German Mercantile Co. v. Wanner
| Decision Date | 06 June 1913 |
| Docket Number | 81912 |
| Citation | 142 N.W. 463,25 N.D. 479 |
| Court | North Dakota Supreme Court |
Appeal from an order of the District Court for Stark County Crawford, J.
Affirmed.
M. L McBride (L. A. Simpson, of counsel) for appellant.
The promissory note given for stock, in this case, was issued as payment for such stock. Such transaction was void. Rev. Codes 1905, § 4196, § 4195, referred to in § 4196 has no application here.
There being no legal consideration, the stock was void. Void stock is not a valid consideration for a note. Easton Nat. Bank v. American Brick & Tile Co. 70 N.J.Eq. 732, 8 L.R.A (N.S.) 271, 64 A. 917; Harvey-Watts Co. v. Worcester Umbrella Co. 193 Mass. 138, 78 N.E. 886; Mass. Rev. Laws, chap. 110, § 44.
The defendant gave prompt notice of rescission, and was not guilty of laches. American Tube Works v. Boston Mach. Co. 139 Mass. 5, 29 N.E. 63.
Heffron & Baird, for respondent.
The contract between plaintiff and defendant is a valid and legal one, with a lawful purpose, was fully executed, and cannot be rescinded by defendant. Illinois River R. Co. v. Zimmer, 20 Ill. 654; Goodrich v. Reynolds, 31 Ill. 490, 83 Am. Dec. 240; Allen v. Shelby R. Co. 16 B. Mon. 5; Little v. Obrien, 9 Mass. 423.
The note in question is a written promise to pay, merely. Thomp. Corp. § 1657.
There is no inhibition in the statutes. Secs. 4193-4197.
The written promise to pay created a debt,--an obligation. A note is not payment--in the absence of an express agreement. 6 Words and Phrases, 5250.
The note cannot be considered as payment for stock. Rev. Codes 1905, § 4197; State Const. § 138; Pacific Trust Co. v. Dorsey, 72 Cal. 55, 12 P. 49, 13 P. 148.
The note is property, and was given to obtain credit, in consummation of a lawful transaction. Mitchell v. Beckman, 64 Cal. 117, 28 P. 110; Hacker v. National Oil Ref. Co. 73 Pa. 97, 13 Mor. Min. Rep. 538.
This transaction stands the same as a subscription to stock. Erie & W. Pl. Road Co. v. Brown, 25 Pa. 156; Philadelphia & W. C. R. Co. v. Hickman, 28 Pa. 318.
The defense interposed is unconscionable. Vermont C. R. Co. v. Clayes, 21 Vt. 30; Illinois River R. Co. v. Zimmer, 20 Ill. 654; Goodrich v. Reynolds, 31 Ill. 490, 83 Am. Dec. 240; Pine River Bank v. Hodsdon, 46 N.H. 114; Selma & T. R. Co. v. Rountree, 7 Ala. 670; Greenville & C. R. Co. v. Woodsides, 5 Rich. L. 145, 55 Am. Dec. 708; Little v. Obrien, 9 Mass. 423; Leighty v. Susquehana & W. Turnp. Co. 14 Serg. & R. 434; Centre & K. Turnp. Road Co. v. M'Conaby, 16 Serg. & R. 140; Boyd v. Peach Bottom R. Co. 90 Pa. 169; Wagner v. Olson, 3 N.D. 69, 54 N.W. 286; 19 Cyc. 23-25 and 26, and cases cited in notes in these pages.
The legislature has provided penalties for doing certain acts, and no others can be substituted. Rev. Codes 1905, §§ 4194--4195; Wagner v. Olson, 3 N.D. 69, 54 N.D. 286; Boyce v. California Stage Co. 35 Cal. 475, 9 Am. Neg. Cas. 66.
The object of the law is to protect the stockholders and creditors. Pine River Bank v. Hodsdon, 46 N.H. 114; Harris v. Runnels, 12 How. 79, 13 L.Ed. 901.
Statement of Facts.
The plaintiff and respondent is a domestic corporation. It brought this action upon a promissory note given to it by defendant for $ 200, dated November 22, 1907, due November 22, 1908, with interest. The complaint is in the usual form. Appellant's answer admits the execution of the note, denies that it was given for a valuable consideration, and alleges that he made the note on the day of its date and delivered it, and in return therefor plaintiff delivered him 20 shares of its capital stock, and the form of the certificate is set out; that this was the only consideration for the note; that he was not a subscriber to the capital stock or to any stock of plaintiff corporation; that no part of said 20 shares were shares of stock owned or held by plaintiff from its surplus profits, or which had been purchased by it from its surplus profits, and no part thereof was held, issued, or sold by plaintiff by the unanimous consent of all its stockholders in writing, or had been forfeited or sold by plaintiff for nonpayment of assessments; that the transfer of such stock to defendant, in return for said promissory note, is prohibited by the Constitution and statutes, and was unlawful and void; that on the 5th of December, 1908, he learned that the transaction was void and unlawful, and immediately tendered back to plaintiff the certificate of stock described, and demanded of plaintiff the return of the note sued upon; that plaintiff refused to accept the said certificate or to return the note; that defendant did not pay, and plaintiff did not receive, any other, further, or different consideration for said certificate of stock than the note described, and he brings into court and tenders to plaintiff said certificate of stock.
The demand pleaded is in evidence, and states that defendant had, the day of making it, learned that plaintiff had no authority to issue the stock by reason of the provisions of § 4196, Rev. Codes of 1905, and accept a note in payment thereof; and he notifies plaintiff that he rescinds such contract, and tenders back such certificate, and demands the return of the note. To this answer plaintiff interposed a general demurrer. The demurrer was sustained by the court, and this appeal is taken from the order sustaining it.
The transaction occurred between the parties on the 22d day of November, 1907; the note became due on November 22d, 1908, and rescission was not attempted until the 5th of December, 1908; that is, not until some days after the maturity of the note, and more than one year after the transaction took place. It will thus be seen that the question for decision is whether, under the statute prohibiting the taking of notes as payment for stock, the note is void and uncollectible. It appears that the certificate of stock was issued and delivered to the defendant. It, however, did not assume to be fully paid stock. This was not an original subscription of stock issued to form the corporation. The corporation had either determined to make a new issue of stock, or the whole amount of stock authorized by the charter had not been issued. It is immaterial which was the fact. It was an additional stock issue. What is the meaning of the prohibition contained in the statute? To determine this question we briefly consider the provisions of law relating to the formation of corporations and the issuance of stock. Section 138 of the Constitution prohibits any corporation from issuing stock or bonds except for money, labor done, or money or property actually received. Section 4195, Rev. Codes of 1905, is, in part, a legislative enactment of the quoted provisions of § 138 of the Constitution, with the words, "estimated at its true money value," inserted between "property" and "actually." A note is property, hence is not included in the constitutional prohibition. Section 4196 reads: "No note or obligation given by a stockholder, whether secured by pledge or otherwise, shall be considered as payment of any part of the capital stock; but the capital stock shall be paid in, either in cash, or in the manner provided in this article."
Other provisions of the statute provide for the issuance of stock before it is fully paid for, and contain provisions relating to its forfeiture for nonpayment, and for making assessments, and fixing the liability of officers who violate such provisions. These are not material, in the present controversy, except in that they show that the legislature did not contemplate that stock must be actually paid for in full before issuance or before one may become a stockholder. We do not consider it material whether the defendant, being the purchaser of additional stock, that is, stock issued by the corporation after it was a going concern, made his relation to the corporation any different from what it would have been had he been a subscriber to stock prior to its organization. The theory of the law regarding stockholders is that each one is the owner of such proportion of the corporate assets as his stock bears to the whole stock; that the stock, when paid for, furnishes a working capital for the corporation and a protection to its creditors, and that if not actually paid for in cash or its equivalent there is an indebtedness from the holder of the stock to the corporation; and that this indebtedness may be collected. The provisions for enforcing this liability, found in the Code, to which definite reference need not be made, are all evidence of this; in fact it is so clear that discussion is unnecessary.
Stock is made liable to assessment if not paid for. The assessment is made to provide the capital necessary to conduct the business, and for the benefit of creditors, as well as to put the stockholder who has not fully paid on an equality with those who have, if there are any such. When the stock is fully paid it absolves the stockholder as such from further liability, either to the corporation or to its creditors, except in certain instances which have no bearing in the case at bar. On an original subscription for stock, and the organization of the corporation, courts uniformly hold the subscription to be for the benefit of the corporation, and that it can be enforced by it. The subscription is a promise to pay; it is not payment. The giving of a promissory note for stock is a promise to pay therefor. It is only a promise in a different form from the promise contained in a subscription. Neither the subscription, nor a check given for stock, nor a note, constitutes actual payment until it is in fact paid. We are of the opinion that the terms of the statute...
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