Aldrich v. Rice

• Decision Date: 04 January 1932
• Docket Number: 29678
• Citation: 161 Miss. 879,138 So. 570
• Court: Mississippi Supreme Court
• Parties: ALDRICH v. RICE

138 So. 570

161 Miss. 879

ALDRICH v. RICE

No. 29678

Supreme Court of Mississippi

January 4, 1932

Division B

1 CORPORATIONS.

Purchaser knowing notes were given for corporate stock in violation of statute could not recover thereon (Code 1930, section 4148).

2 CORPORATIONS.

That maker, after plaintiff purchased notes given for stock received dividend and attended stockholders' meeting did not estop maker to set up defense that notes violated statute (Code 1930, section 4148).

HON. JOHN F. ALLEN, Judge.

APPEAL from circuit court of Montgomery county HON. JOHN F. ALLEN, Judge.

Action by Ned R. Rice against C. H. Aldrich. From a judgment for plaintiff, defendant appeals. Reversed and rendered.

Reversed and judgment here for appellant.

V. D. Rowe, of Winona, for appellant.

The note sued on in this case was given by appellant in payment for the capital stock of the Keystone Company and was an unlawful note.

A note given for stock in a corporation in violation of section 921, Code 1906 (Hemingway's Code, section 4095) which prohibits the taking of a note in payment of stock in a corporation cannot be recovered on by the payee therein or a purchaser thereof with notice.

Section 4148, Code of 1930; Ellis Jones Drug Co. v. Williams, 139 Miss. 170, 103 So. 810; Montjoy v. Delta Bank, 76 Miss. 402, 24 So. 870; 8 C. J. 243.

The principle is established beyond controversy that a contract in violation of law, or against public policy, cannot be enforced in the courts of the country.

Wooten et al. v. Miller, 7 Sm. & M. 380; Hoover v. Pierce, 26 Miss. 627; Deans v. McLendon, 30 Miss. 343; Woodson v. Hopkins, 85 Miss. 165; McWilliams v. Phillips, 51 Miss. 196; Williams v. Simpson, 70 Miss. 113.

A contract against public policy cannot be made valid by ratification as between the parties thereto.

Kountz v. Price et al., 40 Miss. 341.

W. T. Knox, of Winona, and Denman & Breland, of Sumner, for appellee.

Section 4148, Code of 1930, does not absolutely prohibit the making of a contract by a corporation for the sale of its stock evidenced by a promissory note. The legislature intended by the enactment of this statute, that a corporation could not accept a note in full and complete payment and satisfaction of its capital stock. It is the intention and purpose of this statute that before a party can become a stockholder in a corporation he must have actually paid for the stock issued to him by the corporation. That is, a stockholder must have actually paid for his stock before he has any rights as a stockholder as against the corporation. It is elementary that the capital stock in a corporation is for the purpose of protecting the creditors of the corporation, and it is for the purpose of insuring the creditors of a corporation the payment of their claims against the corporation. It was not the intention of the legislature, in the enactment of this statute to protect defaulting stockholders in the payment of their subscription for stock to the corporation, but solely for the protection of creditors of the corporation.

Allen v. Edwards, 93 Miss. 719, 47 So. 382; Hayne v. Beauchamp, 5 S. & M. 518.

There is a marked distinction between the facts in the Ellis-Jones Drug Company v. Williams, 139 Miss. 170, 103 So. 810, case and the case at bar. In that case the purchaser of the notes knew that the notes were given for shares of stock in a proposed corporation, which had not been organized.

Lewis v. Roberts, 13 S. & M. 558; Hepburn v. Kincannon, 74 Miss. 691, 21 So. 569.

A note given in payment of stock in violation of the Blue Sky Law is no defense when the maker participates in stockholder's meetings.

Perkins v. Merchants and Farmers Bank, 103 Miss. 179, 60 So. 131; Ann. Cas. 1915 B, 788.

Where a person held himself out by all his conduct and dealings with the corporation as being a stockholder and a director and having so held himself out as a stockholder the law will take him at his word and deal with him as if he were in fact a stockholder, whether he was or not.

Allen v. Edwards, 93 Miss. 719, 47 So. 382; 10 Cyc., pars. 425 and 439; Jeffrys v. Selwyn, 6 A. L. R. 1132 et seq.

Argued orally by V. D. Rowe, for appellant.

OPINION

Anderson, J.

Appellee brought this action against appellant in the circuit court of Montgomery county to recover the sum of four hundred dollars, with interest, and attorneys' fees, on a promissory note executed and delivered by appellant to the Keystone Cotton Oil Company, a corporation, in part payment of his subscription to stock in the corporation. At the conclusion of the evidence, the court directed a verdict for appellee in the amount sued for, and judgment was entered accordingly. From that judgment, appellant prosecutes this appeal.

The facts in the case are undisputed; therefore either appellant or appellee was entitled to a directed verdict. Appellant executed a series of five promissory notes for four hundred dollars each, payable to the Keystone Cotton Oil Company, in payment of certain shares of the capital stock of that corporation. Attached to the notes were the stock certificates, as collateral security for the payment of the notes. Shortly after the execution of the notes, and before their maturity, the corporation transferred them to the appellee for value. Appellee, at the time of his purchase of the notes, knew that they were given by appellant in payment of his subscription to capital stock in the corporation. The note first becoming due was paid by a dividend declared by the corporation; the next two notes coming due were paid by appellant. When the fourth note became due, appellant declined payment, and this suit was brought on that note.

Appellant defended the action on two grounds: (1) That the notes were void and unenforceable because executed in violation of section 4148 of the Code of 1930; (2) failure of consideration.

Section 4148 of the Code of 1930 is in this language: "A note, obligation, or security of any kind given or transferred by any subscriber for stock in any corporation shall not be considered, taken, or held as payment of any part of the capital stock of the company."

Ellis Jones Drug Co. v. Williams, 139 Miss. 170, 103 So. 810, is decisive of this cause in appellant's behalf under the first ground of defense. In that case, it was held that a note given for stock in a corporation in violation of section 921 of the Code of 1906, of which section 4148 of the Code of 1930 is a rescript, which prohibits the taking of a note in payment of stock in a corporation, cannot be recovered on by the payee therein, or a purchaser thereof with notice.

It is true that the corporation issuing the stock in that case was never organized, and it was an issue of fact whether the purchaser of the note sued on knew at the time he purchased the note that the corporation had not been, and probably never would be, organized. But the court, in its opinion proceeded upon the assumption that the purchaser of the note was not aware of that fact. In other words, the court, in...