First Ave. Land Co. v. Parker

• Decision Date: 20 June 1901
• Citation: 111 Wis. 1,86 N.W. 604
• Parties: FIRST AVE. LAND CO. v. PARKER.
• Court: Wisconsin Supreme Court

111 Wis. 1

86 N.W. 604

FIRST AVE. LAND CO.

v.PARKER.

Supreme Court of Wisconsin.

June 20, 1901.

Appeal from circuit court, Milwaukee county; Eugene S. Elliott, Judge.

Action by the First Avenue Land Company against George F. Parker. From an order sustaining a demurrer to the complaint, plaintiff appeals. Affirmed.

The complaint alleged incorporation of the plaintiff; that on November 12, 1891, E. L. Babcock, since deceased, was duly elected secretary, and that he gave, and the defendant George F. Parker, as surety, executed, a bond conditioned that he should pay and account for all moneys, security, and property coming into his hands as secretary, and well and truly perform all the duties of his office and trust as such secretary; that by the articles of association and by-laws it was the duty of the secretary to sign, with the president, all certificates of stock, and to issue and deliver the same to the several subscribers on payment of the several subscriptions, and not otherwise; that said E. L. Babcock subscribed for 500 shares of $10 each, and that one Charles Wilhelm subscribed for a like amount, thereby agreeing to pay the sum of $1,000 in cash, the time of payment of the balance not being specified; that among Babcock's duties was, as secretary, to collect and pay over to the treasurer the full amount of the cash payments due from Wilhelm and himself upon their stock subscriptions, before issuing or delivering said stock to either of them; that at the first meeting of the stockholders it was provided and agreed that the first 20 per cent. of each subscription should be paid in cash at the date of such meeting, to apply upon the purchase price of a tract of land, and that certificates of paid-up stock should be issued to each of the subscribers to the amount of their several cash payments; that said E. L. Babcock, as secretary, unlawfully combining with the president, also now deceased, caused to be issued to himself thereafter 100 shares of paid-up stock in said corporation without consideration, and without making the said cash payment of $1,000, or paying any other sum; and subsequent to such issue, he, during his lifetime, conveyed the same to Hattie E. Babcock and J. M. Babcock for value, who now claim to be the holders and owners thereof free from all equities or rights of the plaintiff; and also, in like combination, issued a certificate for 100 shares of the paid-up capital stock to said Wilhelm, without the payment of any consideration therefor, and without the making of any part payment, which said Wilhelm transferred for value to one William Yewdale, who has ever since held the same, and claims to be, and, as plaintiff believes, is, the bona fide holder thereof for full value; that thereafter said assignees of stock presented their certificates, duly assigned, which thereupon were canceled, and new certificates issued therefor by the said president and the said Babcock as secretary, in due form, purporting on their face to be fully paid and nonassessable, and were delivered by said Babcock to said transferees, who ever since have held the same, claiming title thereto, and interest in the property and assets of the plaintiff corporation, free from all infirmity or illegality; that Wilhelm has no property, and is insolvent, and that Babcock died in the year 1894, leaving no estate whatever, and insolvent; that the other surety to the bond died in March, 1894; that by reason of the premises the plaintiff has suffered damages in the sum of $2,000, together with interest from the 26th day of December, 1891, for recovery of which the complaint prays. A general demurrer to this complaint was sustained, from which action the plaintiff appeals.

Quarles, Spence & Quarles, for appellant.

Winkler, Flanders, Smith, Bottum & Vilas, for respondent.

DODGE, J. (after stating the facts).

The case presented by this complaint is a very simple one, and not in accord with the situation discussed in Land Co. v. Hildebrand, 103 Wis. 530, 79 N. W. 753, of which we are told that this is a sequel. As now before us, it merely appears that there were issued two certificates of stock, each for $5,000 par value, without any consideration; that is, neither for money, nor for labor or property, actually received by the corporation, equal to the par value thereof, as required by section 1753, Rev. St. 1898. This being so, no reason is apparent upon which to escape the further provisions of the same section that “all stocks and bonds issued contrary to the provisions of this section shall be void.” Indeed, counsel for appellant concedes effective applicability of that section to the stock originally issued, but contends that, certificates of stock having been issued by the corporation asserting the ownership of stock by the parties named, upon due consideration therefor, the corporation is estopped to deny, as against one innocently purchasing such stock in reliance upon the facts so certified to be true, that the persons named did own such shares of stock. As a result of this estoppel, he contends that the innocent purchasers have become entitled to the same rights as if the certificates were true, namely, to a share in the ownership of the corporation itself, and all other rights incident to the actual ownership of stock. This is the damage to the corporation claimed to have resulted from Babcock's breach of his official duty. It is, of course, obvious that, if this position is sound to its full extent, section 1753 is very much emasculated, for that doctrine would give practical validity to stock which the statute declares shall be void. It would likewise give practical existence and validity to stock beyond the power of the corporation. Certificates issued and passed to innocent holders would give to them the right to hold stockholders' meetings, of which they might constitute a majority, to control the affairs of the company, and to share with the owners of actual capital in distribution of dividends or assets. A corporation limited by its charter to $100,000 of stock might thus have outstanding rights in individuals to represent twice that volume. As already stated, appellant plants his contention on the doctrine of estoppel, and cites numerous authorities asserting applicability of that doctrine to corporations in issuing certificates of stock. The cases cited present several phases of the effect of the doctrine. Thus courts have refused affirmative relief by way of cancellation of outstanding certificates improperly issued, but held in good faith, and for value (Bank v. Field, 126 Mass. 345;Beach Co. v. Harned [[[C. C.] 27 Fed. 484;Cincinnati, N. O. & T. P. Ry. Co. v. Citizens' Nat. Bank, 56 Ohio St. 351, 47 N. E. 249); also by way of compelling payment of unpaid subscription or assessments where certificates falsely declared stock full paid (Steacy v. Railroad, 5 Dill. 348, 372, Fed. Cas. No. 13,329;Rood v. Whorton [C. C.] 67 Fed. 434; Nicholl's Case, 26 Wkly. Rep. 334). In other cases the false certification of stock has been held to support action for damages on the ground of fraud. Holbrook v. Zinc...