Court Opinion

ID: 6738974
Source: CourtListenerOpinion
Date Created: 2022-07-20 23:20:34.730851+00
Date Added: 2024-06-11T16:01:53.778321
License: Public Domain

Bibdzekl, J.
This is an appeal from a judgment entered upon a verdict which the court directed in favor of the plaintiff. The action was brought to recover upon a note for $1,000, which the defendant gave for stock in the Valley City Brick & Tile Company. The note was delivered on October 14, 1913, bearing interest at 8 per cent per annum. It is non-negotiable for the lack of words of negotiability; and at the time it was given the stock was delivered to the maker. The note became the property of the plaintiff bank by assignment. It appears that the Valley City Brick & Tile Company was a corporation organized for the purpose of manufacturing brick and tile, and that it was financed through the sale of stock to various persons in the community. Some work was done preparatory to carrying out the corporate purposes. This consisted of laying foundations for a plant building, erecting or partially erecting the superstructure, and building a spur track connecting with the tracks of the railway company. After considerable work had been done and money expended, the project was either deemed not to be feasible or lacked sufficient financial support. At any rate it was abandoned. It appears that at the time the defendant gave the note in question the construction work above referred to had been begun. As defense to the note the defendant has pleaded: (1) Fraud in the inception consisting of alleged false and fraudulent *507representations inducing the execution; (2) failure of consideration, in that the corporation became defunct and the project abandoned; and (3) that the note, being non-negotiable, is subject to all defenses. This is admitted.
In support of the defense of fraud the defendant testified that one S. L: Davidson, the president of the Valley City Brick & Tile Company, came to his place and delivered verbally a glowing prospectus of the company, stating, among other things, that the leading business men in Valley City and a few farmers had taken stock, and naming some of the former. He also exhibited samples of brick supposed to have been made from the clay which.it was proposed to use. On cross-examination the defendant Lee admitted that so far as he knew Davidson had told him the truth concerning the men in Valley City who were stockholders in the company. No evidence whatever was adduced to establish the falsity of the claim that the bricks were not made from the clay the company proposed to use for manufacture. On the contrary, the defendant Lee states in his testimony that .the bricks exhibited were made from that clay, although the source of this knowledge is neither apparent nor material. So the falsity of these misrepresentations is not established.
In so far as the defendant relies upon misrepresentation concerning the prospect that the business of the company would be a success, it is clear from the testimony of the defendant himself that Davidson’s statements amounted to no more than prophecy or the mere expression of an opinion. The substance of what he said was that if the plant was constructed and put in operation it would be a good thing for the city, and a paying investment. This could not be reasonably construed otherwise than as the expression of an opinion merely. It clearly did not amount to a misrepresentation of fact.
As to the defense of lack of consideration, it is undisputed that the defendant got the stock for which the note was given, and that he participated in stockholders’ meetings and that the corporation perfected its organization as a corporation. The most that can be said is that the venture was a failure and that the stockholders were disappointed. Failure and disappointment alone, however, do not amount to a showing of lack of consideration. In the absence of fraud there is no reason why a stockholder who has given a note for his stock, and who has *508enjoyed the rights of a stockholder, should be relieved of liability upon his note, and thus be placed in a position superior to those who had paid for their stock in case and were similarly disappointed. The corporation was not a guarantor of its own success, and since the defendant has failed to prove that the contract was induced by the fraudulent representations alleged, he is in no better position to resist payment than another stockholder would be to obtain a return of’ money expended for stock. They were participating in the venture on equal terms as stockholders, and must shoulder the obligations that are incidental to that relationship, and be- permitted to share in such rights as may be available upon a liquidation of the affairs of the corporation. No defense to the obligation has been established.
The appellant has also argued some assignments of error based upon the exclusion of evidence. It appears that after the defendant had rested and the plaintiff had moved for a directed verdict, the motion was argued to the court, and then an adjournment was taken to a subsequent day. Upon reconvening, the defendant’s counsel moved that the case be reopened to enable him to supply testimony covering some omissions. The witness Lee was placed upon the stand, and was asked concerning his knowledge as to whether the clay contemplated to be used would make brick such as the sample shown by Davidson when he sold the stock. This testimony was properly excluded as being a mere conclusion of the witness. Following this an attempt was made to prove by the same witness that he had been told by one Ramsett, an officer of the corporation, after he had given the note but before the note in suit was due, that the clay would not make brick; that Ram-sett had ascertained this fact by making an investigation and having the ground tested. Before ruling on the offer of proof, the court ascertained that Ramsett had taken samples to three different chemists, and had made his statement to Lee apparently upon the basis of the reports of the chemists. This evidence was clearly incompetent on the issue of fraud, as it had no tendency to prove knowledge on the part of the solicitor. It related to facts learned subsequent to the sale of the stock to Lee. Even if the ultimate fact of the unfitness of the-clay for the purpose had a bearing upon any other issue in the case, /the evidence offered was still incompetent because it was clearly hearsay as to that fact. It does not appear that any statement made-by *509Ramsett to Lee had a bearing on any business which was then being transacted between Lee and the corporation, so the statement is not competent as an admission. The exclusion was therefore proper.
An attempt was also made to have the secretary of the company testify to the results of the investigation conducted by the president of the company, but inasmuch as the previous testimony had disclosed that the results of that investigation were contained in reports which were not offered, the objection was properly sustained.
Finding no error in the record, the judgment is affirmed.
Christianson, Ch. J., and Bronson, J., concur.