Opinion ID: 282320
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 6 In 1959, Lowery and Willmott, who are not parties to the suit, learned that the defendants wanted to lease tractors and trailers to use in common carrier service. They conferred with one of the defendants, McBride, who was an officer of the corporate co-defendants. 7 Since Lowery and Willmott did not have enough capital to finance the purchase of the equipment, Lowery approached one of the plaintiffs, Johnny Mitchell, to interest him in financing the venture as an investor. There was evidence from which the jury could have found that McBride represented to Lowery and Willmott that the leased trucks and trailers would be used as a fleet on a fixed route between Memphis, Tennessee and Los Angeles, California, as common carriers, hauling meat products or other freight that would produce a relatively high freight rate; that he knew that Lowery and Willmott would meet with the proposed investors and convey these representations to them; and that the investment would be predicated on the likely profitability of the operation. Lowery and Willmott then met with three of the plaintiffs, George Mitchell, Johnny Mitchell and Christie. These three later invited the remaining plaintiffs, Zinn and Madden, to join in the undertaking. These five had previously engaged in various joint investments. 8 Madden, who had some experience in truck operation, went to Birmingham to investigate the economic feasibility of the proposal and to talk to McBride. Based on correspondence from McBride presented to the five plaintiffs by Lowery and Willmott and on the representations made to Madden by McBride and other employees of the defendant companies in Birmingham, Madden concluded that McBride had a firm arrangement to haul meat from a packing plant in Memphis to the West Coast. There was evidence sufficient to justify the jury in finding that the defendants presented information regarding the potential revenue from this operation designed to make Madden believe that the venture would be profitable to the equipment lessors. Accordingly, upon his return to Texas, he recommended the investment to his associates on the basis that the plaintiffs buy ten tractors and trailers and lease them to the defendants, together with two vehicles already owned by Lowery and Willmott, for 75% Of the gross revenues. They would in turn make a profit sharing arrangement with Lowery and Willmott. 9 The plaintiffs decided to make the investment jointly on May 29, 1959. They thought that it would be desirable to use a corporate entity as an operating unit. Since Madden owned all of the stock of an inactive corporation named Gear, Inc., an empty corporate shell without assets, the plaintiffs decided to use it instead of forming a new corporation. This eliminated both the expense and time required to form a new corporation. Gear was therefore capitalized for $3,000 and the rest of its funds were borrowed. Gear purchased the tractors on credit, but, because it had no assets, it was necessary for the plaintiffs to endorse its notes. The trailers were also purchased on credit but the trailer notes were not endorsed. 10 Gear met with financial problems from the start of the new business. The defendants used the leased trucks on an individual truck dispatch basis to haul cargo on relatively short, low income trips. These were unprofitable, and the business operated at a substantial loss. The trailers were delivered late, and, when they arrived, they were defective. Eventually (after the plaintiffs were no longer stockholders), Gear sued the manufacturer of the trailers for damages, including lost profits. 11 The plaintiffs decided to cut their losses and to sell all of their Gear stock to Willmott. However, Gear's operations remained unprofitable. The plaintiffs were therefore called upon to honor their personal guarantees of the tractor notes. The bank that held the notes foreclosed on its mortgage on the tractors, and delivered them to the plaintiffs who eventually sold them in 1961. 12 This suit, filed in May, 1961, charged that Colonial Refrigerated Transport ('Colonial'), Colonial Pacific Frigidways ('C & P'), and McBride fraudulently misrepresented that the leased equipment would be used as a fleet to haul high return commodities on a regular route from Memphis to Los Angeles when in fact they intended to and did use the equipment on irregular short runs at relatively low freight rates. Plaintiffs claimed that in reliance on the defendants' representations they (1) activated and capitalized Gear, (2) caused Gear to purchase equipment and endorsed its notes, (3) caused Gear to lease the equipment to the defendants, and (4) executed personal guarantees for notes for additional capital for Gear. 13 The plaintiffs urged the trial judge to instruct the jury that reliance on McBride's statements by one of them would constitute reliance by all since they were engaged in a joint enterprise. He refused to give this charge. He also refused to give the defendants' requested instruction that each of the plaintiffs would have to show reliance by himself personally in order to recover. Instead he instructed the jury that the plaintiffs were engaged in a joint enterprise, and 'a communication to one of the plaintiffs would, in law, constitute a communication to each of the other plaintiffs concerning matters within the scope of the joint enterprise. Therefore    if you find from a preponderance of the credible evidence that a representation was made by defendants to plaintiffs which contained each and all of the elements of a fraudulent representation    then your verdict will be for plaintiffs.'