Otten v. Riesener Chocolate Co.

KNIGHT, J.

The defendant corporation has appealed from an adverse judgment in an action for the rescission of a sale of corporate stock and for the recovery of the purchase price paid therefor.

The complaint contained two causes of action, the first based upon alleged fraud and the second upon a void sale, it being alleged with reference to the latter that the sale was not made in conformity with the terms of the permit issued by the commissioner of corporations. The action was tried without a jury, the trial court finding that the sale was free from fraud, but was made contrary to the terms of the corporation commissioner’s permit and was therefore illegal. Judgment in plaintiff’s favor was thereupon entered for the repayment to him of the amount of purchase price, with interest.

The record discloses the following facts: Appellant was incorporated under the laws of this state in January, 1919, with a capital stock of 5,000 shares of the par value of $100 each, and on February 17, 1919, was granted a permit by the commissioner of corporations to sell' 4,000 shares of its stock at par for cash, upon certain conditions specified in said permit and hereinafter referred to. About April 5, 1920, respondent G. J. Otten purchased 15 shares of said stock, paying therefor $1,500. At that time he was employed by appellant at its plant as temporary night watchman and continued in that employment for approximately

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six weeks. On November 18, 1920, he served notice of rescission of the sale and offered to return the stock upon the grounds of fraud and misrepresentation, and failure of consideration ; and made demand for the return of the purchase price paid. Appellant refused to accept the return of the stock, or to refund the purchase price, and as a result respondent, on April 5, 1921, commenced this action.

Among the other facts found by the trial court were the following: That the permit for the sale of said stock “had incorporated therein the following condition: ‘This permit is issued upon the condition that a true copy thereof be exhibited and delivered to each prospective subscriber for, or purchaser of, said securities, before his subscription therefor shall be taken or any sale thereof made to him’; and that, at the time of the sale of said stock by the defendant and its officers and agents to the plaintiff, the said condition was not observed . . . that a copy of this permit was never shown nor exhibited to the plaintiff by the defendant or its officers or agents, or anyone else, nor a copy thereof given to plaintiff, either before or at the time of purchase of said stock or at any time thereafter.”