
    Merritt et al. v. Morris, Adm’r, Etc.
    
      Bill in Equity for Rescission of Contract.
    
    [Decided Feb. 13th, 1902.]
    1. Rescission of contract for fraud not granted when alleged fraudulent representation did not induce the making of the contract. — Where a bill is filed to rescind, for fraud, a contract whereby complainant purchased certain stock in a corporation, and when said purchase was made one of the controlling owners and stockholders of the corporation represented to complainant that the company owed only about two hundred dollars, and said nothing about a debt of about four thousand dollars to himself, of which complainant knew, said representation cannot be said to have induced complainant to enter into the contract, and. will not authorize its rescission.
    2. Corporation; purchase of plant and tangible property of; effect of. — The purchase of 'the plant and tangible property of a corporation does not make the purchaser the company or the holder of its stock, or liable, directly or indirectly, for its debts.
    
      3. Corporation; purchase of stock in, with knowledge of corporate debts, effect of. — A purchaser of stock in a corporation, with knowledge on the part of the purchaser that the corporation is largely indebted to one of its officers and stockholders, must be held to have known that the interest thus acquired was not free from charge on account of said debt; and his mistake in assuming the contrary will not authorize a rescission of the contract.
    Appeal from Oliilton Chancery Court.
    Heard before Hon. Richard B. Kelly.
    Tlie bill was filed by Rudolph Elirman against William H. Merritt and M. J. Bond, who owned all the stock in the Merritt & Bond Lumber Company, a corporation, and sought the rescission of a contract whereby 'complainant purchased one-lialf of the stock in said corporation, on account of alleged fraudulent representations inducing ¡the purchase. The equity of the bill and its averments are shown by the report of the case on a former appeal, 116 Ala. 278. Upon submission on pleadings and proof the chancellor rendered a decree granting complainant the relief prayed, and defendants appeal. The opinion shows the material facts upon which it is based. Pending the appeal, Elurnan died, and the cause was revived against Morris, his administrator.
    Gunter & Gunter, for appellants.
    W. R. Houghton, Sam Will John and William A. Collier, for appellee.
   McCLELLAN, C. J.

— The equity of this bill and the sufficiency of its averments to support the relief prayed were settled on the appeal from a decree on demurrer. Merritt et al. v. Ehrman, 116 Ala. 278.

This appeal is from a final decree for complainant on pleadings and proof. The evidence has been read at length en bane, and carefully weighed and considered. From it. we are reasonably satisfied that the complainant had knowledge of the debt owing by the Merritt-Bond Lumber Co. to Merritt in February, 1896, when the original sale of the property of that company was made to Mm and also in May, 1896, when that sale was cancelled and one-half the stock of the company was sold to him either as a new and independent transaction or as substitutionary and in consideration of the cancellation of the first sale, and of consequence that he was not and could not in a legal sense have been induced by the alleged representation of Merritt ¡that the company owed only about turn hundred dollars to enter into either of said transactions. We reach the further conclusion that the statement made by Merritt to Colonel John in the presence of Ehrman that the company owed not more than two hundred dollars had reference to its debts other than that of four of five thousand dollars to Merritt himself, that Merritt properly 'assumed that Ehrman would so understand it and that the latter did so understand it knowing as lie did of the existence of this debt to Merritt. That Colonel John may have been misled by this statement is of no consequence as he was not acting as the agent of Ehr-man to make the .trade, but merely as his attorney to advise him as to the form of the transaction and to draw up the papers evidencing it, the trade itself having been made by Ehrman in person. In and by the contract of February, 1896, Ehrman purchased the plant and other tangible properly of the Lumber Co. and not the shares of its capital stock or any of them. Of course in such a deal it was immaterial to Ehrman, at least as between him and the company and Merritt and Bond the stockholders of the company, -whether the company owed Merritt or not since Ehrman did not by that form of transaction become the company or the holder of its stock or liable directly or indirectly for1 the debt due to Merritt; and, moreover, it is shown that Merritt or Merritt and Bond 'assumed the. payment of that debt for the company, an act of supererogation since without such assumption the debt continued to be the debt of the company and not chargeable in any sense upon Ehrman or upon the property he had purchased from the company. Now it seems probable that when that transaction of February was cancelled and the new contract of May was entered into whereby Ehrinan surrendered the property of the company which he had originally purchased, and then purchased one-half of the shares in the company’s capital stock, 'he still assumed that the interest he thus acquired was free from charge on account of Merritt’s debt against the corporation, and acted upon that assumption. This assumption was obviously gratuituous and mistaken. But knowing of Merritt’s claim and being held to a knowledge of the law, 'he must be further 'held to have known at the time of the last transaction that the company in which he had purchased am interest was liable for Merritt’s debt. And it cannot be said that such mistake on his part gave him any cause of action for rescission or otherwise against the Lumber Company or Merritt, or Merritt and Bond. So that our conclusion is that the ease made by the bill has not been proved. The decree granting complainant relief will be reversed, and a decree will be here entered denying relief and dismissing the bill.

Reversed and rendered.  