Skola v. Merrill

FOLLAND, Justice. The outline of the case is stated in the dissenting opinion of Mr. Justice EPHRAIM HANSON. This is an equity case where the parties are entitled to have our judgment on the weight of the evidence in the record presented. I have carefully read the entire transcript and am satisfied the fair preponderance of the evidence is against the findings of fact in the main particulars on which the decision turns. The dissenting opinion, holding as it does for plaintiff, naturally leans heavily on the evidence adduced in Skola’s behalf. The story told by the Skolas is so utterly fantastic and improbable that I feel we ought not to believe it unless it finds support and corroboration in material respects by other witnesses, documentary evidence and known facts. When tested or measured by the standards of proof required in such cases and weighed against the testimony of disinterested witnesses and documentary evidence, it does not meet the test. In most important particulars the testimony of the Skolas on the one hand that of the Merrills on the other is in sharp conflict. These parties are all interested. There were disinterested witnesses called such as Mr. McEwan, assistant *255 cashier of the Zion’s Savings Bank & Trust Company, Mr. D. B. Richards who acted as attorney for Mrs. Skola, and Mr. Hugh B. Brown who at that time was attorney for the Deseret Mortuary Company and Merrill Mortuaries, Inc. The evidence given by these men is reasonable and consistent with what one would expect under the circumstances, but each is in sharp conflict on material points with the testimony of Mr. and Mrs. Skola. I desire merely to refer to particulars of the evidence which sustain my view that the findings in many vital particulars are not supported. Some of the facts to be kept in mind as a background for a consideration of the testimony are these: In about the year 1925, Charles S. Merrill introduced a new idea in the undertaking business. He organized the Deseret Mortuary Company to carry on a mortuary business and undertook to sell burial certificates which obligated the company to supply all services and materials in connection with the care of the body and its interment at the cost thereof plus 10' per cent. The plan seemed to be popular and by the fall of 1929 there were five or six thousand burial certificates already outstanding. The company was doing a thriving business. Its business was so large that it incurred the enmity and opposition of practically all of the competing undertakers in the districts where it did business. Approximately $100,000 had been paid by the purchasers of these burial certificates and the assets of the Deseret Mortuary Company had increased from $12,000 to about $250,000. In September, 1929, at the time the transaction in question in this case was consummated by the sale of stock in Merrill Mortuaries, Inc., to John Skola and Vesta Skola, his wife, the Deseret Mortuary Company had outstanding 17,800 shares of stock, practically all of which had been owned by Charles S. Merrill and which at the time of the incorporation of Merrill Mortuaries, Inc., had been transferred to that company. According to an audit by Scholefield, Wells & Baxter, certified public accountants, the net worth of the Deseret Mortuary Company immediately before the organization of Merrill Mortuaries, *256 Inc., was $249,200. The Merrills had extended their operations into Montana, Oregon, and Idaho. On September 9, 1929, Merrill Mortuaries, Inc., was organized. It was intended to be a holding company for the Deseret Mortuary Company operating in Utah and other Merrill interests in the other states named. On September 14, 1929, the sale to John Skola and Vesta M. Skola was consummated of 12,000 shares of first preferred stock and 8,000 shares of common stock of Merrill Mortuaries, Inc., for a purchase price of $30,000. To rescind this sale, plaintiff brought this suit, charging fraud against the defendants named and tendering a return of stock in the Merrill Mortuaries, Inc. In the meantime the stock originally purchased had been exchanged for another type of stock of the same company thereafter authorized and issued. I shall not attempt to review the entire record, but only refer to parts of the testimony which seem to me to show that the Skolas are not entitled to prevail in a suit for the rescission of the contract. The trial court found that plaintiff and his wife had a very limited knowledge or understanding of the English language, written or spoken, and spoke or understood it only disconnectedly and with great difficulty. This supposed lack of understanding of the English language was emphasized throughout the trial and in the briefs of counsel for plaintiff in this court for the purpose of showing that it would be easier for the Merrills to practice deception and fraud upon them than it would be on persons having a better understanding of the language. The finding is probably correct as applied to Mrs. Skola. On the other hand, John Skola had been a resident of Salt Lake City for 23 years. He had conducted a business enterprise from which he accumulated upwards of $30,000. In the course of this business he came in contact with many people, bought machinery, built a factory, purchased a home and transacted nearly all of his business in the English language. He testified that he understood the language and that he spoke it in the home *257 with his children and with most of the people with whom he had business relations. He said that he and his wife spoke German in the home. He testified that he did not have difficulty in understanding the Merrills when they came to see him. All his conversations with them were in English. All the representations of whatever sort on which this suit was based were made in that language. Both Skola and his wife said they understood and believed what the Merrills said, and on the witness stand attempted to repeat the substance of those conversations. There is no allegation that they were imposed on by any misunderstanding of what was said. When the Merrills requested Skola to turn in the stock originally issued to him and take other stock in the corporation, he was shrewd enough to drive a hard bargain and obtained a $2,000 stock bonus in the trade. In this he obtained more than any of the other stockholders who made the exchange. I think altogether too much stress is laid on the claim that Skola was inexperienced in business and could not understand or use the English language. I think it clear that Skola was a shrewd, capable, and hardworking business man, and that the fact he had accumulated upwards of $30,-000 is a tribute to his ability. Charles S. Merrill and his brothers had organized and conducted a large business enterprise and were men of such experience that it is very difficult to believe they were crude, stupid, unbusinesslike men, using methods which we can conceive of being used only by immature, inexperienced, amateur salesmen. The fact that the Skolas testified as they did is the strongest evidence in the case of their inexperience in business transactions. That testimony leads one to believe that their story grew out of a very narrow basis of fact and was greatly distorted in the imagination of the narrators. Skola testified that on or about the 15th of June, 1929, Charles S. Merrill came to him and offered him 20,000' shares of Deseret Mortuary stock for $30,000 and that when he *258 purchased the stock on September 14th he obtained Merrill Mortuaries, Inc., stock instead of Deseret. This particular alleged deception is not relied on as the basis for rescission. The Merrills flatly deny that any such offer was made at that or any other time. It is undisputed that in June or July of 1929, Merrill Mortuaries, Inc., was not only not in existence, but not even projected. At that time the Deseret Mortuary Company was a prosperous and growing concern. It owned property having a book value of approximately $250,000 with only 17,800 shares of common stock outstanding. There were no other kinds of stock issued or to be issued. The intrinsic value of the stock was about $14 a share. Most of the outstanding stock was owned by Charles S. Merrill. No Deseret Mortuary stock was for sale either by the corporation or by Mr. Merrill. This company had, however, many agents in the field offering for sale and selling its burial certificates which were being purchased by thousands of the subscribers, including officials of the L. D. S. Church, as well as other prominent persons residing in the communities served by the Mortuary Company. John Skola had been solicited to buy these certificates either in May or June of 1929 but had declined to purchase. The Merrill Mortuaries, Inc., was planned during August and incorporated in September, but until September 9th there were no shares of stock of that company actually for sale. John Skola would have us believe that Charles S. Merrill on or about June 15th sought him out at the pigpen in his yard and offered to sell him 20,000 shares of Deseret Mortuary stock for $30,000. If it was his own stock Merill was offering to sell, this would be more than he owned, and by the sale he would have transferred for $30,000- more than his entire ownership in the company. If it was treasury stock he proposed to sell, the sale would convey to Skola a controlling interest in the company for approximately one-tenth of its book .value. It is pure nonsense to think that any business man would make such an offer, which, if accepted, would cause him no end of embarrassment. *259 Mr. Merrill’s version of the transaction to the effect that Skola was solicited in May or June to purchase Deseret burial certificates, which he declined, but that he inquired about the purchase of stock and was told there was none for sale, but that later he was solicited to buy stock in the newly organized Merrill Mortuaries, is fairly consistent with known facts. Skola’s testimony would seem to be a mixture or confusion of the representations made in the attempt to sell him Deseret certificates with the later solicitation to buy Merrill Mortuaries stock, either ignorantly confused and confounded or done willfully for the purpose of aiding him to recover the money paid for the stock. Skola’s recital of the incidents connected with Charles S. Merrill’s first visit and interview with him is too preposterous to have much weight. He said Merrill came to his place and found him in the pigpen, and then said (quoting from the abstract): “It was about the 15th or 16th of June, 1929, when Mr. Merrill came to my place. I heard the dog barking and came out of the pen and saw a man coming across the wires by the road. Our road came from the West to our house and he came from the north to the house along the barbed wires. The dog barked so much I came out and he said, ‘I am Charles Merrill, the president of the Deseret Mortuary Company. I want to sell you some stock.’ My little girl came out and he said, ‘Who is that girl?’ I said, ‘That is my daughter.’ He said, ‘I do not want to see anybody around here, do not say I was here. Which way is best to get out of here?’ I said, ‘The same way you came through the barbed wire,’ and he said, ‘You come behind the hogpen and I will show you how to make lots of money.’ We went behind the hogpen and he said, ‘I know you belong to the church, and your wife, so I belong to the church and my brothers. Do you know my brothers?’ I said, ‘No, I don’t know them, this is the first time I hear your name.’ He said, ‘I have three more brothers, too, they will come to see you, too. I want to show you how you can make lots of money.” He took a pencil out of his pocket and he said, T will sell you stock for one dollar and a half a share for the Deseret Mortuary Company. That would be twenty thousand shares, and I will give you interest on it and I will show you how you can make lots of money.’ And he said he had deal on to build a mortuary house for twenty-five thousand dollars, and as soon as it is ready, it would be worth fifty thousand dollars. *260 He said he would use my money for building the mortuary. The business doubles the money every year. ‘The first year you will make sixty thousand dollars. Next year you will make one hundred and twenty-thousand dollars, and so you can make a million dollars out of thirty-thousand dollars. You do not need to be afraid, you cannot lose anything.’ He said, ‘The church is behind it, we have so many church officials. * * According to Skola, Merrill visited him again two days later at the pigpen where substantially the same conversation was repeated, and that he and his brothers, Clarence and Tom, visited him at least twice a week throughout the summer and until September 14th when the sale was consummated, notwithstanding it is established by disinterested testimony, as well as the testimony of the Merrills themselves, that they were out of the city most of that time. Mr. Strebel, auditor for the Merrills, refreshing his memory from records, testified that Charles S. Merrill was not in Salt Lake City from the 1st to the 17th of June nor from the 20th to the end of June, and was out much of the time during July and August; that Thomas Merrill was in Idaho from June 3d to August 28th; that Clarence Merrill was in Portland and vicinity from December, 1928, to November, 1929, with the exception of visits to Salt Lake on June 5th and June 17th and again from some time after the 7th or 8th of September. It is hardly conceivable that a trained stock salesman or fairly competent business man would conduct himself in the manner described by Skola of Charles S. Merrill’s first visit. Nor would such a man on his first visit to a prospective customer offer for sale stock for almost the exact amount the customer had in the bank and at a price and in an amount which if accepted at the time, would give the customer complete control of the corporation for a sum about one-ninth of its value. I cannot believe the suggestion of a divorce by Mrs. Skola was an invention of the Merrills. It developed rather unexpectedly in the evidence that the divorce specter had hovered *261 over the Skola home for years, both prior to and after September, 1929. Mr. D. B. Richards, attorney for Mrs. Skola, testified with reference to the meeting in Mr. Brown’s office on September 14th as follows (quoting from the abstract) : “I couldn’t say how long I have known Mr. Skola. I became acquainted with him about the time he applied for admission as a citizen of the United States. I represented him in that proceeding. I have known Mrs. Skola about the same length of time. It was about 20 years ago. “I was present when Mr. Skola had a transaction in Mr. Brown’s office but I cannot remember the date. Mrs. Skola came up to my home the evening of the day before and wanted me to assist her. Her daughter was with her. Mr. Skola was not there. She stated to me that her husband had purchased so many shares of stock in the Deseret Mortuary Company and that he had promised to transfer the stock into her name in common with his own but now he refused to do it and she wanted me to intercede for her and see if we couldn’t have him transfer the stock as before agreed. I had been called upon to represent her in a divorce proceeding, but not on that occasion. I cannot remember anything being said about it. I was called upon a number of times to represent her in divorce proceedings and I knew at this time that domestic troubles existed between them but to say that she asked me or mentioned the fact on that occasion I wouldn’t say. “It was a number of years prior to September, 1929, that I was called upon in reference to a divorce by Mrs. Skola and at various occasions after. I may have prepared a complaint for her, but I think it was never filed. I could not say when that was. I had not prepared a complaint immediately before this. I had not heard of the controversy about this stock prior to her visit on the 13th of September, 1929.” Mr. Hugh B. Brown, the attorney at that time representing the Merrills, testifying concerning the same meeting said: “There was nothing said in my office about divorce at that time. I met Mr. and Mrs. Skola at another time and they said they had had some difficulties and discussed with me the matter of a divorce. I do not know when that was. It was in the Mortuary office, 1045 State Street, and subsequent to this event.” *262 The preponderance of the evidence is against the claim of John Skola that on September 14th he was coerced into buying the stock and signing the agreement, Exhibit 3, by threat of divorce. Prior to that meeting Skola had signed an agreement in writing with the Merrills to buy the stock. The controversy on that day was whether the stock should be issued to him in his own name or in the names of himself and his wife. The controversy was not between Skola and the Merrills but between Skola and his wife. A stock certificate had already been made out in the name of John Skola and was before the parties at the meeting and as a result of the discussion there Mrs. Skola’s name was added to it. The record shows that prior thereto stock certificates had been made out in the names of both, and the testimony of the Merrills was that Skola had changed his mind after first telling them to make them out in the names of both he and his wife and directed them to make the certificates in his own name. When Mrs. Skola discovered this she consulted with her attorney and brought him to the meeting and as a result had her name added to the certificates and had her husband sign the agreement, Exhibit 3. This agreement is as follows: “Agreement made this 14th day of September, 1929, by and between John Skola, farmer of Salt Lake City, and Vesta Mauermann Skola, wife of the said John Skola. Witnesseth: “That whereas, the said John Skola has purchased from Charles S. Merrill certain stock in the Merrill Mortuary Company, a Utah Corporation, and “Whereas, the said John Skola after paying for the said stock has certain funds remaining in the Zion’s Savings Bank & Trust Company at Salt Lake City, Utah, and “Whereas, it is desired that the parties hereto have access to said remaining funds and other funds as hereinafter mentioned. “Now this agreement witnesseth: “The said John Skola agrees with the said Vesta Mauermann Skola that he will have his bank account in the Zion’s Savings Bank & Trust Company at Salt Lake City, transferred to the joint account of himself and the said Vesta Mauermann Skola. *263 "Further, that he will deposit in said bank account from time to time all moneys received by way of interest or dividends on the stock hereinbefore mentioned in the Merrill Mortuary Company. That said stock shall be placed in a Safety Deposit Box, and that each of the parties hereto shall have a key and access to the said box. “The said Vesta Mauermann Skola agrees that she will not raise any objection or in any way interfere with the action of the said John Skola in connection with the purchase of said stock. “In witness whereof, the parties hereto have hereunto subscribed their names the day and year first above written. “John Skola “Vesta M. Skola. “Witness: “Charles S. Merrill.” Mrs. Skola testified: ‘T got my attorney because I was going to get a divorce if he didn’t want to buy the stock.” The testimony of all the persons present at this meeting except Mr. and Mrs. Skola was to the effect that Mrs. Skola did not threaten a divorce to compel the sale, but rather threatened to prevent the sale unless she was protected by having her name on the stock certificate. On this point the disinterested witnesses and the record evidence corroborate the Merrills rather than the Skolas. The written contract shows a sale by Charles S. Merrill of Merrill Mortuaries stock and not a sale or pretended sale by the Deseret Mortuary Company of its own stock. After the meeting in Mr. Brown’s office the parties went to the Zion’s Savings Bank where the stock certificate was delivered and the money received in payment therefor. Skola’s testimony tended to show a continuance of the claimed coercion and deception even at the bank. Mr. McEwan, the assistant cashier of the bank and an entirely disinterested witness, testified as follows respecting the transaction had at the bank: “I remember on at least one occasion prior to the 14th of September Mr. Skola came in and talked to me about his proposed investment. It was 2 or 3 days before that. Mr. Skola notified us that he contemplated cancelling or revoking a trust he had previously created and that the money was to be invested in Merrill Mortuaries, or Deseret *264 Mortuary — Deseret Mortuary I think it was, but the title I couldn’t say definitely. I advised him against it. I told him I thought it was a rather hazardous venture and considered it very speculative and tried to persuade him not to do it. He said he intended to do it and he wanted to know what steps would be necessary for him to procure his money. He was informed and the necessary steps were taken. “On the 14th Mr. Skola and Mr. Merrill and I think Mr. Brown were present. The revocation had been prepared; the securities described, and it was signed and witnessed and receipt taken for the money. The money was delivered in a cashier’s check. I am not positive about that. His account might have been credited. I have the instrument which revoked the trust with me. It is marked exhibit 41. It was prepared after he first notified us he was going to withdraw the money. It was executed the day he drew the money out.” Skola denied he talked with McEwan or that McEwan had advised against the investment and said that Mr. Brown, the attorney, went to the bank a few minutes ahead of the others and when the others got there the cashier’s check was ready, thereby conveying the impression that Brown was the one who gave notice to the bank of the desired withdrawal of the money and had the revocation of trust and cashier’s check prepared. Again, in this respect, he is flatly contradicted by the testimony of the disinterested witnesses. The trial court made a finding, “That on September 14, 1929, the common stock of Merrill Mortuaries, Inc., was of no value and its preferred stock was of a value of about 20 per cent of its par value.” This finding, I think, is entirely unsupported by the evidence. It rests on testimony in the nature of an opinion given over objection by R. H. Whitehead, a former salesman of burial certificates for the Deseret Mortuary Company and of stock of Merrill Mortuaries, Inc. At the time he testified he had been discharged by the receiver and had asserted a claim for a large amount against the Deseret Mortuary Company, which claim had been denied. He testified that the common stock had no market value and that the preferred stock had an intrinsic value of about 20 per cent of its par value. On cross-examination he said he had sold Merrill Mortuaries *265 stock in Utah and Montana and that he believed it was a fair investment and that the purchasers would make money “if everything went right” and the company had good management. He further testified he did not take into consideration the value of any stock of the Deseret Mortuary Company owned by the Merrill Mortuaries, Inc., when he gave his estimate of value. This statement alone would destroy the evidenciary value of his estimate, since the most valuable asset of the Merrill Mortuaries was its holding of Deseret Mortuary Company stock. Assuming there were fraudulent representations made by the Merrills in the respect charged, yet I think Skola may not now urge rescission. He held the stock, sold some of it, borrowed money on it, collected and received dividends, attended stockholders’ meetings and voted it over a period of three years and eight months. All of the facts concerning which he alleges misrepresentation could have been learned by him, if indeed he did not already know the truth about them, very shortly after the transaction of September 14, 1929. He claims the Merrills represented to him in numerous conversations for three months before the sale that “the church is behind it” and would not let it fail. During that time he had ample opportunity to learn the truth of the representations. So far as we know, he made no inquiries. After he purchased the stock he attended two of the annual stockholders’ meetings and one or more directors’ meetings of Merrill Mortuaries, Inc. At the stockholders’ meetings full information was obtainable as to who the stockholders were, the amount of stock issued, and what, if any, church position they or any of them held. There is not anything in the record to indicate that he could not have had access to the books and records of the company at any time for the purpose of learning these facts. I think he cannot wait nearly four years until the company, by reason of the financial depression then existing, the opposition of the undertakers and the passing of adverse legislation in some of the states where the company was operating, found *266 itself in a condition of financial distress. It would seem more than a mere coincidence that the time fixed by him when he learned of the fraud, that is, in July of 1932, is almost the exact time when the financial depression reached its lowest point and was only two months before the Deseret Mortuary and the Merrill Mortuaries, Inc., went into receivership. Notwithstanding the distressing business conditions following thé stock market crash in October of 1929, Merrill Mortuaries seemed to enjoy a period of prosperity. The testimony discloses that between September, 1929, and October of 1930, more than $400,000 worth of its stock had been sold throughout the West. If the representation of the Merrills was that they were selling Skola Deseret Mortuary stock, that idea was dispelled and the fact that they were guilty of deception was brought home to him when he found on September 14th that he was actually buying Merrill Mortuaries stock. He signed the agreement with his wife, Exhibit 3, in which it was plainly recited that the stock purchased was of the Merrill Mortuaries, Inc., and that the purchase was from Charles S. Merrill. Skola sought to avoid the effect of this agreement by saying that he had been coerced into signing it. But even so, he was in possession of the facts and had ample time thereafter to make inquiry as to the true facts and to give notice of rescission within a reasonable time or to take other action for the protection of his rights. He seems to have been satisfied until he found the company in dire financial distress and on the verge of receivership. The testimony that Mrs. Skola had been influenced by the Merrills to hold the threat of divorce over her husband’s head in order to compel him to buy the stock seems to be too unreal for belief. All the parties were members of the L. D. S. Church and Mrs. Skola pretends to be a devout 'believer in its doctrines. She must have known that such suggestions were wholly contrary to the teachings of that church. It is too well known for controversy that one of the fundamental doctrines of that church is the sacredness of the marriage *267 relation. While divorces are tolerated, the church certainly discourages them. It is hardly conceivable that any fairly intelligent stock salesman would use such an argument in an attempt to sell stock to a member of the church. As already indicated, the specter of divorce had been hanging over the Skolas and threatening their domestic happiness for some years. I cannot believe that the idea of divorce was first proposed by the Merrills. It is reasonable to believe when they found that Mrs. Skola had entertained the idea of divorce, on inquiry from her as to how best to protect her rights in the property of Skola, the Merrills may have suggested in the event of a purchase of stock that it could be issued in the names of both. Cross-examination of Skola shows rather plainly that he was not much impressed with any representation of “the church is behind it.” He seems to have relied for rescission of the contract chiefly on the claim that he was forced into the deal by reason of the threats of Mrs. Skola that she would divorce him if he did not buy the stock and that he did not discover until July of 1932 that Mrs. Skola had been influenced in this respect by the Merrills. It is difficult to believe that these people, living in the same house and, as they say, in amicable relations, would not discuss the events leading up to the purchase of the stock and that Skola would not discover the true facts connected with it, whatever they might have been, long before July, 1932. In any event the judgment against the Deseret Mortuary Company should be set aside. Whatever the relationship of the Merrills to that corporation, it is clear that the Deseret Mortuary Company did not own or have any interest in the stock of Merrill Mortuaries, Inc. Whether the stock transferred to Skola belonged to Charles S. Merrill personally or to the Merrill Mortuaries and was being sold by Merrill in order to evade the effect of the Securities Act, it is clear it did not belong to the Deseret Mortuary Company. If rescission is had and the stock is *268 turned back in an attempt to place the parties in status quo, it would go either to Charles S. Merrill or the Merrill Mortuaries. It would not go to the Deseret Mortuary Company. The money was paid by Skola to Charles S. Merrill who deposited it to his own account. Notwithstanding Charles S. Merrill may haVe dominated both of these corporations by reason of his stock ownership, it remains the fact that some five or six thousand people had invested nearly $100,000 in Deseret burial certificates and that these people and other creditors have a right to be protected. I can see no reason under the circumstances disclosed by this record for giving the plaintiff Skola a preference as against creditors and certificate holders in the assets of the Deseret Mortuary Company, especially when I know that Skola during the three years and eight months attended the meetings of the stockholders and directors of Merrill Mortuaries, Inc.; that he traded his stock originally purchased for other stock issued by that company; that he received money from Charles S. Merrill, in the nature of interest or dividends; that he sold stock to Merrill and also to Jacob Aures, and during all that time had ample opportunity to learn all the facts with respect to the claimed fraud and failed to take any steps toward protecting himself until the company was in financial distress. Much more might be said in support of the views expressed herein, but this opinion is long enough as it is. ELIAS HANSEN, C. J., and WOLFE, J., concur in the views expressed in this opinion, and WOLFE, J., and the writer concur in the opinion of ELIAS HANSEN, C. J., and in the following disposition of the case: That the judgment heretofore entered be reversed and the cause remanded to the district court of Salt Lake county, with directions to dismiss the cause as to the Deseret Mortuary Company, and grant a new trial as to the other defendants; that the parties have permission to amend the pleadings if they so desire. Costs to appellants.