First Caldwell Oil Co. v. Hunt

• Decision Date: 19 January 1925
• Docket Number: No. 57.,57.
• Citation: 127 A. 209
• Parties: FIRST CALDWELL OIL CO. v. HUNT.
• Court: New Jersey Supreme Court

127 A. 209

FIRST CALDWELL OIL CO.

v. HUNT.

No. 57.

Court of Errors and Appeals of New Jersey.

Jan. 19, 1925.

(Syllabus by the Court.)

Appeal from Supreme Court.

Action by the First Caldwell Oil Company against Walter E. Hunt. Judgment for plaintiff, but, deeming the relief insufficient, it appeals. Reversed, and new trial granted.

Smith & Slingerland, of Newark, for appellant.

Hairy Unger, of Newark, for respondent.

PARKER, J. Plaintiff sued to recover $3,000, the amount of a subscription to its capital stock (and interest), which was evidenced by a written subscription agreement signed by defendant, a copy of which agreement is set out below. The defense was that plaintiff falsely, fraudulently, and deceitfully represented to defendant, by and through its president, certain facts of and concerning the plaintiff and its property, which defendant believed to be true and relied upon, and which induced him to subscribe. The case was tried at the Essex circuit, and resulted in a verdict in favor of the plaintiff and against the defendant for 6 cents damages, and plaintiff appeals to this court.

There are two grounds of appeal: (1) That the court erroneously charged the jury that, if they found for the plaintiff it could only be for nominal damages of 6 cents; (2) that the court refused to charge that the plaintiff was entitled to recover the amount of subscription ($3,000), with interest, unless the defendant had proved to the satisfaction of the jury all the elements respecting fraud referred to.

We find that it was error for the trial judge to limit the plaintiff's damages to 6 cents. A reading of the charge makes it plain that, although the trial judge in his charge speaks of the defendant's undertaking as a "subscription" to stock, he failed to apply to it the settled rules relating to stock subscriptions, and treated the transaction as though it was an ordinary sale. He charged that, if the jury found the defense of fraud not made out, and that defendant had consequently breached his contract in refusing to take and pay for the stock, nevertheless the company was bound to prove its damage by reason of such breach, that the measure of damage was the difference between the market price and the contract price, and, as the market price had not been proved, only nominal damages could be awarded in case the jury found for the plaintiff*.

Such a rule of damages is quite inapplicable to a case of stock subscription, as will presently appear. For the respondent, however, it is argued that the contract was in fact and law a contract of sale, and that in principle the instruction was correct. But this proposition is plainly untenable.

The contract on its face shows the defendant's undertaking to have been a subscription and not a purchase from the plaintiff. It is as follows:

"Subscription to Stock.

"First Caldwell Oil Corporation.

"The undersigned subscribes for and agrees to take 300 shares of class A capital stock of the First Caldwell Oil Corporation, and hereby promises and agrees to pay for said stock as follows: 20 per cent. of such subscription on the demand of the treasurer of the corporation; 20 per cent. of the subscription within thirty (30) days from date hereof; 20 per cent. of the subscription within ninety (90) days from the date hereof; 20 per cent. of the subscription within one hundred twenty (120) days from the date hereof.

"Dated March 1, 1921.

"Name, Walter E. Hunt.

"Street and No:, 290 Market Street.

"City and state, Newark, N. J."

In this document the word "subscribes" appears once, and the word "subscription" six times. If anything were wanting to show that the above-recited agreement was a subscription rather than a sale, it is supplied by what is appended to the agreement and written under the signature of the defendant as follows:

"First Caldwell Oil Corporation reserves the right to reject the excess of individual subscriptions over 100 shares or to prorate any or all individual subscriptions in excess of 100 shares."

In Fletcher's Cyc. Corps, vol. 2, § 520, it is laid down:

"A contract of subscription to the stock of a corporation is a contract by which the subscriber agrees to take a certain number of shares of the capital stock of a corporation, paying for the same, or expressly or impliedly promising to pay for the same. The effect of such a contract, as we shall sec, the company being in existence at the time of the subscription, and having accepted the same, and the subscription being unconditional, is to make the subscriber a stockholder in the corporation, and to bind him to pay for his stock in accordance with the terms of his contract."

In Robson v. Fenniman Co., 83 N. J. Law, 453, 85 A. 356, this court held that—

"Where a person subscribes to the stock of a corporation, and he is admitted to membership in the corporation on the strength of his subscription, and thereafter exercises all the rights of a stockholder therein, his obligation to pay for the shares is fixed, and this is so although no certificate for such shares has ever been issued to him, or to any one standing in his right."

See, also, Grosse Isle Hotel Co. v. I'Anson's Ex'rs, 42 N. J. Law, 10; Id., 43 N. J. Law, 442; Storage Co. v. Assessors, 56 N. J. Law, at page 393, 29 A. 160.

Demand in writing was made upon the defendant by the treasurer of the plaintiff company by letter as follows:

"Relative to the 300 additional shares of class A stock which you subscribed for in the First Caldwell Oil Corporation, we will thank you to make payment as follows: First payment, $600, April 15, 1921; second payment, $600, May 15, 1921; third payment, $600, June 15, 1921; fourth payment, $600, July 15, 1921; fifth payment, $600, August 15, 1921."

Besides, the treasurer made verbal demand for payment, which was refused by the defendant.

The trial judge therefore erred in instructing the jury as follows:

"The plaintiff has not offered the stock to the defendant, and still has it in its possession; therefore its measure of damages is the difference between the subscription price and the market price at the time of the breach, and that has not been proved, so the result is that, if the plaintiff can recover anything, it can recover six cents and...