Johns v. Clother

• Court: Washington Supreme Court
• Writing for the Court: ELLIS, J.
• Citation: Johns v. Clother, 78 Wash. 602, 139 P. 755 (Wash. 1914)
• Decision Date: 25 March 1914
• Parties: JOHNS v. CLOTHER et al. SAME v. MENTZER et al.

139 P. 755

78 Wash. 602

JOHNS v. CLOTHER et al.

SAME v. MENTZER et al.

Supreme Court of Washington

March 25, 1914

Department 1. Appeals from Superior Court, Pierce County; Ernest M Card, Judge.

Actions by Joseph Johns, as receiver of the Pioneer Insurance Company, against E. J. Clother and wife, and against T. F Mentzer and wife. From a judgment for plaintiff in each case the defendants appeal. Affirmed.

Leo & Flaskett, of Tacoma, and McCafferty, Robinson & Godfrey, of Seattle, for appellants.

Burkey, O'Brien p Burkey, of Tacoma, for respondent.

ELLIS J.

This action was originally commenced by J. H. Bridgeford, as receiver of the Pioneer Fire Insurance Company, hereinafter designated as the insurance company, against the defendants Clother and wife and Mentzer and wife and certain others, to recover the amount of unpaid subscriptions to the capital stock and surplus fund of the company. The action was discontinued as to the other defendants. The defendants Clother and wife and Mentzer and wife interposed separate defenses, and the issues as to both were tried below at the same time. The two sets of defendants appealed separately, but the appeals were heard at the same time in this court. The present plaintiff is the successor to the original plaintiff as receiver of the insurance company. In February, 1909, the insurance company was incorporated under the laws of this state, with its home office at Seattle, and a capital stock of $200,000. On May 25, 1909, by supplemental articles, it increased its capital stock to $1,000,000, divided into shares of $100 each. The incorporators subscribed for the full amount, but, before doing any business, and with the consent of all then concerned, this subscription, save as to 973 shares, was canceled, and for those shares the incorporators agreed to pay $150 a share, $100 on each share to go into capital, and $50 into a surplus fund. We held these cancellations valid in National Realty Co. v. Neilson, 73 Wash. 89, 131 P. 446, and Johns, Receiver, v. Coffee, 74 Wash. 189, 133 P. 4, to which reference is made for a more complete statement. About July 1, 1909, the Securities corporation of Tacoma, a corporation composed of certain prominent business men of Tacoma, proposed to the insurance company that if it would move its home office to Tacoma, the Securities corporation would place 200 shares of stock of the insurance company at $75 a share. The insurance company passed a resolution accepting this offer, and, in August, 1909, further supplemental articles were filed, changing to place of business of the corporation from Seattle to Tacoma. The complaint was in the usual form in such cases, and set out Clother's contract of subscription as follows:

'Pioneer Fire Insurance Company. No. 65. Shares 20. Par Value $100. Subscription Price $150 a Share. Stock Subscription. I, the undersigned, hereby subscribe for twenty shares of the capital stock of the Pioneer Fire Insurance Company of Tacoma, Washington, and I promise to pay for the same at the rate of one hundred and fifty dollars ($150) per share, $100 whereof shall be credited to capital stock and $50 to the surplus fund and I agree on account of this subscription to pay the sum of seventy-five dollars ($75) per share of which amount $50 per share is to be credited to capital stock and $25 per share to surplus. Dated this 22d day of October, 1909. [Signed] E. J. Clother, P. O. Address, 768 So. E. St. Tacoma.' The complaint alleged that the Clother subscription was made by the defendant E. J. Clother for himself and the community composed of himself and wife; that upon the subscription $1,500 had been paid, leaving a balance unpaid of $1,500. Since different issues are presented by the separate answers, we will separately discuss the two appeals. The amended answer of the defendants Clother admits the signing of the subscription contract, but alleges that it was procured by false and fraudulent statements made by the agent of the company to the effect that the subscription price should be only $75 a share; that the insurance company was solvent; that its capital stock had been wholly subscribed by responsible persons; and that it then had sufficient surplus to take care of all insurance risks then outstanding. It is alleged that these representations were false; that the creditors of the company had no knowledge that the stock had been subscribed for at more than $100 a share, but relied wholly on the value of the capital stock at that amount a share; that no trust was therefore imposed upon the additional subscription price of $50 a share in favor of the creditors. The answer further alleges the issuance of a stock certificate to Clother, certifying that he is the owner of 20 shares of a par value of $100 each, acknowledging payment of $75 per share, $50 of which is applied on capital and $25 on surplus. The answer concludes with a prayer that the entire payments be credited to the capital stock, and that the liability of the defendants Clother be limited to $500, the amount due on the stock at a par value of $100 per share. At the trial a supplemental answer was filed, alleging that the defendants Clother paid for their stock $250 cash and $1,250 in notes, which are still retained by the corporation, and were accepted in full payment for the 20 shares of stock. The reply to the amended answer admits the issuance of the certificate, and alleges that each subscriber agreed to pay $50 a share to the surplus fund, in addition to the par value of the stock, which fact was made generally known to the public, and all persons dealing with the company, as an inducement leading persons to insure in the company and extend to it credit. The reply to the supplemental answer admits the payment of $250 and the giving of notes for $1,250. The cause was tried to the court without a jury, and the court made findings, in substance, in accordance with the allegations of the complaint, concluding, as a matter of law, that the plaintiff was entitled to judgment against E. J. Clother and the community composed of E. J. Clother and wife in the sum of $1,500, with interest at the rate of 6 per cent. per annum from September 27, 1910, the date of the call made by the trustees of the corporation for the unpaid balance of the stock subscription, and for costs. Judgment went accordingly.

There are certain references in the respondent's brief to a second amended answers, asking a reformation of the written contract of subscription, on the ground of mutual mistake, but no such pleading appears in the transcript. For this reason, we could not consider oral testimony tending to contradict the written instrument but for the fact that the issue of fraud was raised in the amended answer found in the transcript as certified by the clerk, and upon which, as shown by its findings, the trial court seems to have proceeded, and upon which the appellants present their appeal. In any event, there was no evidence sufficient to establish such a mutual mistake as to warrant reformation, whatever Clother himself may have understood.

The appellants Clother present two grounds which they claim warrant a reversal: (1) That the insurance company, being at the time solvent, had the legal right to dispose of its stock at less than par; that its agent represented to Clother that all he would have to pay on the subscription, regardless of its terms, was $75 a share, and that the subscription was induced by that representation which, accordingly, constituted the only valid contract; (2) that in no event can the appellants Clother be held liable for more than the difference between $75 a share paid for the stock and its par value of $100 a share.

The first claim presents a mixture of law and fact. It is obvious that if the legal premise be unsound as applied to a suit on behalf of creditors, then, even conceding the assumed fact that the agreement was to pay only $75 a share, it would constitute no defense to such a suit. No fraud going to the very basis of the contract of subscription was either pleaded or proved. It is not claimed, as it was in the Coffee Case, that there was any misrepresentation as to the identity of the corporation. That Clother did subscribe, and intended to subscribe, for 20 shares of stock of the identical corporation represented cannot be questioned either under the pleadings or the evidence. His whole claim of fraud, as set out in his pleadings and as shown by his testimony was that the agent represented that he would never have to pay more than $75 a share; that the company then had sufficient surplus to meet outstanding risks; that the stock was worth $150 a share; and that the company was then solvent. The last representation, it is now admitted, was true. This admission of solvency would seem to carry with it a concession that the surplus was then sufficient. Moreover, the only direct evidence on the subject was that sufficient had then been subscribed to the surplus fund to take care of then outstanding risks. The agent expressly denied that he ever represented the stock as worth $150 a share. At any rate, such a statement could only have been a mere expression of opinion, and must have been so understood, since Clother knew that the corporation had just been organized, and that the value of its stock was hence necessarily speculative. The finally contested issue of fact is thus reduced to the sole question as to what was the actual agreed price, as between the corporation and the appellants Clohter. As a matter of law, what that agreement was is immaterial so far as the rights of creditors are concerned. In the absence of affirmative proof of estoppel as against the creditors to deny that it was less, or of affirmative proof of estoppel as...