Barrows v. Natchaug Silk Co.

• Decision Date: 04 April 1900
• Citation: 45 A. 951,72 Conn. 658
• Court: Connecticut Supreme Court
• Parties: BARROWS v. NATCHAUG SILK CO.

45 A. 951

72 Conn. 658

BARROWS

v. NATCHAUG SILK CO.

Supreme Court of Errors of Connecticut.

April 4, 1900.

Appeal from superior court, Windham county; Alberto T. Roraback, Judge.

Action by Frederick M. Barrows against the Natchaug Silk Company in which a receiver for defendant corporation was appointed, who referred the claim of Chauncey G. Bevin against the corporation for stock alleged to have been purchased under fraudulent representations to the superior court, where a judgment was entered disallowing such claim, from which claimant appeals. Affirmed.

Upon the complaint of the plaintiff to the superior court a receiver was, on the 25th day of April, 1895, appointed for the Natchaug Silk Company, a corporation formed under the joint-stock laws of this state. In the progress of the settlement of the affairs of that corporation Chauncey G. Bevln presented a claim to the receiver, and asked to have it allowed to him. It was the amount he had paid to the said corporation for certain of its shares of capital stock for which he had subscribed and paid, and on the ground that said shares were entirely void. The receiver disallowed the claim. The superior court sustained the decision of the receiver, and held that the shares were not void. Mr. Bevin has appealed to this court.

The material part of the finding of facts is as follows: "The Natchaug Silk Company was organized under the joint-stock laws of the state of Connecticut, October 25, 1887, with a capital stock of $25,000,——250 shares of $100 each,—and continued in business until April 25, 1895, when a receiver was appointed. Its stock remained the same until August 27, 1888, when the stockholders voted to increase its capital stock to $200,000. No formal subscription paper was signed for this increase, but 1,600 shares thereof were taken by various persons, among whom was the defendant, who took 50 shares thereof, and paid therefor 75 per cent. in cash, and gave the notes for the remainder. On February 7, 1893, the company voted to increase its capital stock to $250,000, but none of said additional stock was ever issued. No certificate of either increase of stock was evertiled with the secretary of state, or with the town clerk of Windham, in which town the corporation was located. In every year after the defendant bought said stock of the corporation the proper officers thereof filed with the secretary of state the annual certificates required by law, and also filed with the town clerk of said town the annual certificate required by law, containing the names of the stockholders, and among them the name of the defendant, and all of said certificates showed the amount of stock of the company actually paid in. All of the debts owed by the Natchaug Silk Company at the time of the appointment of the receiver, amounting to more than $300,000, accrued after the defendant purchased his stock, and after certificates containing his name as a stockholder were filed in said town clerk's office. In the spring of 1889 the attention of Chauncey G. Bevin, defendant, was called to the stock of the Natchaug Silk Company as an investment by his brother, A. A. Bevin, at the request of one Risley. On the 9th day of April, 1889, in pursuance of said request, the said Chauncey G. Bevin called upon said Risley at said Willimantic, when said Risley represented to said Bevln that the capital stock of said Natchaug Silk Company had been increased from $25,000 to $200,000; that the company was doing a prosperous business, and had a surplus of about $20,000; that the increase of $175,000 had been subscribed for, excepting 35, or possibly 75, shares; and that 75 per cent. thereof had been paid for in cash, and for the 25 per cent. remainder thereof the subscribers had given notes, which the company took because it did not need the money, and these notes would be kept by the company, and not used, and would be paid by dividends; that he (Risley) had taken $10,000 worth of said stock, and paid $7,500 in cash therefor, and given his note for the remaining $2,500; that the defendant could have the 35 shares then, and in a few days he (Risley) would Inform him whether he could have the other 35. Relying on said representations, the defendant, on April 9, 1889, bought 35 shares of said stock, and on April 18, 1889 (having in the meantime been informed by said Risley that the man who subscribed for the other 35 shares would not take them), he bought 35 shares more of said stock, paying for said stock 75 per cent. in cash, and giving his notes for the remaining 25 per cent. In relation to the truth or falsity of said representations, I find as follows: That the voted increase of stock was never subscribed for in full, and that the entire stock of said company never exceeded $186,000. The increase of stock was sold from time to time from about August, 1888, to August, 1894. I am not able to find from the evidence whether the company was doing a profitable business in 1889, or had a surplus or not. It continued in business until April 1, 1895, when a receiver was appointed. All the increased stock had not been subscribed for, and 75 per cent. thereof paid in cash on April 9, 1889. The exact amount which had been subscribed for at the lastmentioned date I am not able to determine from the evidence, but it was much more than 70 shares taken by said defendant, and much of that which had been sold at that time had been paid for in machinery and stock at an appraised value, instead of cash. So far as the books of the company showed, Risley was credited with having paid only $1,500 for stock taken by him. After the defendant received his certificates, he attended several meetings of the stockholders, voting for its directors, and received semiannual dividends at the rate of 6 per cent. until about the time the company went into liquidation. During all that time he never made any examination of the books or papers of the company, or of its returns to the town clerk and secretary of state, to ascertain whether or not the representations made to him were true, or what the financial condition of the company was, or to see whether the stock had been properly and fully issued in accordance with the votes of the company, as had been represented to him; although he could have made such examination, and have ascertained all the facts in relation thereto, as well before as after the failure. He made no attempt or effort in this direction until after demand had been made upon him by the receiver, about August 20, 1895, when he agreed to pay the amount of said notes, but afterwards refused to do so. That said defendant, in September 1895, presented a claim against the receiver of the Natchaug Silk Company for the cash paid by him for said stock, together with interest from the time of...