First Nat. Bank of Ottumwa v. Fulton
Decision Date | 22 October 1912 |
Citation | 156 Iowa 734,137 N.W. 1019 |
Parties | FIRST NAT. BANK OF OTTUMWA v. FULTON. |
Court | Iowa Supreme Court |
OPINION TEXT STARTS HERE
Appeal from District Court, Wapello County; F. M. Hunter, Judge.
Action at law upon a promissory note. The payee of the note was T. H. Corrick, who transferred the same in due form to the plaintiff. The defendant set up the following defenses: (1) That the note was void because issued in violation of the provisions of section 1641b, Code Supplement; (2) that it was void for want of consideration and because the consideration had failed; (3) that it was obtained by false and fraudulent representation. It was also averred that the plaintiff was not a holder in due course. At the close of the evidence the trial court directed a verdict for the plaintiff. The defendant appeals. Affirmed.J. P. Starr, of Fairfield, for appellant.
J. J. Smith, of Ottumwa, for appellee.
The note in question bears date March 28, 1908, and is for $500. It is known in this record as Exhibit A. Another note for a like amount was executed by the defendant to the same payee at the same time, which is known in this record as Exhibit 1. These notes were executed in purported payment for 10 shares of corporate stock to be issued in the corporation known as the Underwriters' Agency Company. This company was a going concern, which had been originally capitalized at $15,000. The defendant had become a stockholder therein about a year prior to the transaction considered herein. Previous to March 28, 1908, the defendant had become the owner of two blocks of stock of five shares each issued upon the original capitalization. Shortly before March 28, 1908, it had been voted to increase the capitalization to $25,000, and thereby to issue and sell $10,000 additional stock. It was a part of this issue for which the defendant bargained at the time of the execution of the note in suit. The purpose of the corporation was to conduct a life insurance agency, and for that purpose it took over the business already existing of T. H. Corrick. Leading business men of tried sagacity looked upon it with favor, and became stockholders therein. Corrick was its secretary and treasurer and general manager. It paid enticing dividends at 10 per cent., and won the affections of its stockholders, and then died. We have only to do herein with the transactions relating to the notes of March 28, 1908, one of which is in suit herein, although the evidence in the record takes a somewhat wider range. We will direct our attention to the particular defenses set up in the order above stated.
1. Section 1641b of the Code Supplement is as follows: The transaction was had between Corrick and the defendant. The consideration for the note was an agreement to issue and deliver stock at par value in the corporation, and a certain further agreement on the part of Corrick personally which will be referred to later.
[1] Was the note void as in violation of section 1641b, supra? We think not. The clear purpose of such section of the statute is to protect the corporation as such against the issue of its corporate stock in payment for property or services or other thing at fictitious valuations. “If it is proposed to pay for said capital stock in property or in any other thing than money,” it is made the duty of the executive council to “ascertain the real value of the property or any other thing which the corporation is to receive for the stock.” Granting that the spirit and letter of this statute might be violated by issuing stock for promissory notes, no such case is presented here. Nor in any event do we think the statute could be made available as a weapon in favor of the makers of notes, except for fraud or for want of consideration. These grounds we consider later. In the case before us, the maker was solvent, and the note was good. It was in itself a proposal and a promise to pay in money. There was no occasion for its valuation. It was executed and delivered before the delivery or issue of the stock. The statute therefore had not been violated at the time of the delivery of the note. The statute only forbids the issuance of the stock “until the corporation has received the par value thereof.” The statute does not forbid the execution of a promise to pay the par value of the stock in advance of the issuance thereof. It cannot be said therefore that the note was void as having been executed in violation of this statute.
[2] 2. It is next urged that the note was without consideration, and that the consideration thereof wholly failed. As already stated, the substantial consideration for the note was the promise to issue stock. There was a further consideration that Corrick executed and delivered to the defendant a written agreement. This was not produced at the trial, but its substance was shown to the extent that he agreed to purchase such stock from the defendant at the expiration of one year and to pay him therefor par, and a premium of $50. For some reason not appearing in the record, the certificates were never in fact issued. Defendant was treated, however, as the owner thereof, and some dividends were paid to him thereon. In September, 1908, the defendant elected to require Corrick to purchase such stock. Thereupon, in September, they entered into a written agreement known in the record as Exhibit C. Such agreement, so far as it relates to the note in suit and its sister note, Exhibit 1, is as follows: Before this contract was entered into and on June 16, 1908, the present plaintiff had become the owner of the note in suit, claiming to have purchased the same in due course. In pursuance of the contract, Corrick surrendered to the defendant the $500 note (Exhibit 1), and paid him $500 in cash, which is the face of the note in suit. He also paid purported dividends on the stock at 10 per cent. The note in suit bears interest at 7 per cent. Defendant's testimony in reference to this transaction is set forth in his own abstract as follows: ...
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