Court Opinion

ID: 7002127
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:43:58.498568+00
Date Added: 2024-06-11T16:09:57.317758
License: Public Domain

Mr. Justice Freeman delivered the opinion of the court. It is first contended by counsel for plaintiffs in error that the increase of capital stock of the Traders Safe and Trust Company (stock of which to the extent of seventy-eight shares was delivered to plaintiffs in error as consideration for the conveyance of the land sought to be recovered) and the shares issued in pursuance of said increase, were illegal and void, for the alleged reason that it was accomplished by the votes of less than two-thirds of all the capital stock. It appears that $100,000 out of $250,000 of the shares was then held by the corporation as treasury stock, and the increase of capital was effected by the vote of two-thirds of the remaining stock. It is argued that the representation of Rhodes that the stock was good, valid and non-assessable was in this respect fraudulent. ¡Numerous authorities are cited to sustain the contention that the procedure to increase the capital stock was ineffectual, and that no valid increase was accomplished. It is further urged that the representation was fraudulent because 1500 shares of the treasury stock were sold by the company to its stockholders or divided proportionately among them at the rate of $3 a share, and that even had the increase been regular, each of such shares would nevertheless be subject to an assessment of $97 a share. We do not deem it necessary to consider whether there was or was not a valid increase of the capital stock of said corporation, nor whether the 1500 shares so divided among the stockholders was full paid or not. It is evident that these shares might have been full paid if they represented an actual increment in value added to the capital of the corporation from its earnings. The question to be determined is whether the bill states a case of fraudulent representation. It is claimed by defendant in error that at the most it shows only expressions of opinion upon what is property, a question of law, and even though it be considered that such opinions were unsound, their expression affords no ground of equitable interference. We are compelled to agree with counsel for defendants, in error that the facts averred in the bill fail to make out a case of fraudulent representations, entitling plaintiffs in error to recover. There was no concealment of anything. It was open to the purchaser in person or by attorney to investigate the stock in question so far as appears, to examine into the organization of the corporation and ascertain how the capital which the stock purported to represent was paid in; and if not satisfied with its regularity, validity or non-assessability, to refuse to accept it. Rhodes might have known the facts which it is now argued render the stock invalid and yet have honestly reached the conclusion and entertained the opinion he expressed. In relying upon such representations, plaintiffs in error were confiding, not alone in Rhodes’ honesty, but in the soundness of his opinion upon a question of law. Counsel themselves do not agree as to the legal status of the stock in controversy, assuming the facts to be as the bill states them. No representations were ma,de concerning the manner in which the capital stock was increased, or as to how it was paid for in cash, whether such cash was actually paid in by the stockholders or paid out of surplus earnings of the company. The representations were the statement of a conclusion, not the facts on which the conclusion was based. It is not charged in the bill that Rhodes knew or believed the stock to be illegally issued and therefore invalid as a matter of law, and that so believing he deceived plaintiffs in error willfully. Nor do the facts, as stated in the bill, necessarily imply that he knew or believed the alleged representations to be false. If he believed them to be true they were not fraudulent. In order to justify recovery it must appear that the representations were in regard to a material fact, that they were false, and that they were not, on reasonable grounds, believed by the maker to be true. It must further appear that they were made with Intent they should be acted upon, that they were acted upon to the damage of the party imposed upon, and that the latter was ignorant of their falsity and reasonably believed the representations to be true. Crocker v. Manley, 164 Ill. 282 (291). The alleged misrepresentations said to be material are (1) that Rhodes was the owner of the stock transferred, (2) that it was good and valid, (3) fully paid and non-assessable, and (4) that it bad been taken and paid for in cash at its face value. As already indicated we regard these as expressions of a conclusion or opinion, and not fraudulent representations entitling plaintiffs in error to recover. But it is urged by the latter’s counsel that the last of the said representations can not be regarded in any light as a mere expression of opinion, viz., “ that every dollar of the stock of said company had been paid to the company in cash.” The bill avers—and for the present investigation the demurrer admits the correctness of such averments of the bill as are well pleaded—that the capital stock of the corporation was originally §350,000, of which §150,000 only had been subscribed and paid for. One thousand shares had been subscribed for by one Barnes, but with the understanding, it is claimed, that it should be considered as treasury stock. This stock, together with the 500 shares representing the increase, was, bv action of the directors, sold or distributed among the holders of the original stock apparently as a stock dividend, in proportion to their respective holdings, each stockholder surrendering his original certificates and receiving new certificates for double the number of his original shares. The issue of stock therefore amounted to §300,000, for which there had actually been- paid into the treasury of the company by the stockholders themselves a total of §154,500 only. It is alleged that Rhodes was the holder of 255 original shares, and after the new issue he held 510 shares, paying for the additional 255 shares only three dollars a share. It was a portion of this stock which was transferred to plaintiffs in error in payment for her land. As Rhodes was one of the directors and as such participated and was a mover in the action so taken, it is urged that it was impossible he could have been ignorant of the fact that such stock had not been fully paid for in cash when he falsely alleged that it had been. It is -of course true that Rhodes should have known at least that the said stock had not been fully paid for in cash by the respective stockholders. But. he may have believed and may have had reason to believe for aught the bill shows, that it had been so paid for out of accumulated cash earnings, the existence of which is implied by what the bill states. Bhodes is said to have represented that the increase of capital was because of the large earnings of the corporation, and it is not denied, so far as we have discovered, that this representation was true. We have carefully examined the abstract to ascertain wherein plaintiffs in error claim in their bill to have been damaged in consequence of the representations complained of. As before stated, to justify recovery for false representations it must appear that they were acted upon to the damage of the party claiming to have been imposed upon. There are no averments showing wherein plaintiffs in error have been thus damaged. It is charged that all the stock in controversy is invalid arid worthless, by reason of the manner of its issue. But this is a conclusion, not a statement of fact. It appears that dividends on said stock to the extent of over eight hundred dollars had been paid when the bill was filed. It could not be wholly worthless according to the bill itself. Whether it had or has any market value, what was or is the condition of the business of the corporation, and the amount of assets or liabilities, we are not advised by the bill. The stock has not been assessed at all. For all that is shown it may have had then and may have now, a market value making it adequate-consideration for the land for which it was exchanged. The bill was filed five years and nine months after the transaction which it seeks to avoid, and it states that plaintiffs in error, who have held the stock in controversy ail the intervening years and received dividends thereon, did not ascertain the facts until within three weeks before the suit was commenced. It is urged by counsel for defendants in error that said plaintiffs are barred from relief in equity by laches. In view of what has been said, however, we do not deem it necessary to extend the discussion. For the reasons indicated- the judgment of the Circuit Court must be affirmed.