Nowlin v. Memphis Packing Corporation

• Decision Date: 03 December 1923
• Docket Number: 23
• Citation: 255 S.W. 1092,161 Ark. 294
• Parties: NOWLIN v. MEMPHIS PACKING CORPORATION
• Court: Arkansas Supreme Court

255 S.W. 1092

161 Ark. 294

NOWLIN v. MEMPHIS PACKING CORPORATION

No. 23

Supreme Court of Arkansas

December 3, 1923

Appeal from Craighead Circuit Court, Jonesboro District; W. W Bandy, Judge; reversed.

STATEMENT OF FACTS.

The Memphis Packing Corporation brought this action in the circuit court against Dr. R. T. Nowlin to recover $ 500 on a stock subscription contract. The defendant denied liability.

It appears from the record that the plaintiff is a corporation doing business in Memphis, Tenn., and obtained authority to sell its stock in the State of Arkansas. Thereafter, on the 28th day of May, 1919, the defendant signed a subscription contract for 7 1/2 shares of stock in said corporation for which he agreed to pay the sum of $ 625. One hundred and twenty-five dollars of this was paid in cash, and the contract recites that the balance was to be evidenced by non-negotiable notes in the sum of $ 500, payable to the order of the Memphis Packing Corporation.

Section 2 of the contract reads as follows: "I agree and understand that the cash referred to in paragraph I hereof is to be used only for the organization expense and commissions and in furthering the plans contemplated by the Memphis Packing Corporation; it being understood and agreed that the balance of the subscription, represented by the non-negotiable note tendered herewith, shall become due and payable in accordance with the provisions of said note, after subscriptions for at least 2,500 shares of the preferred stock and 1,250 shares of the common stock of the said company shall have been secured by the said Memphis Packing Corporation, the necessity of securing any additional subscriptions over and above the said amounts being waived. Said stock shall not be issued by the company until fully paid for, and shall carry no voting power until said time."

On the same day the defendant executed his promissory note to the plaintiff for $ 500, due on September 1, 1919. The note contains the following: "This note is non- negotiable and is subject to the terms and provisions of a printed subscription agreement of even date herewith, executed by the undersigned in favor of the Memphis Packing Corporation."

On the 11th day of April, 1921, the State Bank Commissioner revoked the authority formerly given to the plaintiff to sell its stock in the State of Arkansas, because it had failed to comply with the law in regard to filing its reports. The stock was issued by the corporation and tendered to the defendant on November 18, 1921, but the defendant refused to accept and receive the same.

The case was tried before the circuit court sitting as a jury and, from a finding and judgment in favor of the plaintiff the defendant has duly prosecuted an appeal to this court.

Judgment reversed, and cause remanded.

John W. Scobey, for appellant.

Appellee had no right to sell stock in this State, after its right to do so was revoked by the Banking Department. 147 Ark. 402. There was no delivery of the stock, or attempted delivery, until after the revocation, therefore the sale was not complete, and no title passed. 151 Ark. 513. There was no consideration for the note, since it was for stock in an insolvent corporation. 157 Ark. 37.

A. P. Patton, for appellee.

The case cited by appellant at 147 Ark. 402 is not in point, because there the corporation had not been authorized to sell its stock at the time the sales were made. Appellee did have that authority at the time of the transaction in question. Subscription contracts for purchase of capital stock have been held valid by this court. 106 Ark. 462; 92 Ark. 504; 97 Ark. 248. The contract waived the issuance of the stock at the time of the transaction. 26 U. S. (L. ed., p. 179). A failure on the part of appellee to deny insolvency is not an admission to that effect, so as to render the note and contract void. See 130 Ark. 167; 129 Ark. 406; 98 Ark. 211.

OPINION

HART, J., (after stating the facts).

It is true, as contended by counsel for the plaintiff, that parties may make a valid preliminary stock subscription contract which will be enforced according to its terms, just as other contracts are enforced. Snodgrass v. Zander & Co., 106 Ark. 462, 154 S.W. 212, and cases cited. It is also true that, like other contracts, an agreement to take shares in the capital stock of a corporation may depend upon a condition precedent or subsequent, just as the parties may agree upon, and that they are bound to perform their contract according to their intention, as it may appear from the language of the contract. Arkadelphia Cotton Mills v. Trimble, 54 Ark. 316, 15 S.W. 776; Turner v. Baker, 30 Ark. 186, and Rogers v. Galloway Female College, 64 Ark 627, 44...