Gridley v. Tilson

SHENK, J.

This is an appeal from a judgment for defendant in an action brought by the Hanker Shoe Company, plaintiff’s bankrupt, on three promissory notes of the defendant, dated September 19, 1922, the principal sums aggregating $5,000. Defendant’s answer admitted the execution and delivery of the notes, but as affirmative defenses alleged that the notes were given for 5,000 shares of the Hanker Shoe Company in reliance on certain false and fraudulent statements and representations made by agents of the Hanker Shoe Company, and alleged that the contract for the sale of said stock was void in that it was executed contrary to the provisions of the permit issued by the commissioner of corporations. He prayed that the plaintiff take nothing. In a cross-complaint defendant also alleged “that plaintiff . . . agreed to cancel said notes and return them to defendant, but has failed and neglected to do so.” He also alleged that “at the time said statements and representations were made and at all times since said date the stock of the Hanker Shoe Company has been worthless and without any value whatever. That no stock in said

[750]

company was ever issued to defendant. That defendant has never received any consideration whatever for said promissory notes.” While the action was pending Hanker Shoe Company was adjudicated a bankrupt and B. C. Gridley, trustee in bankruptcy, was substituted as party plaintiff. At the trial testimony as to the false statements and representations made to defendant by agents of the Hanker Shoe Company was admitted over the objection of plaintiff. Plaintiff offered, and there was admitted, in evidence, the contract signed by the defendant, dated September 19, 1922, wherein he subscribed for 5,000 shares of the stock of Hanker Shoe Company at $1 each. This subscription contract, among other things, provided: “It is understood and agreed by me that this agreement contains the entire contract between myself and the Hanker Shoe Company, Inc. I have read the copy of the permit which is printed on the back of this application. It is understood that no representative has any power to change, modify or make any other terms or representations whatsoever than those herein stated, ■ and that the representative is acting as special agent and all representations not herein set out are by me deemed waived. It is hereby specially agreed that no stock is to be issued until the full amount of this subscription and notes given therefor are paid in full in cash.” There, was printed on the back of the subscription contract a copy of the permit issued by the state corporation commissioner pursuant to which the stock of the Hanker Shoe Company was to be sold for cash at $1 per share. The permit included the following condition: “(b) That a true copy of this permit 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.” The permit also provided that the company was authorized to sell and issue its shares at par for cash. One of the alleged and proved false representations was that the Hanker Shoe Company had obtained a permit to sell the stock at $1.50 a share and that the stock subsequently would be sold for that price. Defendant testified that a few weeks after he signed the contract and gave the notes he went to Hr. Hanker, president of the Hanker Shoe Company, and told him the circumstances and repeated the statement which the agent had made that the