Cumberland Co-Op. Bakeries, Inc. v. Lawson
| Decision Date | 23 May 1922 |
| Docket Number | 189,190. |
| Parties | CUMBERLAND CO-OP. BAKERIES, INC., v. LAWSON. CUMBERLAND CO-OP. BAKERIES, INC., v. FISHER. |
| Court | West Virginia Supreme Court |
Submitted May 9, 1922.
Syllabus by the Court.
A contract made in this state by a foreign corporation for sale of its capital stock is not a part of the business which it was organized to conduct, and does not constitute doing business in the state within the meaning of section 30, c 54, Code, which prohibits a foreign corporation from doing business or from bringing or maintaining any action or suit in this state until it shall have accepted the provisions of that section in the manner therein designated, and has been duly admitted to hold property and transact business in the state.
A corporation is responsible for the false and fraudulent representations of material facts made by its officers or agents authorized and empowered to sell shares of its capital stock to subscribers by which representations they are induced to purchase or subscribe for its stock, if it accepts the benefits, even if it did not authorize such representations.
Fraudulent and false representations of material facts, falsely and willfully made by an agent of a corporation authorized by it to sell its capital stock, by means of which false and fraudulent representations a purchaser or subscriber relying thereon is induced to purchase or subscribe for such stock, will entitle the purchaser to rescind the purchase or subscription within a reasonable time, and constitutes a good defense to an action by the corporation to recover on a note given for such stock.
A plea in bar of a suit on such note setting up such false and fraudulent representation is defective if it does not tender a return of the certificate of shares of stock delivered as consideration for such note, if such certificate has been issued and delivered.
Certified from Circuit Court, Randolph County.
Actions by the Cumberland Co-operative Bakeries, Incorporated against H. T. Lawson and against H. S. Fisher on notes executed by them, in which defendant pleaded nil debit. Motion for judgment. Upon joint motion of the parties the court certified for review its action in permitting and refusing pleas. Both cases affirmed in part and reversed in part.
Talbott & Hoover and D. H. Hill Arnold, all of Elkins, for defendants.
These two cases will be considered in one opinion, as the questions for decision are practically identical in each case.
Plaintiff proceeded by way of notice of motion for judgment against the defendants on notes executed by them. The Fisher note is for the sum of $300, dated July 1, 1920, and the Lawson note for $750, dated June 23, 1920. Each defendant pleaded nil debit and each tendered special plea No. 1, which the court would not permit filed; Fisher tendered and was permitted to file, over objection of plaintiff, his two special pleas Nos. 2 and 3; and Lawson tendered and was permitted to file, over like objection, his special plea No. 2. Upon joint motion of the parties the court has certified for review its action in the premises.
Special plea No. 1 tendered and refused in each case avers that the notes were given by defendants as evidence of a subscription to shares of class B nonvoting capital stock in plaintiff company, at a time when plaintiff was a nonresident corporation and had not been admitted to hold property and transact business in this state, and for that reason could not maintain its suit. The court properly refused this plea. A foreign corporation which has not been admitted to hold property and transact business in the state under section 30, c. 54, of the Code (sec. 2929) is not prohibited thereby from selling its shares of capital stock in the state, nor from maintaining suits for enforcement of its contracts for such sales. Underwood Typewriter Co. v. Piggott, 60 W.Va. 532, 55 S.E. 664. "Holding property and doing business" relates to the ordinary purposes for which the corporation was formed; hence the sale of its capital stock is not within the meaning of the statute, and does not constitute "doing business." Clark v. Kansas Petroleum Co., 144 Mo.App. 182, 129 S.W. 466; Bank v. Leeper, 121 Mo.App. 688, 97 S.W. 636; Union Trust Co. v. Sickels, 125 A.D. 105, 109 N.Y.S. 262; Southworth v. Morgan, 143 A.D. 648, 128 N.Y.S. 196.
Special plea No. 2 is practically the same in each case, and avers that the notes were obtained from defendants by fraudulent and false representations made by plaintiff through its officers, employees, and agents; that it was represented to defendants by them that plaintiff was a going concern making large profits, to wit, $200 each day in the city of Cumberland in the state of Maryland, where it was engaged in business, and at other places in the said state, and that defendants by purchasing capital stock would participate therein; that it (plaintiff) intended to build and operate a large plant in the city of Elkins from which large profits would be realized, and had purchased (and in the Lawson plea had paid for) a lot in the city of Elkins for that purpose, and had purchased machinery, then in transit, to operate said plant, all of which was false and fraudulent, but on which defendants relied. They aver that since the execution and delivery of the notes sued on they have found the facts to be that the plant in the city of Cumberland had been and was then operating at a loss, as well as the other two plants in the state of Maryland; that, while plaintiff had purchased a lot in the city of Elkins, it had not paid for the same, nor any sum thereon in excess of $10, and yet owed as purchase money $8,990. and that said purchase was a false and fraudulent scheme for the purpose of obtaining subscriptions to its capital stock and was not made in good faith; that it had not purchased any machinery to be shipped to its supposed plant in the city of Elkins; that on these false and fraudulent representations alone, and without any other consideration, the notes were given, by reason of which defendants have sustained damages to the amount of said notes and the interest thereon.
Fisher's plea No. 3 avers that he paid $15 per share for his stock upon the fraudulent and false representation that no stock was being sold for less; whereas, in truth and fact, the stock was then being sold to other persons at $10 per share, all of which was unknown to him and on which he relied.
Do these pleas constitute a valid defense? Plaintiff says that they do not, because the fraud is not alleged in definite and specific terms, and that they do not allege that the corporation had knowledge of the supposed false and fraudulent representations made by its selling agents. The pleas say that the notes were obtained by plaintiff by fraud and deceit practiced upon defendants by plaintiff through its officers, agents, and employees, and specifically set out the acts and representations made, that they were untrue material, were relied upon by defendants, and by which they were induced to enter into the contract and execute and deliver the notes. Did the...
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