National Bank of Webb City v. Newell-Morse Royalty Co.
| Decision Date | 30 June 1914 |
| Citation | 168 S.W. 699,259 Mo. 637 |
| Parties | NATIONAL BANK OF WEBB CITY v. NEWELL-MORSE ROYALTY COMPANY, Plaintiff in Error |
| Court | Missouri Supreme Court |
Error to Jasper Circuit Court. -- Hon. D. E. Blair, Judge.
Affirmed.
Thomas & Hackney for plaintiff in error.
(1) Under the pleadings and evidence the defendant was not liable for the fraud of Newell in illegally issuing to himself the spurious certificate of stock. This stock had never been thrown on the market. It was issued on the very day of the loan and bore the same date as the loan papers. The plaintiff was not dealing with the defendant corporation; it was dealing with Newell in his individual capacity. It relied on Newell's individual representations. It placed confidence in Newell. It was deceived and defrauded by Newell. The certificate was entirely in the handwriting of Newell, except the signature of the vice-president, and the certificate being newly issued and so long after the organization of the corporation the plaintiff was bound to know at the time of making the loan that Newell could acquire the stock only by a transfer on the books. Farrington v. South Boston R Co., 150 Mass. 406, 5 L. R. A. 849; Moores v Bank, 111 U.S. 156; 1 Cook on Corp (6 Ed.), p. 805, (4 Ed.), p. 571; 10 Cyc. 445 (B); 2 Thomp. on Corp., sec. 1499; Whitfield v. Copper Co., 123 P. 1078; Lee v Smith, 84 Mo. 304; Bank v. Edwards, 147 S.W. 978. (2) The court erred in refusing declarations of law 2, 3 and 4 asked by the defendant. Under Sec. 8, art. 2 of the Constitution of Missouri, the certificate was absolutely null and void, having been issued in excess of the authorized capital stock of the defendant company, and Newell not having power under the constitution, acting singly or in conjunction with any other officer of the corporation, to issue said certificate, did not have the power to put the same in circulation and any frauds committed by him, or any representations made by him, with respect to the stock were not the representations of the defendant company and were not binding on the defendant. The restriction contained in the Constitution on the powers of corporations and their officers in the issuance of stock puts every purchaser of stock of a Missouri corporation on notice to determine the one important question of whether or not the stock is issued in excess of the powers of the corporation. If the corporation can be held liable for the frauds of its officers in issuing spurious certificates in excess of the authorized capital stock and this liability is limited only by the value of an equal number of genuine shares of stock, then the constitutional provision is shorn of its vigor and becomes a dead letter, for the officers can do indirectly by fraud and bad faith what they could not do directly by contract in good faith. (3) The market value of the stock of the defendant company was not shown and the plaintiff, if allowed to recover, was entitled to nominal damages only, and the judgment was therefore excessive. The evidence adduced on the trial showed that Newell had issued fraudulent certificates of stock to the extent of 850 shares having an alleged face value of $ 85,000. It appears also that other similar damage suits were pending against this company on some of these fraudulent certificates. The amount of the defendant's debts and liabilities is not shown. The evidence simply showed that the company originally owned a quarter section of land, the fee of which was worth from $ 1500 to $ 2000 per acre, but it further shows that this land had been leased by defendants to mining companies and some of it worked out, and what the defendant company's interest in the land, subject to the mining leases, was worth is not shown. Under these circumstances the court was not justified in assuming, as it did, that 250 shares of genuine stock had a market value of as much as the plaintiff's loan to Newell.
Frank L. Forlow, Norman Cox and Hugh Dabbs for defendant in error.
(1) The certificate of stock pledged to respondent was issued in excess of the amount limited by law and by the articles of incorporation of appellant. It bore the genuine signatures of the vice-president and secretary, who had authority to issue the stock of the company, and was actually issued by them and certified by the corporation under its seal. The certificate was issued in favor of the secretary, Newell, who, the record shows, was owner of a majority of the stock and who was a director of the corporation and had absolute control and management of its business, without any inquiry or supervision or examination of the corporate records by the board of directors, officers or stockholders of the corporation. Respondent received this certificate in good faith as collateral security for the loan to Newell. The certificate, on its face, represented to respondent and to the public, by appellant corporation, through the acts of its officers, that J. P. Newell was the owner of 250 shares of its capital stock. It was presented to respondent as security and as a pledge by the very agent that appellant held out to the public. The stock was worthless, and void. Under these circumstances, the appellant corporation was liable to respondent for the damage sustained by the latter by reason of the issue and circulation of this fraudulent and spurious certificate of stock by its officers in the apparent line of their duty. Davey v. Royalty Co., 169 Mo.App. 565; Railroad v. Bank, 56 Ohio St. 351, 43 L. R. A. 783; Watch Case Mfg. Co. v. Dougherty, 62 Ohio St. 595; Tome v. Parkersburg R. Co., 36 Md. 36; Maryland R. Co. v. Bank, 60 Md. 36; Havens v. Bank, 133 N.C. 214, 95 Am. St. 627; Titus v. Turnpike Road, 61 N.Y. App. 237; Railroad v. Schuyler, 34 N.Y. App 30; Allen v. Railroad, 150 Mass. 200, 15 Am. St. 186; Jarvis v. Manhattan Beach Co., 148 N.Y. App. 652, 31 L. R. A. 778; Bank v. Railroad, 137 N.Y. App. 231; Land Co. v. Parker, 87 Am. St. 845; Land Co. v. Hildebrandt, 79 N.W. 753; Watson v. Printing Co., 56 Mo.App. 153; Thompson on Corporations, secs. 1500-1501; Colbrook on Collateral Securities, sec. 314; Clark & Marshall on Corporations, secs. 428-433; Cook on Corporations (6 Ed.), sec. 293; Purdy's Beach on Corporations, secs. 279-280. (2) Purchasers, or parties receiving stock as security for a loan, are not bound to look beyond the certificate itself, nor to examine the books of the corporation to ascertain whether the stock has been issued according to law. This is the duty of the corporation and its officers. Railroad v. Bank, 43 L. R. A. 784; Titus v. Turnpike Co., 61 N.Y. App. 243; Jarvis v. Manhattan Beach Co., 31 L. R. A. 778; Allen v. Railroad, 15 Am. St. 191; Trust Co. v. Glass Co., 213 Pa. St. 307; Morawitz on Corporations, sec. 185; Land Co. v. Parker, 87 Am. St. 845; Trust Co. v. Lumber Co., 118 Mo. 454; Havens v. Bank, 95 Am. St. 637. (3) The certificate of stock in question, although fair on its face, was void because issued in excess of the authorized capital stock of the corporation, and the liability therefor is the same whether the certificate is void because prohibited by the Constitution, the statutes of the State, or void at common law. Clark & Marshall on Corporations, sec. 430; Thompson on Corporations, secs. 1490-1493; Purdy's Beach on Private Corporations, sec. 283; Railroad v. Schuyler, 34 N.Y. App. 50; Land Co. v. Parker, 87 Am. St. 845; Allen v. Railroad, 15 Am. St. 185; Cook on Corporations (6 Ed.), secs. 292-3; Davey v. Royalty Co., 169 Mo.App. 565. (4) A certificate of stock in a corporation is a continuing affirmation by it that the person to whom it was issued is the owner of the shares therein named, and it partakes, to a great extent, of the qualities of a negotiable security. It can be transferred and passes from hand to hand by delivery, upon being endorsed by the original holder by signing a blank power of attorney authorizing the person therein named to transfer it on the books of the corporation. It is not requisite to title that the stock should be transferred on the books of the corporation. Keller v. Machine Co., 43 Mo.App. 87; Trust & Savings Co. v. Lumber Co., 118 Mo. 458; Havens v. Bank, 95 Am. St. 635; Bank v. Lanier, 11 Wall. (U.S.) 369; Dain Mfg. Co. v. Seed Co., 95 Mo.App. 144; O'Brien v. Cummings, 13 Mo.App. 199; Crenshaw v. Mining Co., 110 Mo.App. 355; Austin v. Hayden, 171 Mich. 38; Safe D. Co. v. Hibbs, 229 U.S. 394; Clark & Marshall on Corps., sec. 430. (5) The evidence shows that at the time of the pledge of the certificate of stock to respondent as security, the property of the corporation was of the approximate value of $ 320,000. The par value of its capital stock was $ 250,000. The par value of the certificate delivered to respondent as security for the loan of $ 10,000 was $ 25,000, or more than twice the amount of the loan. This evidence was competent to show the value of the stock, and, in the absence of evidence of actual sales of stock, the law presumes its market value to be its par value, because the corporate records show the stock to have been fully paid up. Trust & Savings Co. v. Lumber Co., 118 Mo. 461; Hewitt v. Steele, 118 Mo. 474; Muck v. Hayden, 173 Mo.App. 32. (6) It was the duty of the corporation, and of the directors, as well as its vice-president, Blair, to know the condition of its stock books at the time Blair signed the certificate in question. The law imputes knowledge to the corporation of facts which its president and directors ought to know in the exercise of ordinary diligence in the discharge of their official duties, and, with respect to the rights of third parties, this presumption is conclusive. Thompson on Corporations, secs. 5308, 6529; Martin v. Webb, 110 U.S. 728; 10 Cyc. 1059; Stonecutter v. Myer, 64 Mo.App. 533; Clark & Marshall...
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