Van Noy v. Central Union Fire Ins. Co.

• Decision Date: 17 February 1913
• Citation: 153 S.W. 1090
• Parties: VAN NOY v. CENTRAL UNION FIRE INS. CO.
• Court: Missouri Court of Appeals

153 S.W. 1090

VAN NOY v. CENTRAL UNION FIRE INS. CO.

Kansas City Court of Appeals. Missouri.

February 17, 1913.

1. APPEAL AND ERROR (§ 930) — REVIEW OF EVIDENCE.

On reviewing an objection that the verdict for plaintiff had no substantial evidence to support it, the appellate court is bound to indulge every reasonable inference that may be drawn in plaintiff's favor.

2. CORPORATIONS (§ 189) — SALE OF STOCK — CONVERSION — EVIDENCE — QUESTION FOR JURY.

In an action for conversion of certain stock in defendant corporation which defendant refused to issue to plaintiff, conflicting evidence held to require submission to the jury of the question whether defendant's secretary agreed to a rescission of a former contract to purchase stock, made between plaintiff and one of defendant's promoters, and to give plaintiff 50 shares of stock in payment for a note of $750.

3. CORPORATIONS (§ 79) — SALE OF STOCK — CONTRACTS WITH PROMOTERS — LIABILITY OF CORPORATION.

A corporation is not liable on a promoter's contract for the sale of stock made before the corporation became a legal entity, in the absence of subsequent ratification.

4. CORPORATIONS (§ 79) — SALE OF STOCK — PROMOTER'S CONTRACT — RATIFICATION.

Where defendant corporation, after becoming a legal entity and receiving a certificate authorizing it to do business in accordance with Rev. St. 1909, §§ 6995-7039, accepted the benefits of promoters' contracts for the sale of stock, it thereby adopted those contracts as its own, and took them with their burdens and infirmities.

5. CORPORATIONS (§ 399) — SALE OF STOCK BY PROMOTERS — FRAUD — NEW CONTRACT — SCOPE OF AUTHORITY.

Where plaintiff, claiming he had been induced to purchase certain stock in defendant corporation by promoters by fraud, gave notice at the corporation's office of his election to rescind, whereupon the matter was presented to the directors, and the secretary was authorized to settle the matter, he had apparent authority to make a compromise agreement with plaintiff, by which plaintiff was to receive back certain notes for stock subscribed for and to receive 50 shares in consideration of a note for $750, which the corporation had pledged.

Appeal from Circuit Court, Jackson County; James H. Slover, Judge.

Action by Ira C. Van Noy against the Central Union Fire Insurance Company. Judgment for plaintiff, and defendant appeals. Affirmed.

Leslie J. Lyons, of Kansas City, for appellant. Franklin D. Glore, of Kansas City, for respondent.

JOHNSON, J.

Plaintiff alleges he bought and paid for 150 shares of the capital stock of defendant corporation, and that defendant delivered to him a certificate for 100 shares, but refused to issue a certificate for the remaining 50 shares and converted them to its own use. The prayer of the petition is for the recovery of the value of the shares so converted. The answer is a general denial. A trial of the cause resulted in a verdict and judgment for plaintiff in accordance with the prayer of the petition. Defendant appealed, and argues, first, that the jury should have been peremptorily instructed to return a verdict in its favor.

The defendant is a fire insurance company, organized and incorporated in this state under the provisions of article 6, c. 61, Rev. Stat. 1909 (§§ 6995-7039). On April 2, 1910, the organization of the company reached the point where the incorporators became entitled to a preliminary certificate of incorporation, and such certificate was issued to them on that date by the Secretary of State, under the provisions of section 7001, Rev. Stat. 1909, which declare that on the receipt of such preliminary certificate the corporators "shall be a body politic and corporate, and may proceed to organize in the manner set forth in their charter and to open books for subscription to the capital stock of the company and keep the same open until the whole amount specified in the charter is subscribed, but it shall not be lawful for such companies to issue policies or transact any business of any kind whatever, except as aforesaid, until they have fully complied with the requirements of sections 7002 and 7003."

These requirements were not fulfilled until October 17, 1911, on which date a final certificate was issued authorizing the corporators to transact business with the public as a fire insurance company. Prior to that time the activities of the incorporators had been confined to the organization of the company, and their chief task had been to sell the treasury stock. The plans of the promoters contemplated that the capital stock should be 100,000 shares of the par value of $10 per share, and that sales agents should be employed to sell the stock. To pay the commissions of these agents, and to defray the expenses of the preliminary organization, it was proposed to sell the stock at a premium in order that the corporation might begin business with an unimpaired capital. Twenty thousand shares were set apart for sale "to the directors and founders of the company" at $12.50 per share, leaving a margin of $2.50 per share for the expense and commission fund. It was proposed to distribute this stock among 50 different men of high reputation in the business world, to be known as the "founders" of the company, and after such distribution had been effected to place the remaining 80,000 shares on the market for sale to the general public at $20 per share. Accordingly a general sales agent was employed by the promoters to sell the stock on commission, and in his contract of employment it was agreed that he would set aside out of his commission 25 cents a share on each of the 80,000 shares of stock sold at $20 a share and deposit same with the treasurer as a fund to be divided equally between the 50 founders when the sale of the capital stock of the company was completed; the division of the said fund to be considered as compensation to the 50 founders for the labor and expense of answering letters of inquiry and furnishing such letters of introduction as may be required. This contract, therefore, provided for the creation of a fund which would amount to $20,000 when all of the 80,000 shares were sold by the agents, and it was intended by the promoters and promised by the agents to persons solicited to become founders that this fund should be divided equally among the 50 founders so that each would receive $400 as a rebate on the purchase price of his stock. Consequently, a founder who subscribed for 400 shares paid $5,000 for his stock, and received it with the agreement of defendant to refund him $400 when all of the stock offered to the public had been sold. In other words the inducement held out to a founder was that he would be permitted to obtain a block of stock for $4,600, which would cost a general subscriber $8,000. Further, it appears that, doubtless for the purposes of aiding the agents in procuring desirable founders, the 20,000 shares were divided into blocks of 50 shares each, and the agents were authorized in some instances to give a rebate agreement with the sale of one of such blocks, but were not authorized to offer any one founder more than a single rebate.

Plaintiff was solicited by agents thus employed to become a founder, and on March 15, 1910, he subscribed for a block of 50 shares at $12.50 per share or $625 for the block. He paid $125 (the amount of the premium) in cash, and gave three notes in payment of the remainder of the price, due in two, four, and six months. The sale was made on the condition that he was to have a founder's rebate, which, if he had made no further purchase of stock, would have reduced the cost of his stock to $225. On March 19th, at the solicitation of the agents, he purchased another block at the same price, and he says on the same terms and in the afternoon of the same day he bought 300 shares more. In payment of the last purchase he gave four promissory notes maturing at different dates during the summer, one for $750, which represented the premium on the 300 shares, and three for $1,000 each, representing the par value. Plaintiff states that he bought this stock on the representation and agreement that he would be entitled to a single rebate for each block, or six rebates in all, which on payment of the rebates would reduce the cost of the 300 shares from $12.50 each to $5. Three weeks later, and after the corporators had received the preliminary certificate of incorporation, plaintif...