Kappers v. Cast Stone Const. Co.

• Decision Date: 14 October 1924
• Citation: 200 N.W. 376,184 Wis. 627
• Parties: KAPPERS v. CAST STONE CONST. CO.
• Court: Wisconsin Supreme Court

184 Wis. 627

200 N.W. 376

KAPPERS

v.CAST STONE CONST. CO.

Supreme Court of Wisconsin.

Oct. 14, 1924.

Appeal from Circuit Court, Eau Claire County; James Wickham, Judge.

Action by Clarence Kappers, trustee in bankruptcy for the Schneider Construction Company, against the Cast Stone Construction Company. From order sustaining demurrer to complaint, plaintiff appeals. Order affirmed.

The complaint, among other things, sets forth that the Schneider Construction Company is a Wisconsin corporation; that it was adjudicated a bankrupt; that the plaintiff is its duly appointed, qualified, and actingtrustee; that the defendant is a Wisconsin corporation; that after the organization of the Schneider Construction Company the defendant subscribed for 70 shares of its capital stock, at the par value of $100 per share, the said subscription amounting to $7,000; that by a vote of more than three-fourths of the entire stock of the Schneider Construction Company, a resolution was passed, consenting to, receiving, and ratifying the subscription of the defendant for the $7,000 of stock aforesaid.

The complaint then alleges that--

“Thereafter the defendant accepted and paid for twenty-eight (28) shares of said stock so subscribed for, although * * * no resolution was ever adopted at a stockholders' meeting of the said defendant corporation, approving or consenting to said subscription; that stockholders of the defendant corporation, who in the aggregate own more than three-fourths of the capital stock of the said defendant corporation outstanding at the time of said subscription consented to the said subscription and approved of the same.”

The complaint in substance further alleges that 42 shares of said stock have not been paid for; that upon the refusal of the defendant to make payment for said 42 shares, this action was brought to recover the amount of the subscription, by the plaintiff. The court entered an order sustaining the defendant's demurrer, and from such order this appeal was prosecuted.

Linderman, Ramsdell & King, and John B. Fleming, all of Eau Claire, for appellant.

Bundy, Beach & Holland, of Eau Claire, for respondent.

DOERFLER, J. (after stating the facts as above).

The question presented by the demurrer involves the construction of section 180.11 of the Statutes, which, among other things, provides as follows:

“But no corporation organized under chapter 180 of the Statutes shall take or hold stock in any other corporation except upon and with the assent of the holders of three-fourths of the capital stock of both the corporation proposing to take such stock and the corporation in which it is proposed to be taken.”

Upon the first assessment levied by the directors of the Schneider Construction Company, 28 shares of its capital stock were paid for by the defendant, leaving 42 shares outstanding and unpaid for, and subject to call. Pursuant to the stock subscription, the subscribers, including the defendant, mutually and severally promised and agreed to pay for the stock subscribed for, at such times and in such installments as might be prescribed by the by-laws or the order or resolution of the board of directors. This left 42 shares subscribed for unpaid, and, assuming that the subscription was a valid subscription, subject to be called, pursuant to the action of the board of directors.

[1] It is conceded by counsel for the defendant that, if the 42 shares had actually been paid by the defendant, the defendant would have been remediless, and that the court could not grant the defendant any relief, upon the ground that the parties are in pari delicto. A subscription agreement for stock in a corporation where the amount of the subscription is to be paid in the future is an executory contract. Kohlmetz v. Calkins, 16 App. Div. 518, 44 N. Y. Supp. 1031; 2 Fletcher Ency. Corp. p. 1121, § 520, also page 1124 and cases under note 16.

[2] We come now to the consideration of the principal issue above referred to, which involves the construction of section 180.11 of the Statutes. The defendant contends that it does not appear from the allegations in the complaint that it ever legally subscribed for the stock, and that it affirmatively appears that the pretended subscription by the stockholders is not a compliance with the provisions of the statute, and does not bind the corporation. The provisions of section 1775 of the Statutes for 1878 expressly prohibit one corporation from taking or holding stock of another corporation. This provision as it is so found in the 1878 Statutes is one which is in existence in many other states, and is merely declaratory of the common law, under which a corporation has no power to subscribe for or purchase and hold the stock of another corporation, unless it is clearly authorized so to do by statute or the provisions of its charter. 7 R. C. L. p. 553, § 535.

Thereafter various amendments were passed by the Legislature and incorporated in subsection 3, so that the statute as it now reads provides for the following exceptions to the general statute as it existed in 1878: Under the first exception a corporation is authorized to take and hold stock in another corporation upon and with the assent of the holders of three-fourths of the capital stock of both the corporation proposing to take such stock, and the corporation in which it is proposed to be taken. The second exception refers to logging, lumbering, or similar corporations, and authorizes them, upon the assent of the holders of three-fourths of the capital stock, to purchase, take, and hold stock in its corporate capacity, in other similar corporations. The third exception refers to mining, smelting, quarrying, mechanical, or manufacturing corporations, and authorizes them, with the assent of three-fourths of its capital stock, in its corporate capacity, to subscribe for, purchase, take, and hold stock in any corporation formed for the purpose of manufacturing, creating, or generating power, etc.; and the fourth exception authorizes a street railway corporation to purchase, take, and hold all or any part of the real and personal property, rights, privileges, etc., of any other street railway corporation, etc., and authorizes such corporation to purchase, take, and hold stock in its corporate capacity, and become a subscriber to the capital stock of any other similar street railway, etc. This last-named exception ends with a semicolon, and the statute then proceeds as follows:

“The terms of such purchase to be assented to by...