West End Real-estate Co. Of Norfolk v. Claiborne

• Decision Date: 18 January 1900
• Citation: 97 Va. 734,34 S.E. 900
• Parties: WEST END REAL-ESTATE CO. OF NORFOLK. v. CLAIBORNE.
• Court: Virginia Supreme Court

34 S.E. 900

97 Va. 734

WEST END REAL-ESTATE CO. OF NORFOLK.

v.CLAIBORNE.

Supreme Court of Appeals of Virginia.

Jan. 18, 1900.

CORPORATIONS — STOCK SUBSCRIPTIONS — PLEADING — INSTRUCTIONS — PROMOTER'S FALSE REPRESENTATIONS—DEFENSE.

1. In an action for unpaid stock subscriptions, special pleas that defendant had subscribed on condition that bona fide subscriptions should be obtained, to the minimum amount authorized by the corporation's charter, and that subscriptions to that amount had not been obtained; that a part of the proceeds arising from the sale of the stock had been agreed, in advance, to be paid for promoters' fees, contrary to representations made him by the corporation's agent; and that the objects of the company, as set out in its charter, were not the same as those described in its prospectus, to which he had subscribed, —were bad, since such facts might have been shown under his plea of non assumpsit

2. In an action by a corporation for unpaid stock subscriptions, the refusal to instruct that if there were bona fide subscriptions to the capital stock, to the minimum amount fixed by its charter, as stipulated in its prospectus, the fact that the treasurer's books showed that part of such stock, standing in the names of certain persons, was not issued, and part was turned into the company, constituted no defense to such action, and the jury must find that the necessary amount had been subscribed, was error.

3. In an action for unpaid stock subscriptions, an instruction that if defendant subscribed on representations that the entire proceeds of the capital stock should be used in payment for and improvement of real estate, when in fact it had been agreed by the organizers that a part should be paid to promoters, his contract of subscription was voidable, unless it clearly appeared that defendant ratified his subscription, by a solemn and deliberate act, after full knowledge of the falsity of the representations, was proper.

4. An instruction, in an action for unpaid stock subscriptions, that if the charter was duly recorded with the secretary of state, and defendant thereafter paid any installment on his stock or participated in a stockholders' meeting, he wasestopped to deny knowledge of the charter's provisions, though the objects of the corporation, as stated therein, differed from those stated in the prospectus and defendant's contract of subscription, was proper.

5. Where defendant subscribed for corporate stock on a promoter's false representation that there was no promotors' fund, and that the entire capital was to be used for the business of the company, and, in an action on his subscription, defendant denied liability because of such false representations, and it appeared that after their falsity was known to him the corporation arranged to eliminate such promoter's interest, defendant was not precluded from such defense by his failure to promptly repudiate his contract on learning of the falsity of such representations.

Appeal from circuit court of city of Richmond.

Action by the West End Real-Estate Company of Norfolk against H. W. Claiborne to recover unpaid stock subscriptions. From a judgment in favor of defendant, plaintiff appeals. Reversed.

Ruffin & Tomlin and G. P. Haw, for appellant.

B. B. Munford and H. W. Anderson, for appellee.

KEITH, P. In September, 1890, Gilliam and others procured an option for 60 days from Hilliard upon a parcel of land situated in the city of Norfolk, at the price of $65,000. They afterwards associated with themselves the owners of other tracts of land in the said city, all of which parcels were to be sold to a joint-stock company which they proposed to organize. On the 29th of September, 1890, a certificate for the organization of such a company was duly executed by five of the above-named parties, and, the law upon the subject having been complied with, a charter was granted them by the corporation court of Norfolk for the purpose of buying, improving, and disposing of real estate, bonds, notes, and other securities; to purchase, hold, and dispose of personal property; to borrow money, and build bridges, wharves, piers, and other structures upon their lands; to guaranty bonds, securities, and credits; to engage in various manufacturing enterprises; and to subscribe to the capital stock of other corporations.

The capital stock of the proposed company was fixed at not less than $175,000, nor more than $300,000, divided into shares of $100 each. The amount of real estate proposed to be held was not to exceed 1, 000 acres, either in Norfolk or Princess Anne counties, or the cities of Norfolk and Portsmouth, at any one time. The above-mentioned parties, nine in number, were made directors of the company, and from this directory the offices of president, vice president, secretary, and treasurer were likewise filled.

The order granting the charter is dated 30th September, 1890, and it was lodged in the clerk's office of the corporation court on the 3d day of November of that year.

Just before the 29th day of September a prospectus was prepared and distributed to the public. Prom this prospectus it appears that the purposes of the company were recited to be "the purchasing, improving, and disposing of several valuable tracts of land in the city of Norfolk, " which lands were declared to be the Hilliard property, estimated at $126,000; 275 lots in Atlantic City, stated to be worth not less than $350 apiece; and 220 feet on the harbor, valued at $15,000 or $20,000.

The prospectus further recites: "It is obvious from the above figures that the company's properties will be very cheap at the prices at which they are obtained. They stand the company only $175,000, while their present value, as shown above, is nearly $250,000, with the strongest probability of a large and rapid advance in the immediate future."

The prospectus further recites that the capital stock has been "fixed at $175,000, divided into shares of $100 each, subscription to stock payable as follows: Five per cent. at the time of subscription, ten per cent. upon the organization of the company, ten per cent. at the expiration of six months from the organization of the company, and ten per cent. every six months thereafter until the stock has been paid."

In October, 1890, H. W. Claiborne was approached by one Chalmers, agent for the company, and solicited to become a subscriber to its stock. Before making the subscription, Claiborne asked the agent if there was any promoters' interest in the undertaking, and, on being assured that there was not, he subscribed to 20 shares; paying in cash the 5 per cent., as required by the prospectus, and affixing his name to a copy thereof.

On the 1st of November, 1890, Gilliam, one of the corporators, obtained a deed from Hilliard to a parcel of land situated in Norfolk for a consideration of $65,000; $6,500 being paid in cash, and the balance to be paid in nine equal installments, with interest. On the same day he conveyed this property to a trustee to secure Hilliard, and on the same day conveyed the same parcel of land to the West End Real-Estate Company; the consideration being $9,500 in cash, and $27,500 in four equal installments, payable in 6, 12, 18, and 24 months, and the assumption by the company of the obligation to pay Hilliard the deferred payments, amounting to $58,500.

The deeds from Hilliard to Gilliam, and the deed of trust from Gilliam to Hilliard to secure the deferred payments, were both acknowledged on the 1st of November, and admitted to record on the 14th of November, 1890.

The deed from Gilliam conveying the property to the West End Real-Estate Company was executed on the 1st of November, acknowledged on the 5th of December, 1890, and admitted to record on the 17th of March, 1892. The order of the judge of the corporation court of the city of Norfolk incorporating the company was recorded in the clerk's office of the corporation court on the 3d of November, 1800, and was duly transmitted to the secretary of the commonwealth for recordation on the 7th of November. On the 10th of November the first meeting of the stockholders was held, and the by-laws were adopted. At the date of this meeting, in accordance with the terms of his subscription, Claiborne paid 10 per cent. upon his 20 shares of stock, and on May 10 and November 10, 1891, he paid other calls of 10 per cent. each; making a total paid by him upon his shares of $700. On the 10th of May, 1S92, another call was made; but in the meantime Claiborne's suspicions had been aroused as to a promoters' interest in connection with the Hilliard tract of land, and he wrote the officers of the company with respect to it, and demanding, also, to know if any meeting of the stockholders would be held, and why there had been no general meeting of the company since its organization. In reply he received a letter from the secretary of May 13, 1892, in part as follows:

"Referring to your question as to the original cost of the property. Thomas H. Gilliam, who has been the confidential clerk of Judge Hilliard for eight or ten years, purchased from Judge Hilliard what is known as 'Hilliard's Point, ' for $65,000, in September, 1890. In November, 1890, he sold it to our company for $95,000, agreeing to take and place $36,000 worth of the stock, which was done. The rest of the property was at original prices, with no promoter whatever, and consist of 282 lots in Atlantic City ward, Norfolk, at the price of about $270 per lot to the company."

With this letter was inclosed a notice of a tailed meeting of the stockholders of the company, to be held on the 30th of June. Claiborne attended this meeting, and announced that unless the promoters' interest was eliminated he would demand a cancellation of his subscription, whereupon Myers, one of the directors as well as one of the promoters of the company, stated that he would visit Richmond in the near future, and adjust the matter to the satisfaction of Claiborne...