
    George W. Vest, appellant, v. Farmers Cooperative Elevator Company et al., appellees.
    Filed April 19, 1922.
    No. 22065.
    1. Corporations: • Sale oe Stock: Misrepresentations: Rescission. Where the manager of a corporation is authorized to sell shares of its capital stock, and in negotiating sales thereof falsely and fraudulently represents the condition of the company and the value of its capital stock, such representations will be regarded as the representations of the company; and where a purchaser, without knowledge of the true condition of the company and the value of its capital stock, relies upon such false representations, he may, upon the discovery of the fraud, rescind the contract and recover the money paid.
    2. -: -: -: -. Evidence examined, and held that plaintiff acted with reasonable promptness to discover the fraud and to tender back the shares of stock purchased and demand a rescission of the contract of purchase.
    Appeal from tbe district court for Buffalo county: Bruno O. Hostetler, Judge.
    
      Affirmed in part, and reversed in’ paid.
    
    
      W. D. Oldham, Fred A. Nye and M. H. Warlock, for appellant.
    
      John A.. Miller, N. P. McDonald and J. M.- Fitzgerald, contra.
    
    Heard before Morrissey, C.- J., Dean, Aldrich and Day, JJ.
   Morrissey, C. J.

Plaintiff brought suit in the district court for Buffalo county against the defendant Farmers Cooperative Elevator Company, of Riverdale, Nebraska, a corporation, and its officers and directors, to rescind a contract whereby plaintiff had purchased from the corporation ten shares of its capital stock. He alleged that he had been induced to purchase the stock through the false and fraudulent representations of the defendants and their agent; tendered back the stock; prayed that it be canceled; that he be released from all liability thereon; and that he be awarded a judgment jointly and severally against each defendant' for the sum paid, together with interest.

For answer defendants admitted the corporate existence of the elevator company; that the defendant Fred Bargman was its president, and the defendant A. E. Walter was its secretary, and that the other defendants were stockholders and directors of the corporation, and that one John Bolin had been employed as its manager. They allege that plaintiff did not rescind his contract of purchase within a reasonable time, and that in reliance on his continued membership in the corporation the stockholders had paid into the treasury the sum of $8,000, in assessments on their shares of capital stock. The answer contains also a general denial and an allegation that defendants’ stock is worth more than par, the purchase price. Plaintiff filed a reply in the form of a general denial of all new matter set out in the answer.

During the progress of the trial, on motion, the court dismissed plaintiff’s cause of action as to all defendants except only the corporation, and its president, Fred Bargman, and its secretary, A. E. Walter. As to these defendants the trial continued until .all the evidence in behalf of plaintiff and in behalf of the defendants had been introduced and the cause argued and submitted for final determination. The court then made a general finding in favor of the three defendants named, and entered a dismissal of plaintiff’s cause of action. No complaint is made of the first order of the court. Plaintiff’s appeal is prosecuted from the final judgment which released the corporation, its president, and its secretary from liability.

Defendant corporation was organized in 1914, by a group of farmers, primarily for the purpose of operating a grain elevator. It appears to have prospered for a number of years. Finally, it engaged in the lumber and implement business as well as in the grain business. From time to time dividends were declared, both in cash and in sto ;k, and the books of the corporation showed it to be prosperous, and making money. During the years 1918 and 1919, and for some time preceding, the defendant Bargman was president of the corporation. He was during the same period engaged in the banking business in Riverdale and held only a small block of stock in the corporation. Although president of the corporation, he was not actively and personally in charge of its management and business, but devoted his time chiefly to the banking business. During the same period the secretary, Walter, was a farmer and divided his time between his farm and the elevator. He was not at any time the active head or manager of the corporation. One Bolin, who is not shown to have been a stockholder or officer, was the active head and manager of the business during all the time plaintiff was negotiating for the stock which he purchased.

In addition to his authority to buy and sell grain and to conduct the lumber and implement business, Bolin had authority to sell shares of the capital stock in the corporation. Early in the year 1919 the corporation arranged to sell additional shares, and plaintiff arranged to buy one share at the par value of $100. At this time, however, the corporation had not procured from the state bureau of securities a permit for the sale of its capital stock, so, by mutual agreement, plaintiff’s money was merely taken on deposit and the certificate of stock was not actually issued. Before November following the corporation procured the necessary authority for the issuance of its shares of stock, and in the interim plaintiff talked with the defendants Bargman and Walter, with the manager of the corpora-, t-ion, Bolin, and with others about the corporation and its business, and it is his contention that the parties mentioned falsely and fraudulently represented the financial condition of the corporation; and that he relied upon their representations, and, without knowledge of the true condition of the corporation, and believing it to be a prosperous, money-making institution, in November, 1919, paid to the corporation through its manager an additional $900 and there was then issued to him a certificate for 10 shares of the capital stock of the corporation; that under an agreement with the manager this certificate was dated October 24, 1919, although in fact it was issued in November, 1919. Inasmuch as no certificate was issued on the deposit of the first $100 paid, and it appears to have been treated by both parties as a deposit to be used by the company only after the corporation secured permission to - issue stock, and was finally merged in the payment on the certificate issued, the whole transaction may be treated as one culminating upon the day that the $900 was paid and the certificate of stock issued, November 22,1919. Plaintiff testified that before making the first deposit he talked with the defendant Bargman, but his testimony does not show any representations made by Bargman as to the condition of the business or the value of the stock, further than to say “that they were getting along pretty good, and that they paid pretty good dividends, and that they paid 12 per cent, interest.” He testified that the manager, Bolin, urged him to buy stock and represented that it was then worth $164 a share; that the corporation paid 12 per cent, “interest;” that it had been paying good dividends and that 20 per cent, stock dividends would probably be declared. He testified that he asked Mr. Walter, the secretary, why the company sold stock worth $164 for $100, and Mr. Walter explained that the company was doing that in order to escape paying income taxes, and that the money derived from the sale of stock would enable the corporation to discount its bills. He testified to a second conversation Avith the manager, and that -the manager assured him the company was doing well, and that if it did as well for the succeeding six months as it had done during the-preceding six months it would pay a dividend of 25 per cent., and that it might pay even a greater dividend, and that the stock was then Avorth $184 a share; that at the time of making the final payment of $900 he again talked to the manager and was assured that the lumber business was out of debt. He admitted haring talked to a number of parties, but claimed that iu making the purchase he relied upon the representations made by Bargman and Bolin, “and the others.” • • ■

Let us consider his testimony as to the representations made by the manager, Bolin. These representations have heretofore been indicated: The testimony of plaintiff, in so far as it deals with the statements made to him by Bolin, are not denied and we accept it as true.' We find, then, that Bolin represented the company to- be doing a profitable business, that it owed no debts, and that its books showed the capital stock to be worth, according to his first statement, $164 a share, and, according to his second statement, $184 a share.- We think the evidence also shows that plaintiff relied upon these- representations and, so relying, invested his money. It appears that at the time these representations were made Bolin was the active head and manager of the corporation; he was'in charge of its business and made the sales of stock on its behalf. His representations were false and fraudulent, but we find nothing in the record to warrant a finding that either Bargman or Walter was guilty of misrepresenting the condition of the company; that they had any knowledge that it was financially embarrassed, or that its stock was of less value than the books showed it to be. Nor does it appear that either knew, or had reason to know, that the books of the company did not make a true disclosure of the condition of the company, or that the manager was making false representations as to its condition.

Whatever the condition of the company may have been, we find nothing which would warrant a-judgment against the defendant Bargman, or defendant Walter. We fully concur in the conclusion reached by the trial court as to these defendants. But as to the other defendant, the corporation, we feel constrained to reach a different conclusion. As we have said, plaintiff’s testimony as to the representations made by Bolin is uncontradicted. We have, therefore, a situation where the plaintiff, a farmer living in the neighborhood of this elevator, was solicited by the manager of the company to invest in its capital stock. Its manager represented that it had in the past paid large dividends to its stockholders, that its debts were paid, and its stock was worth $164 or more a share. Relying on these representations plaintiff invested his money November 22, 1919. Before the close of that year the manager tendered his resignation. He continued to hold his place, however, until sometime in January, 1920. Upon investigation made early in the year 1920 by an attorney and an accountant employed by the stockholders to conduct an investigation into the affairs of the company, it was found that the company was insolvent, that its capital stock was not of the value it had been represented, but was of little, if any, value. It is not possible to determine from the books and records of the company its exact condition upon the very day that plaintiff paid his money, but no satisfactory explanation is made of the great difference which appears in the financial condition of the company soon after plaintiff became a stockholder and its condition as it had been represented to be by the manager when plaintiff paid for the stock. The most tangible evidence consists of the various exhibits purporting to show the condition .of the company for some time before plaintiff made his investment and for some time thereafter, together with their elucidation by the oral evidence of an expert accountant. There is much of this evidence that is, perhaps, incompetent, but there . appears to be sufficient competent evidence to show that the insolvent condition of the company as it was found after the resignation and retirement of the manager was not produced by anything that occurred after plaintiff: became a stockholder, but rather that it was a condition that had existed for some time prior thereto. The stockholders and officers appear to have been in total ignorance of the true condition of the company and no culpability appears except such as may be charged to the manager. We cannot escape the conclusion that he, with knowledge of the true condition of the company, made the representations falsely and fraudulently, as is alleged by plaintiff, and the corporation is bound by Ms acts. Olcott v. Bolton, 50 Neb. 779, and cases therein cited.

Appellees assert that plaintiff did not proceed within reasonable time and with due diligence after the discovery of the fraud, and that he is therefore estopped to maintain this action. After the manager tendered his resignation, the stockholders generally, plaintiff with the rest, realized that all was not well with the company. Stockholders’ meetings were held. Plaintiff attended these meetings, and various methods were proposed to ascertain the condition of the company. It is claimed that plaintiff participated in these meetings. He deMes that he voted in these meetings or took any part except on one issue, viz.: It was proposed that a levy be made against stockholders, and the motion was stated in such a way that it would bind plaintiff to retain his stock and continue as a member of the company. He admits that he voted on this question, but says that he voted against it. Following these meetings certain of the stockholders paid into the treasury assessments on their stock. In view of the difficulties encountered in ascertaining the true condition of the company, we cannot say that plaintiff was guilty of laches or that he might with reason be expected to move more promptly than he did.

There is the further contention that plaintiff failed to make a sufficient tender of his stock. This contention is not, however, sustained by the evidence. From the condition of the entire record it appears that, after the discovery of the fraud, with reasonable promptness, he took the necessary steps to tender back his stock, demand his money, and a rescission of the contract.

We therefore find that, as to the defendant Farmers Cooperative Elevator Company of Riverdale, the judgment of the district court should be reversed, with instructions to enter .a judgment in favor of plaintiff and against said-company as prayed for in plaintiff’s petition, and that in all other respects said judgment be affirmed.

Affirmed in part and reversed,in part.  