Heiskell v. Morris

• Decision Date: 20 May 1916
• Citation: 186 S.W. 99,135 Tenn. 238
• Parties: HEISKELL v. MORRIS.
• Court: Tennessee Supreme Court

186 S.W. 99

135 Tenn. 238

HEISKELL v. MORRIS.

Supreme Court of Tennessee.

May 20, 1916

Appeal from Chancery Court, Shelby County; J. S. Allen, Special Chancellor.

Consolidated actions by Lamar Heiskell, receiver, against M. Morris against I. Samuelson, against Albert Dreyfus, against S. G Baxter, and against E. A. Boone. Judgment for plaintiff, and defendants appeal. Affirmed.

Caruthers Ewing, of Memphis, for appellants.

R. P Cary, of Memphis, for appellee.

GREEN J.

These suits were brought by the receiver of the United Investors' Company, an insolvent Tennessee corporation, to recover from the several defendants unpaid balances on their subscriptions to the capital stock of the corporation. The facts of each case are the same, and they were consolidated and heard together by the chancellor. There was a decree in favor of the complainant, and defendants have appealed.

The United Investors' Company was organized under the laws of Tennessee for the purpose of dealing in real estate at Memphis. Its capital stock was fixed at $100,000, to be divided into 1,000 shares, of $100 each.

The concern was promoted by E. R. Parham and Burton B. Weil. They carried around the subscription list, and the said paper was headed by a subscription from Parham and Weil for 75 shares. The subscription list was dated October 30, 1912.

The first meeting of the incorporators was held February 15, 1913, by consent. At that meeting it appeared that subscriptions had been obtained for only 740 shares. Counsel present advised the incorporators that the concern could not be legally organized until there were subscriptions for the entire 1,000 shares. Parham and Weil then subscribed as trustees for the remaining 260 shares. Notice had previously been sent to all the subscribers, and immediately following this meeting of the incorporators a stockholders' meeting was held and directors elected. A directors' meeting was then held and officers elected, and the corporation was formally launched into business.

The subscription agreement contained a stipulation that 10 per cent. of the subscriptions were to be payable in cash upon organization of the company, and the balance was to be payable in noninterest-bearing installments of 15 per cent. every six months until the entire subscription was paid. The agreement also contained this provision:

"This agreement is made upon the condition that said E. R. Parham and Burton B. Weil shall procure subscriptions to the full amount of the capital stock, to wit, $100,000."

The minutes of the incorporators' meeting recited that the subscription book "was declared open and subscriptions for the capital stock were made by the parties whose names appear upon the subscription book, with the number of shares opposite their respective names in the following language." The subscription list then followed. The last subscription appearing is that of "Parham and Weil, Tr., 260 shares." The minutes also set out "that 1,000 shares have been subscribed for in full, and it was moved and seconded that the subscription book be closed." The stockholders' meeting which ensued was held upon three days' notice, and the minutes of the stockholders' meeting show that the action of the incorporators accepting the stock subscriptions was ratified and confirmed.

The corporation purchased a piece of real estate in Memphis, which it did not pay for. The vendor sold the lot and recovered judgment for balance of purchase money, unpaid by the proceeds of sale, against the corporation. The corporation having no assets visible, proceedings were had by which a receiver was appointed.

Burton B. Weil was made general manager of this corporation when organized, and the direction of its affairs intrusted to him. The first call of 10 per cent. on their subscriptions was collected from all the stockholders, except from Parham and Weil. It seems that the second call was collected from some of the stockholders.

Defendants resist these suits upon the ground that the capital stock of the corporation never was fully subscribed; that the subscription of Parham and Weil for 260 shares was fictitious; further charging that Parham and Weil were insolvent.

It is moreover contended in behalf of defendants that under the subscription agreement Parham and Weil were "to use their best endeavors to obtain subscriptions for stock," and that Parham and Weil were to "procure subscriptions to the full amount of the capital stock," and it is insisted that this language of the contract contemplated that Parham and Weil were to procure or obtain such subscriptions to the capital stock from others than themselves. Parham and Weil headed the list with a subscription for 75 shares, and it is urged that the terms of the agreement required them to procure all additional subscriptions necessary from others. It is accordingly said that their final subscription for 260 shares as trustees was no compliance with the written specifications for the organization of this corporation.

As a matter of course, under this subscription contract and under the law, it was a condition of defendants' subscriptions to stock in this corporation, the capital of the corporation being fixed, that the whole amount of stock should be subscribed before a valid assessment could be levied upon them. Read v. Memphis-Gayoso Gas Co., 9 Heisk. (56 Tenn.) 545; Anderson v. R. R., 91 Tenn. 44, 17 S.W. 803; Newport, etc., Mill Co. v. Mims, 103 Tenn. 466, 53 S.W. 736; Pope v. Merchants' Trust Co., 118 Tenn. 506, 103 S.W. 792.

We are unable to agree, however, that the necessary implication from this subscription contract was that all the stock except the 75 shares first taken by Parham and Weil was to be subscribed for by persons other than Parham or Weil. We are not able to give such construction to the words "procure" and "obtain."

The subscribers had a right to insist that the full amount of stock be taken by persons apparently solvent before such subscribers became liable for assessment. They had no right however, to insist that any particular persons or class of persons be secured as subscribers. If Parham and Weil were apparently solvent, the provisions of this contract and of the law would be met if they procured or obtained themselves to subscribe for such...