Edwards v. Johnston

• Decision Date: 01 November 1915
• Docket Number: 778
• Citation: 152 P. 273,23 Wyo. 384
• Parties: EDWARDS v. JOHNSTON
• Court: Wyoming Supreme Court

152 P. 273

23 Wyo. 384

EDWARDS v. JOHNSTON

No. 778

Supreme Court of Wyoming

November 1, 1915

ERROR to the District Court, Laramie County; HON. DAVID H. CRAIG Judge.

Action by Marion W. Edwards upon promissory notes given by Margaret G. Henne, who died pending trial, and for whom Albert D Johnston, her administrator, was substituted. The notes were given upon a stock subscription contract and endorsed to plaintiff before maturity.

Other material facts are stated in the opinion.

Reversed.

Wm. C Kinkead, for plaintiff in error.

The alleged breach of contract as to the sale of the stock, alleged as a defense, was controverted by defendant's own witnesses. The court erred in refusing to direct a verdict for plaintiff, as no defense to the notes was shown and there is no evidence to support a verdict for defendant. (Farmer v. Bank, 130 Ia. 469, 107 N.W. 170; City Nat. Bank v. Goodlop, 93 Mo.App. 123; Firt Nat. Bank v. Buttery (N. D.), 116 N.W. 341; Nat. Bank v. Kenney, 98 Tex. 293, 83 S.W. 368; Bank v. Loukonen, 127 P. 947. See also Sec. 3342, Comp. Stats. Wyo.; DeGroat v. Focht (Okla.), 131 P. 172.) There is a presumption of valuable consideration. (Sec. 3182, Comp. Stats. 1910; Hamilton v. Diefenderfer (Wyo.), 131 P. 37.) The endorsement of the notes by plaintiff impliedly warranted that they were genuine and valid instruments. (Sec. 3169, Comp. Stats. 1910.) The holder of a promissory note is prima facie holder in due course. (Sec. 3217, Comp. Stats. 1910; Stamper v. Gay, 3 Wyo. 322.) A holder in due course is defined by statute. (Sec. 3210, Comp. Stats. 1910.) The endorser of a note given in consideration of an executory contract is not bound to see to the execution of the contract by payee. (Teideman on Com. Paper, Vol. 1, p. 261, Sec. 300. See also Glascock v. Rand, 14 Mo. 550; Cagle v. Lane (Ark.), 5 S.W. 790; Iron Co. v. Brown, 63 Me. 139; Dissenting opinion in Williams v. Neeley, 134 F. 1; Flood v. Petry (Cal.), 132 P. 256.) Defective title is defined by statute. (Secs. 2313, Comp. Stats. 1910, and 3214.) There is no evidence of fraud or deception; plaintiff frequently promised to pay the notes. The burden of proof as to want of consideration is upon plaintiff. (Brokaw v. McElroy (Ia.), 143 N.W. 1087.) The defense of want of consideration not being supported by proof, it is immaterial whether plaintiff was a good faith holder or not. (Glass v. Bank (Ga.), 79 S.E. 366; Bank v. Fulton (Ia.), 137 N.W. 1019; Bank v. Tobin, 134 P. 395; Forbes v. Bank (Okla.), 95 P. 785; McPherrin v. Tittle (Okla.), 129 P. 721; Citizens Bank v. Landis (Okla.), 132 P. 1101.) Notice or knowledge of endorsee must be such that the acceptance thereof is actual fraud. (Bank v. Young, 7 A. 488, 490, 41 N. J. Eq. 531; Toledo, S. & M. Ry. Co. v. Peters, 143 N.W. 18-24.) A holder of negotiable paper is not required to prove himself a bona fide holder. (Jones on Corporate Bonds, Sec. 200 (3rd Ed.) See Walnut v. Wade, 103 U.S. 683, 26 L.Ed. 526; Ottawa v. National Bank, 105 U.S. 342, 26 L.Ed. 1127; Hovey v. Sebring, 24 Mich. 232, 9 Am. Rep. 122; Hogan v. Dreifus, 121 Mich. 453, 80 N.W. 254; National Bank v. Snow, 187 Mass. 159, 72 N.E. 959.) The court should have instructed the jury to return a verdict for plaintiff. (In re Baldwin's Estate (Cal.), 123 P. 276-276; Fitzpatrick v. Nations (Okla.), 120 P. 1020; Commissioners of Marion Co. v. Clark, 94 U.S. 278; Boswell v. Bank, 16 Wyo. 161.) The verdict is contrary to plaintiff's requested instructions numbered one, two, three and four. The subscription contract was executed voluntarily and willingly by plaintiff and in the absence of fraud is valid. (Westrom v. Putney, 75 Md. 113.)

Clark & Clark, for defendant in error.

Plaintiff is not the owner of the notes in suit; the contention that the subscription contract was between defendant and Grant was erroneous, since none other than the corporation could enter into a subscription contract. The notes were given to the company and delivered to its agent, Fayn, who delivered them to Grant, as an individual, and Grant turned them over to plaintiff, so that the notes were never in the possession of the company. Plaintiff had initmate knowledge of the entire transaction before he acquired the notes. There was no delivery to the company and plaintiff is not a bona fide holder in due course. The obligation was conditional and plaintiff was not in a position to enforce payment on account of his connection with the transaction. It is not shown that the contract was performed by Grant by securing good faith subscription contracts for the entire capital stock. This is required by Sections 612, 613, 614, 615, Comp. Stats. 1910. Grant defaulted on his own subscription. A block of the stock was subscribed after January 1st, 1912, for which notes were given and which was not a bona fide subscription. (Johnson v. Allis, 71 Conn. 207, 41 A. 816.) An organization without good faith subscriptions for the entire stock is invalid. (Holman v. State, 105 Ind. 569, 5 N.E. 702; Stone v. Monticello Const. Co. (Ky.), 117 S.W. 369; State Bank v. Cook, 125 Ia. 111, 100 N.W. 72; Johnson v. Schar, 9 S.D. 536, 7 N.W. 838; New York Co. v. DeWolfe, 31 N.Y. 273; Luetzlsie v. Roberts, 130 Wis. 97, 109 N.W. 947.) Flood v. Petry (Cal.), 132 P. 256, is directly in point. Williams v. Neeley, 134 F. 1, supports the doctrine. The subscriptions and notes of defendant have been released by the company otherwise disposing of defendant's stock. (Johnson v. Allis, supra; Leigh v. Railroad, 104 Ga. 13, 30 S.E. 381.) The amount represented by the notes is a penalty and therefore not enforceable. (8 Cyc. 95.) The notes are illegal, being issued in violation of statute. (Sec. 4103, Comp. Stats. 1910; Crofoot v. Thatcher, 19 Utah 212, 57 P. 171.) The subscription was not accompanied by the required cash payment and is illegal and void. (President &c. v. Henderson, 8 S. & R. 217; Fiser v. Railroad, 32 Miss. 359; Wood v. Railroad, 32 Ga. 273. See collation of cases in 31 L. R. A. 234, 16 L. A. N. S. 879, and 17 Ann. Cas. 55; Johnson v. Schar, supra.)

BEARD, JUSTICE. POTTER, C. J., and SCOTT, J., concur.

OPINION

BEARD, JUSTICE.

This action was brought by the plaintiff in error against Margaret G. Henne (since deceased) on two promissory notes signed by her and made payable to her order and indorsed by her in blank. After she had filed her answer in the case she died, and the defendant in error was substituted as defendant. On the trial in the district court the jury returned a verdict in favor of defendant. Judgment was entered on the verdict and plaintiff brings error.

The petition is in two counts in the usual form. The defenses pleaded in the answer, which is quite lengthy, are, that plaintiff is not the owner of the notes; want and failure of consideration; fraud and false representations in procuring the notes; and that plaintiff is not a bona fide holder for value.

The circumstances attending the transactions in which the notes in suit were given are that the Wyoming Life Insurance Company of Wyoming was being organized under the laws of Wyoming, with a capital stock of $ 300,000, divided into three thousand shares of the par value of $ 100 each. That for the purpose of providing said capital stock, a surplus fund and the expenses of securing the necessary subscriptions to its capital stock in order that it might be authorized to commence business, it was agreed by and between the incorporators that said stock should be sold at $ 150 per share, and that the first 25 per cent collected on sales of stock should be set aside for promotion and organization expenses and the balance to constitute the capital of the company and a surplus fund. They then entered into a contract with Le Roy Grant, one of the incorporators, by which it was agreed, "From this fund (the 25 per cent set aside for promotion and organization expenses) the said Le Roy Grant is authorized to pay not to exceed thirty dollars ($ 30.00) per share as a commission to stock salesmen; one dollar ($ 1.00) per share to each of the other four named incorporators of said company for their services and assistance in organizing said company, when the same is fully organized, and after paying for office rent, clerk hire, printing, advertising, attorney's fees and recording fees, and other expenses of organization, he shall retain the balance of said promotion fund as and for his own compensation up to the time when the affairs of said company shall be turned over to the management of its duly elected board of directors." The contract further provided that Grant agreed to sell the entire issue of three thousand shares of said stock at $ 150 per share and to collect a cash initial payment of $ 37.50 on each share at time of sale, taking subscription contract for the remaining 75 per cent ($ 112.50) payable on call not later than December 31, 1911, and to use due diligence to perfect the organization of the company on or before that date. It was for the initial payment on stock subscriptions that the notes in suit were given. The two subscription contracts signed by Margaret G. Henne on the respective dates of the notes are identical in language except as to date and amount. The first one is as follows:

"WYOMING LIFE INSURANCE COMPANY OF WYOMING

"SUBSCRIPTIONS TO CAPITAL STOCK.

"WHEREAS The above named company has been incorporated under the laws of Wyoming, with an authorized capital of Three Hundred Thousand ($ 300,000) Dollars, divided into three thousand (3,000) shares of a par value of One Hundred ($ 100) Dollars each, which capital must be fully paid up and preserved unimpaired; and,

"WHEREAS It being necessary to create a surplus fund, and a fund to defray expenses of promotion and organization, the incorporators have directed the...