Townsend v. Maplewood Investment & Loan Co.

• Decision Date: 06 July 1943
• Docket Number: 38460
• Citation: 173 S.W.2d 911,351 Mo. 738
• Parties: Vincent F. Townsend, Appellant, v. Maplewood Investment and Loan Company, a Corporation
• Court: Missouri Supreme Court

173 S.W.2d 911

351 Mo. 738

Vincent F. Townsend, Appellant, v. Maplewood Investment and Loan Company, a Corporation

No. 38460

Supreme Court of Missouri

July 6, 1943

Rehearing Denied September 7, 1943.

Appeal from the Circuit Court of the City of St. Louis; Hon Julius R. Nolte, Judge.

Affirmed in part and reversed in part.

John E. Corvey for appellant.

(1) A note given for stock in a corporation is void for want of consideration, a corporation being precluded by statute from taking a note for its stock. Sec. 5349, R. S. 1939; Const Sec. 18, Art. XII; Schafer v. Home Trading Co., 227 Mo.App. 347, 52 S.W. 462; Banker's Mort. Co. v. Lessley, 225 Mo.App. 643, 38 S.W.2d 485; Hunter v. Garanflo, 246 Mo. 131, 151 S.W. 741; Strong v. Turner, 122 S.W.2d 71. (2) Stock repurchased by a corporation and retired, both as to the stock certificates and as to its financial set-up, is not treasury stock, and may not be sold for a note. Allen v. Best, 58 S.W.2d 810; Wilson v. Merc. Co., 167 Mo.App. 305; Maynard v. Doe Run Lead Co., 305 Mo. 356, 265 S.W. 95; Sherman v. Shaughnessy, 148 Mo.App. 679; Kemp v. Levinger, 174 S.E. 820, 162 Va. 685; Glenn N. Martin Co. v. United States, 21 F.Supp. 562; Hammer v. Werner, 265 N.Y.S. 172, 239 A.D. 38; Bivens v. Hull, 58 Colo. 338, 145 P. 694; Scully v. Auto Finance Co., 109 A. 49, 12 Del. Ch. 174; Union Trust Co. v. Van Schaick, 141 N.Y.S. 949. (3) A corporation may not repurchase its capital stock when the effect is to reduce its capital, and such stock does not become treasury stock. Strong v. Frerichs, 116 S.W.2d 533; Schafer v. Home Trading Co., 227 Mo.App. 347, 52 S.W.2d 462; Potts-Turnbull Adv. Co. v. Gatchell, 257 S.W. 135; St. Louis Carriage Mfg. Co. v. Hilbert, 24 Mo.App. 338; Hunter v. Garanflo, 151 S.W. 714; Shawhin v. Distilling Co., 195 Mo.App. 445; Bondurant v. Raven Coal Co., 25 S.W.2d 566; 14 C. J. 408, note 36.

Lashly, Lashly, Miller & Clifford for respondent.

(1) Section 5349, R. S. of Missouri 1939, providing that no note given by any stockholder, whether secured by deed of trust or otherwise, shall be considered as payment of any part of the capital stock merely means that when a note is given for stock it shall not, in law, effect a payment, so as to relieve the purchaser from his obligation to actually pay, and does not operate to prevent the corporation from taking a note for stock issued by it, or to invalidate a note so taken. German Mercantile Co. v. Wanner, 25 N.D. 479, 142 N.W. 463; Hacker v. National Oil Refining Co., 73 Pa. St. 93; Allen v. Edwards, 93 Miss. 719, 47 So. 382. (2) A promissory note secured by collateral, given in payment for corporate stock, is "property" and hence is not violative of Section 5020, R. S. of Missouri 1939, or Section 8 of Article XII of the Missouri Constitution, which provide that stock of a corporation shall be issued only for money paid, labor done or money or property actually received. Sohland v. Baker, 15 Del. Ch. 431, 141 A. 277; Harn v. Smith, 85 Okla. 137, 204 P. 642; General Bonding & Cas. Ins. Co. v. Moseley, 110 Tex. 529, 222 S.W. 961; Clarke v. Lexington Stone Works, 24 Ky. L. 1755, 72 S.W. 286, 24 Ky. L. 2247, 73 S.W. 788; Protection L. Ins. Co. v. Osgood, 93 Ill. 69. (3) Neither Sections 5020 or 5349, R. S. of Missouri 1939, nor Section 8 of Article XII of the Missouri Constitution, which are claimed by appellant to prohibit the taking of a note in payment of corporate stock, are applicable where, as here, the stock purchased was not of original issue. Sherman v. Shaughnessy, 148 Mo.App. 679, 129 S.W. 245; Bondurant v. Raven Coal Co., 25 S.W.2d 566; Kemp v. Levinger, 162 Va. 685, 174 S.E. 820; Hartley v. Pioneer Ironworks, 181 N.Y. 73, 73 N.E. 576; Faris v. Beck, 74 Colo. 480, 222 P. 652; Krisch v. Inter-State Fisheries Co., 39 Wash. 381, 81 P. 855; Enright v. Heckscher, 240 F. 863. (4) Plaintiff is estopped to claim that his $ 10,000 note, which was given for defendant corporation's stock, is invalid upon the asserted ground that it violates Sections 5020, 5349, R. S. of Missouri 1939, and Section 8, Article XII of the Missouri Constitution. German Mercantile Co. v. Wanner, 25 N.D. 479, 142 N.W. 463; Allen v. Edwards, 93 Miss. 719, 47 So. 382; Selma, etc., R. Co. v. Rountree, 7 Ala. 670; Pine River Bank v. Hodson, 46 N.H. 114; Davis v. Mitchell, 225 S.W. 1117; Faris v. Beck, 74 Colo. 480, 222 P. 652; Schiller Piano Co. v. Hyde, 43 S.D. 581, 162 N.W. 937. (5) Plaintiff-appellant is not entitled to have the sale of defendant's stock to him rescinded upon the ground of fraud. Because plaintiff, after admittedly obtaining knowledge of all the facts and circumstances surrounding his purchase of defendant's stock, ratified the sale of defendant's stock to him and is now in no position to challenge its validity on the ground of fraud. Bradbury v. Smith, 181 S.W. 415; Rigler v. Reid, 186 Mo.App. 111, 171 S.W. 952; Marten v. Paul O. Burns Wine Co., 99 Cal. 355, 33 P. 1107; Bowen v. Aetna Indemnity Co., 151 Iowa 663, 131 N.W. 1086; Mississippi Power Co. v. Bennett, 173 Miss. 109, 161 So. 301; Hatcher-Power Shoe Co. v. Bickford, 212 Ky. 163, 278 S.W. 615; Newton v. Michigan Chemical Co., 212 F. 878.

Westhues, C. Bohling and Barrett, CC., concur.

OPINION

WESTHUES

Plaintiff, Townsend, filed this a suit in equity to cancel a note of $ 10,000,00, and also asked for an accounting. The defendant, Maplewood Investment and Loan Company, filed an answer and a counterclaim alleging that the sum of $ 4,443.87 was still due on said note for which amount judgment was asked. The trial court denied plaintiff's petition and entered judgment against plaintiff and in favor of the defendant on its counterclaim in the sum of $ 31.85 and costs. Both parties appealed.

The appeal was lodged in the St. Louis Court of Appeals and by it transferred to this court because the amount involved exceeded $ 7500. Since plaintiff asked that the note be canceled upon which there was a balance due of $ 4,443.87, and in his accounting asked for judgment against the defendant for sums realized on securities pledged with the note, which sums had been collected by the defendant and credited on the note in excess of $ 5,000.00, the amount in dispute being in excess of $ 7500.00 vests this court with appellate jurisdiction.

Plaintiff's contention at the trial was that the defendant company was in need of financial aid and the officers of said company came to him about December 31, 1930, and requested that he loan the company certain deeds of trust and notes of the face value of $ 9,853.00; that he did this and thereafter was induced to execute a promissory note involved in this suit, in the sum of $ 10,000.00; that he signed the same in blank, the purpose thereof being unknown to him at the time, but that later the company carried the note and securities on its books as an asset of $ 10,000.00; that the apparent consideration for said note was a pretended sale by the defendant company to plaintiff of eight hundred shares of its own capital stock.

Plaintiff asked cancellation of the note on the theory that it was given without consideration; that a fraud was practised on him by the officers of the company in that they represented to him the company was in a sound financial condition; that the note was antedated without plaintiff's knowledge and the words "800 shares of common stock" were inserted in said note without his knowledge or consent.

In the body of the note it was recited that the securities above referred to and eight hundred shares of stock of defendant company were pledged by plaintiff as security for the payment of the note. The defendant by its answer denied the charges made in plaintiff's petition and also affirmatively pleaded laches and estoppel. This latter plea must be sustained. Taking plaintiff's evidence as true, that the officers mislead him as to the financial condition of the company and that the note and records of the company made it appear as though he had bought eight hundred shares of stock when in fact he did not, that the note was actually signed on January 6, 1931, but was dated December 31, 1930, yet plaintiff is in no position to invoke the arm of the court of equity to grant him redress. Plaintiff admitted that he signed the note and also that he delivered the securities to the defendant company. The circumstances of the signing of these papers were related by plaintiff as follows:

"Q. Will you state to the Court the circumstances under which you signed this note? A. Well, on the night of January 6, 1931, I received a phone call from Ralph Townsend about 8:45 in the evening. I was busy at the office, and he asked me if I could not come over to the Loan Company right away. I told him I was very busy at the office; but he said, 'It will only take ten or fifteen minutes,' and wanted to know if I couldn't come right over. . . . I did go over. . . . Well, Dr. Marshall was present, and Merrill Vincent, and Mr Townsend, Mr. Hardensty, and I believe the auditor, Mr. Muren, was present."

"Ralph Townsend got up before these directors and made a speech, and asked me if I would loan them ten thousand dollars worth of securities. He had these -- he had a number of securities of mine that were being collected at the Citizens Bank in Maplewood. He said he and Merrill Vincent would see that I received the six per cent interest I had been receiving on them over at the bank.

" Q. Now, did you tell him you would let him have them? A. I told him I would let them have them as long as -- I told them I would let them have the deeds of trust providing I got my six per cent interest, just the same as I was getting it over at the bank, and also if the Loan Company was in good condition.

"Q. What did they say to that? A. Merrill Vincent said he...