to inform and acquaint himself therewith; that under the charter and by-laws, .of which ap-pellee so had notice; appellant was without right to 'purchase or acquire its own stock, except only so far as may be permitted by law, and then only out of surplus and net profits at such price as may be fixed by the Board of Directors or the executive committee thereof; and that preferred stock, such as that hpld by appellee, could not be redeemed except upon the affirmative vote of a majority of the holders of the common stock of appellant company; and that the matter of dividends on the stock were likewise controlled and governed by the terms of the certificate, and charter and by-laws of the company, of all of which appellee was charged with notice immediately upon receipt of his certificates; and that the alleged representations, promises or guaranties, with reference to dividends or redemption or repurchase of the stock, or refund of the price paid, were not made; but, if made, were unauthorized and were inconsistent with the charter and 'by-laws, and the certificates of stock and were with reference to matters controlled entirely by the provisions of the charter and by-laws of appellant, and were such representations as appellee was legally bound to know there was no right to make, and on which appellee had no right to rely."
It was further set forth that if "the alleged representations and guaranties were made (which appellant denied) then immediately upon receipt of the certificates of stock by appellee, appellee was charged with knowledge, and was then and there legally bound to know that the same were inconsistent with the provisions of the charter and by-laws of the appellant, and the terms of the certificate governing the rights, liabilities and status of appellee as a stockholder of appellant company, and then and there had notice and knowledge of the alleged fraud, and was then and there bound to determine, as of the time of the receipt by appellee of the certificates of stock, whether he would affirm the transactions, and retain the stock, with its benefits and liabilities, or rescind; that ap-pellee failed, within a reasonable time after such notice and knowledge, to rescind the transaction, and ratified and affirmed the transaction, with such knowledge, by continuing to hold and retain the shares of stock as his own property, and to receive and enjoy the benefits thereof, and to receive and retain the dividends thereon, while appellant was continuing to carry on its operations, and incurring obligations and liabilities to creditors and to the public at large, in the course of the discharge of its duties as a public service corporation, upon the faith that appel-lee was then and there satisfied and willing to continue and remain as a stockholder in the company; and that thereby appellee was and is estopped as against the appellant and its creditor's and the public at large, to repudiate the purchase of the stock and his obligations and liabilities incurred as the owner thereof."
Appellant also gave notice that it would offer evidence to show that, on account of business depression, it was forced to suspend payment of dividends on said preferred stock; and that all of appellant's current income is required to operate its business and maintain its properties, and that it does not have income or assets or credit available to obtain funds to meet the demands of appellee and other preferred stockholders for the return of money paid for preferred stock, and to do so would render appellant insolvent and incapacitated to discharge its duty to the public ; that it is contrary to the laws and public policy of the state for a corporation to permit any of its capital stock to be withdrawn or diverted from its purposes, or to declare dividends that would render it insolvent; and that appellant is prohibited by statute from doing acts contrary to said laws and public policy, and that to comply with the demands of appqllee and others similarly situated would be contrary to the statutes, and public policy of the state, wholly ultra vires and void, and would render appellant insolvent.
In response to this notice, the appellee filed a counter notice denying the contentions of appel'lant, and also averring that he did not read the stock certificates until he discovered the alleged fraud; that the print on the cer tificates was so small that it could only be read with the aid of a magnifying glass; that after he discovered the alleged fraud, he had the same read to him with a magnifying glass, hut asserted that nothing in the said certificates put him on notice that the alleged representations made to him were in conflict with appellant's charter and by-laws. It was also charged that the majority of the holders of the common stock under the charter and bylaws of appellant had the right at any time to vote to redeem stock such as that held by ap-pellee ; and that he had the right to assume that a majority of the holders of the common stock had authorized the redemption of the stock at the time the agent selling it made the alleged representations to him.
Notice under the general issue to the second count set forth substantially the same matters as the notice under the general issue filed to the first count, with the additional aver-ments that neither appellant nor its agents who sold said stock made any misrepresentations of any material facts concerning the same, and that such representations, if any, as were made by appellant and its agents, were made in good faith, and that while appellant made no contract or guaranty as to dividends, other than expressed in said stock certificate and charter and by laws, appellant did honestly expect to pay such dividends as provided for therein. It was therein further set forth that: "While it made no guaranty or promise to refund the purchase price of such stock at any time, nor to repurchase such stock at any time, or price, it did then and there maintain a resale bureau through which it could and did resell such preferred stock for its stockholders from time to time at the then market price, less a handling charge, or brokerage fee of two dollars per share; that at the time of the sale of such stock to plaintiff, such preferred stock of defendant was in demand by the public; that the price of said stock on the market showed no material fluctuations; that the defendant, through such resale bureau was able readily to resell for any and all stockholders who re-< quested it, such of their stock as they desire to dispose of, and on very short notice; that the existing conditions of the market for the stock, and the past record and experience of the company, and its financial condition, and earnings, and its prospects and expectations fully justified the expectations that through such resale bureau any of its stockholders who might need or desire to dispose of their stock, could do so promptly, and readily. That defendant has continuously, a long while prior to the sale to plaintiff, and continuously thereafter, maintained and does now maintain such resale bureau for such stock, but that economic conditions became such that there was and is no market for such stock at anything like its true value; that speculators acquired from holders of such stock at sacrifice prices, certain blocks of it, and put it on the market at such low prices as to destroy the chance to'realize anything like the real value of the stock and rendered it impossible for defendant to resell for such of its stockholders, who, due to the depression, desired, or found it necessary to dispose of their said stock at any price this defendant could recommend to such stockholders ; and that defendant has found it impossible to resell said stock for the large number of stockholders who have desired and requested that their said stock be converted into cash. That while defendant did not agree nor promise, nor represent that it would repurchase the stock of any stockholder, nor refund to any stockholder the money paid for such stock, but nevertheless, as long as the market made it possible so to do, defendant aided large numbers of its stockholders to convert their stock into cash, through such resale bureau, and stands ready, and willing to do so for all stockholders at all times, provided such stock can be sold at prices satisfactory to such stockholders, and at all."
By counter notice appellee replied that-said stock was in demand only on account of the alleged false, and fraudulent representations concerning the same, that the appellant knew it could resell said stock only by making such false and fraudulent representations as were made to appellee, and that the market therefor was destroyed by appellant's failure and refusal to refund the money paid therefor to the purchasers thereof.
There is no substantial dispute in the facts shown by the evidence. R. B. Jordan, an agent -of the appellant in the sale of its preferred stock, testified that, during the selling campaign, monthly meetings of the agents and employees of the appellant were held usually at Hattiesburg, Miss.; that these meei-ings were for the purpose of instructing the agents in methods to be used in making sales of this stock, and that they were usually presided over by the appellant's vice president and general manager, and that its division manager and other officers were usually, or frequently, present; that at these meetings, these officers instructed them to use three selling points, the language of the witness in respect to this matter being: "They told us that we had three strong selling points. One was that their money was safe, and second, that it paid a higher rate of interest than an ordinary savings account, ánd third, that they could get their money whenever they wanted it, and those were the three strong selling points they said we should talk."
1-Ie further testified that- they were instructed to guarantee to purchasers 6 per cent, on their investments, and to represent to them that they could get their money back whenever they wanted it, and that if at any time they were in a hurry for a refund of their money, they could take their certificates to the Gulfport office of the company and get their money. He also testified that in selling this stock, the above-stated selling points were used by him and other agents, and that he knew that appellant maintained some kind of sales organization at Gulfport. On cross-examination, this witness was asked the following question: "Was it explained to you or did you have any definite information about how a person would get his money back if he wanted to sell his stock; whether or not they would take it up and resell it to somebody else or what would be done with it?" The response to this question was: "They didn't say anything about reselling, it."
On cross-examination this witness was examined at length in reference to certain sales literature, and there was offered in evidence as exhibits to this testimony the literature in question, including a pamphlet called the "Tell and Sell" book. This "Tell and Sell" book contained the statement that: "No definite date is fixed for the redemption of this stock. Money invested in stock is invested on a partnership basis. It is not loaned to the Company. It is intended that the money should remain in the property, which is permanent, and thus be kept continually at work. If the Company calls in or redeems the stock, which it reserves the right to do, it agrees to pay $110 and accrued dividend per share," and that the stock might be resold at any time through a resale bureau maintained by the company; but this book and other sales literature was not furnished to prospective purchasers of the stock.
Appellee testified that he had $2,000 on savings deposit in a bank, drawing 4 per cent, interest; that he was approached by appellant's local manager at Poplarville, Miss., and R. B. Jordan, an employee of. that office, in reference to a purchase of appellant's preferred stock; that they represented to him that an investment of his money in this stock was a better proposition than that of a bank, because it was bigger than a bank, was growing all the time, and .that he could get his money at any time he wanted it. Upon being asked whether they told him how he could get his money out of the stock, he replied: "Xes, sir; just take the certificates and carry them to Gulfport and they would cash them and they said, 'or if you don't have time to do that, just go to the office here and Mr. Bostick will send them in for you and they will send your money back.' "
He further testified that they represented to him that a 6 per cent, dividend on the stock was guaranteed, and that he believed these representations, and relied and acted thereon ; that he had no reason to suspect that the representations were untrue, or would not be carried out, until he received notice, on or about January 1,1934, that the quarterly dividend due on that date would not be paid; that • upon receipt of this notice, he at once tendered his stock to appellant and demanded a refund of the purchase price thereof, and on being notified by the president of the appellant company that the sale would not be rescinded and the purchase price of the stock refunded, he promptly filed this suit.
Other than the exhibits offered during the cross-examination of appellee's witness R. B. Jordan, the appellant offered no evidence. At the conclusion of the evidence, both sides requested peremptory instructions, which were refused, and thereupon the cause was submitted' to the jury upon instructions granted to the appellee.
The appellant contends that the representations relied on reduced themselves to two contractual promises: (1) A promise to pay dividends in the future; and (2) a promise or representation that in future, if and when ap-pellee desired his money back, he could obtain it, the same as he could get it back if it were in a bank, and that the peremptory instruction requested by it should have been granted for the reason that these alleged contractual promises were not shown to have been made with an undisclosed intention of not perform-, ing them.
There is authority holding, and for the purpose of this decision only we will assume, that a guaranteed dividend on preferred stock does' not in legal effect guarantee a payment in any event, but only in the event the dividends are earned; and that, consequently, ap-pellee was not entitled to rescind the contract by reason of the breach of the promise to pay dividends in the future.
It is the settled rule that a contractual promise, made with the undisclosed intention of not performing it, is fraud. American Law Institute Restatement, Contracts, § 473; Gross v. McKee, 53 Miss. 536; White v. Stewart, 166 Miss. 694, 145 So. 747; Palmetto Bank & Trust Co. v. Grimsley, 134 S. C. 493, 133 S. E. 437, 51 A. L. R. 42, and authorities cited in the note attached to the report of this case in 51 A. L. R. Hie appellant does not controvert this rule, but contends that, "as to the promise the representation that in the future, whenever appellee desired his money back, he could apply for it and get it back, and in that particular his investment was like having his money on deposit in a savings account in bank," the proof fails to show an undisclosed intention of not performing it. It is contended, on the contrary, that the fact, as shown by the evidence, that during the time intervening between the purchase of the stock by appellee and his offer to rescind, other parties did surrender their stock and receive their money back, and that the appellant maintained a bureau for the resale of stock, is evidence tending to show an intention to perform the promise.
We do not so construe the probative values of these facts. It is shown that at the time the stock in question was purchased by the appellee, and throughout the period intervening before the filing of this suit, the appellant did, in fact, maintain in Gulfport, Bliss., a resale bureau, through the medium of which the stock of any shareholder might be resold, provided there was ány market or any demand for such stock. Manifestly, sales of stock through this bureau to the buying public must of necessity have been made at the market price existing at the time the stock was offered for sale, and the existence of this bureau afforded no assurance to stockholders of a return of, all their investment. The promise made to appellee, as shown by the un-contradicted proof, was to return him his entire investment at any time he desired a refund of his money. He did not part with his savings upon a promise on the part of the appellant that it would at any time endeavor to resell his stock for him through a resale bureau, or that his money would be refunded by it, provided it could first resell it at par or par and accrued dividends. When the fact developed, as set forth in appellant's pleadings, that there was no market for this stock except at such low prices as to practically destroy the investment, the activities of the resale bureau became a poor substitute for an enforceable promise to refund the money invested in such stock; and it may well be assumed that promises to proposed small investors to aid them in the future in an effort to resell at the prevailing market price would not be nearly so fruitful of sales as an absolute promise to refund the entire purchase price at any time the purchaser wanted his money. An intention to refund at any time the purchaser desired his money is not shown by proof of an intention to do a wholly different thing, which might or might not result in a return of the money, and which, in the case at bar, has resulted in the purchaser being wholly unable to secure his money or any part thereof.
The reasonable and necessary inferences to be drawn from the pleadings and proof in this case lead to the inevitable conclusion that when apparent refunds were made, it was, in fact, accomplished by a resale of the shareholder's stock, and that when resales for the amount which appellant had obligated itself to refund became impossible, it refused to make further refunds. We think the pleadings and the proof in support thereof clearly show that the appellant had no intention of performing the promise which the uncontra-dicted proof shows was actually made to ap-pellee at the time he purchased the stock; but that its real purpose and intention was to do a wholly different and inadequate thing, that is, to merely aid purchasers in the resale of their stock by the maintenance of a bureau for that purpose. This substitute for the announced purpose and intention upon which the appellee relied when he parted with his money could only be effective as long as there existed a ready market for the stock at or above par, and did not relieve the appellant of its assumed obligation to refund to appellee the amount he had invested in the stock when he desired his money. Consequently, we think the appellee is entitled to recover the sum so invested, unless he is precluded from so doing by reason of some elements of laches, ratification, or estoppel.
The appellant contends, however, that the promise or obligation to refund the money invested, or repurchase the stock, "at any time" the purchaser desired his money, means within a reasonable time after the purchase; and since appellee retained the stock for nearly four years before offering to rescind and demanding the return of his money, he cannot now recover. In support of its contention that the words "at any time" as used in contracts of this character mean within a reasonable time, the appellant relies on the cases of Grace Securities Corporation v. Roberts, 158 Va. 792, 164 S. E. 700, and Kaplan v. Reid Bros., 104 Cal. App. 268, 285 P. 868. Each of these cases 'held that in a contract to repurchase stock at any time, the words "at any time" mean within a reasonable time; but that what is a reasonable time in which to exercise the option depends upon the facts and circumstances of the particular case. And in the Grace Securities Corporation Casq, supra, it was held that an exercise of the option more than two years after the purchase was within a reasonable time, while in the Kaplan Case, supra, wherein the company agreed that it would, at any time, on thirty days' notice, return to the purchaser the par value of the stock, with accrued dividends, it was held that a delay of six years was not unreasonable. Also in the case of Vickrey v. Maier, 164 Cal. 384, 129 P. 273, 274, the Supreme Court of California had under consideration a contract for the repurchase of stock "at any time after six months," and held that a delay in making a demand of more than four years after the lapse of the six-month period was not unreasonable.
In the case at bar there are no facts or circumstances which would indicate that either party intended or contemplated a prompt exercise of the right to demand a refund of the money invested. On the contrary, the use of the words "at any time" and the very purpose of the sale of the stock indicated an intention of the parties that the right need not be promptly exercised, and having in view all these facts, we think that in so far as the effect and application of the words "at any time" were concerned, the demand for a return of the money was made within a reasonable time. Furthermore, in view of the fact that appellee acted promptly after receipt of notice that the quarterly dividends due January 1, 1934, would not be paid, which was the first circumstance to create dissatisfaction and cause appellee to desire a return of his money, the holding of the New York Court of Appeals in the case of Fitzpatrick v. Wood-ruff, 96 N. Y. 561, applies here. In that ease, the plaintiff purchased bonds in reliance upon an oral agreement on the part of the defendant that if "at any time" the plaintiff became dissatisfied with them, the defendant would take them back on thirty days' notice and return the money paid with interest. Interest on the bonds was paid semiannually for about two and one-half years, when default was made in the payment thereof, and thereupon plaintiff gave the required notice of thirty days and, at the expiration of that time, tendered back the bonds and demanded a refund of the money paid, with interest. While recognizing the general rule that where the time within which an option is to be exercised is not limited or fixed by the agreement, then such option must be exercised within a reasonable time, the court held that since no reason had existed for dissatisfaction up to the time the interest was refused, under these circumstances, the demand was within a reasonable time, and within the above-stated rule.
It is further contended that on receipt of the stock certificates, the appellee was charged with notice of their contents and recitals, and since these certificates did not contain on the face thereof the agreement alleged to have been made, he was under the duty at once, or within a very limited time, to elect whether he would rescind,' or keep the stock as permanent investment. We recognize the principle of law that a purchaser of personal property who desires to rescind the sale on account of fraud or mistake is required to act with reasonable promptness after he' discovers the fraud or mistake, or is chargeable with notice thereof ; but we do not concur in the view that upon receipt of certificates of stock which did not contain the aileged,agreement on the part of appellant to refund the purchase money at any time appellee desired, he was thereby chargeable with notice that the promises or representations were untrue, or were made without intention of performing.
Although it has been held that in the absence of fraud in the making of a contract, a party thereto who retains the contract in his possession must be held to a knowledge of the conditions thereof, although he may not have read -it, but relied upon the representations of an agent as to the provisions thereof, Germania Life Ins. Co. v. Bouldin, 100 Miss. 660, 56 So. 609, yet the very basis of the case at bar is fraud in the procurement of the contract. In the case of Nash Mississippi Valley Motor Co. v. Childress, 156 Miss. 157, 125 So. 708, 709, wherein the •basis of the suit was alleged false and fraudulent representation in procuring a contract of sale, the court said: "A purchaser has a right to rely upon the representations of a seller as to facts within the latter's knowledge, and the seller cannot escape responsibility. by showing that the-purchaser upon inquiry, might have ascertained that such representations were not true. Contributory negligence is not a defense to an action based on fraud. If a false statement is made by one who may be fairly assumed to know what he is talking about, it may be accepted as true, without question and without inquiry, although the means of correct information are in reach. Ferguson v. Koch, supra [204 Cal. 342, 268 P. 342, 58 A. L. R. 1176]; Gannon v. Hausaman, 42 Okl. 41, 140 P. 407, 52 L. R. A. (N. S.) 519; King v. Livingston Mfg. Co., 180 Ala. 118, 60 So. 143; Fosburg v. Couture, 126 Wash. 181, 217 P. 1001, 1002."
Aside from any question as to the effect of recitals printed on a certificate of stock in type so small as not to be readable without the aid of a magnifying glass, as the uncontroverted proof here is, under the rule announced in the Childress Case, supra, the fact that the appellee had in hand the means of correct information and did not read it, but relied on false and fraudulent representations of the seller's agent, does not relieve the seller of responsibility. This is said in reference to the fact that the stock certificates did not contain the alleged agreement to refund at any time, but it applies equally to the affirmative recitals of the certificates. In addition to that, however, we find nothing in the recitals of the certificates that would charge the appellee with notice of the falsity of the promises and agreements which induced him to purchase the stock, or that such a contract on the party of the appellant was ultra vires.
In the lengthy recitals attached to and forming a part of the stock certificates, the corporation expressly reserved the right, upon the affirmative vote of the majority of the common stock outstanding, to redeem the $6 preferred stock upon the payment therefor of $110, plus all accumulated and unpaid dividends. But this right to redeem reserved to the corporation would not charge the purchaser of stock with notice that the right to redeem the particular stock at par had not been granted by the common stockholders, or that his promised option to call his stock and demand his money at any time would not be recognized. Since, as we hold, there was nothing to charge the appellee with notice of the alleged fraud, or to put him on inquiry, until he was notified on January 1, 1934, that the dividend then accrued would not be paid, his failure to demand a rescission 'before that time did not affect his rights, upon receipt of this notice he at once offered to rescind, and upon being met with refusal promptly filed this suit. Under these circumstances, there was no default or delay which precludes recovery.
Appellant also seems to contend that since it was organized under the laws of the state of Maine, and the stock certificates issued to appellee contained the provision that it was issued subject to the laws of Maine, upon receipt of the certificates, appellee was charged with notice and knowledge of the laws of that state affecting the issuance of the stock, and the binding force of the alleged agreement to refund, or redeem the stock at any, time. As touching this contention numerous statutes of the state of Maine are cited and quoted in the brief of counsel for the appellant, as well as in the dissenting opinion herein, but it is not pointed out wherein any of these statutes have any bearing upon the question involved, except probably those hereinafter noted.
Section 20 of chapter 56 of the Revised Statutes of Maine 1930 provides that no preferred stock shall be "called in or retired if thereby the property and assets of the corporation shall be reduced below the amount of its outstanding debts and liabilities." There is not a scintilla of proof in this record showing or tending to show that the retirement of the stock sold under the alleged agreement would reduce appellant's property and assets below the amount of its outstanding debts and liabilities; and, consequently, the prohibition of this statute cannot affect appellee's rights.
Section 37 of chapter 56, Rev. St. Maine 1930, as amended by laws of 1933, chapter 53, provides that, "Dividends of profit may be made by the directors, but the capital shall not thereby be reduced, until all debts due from the corporation are paid, ⅜ " while section 93 of chapter 56, Rev. St. Maine 1930, provides that, "Corporations, not created for literary, benevolent, and banking purposes, shall not so divide any of their corporate property as to reduce their stock below its par value, until all debts are paid." And section 101 of said chapter also provides that the capital stock subscribed for any corporation shall stand for the security of creditors and shall be paid for in cash or its equivalent. The rights of creditors are in no way involved in this case, and the record is wholly barren of any evidence that would show that appellee's rights were in any way affected by the provisions of any one of the last above-mentioned statutes.
Section 102 of the said section 56, Rev. St. Maine, 1930, provides as follows: "Sec. 102. Withdrawal of capital stoelc, void as against judgment creditor, receivers, or trustees. j<r0 dividend declared by any corporation from its capital stock or in violation of law, no withdrawal of any portion of such stock, directly or indirectly, no cancel-ation or surrender of any stock, and no transfer thereof in any form to the corporation which issued it, is valid as against any person who has a lawful and bona fide judgment against said corporation, based upon any claim in tort or contract or for any pen alty, or as against any receivers, trustees, or other persons appointed to close up the affairs of an insolvent corporation."
In connection with the discussion of these statutes, our attention is also' called to the case of Spear v. Rockland-Rockpoi-t Eime Co., 113 Me. 285, 93 A. 754, 6 A. L. R. 793, wherein the Supreme Court of Maine held that as to creditors, a preferred stockholder's rights are subordinate, and that he cannot claim dividends out of funds that are needed for; or that properly should be applied to, the payment of debts. As hereinbe-fore pointed out, the rights of creditors are not here involved; and there is no proof whatever showing that any of the requirements or prohibitions of the cited statutory provisions of the state of Maine' have any application- here, or in any way militate against appellee's right to rescind.
There was no reversible error in any of the rulings of the court on the preliminary motions and pleadings; and upon the testimony of the appellee, which is corroborated in all material respects by the testimony of one of the agents who negotiated the sale of the stock in question, we think he was entitled to a peremptory instruction on the first count of the declaration. Consequently; other alleged errors in the admission or exclusion of testimony and in the instructions granted to appellee become immaterial.
. The judgment of the court below will therefore be affirmed.
Affirmed.