Collins v. Collins

• Decision Date: 06 November 1933
• Docket Number: 30758
• Citation: 150 So. 660,168 Miss. 733
• Court: Mississippi Supreme Court
• Parties: COLLINS v. COLLINS

150 So. 660

168 Miss. 733

COLLINS v. COLLINS

No. 30758

Supreme Court of Mississippi

November 6, 1933

Division A

Suggestion Of Error Overruled February 12, 1934.

APPEAL from chancery court of Jones county, HON. A. B. AMIS, SR. Chancellor.

Suit by Floyd O. Collins against J. L. Collins. From an adverse judgment, defendant appeals. Affirmed.

Affirmed.

Welch &amp Cooper, of Laurel, for appellant.

If a person is induced to subscribe for or to purchase stock in a corporation by fraud on the part of its director or managing officers or on the part of any other agent for whose act the corporation is responsible, the effect is to render the contract not void but merely voidable at the election of the subscriber or purchaser. It subsists in full vigor until repudiated by him by some distinct act or expression, or until rescinded by the decree of a court of competent jurisdiction.

14 C. J., sec. 863, p. 588.

There is no presumption of law or fact to be indulged as against the appellant. He offered to show that as soon as he learned of the fraud that had been perpetrated upon him, he took steps to secure a rescission of the contract.

14 C. J. 588.

The act of rescission took place when the appellant notified the president of the company of his discovery of the fraud perpetrated upon him and that he would do nothing to carry out the contract, because of this fraud.

14 C. J., p. 592, sec. 866; 14 C. J. 601; Perkins v. Merchants & Farmers Bank, 60 So. 131, 103 Miss. 179; Jones v. Barnes, 66 So. 212, 107 Miss. 800.

In the case at bar not only did the appellant surrender everything he had but appellant agreed to leave his cash paid by him in the company and accept nothing for it. He relinquished his right to recover the one hundred twenty-five dollars. We think the case at bar falls squarely within the rule above announced. There is no suggestion that the appellant was guilty of laches.

Savage v. Bartlett, 78 Maryland 561.

The court seems to have gone on the theory that liability in this case was fixed by statute and a rescission of the subscription would not affect debts existing at the time of the rescission or debts made within twelve months thereafter. We urge that this is a misconception of the law.

Burningham v. Burke, 245 P. 977, 46 A. L. R. 466.

The appellant not being guilty of laches and not being estopped on account of other grounds, had the right to rescind the subscription on the ground of fraud subject only to the intervening of superior rights of innocent third persons, but there is no presumption in behalf of such third person and in the absence of proof that the creditors became such before the contract was rescinded and that they became creditors on account of the subscription.

Independent Vance Co. v. Iowa Merc. Co., 168 N.W. 782; Weissinger Tob. Co. v. Van Buren, 135 Ky. 759, 123 S.W. 289, 135 Am. St. Rep. 502; 7 R. C. L. 241; Boston Fear v. J. Kemp Bartlett, 81 Md. 435, 33 L. R. A. 721; Newton National Bank of Newton, Kansas, v. Newbegin, 74 F. 135, 33 L. R. A. 727.

A subscriber to stock may, notwithstanding the insolvency of the corporation, rescind his subscription on the ground of fraud, if he has been diligent in discovering the fraud and repudiating the transaction, unless proceedings in insolvency have been instituted or some act of insolvency committed at the time of the rescission.

Hinkley v. Oil & Pipe Line Co., 132 Iowa 396, 137 N.W. 629, 119 Am. St. Rep. 564; Zang v. Adams, 23 Col. 408, 58 Am. St. Rep. 249; Virginia Land Co. v. Haupt, 90 Va. 533, 44 Am. St. Rep. 939; Howard v. Turner, 155 Pa. 349, 35 Am. St. Rep. 883; Banks v. Cosmopolitan Trust Co., 41 A. L. R. 658.

Section 4153, Mississippi Code of 1930, has no application here.

The president sold the appellant's stock to another with appellant's approval. Appellant necessarily was released. The principle is elementary and sound.

D. B. Cooley and Shannon & Schauber, both of Laurel, for appellee.

It is our contention (first) that a stockholder cannot set up as a defense in a suit brought on behalf of the creditors of a corporation that the stock subscription was secured through fraud. And our (second) contention is also that even though the law is that a stockholder could set up as a defense, in a suit for his unpaid stock subscription, that the same was secured through fraud, yet the appellant in this case has not shown facts that constitute fraud, nor had he shown that his stock subscription was revoked or cancelled prior to the corporation's incurring the indebtedness for which this suit is brought.

14 C. J. 1096, sec. 1716; 7 R. C. L. 406, par. 393; Section 4153 of the Mississippi Code of 1930; King v. Elliott, 5 Smedes & M. 428; Hayne v. Beachamp, 5 Smedes & M. 515; Lewis v. Robertson, Trustee, 13 Smedes & M. 560; Saffold v. Barnes, 39 Miss. 399; Commissioner of Banks v. Cosmopolitan Trust Co. et al., 148 N.E. 609, 41 A. L. R. 658; 41 A. L. R. 674.

We submit that the cases cited and relied on by counsel in their brief on behalf of appellant can all be distinguished from the case now before this court. Counsel for appellant cites sections 863 and 866 of Corpus Juris, volume 14, pages 588 and 601 respectively. This law is not in conflict with the section of Corpus Juris cited by us. The last sentence of said section 866 supports the contention made by us and is in the following words:

"The mere fact of insolvency of the corporation alone will not defeat the subscriber's or purchaser's right of rescission where he has been diligent in discovering the fraud and repudiating the contract, unless proceedings of insolvency, voluntary or involuntary, have been instituted, or some act has been committed which is regarded as an act of insolvency."

Counsel for appellant in their brief contend that the burden of proof was on the appellee to show that the debts were contracted before the date of the alleged cancellation of appellant's stock subscription. We submit that they were mistaken in this contention. The burden of proof was on the appellee, the complainant in the court below, to establish by competent testimony, that appellant was a stockholder in the Continental Electric & Manufacturing Co., the insolvent corporation, and also prove the further fact that appellant had not paid the balance owing on his said stock subscription.

Appellant set tip as his affirmative defense (1) that the stock subscription was obtained through fraud and (2) that appellant had cancelled the stock subscription before the debts were contracted, for which suit is brought. We submit the burden of proof was on the appellant to prove that he cancelled his stock subscription before the...