30 A.2d 617 | Pa. Super. Ct. | 1942
Argued December 8, 1942. Assumpsit. Before GLASS, J.
Verdict for defendant. Motion by plaintiff for new trial granted. Defendant appealed. The Secretary of Banking, Receiver of the Northern Central Trust Company, brought this action in assumpsit on a promissory note which had been executed and delivered to the trust company by defendant, and which was dated September 10, 1931.1
The affidavit of defense averred (1) that there was a want of consideration, and (2) that the note was a renewal of a note given to the trust company in full payment of 100 shares of its stock, which were held by the trust company as collateral for said loan, and that the transaction was thus unlawful. The jury found for defendant. The court below refused plaintiff's motion for judgment n.o.v., but granted his motion for new trial as it was of the opinion that the verdict was against the evidence and the charge of the court. Defendant has appealed.
There is no transcript of the testimony. After the court en banc granted a new trial the parties entered into a stipulation wherein they agreed, inter alia, that the following facts were established at the trial: The *571 note was executed and delivered by defendant to the trust company in renewal of his note given for the full purchase price of the shares; the stock was held by the trust company as collateral security for the note; three months prior to the receivership the trust company forwarded to defendant, without his request, the stock which was then worthless; defendant never returned the stock. There was no evidence that the stock was or was not an original issue. The parties further stipulated that the entire controversy may be ended by an interpretation of article 16, § 7, of the Constitution of the Commonwealth of Pennsylvania and the Act of June 14, 1901, P.L. 561, § 2, 7 P. S. § 132.
Article 16, § 7, of our Constitution provides in part: "No corporation shall issue stocks or bonds except for money, labor done, or money or property actually received; and all fictitious increase of stock or indebtedness shall be void." This section is not self-executing (Yetter et al. v. Delaware Valley RailroadCo.,
Defendant seeks a construction of the constitutional and statutory provisions which would seem to penalize the depositors and creditors of the trust company, which is in receivership, because of a noncompliance with those provisions by him and the company's officers, and thus by invalidating his note which is among the assets of the company give him the benefit of such conduct. We cannot agree that such a result was intended by our Constitution or the statutes in this state. Rather, we conclude that it is not for defendant, who has received the benefit of the transaction, to complain of the departure from those provisions and assert the invalidity of his own obligation. A tenet of construction which would produce the result which defendant wants will be rejected unless the circumstances are exceptional.
Defendant asks, in effect, for an alleged constitutional right — to invalidate his own obligation, which is incompatible at least with a moral duty — to fulfill his promise to pay. Constitutional rights cannot readily be divorced from ethical standards. But there is also another concept of defendant's act; as expressed in Bangor Trust Co. v. Christine,
Under the admitted facts defendant cannot set up that he received no consideration for his note. *573
We do not believe that it is material to our conclusion whether the stock in question was originally issued to defendant or whether it was sold to him by the trust company as after-acquired stock. Admittedly, the trust company sold its own stock to defendant. Although it does not appear when the stock was first issued, the date of issue could have no bearing on defendant's liability for the payment of his note.
The present case is to be distinguished from Young, Adm'r, v.Bradford County Telephone Co.,
We have held that notes given for the issue of shares of stock of a corporation are not rendered void by article 16, § 7, of the Constitution (Grange National Bank of McKean County v. Collman,
We agree with those courts which have construed similar constitutional provisions as not affording a shield for a stockholder who has not paid for his stock, and as not framed for his benefit. Such provisions are directed against the acquisition of stock except upon lawful payment, and thus protect the corporation and its creditors, and give integrity to the corporation's capital. They emphasize the stockholders obligation to make full and lawful payment in accord with its mandate. But it is not within their purpose to furnish *574 him with a defense when he has failed in that obligation.4
In other states with similar constitutional provisions it is generally held that a promissory note is not considered as money or property with which payment of stock may be made.5 See section 12 of our Act of 1874, supra,
In Theunissen v. Continental Trust Co.,
The Supreme Court of California, in Pacific Trust Co. v.Dorsey,
In Furlong v. Johnston,
In Boldt v. Motor Securities Co.,
The Constitution of Texas, article 12, § 6,8 is for the purposes of this case, identical with our Constitution. In Joy v.Godchaux,
In Thompson et al. v. First State Bank of Amarillo,
109 Texas 419[
In all of these cases it is clear that the defendant could not have escaped payment without more sufficient cause than he has presented in the present case. These authorities, and many more, give cumulative support to our conclusion, and those to the contrary are not impressive, nor are they, as we view them, in harmony with a reasonable interpretation or the practical objectives of our constitutional and statutory provisions.
Defendant finally contends that plaintiff cannot recover on his note because the trust company held its own stock as collateral security for its payment, although before suit the stock was delivered to defendant and has been retained by him. Defendant relies on the Act of June 14, 1901, P.L. 561, § 2, 7 P. S. § 132,9
which provides in part: "No corporation under this act shall take as security for any loan or discount, a lien on any part of its capital stock. . . . . ." There is no force in this argument. If the statute has any application it certainly does not invalidate defendant's promissory note as a subsisting obligation. Richardsv. Integrity Trust Co.,
We are prevented from entering judgment in plaintiff's favor because no appeal was taken by him from the refusal of the court below to enter judgment n.o.v. in his favor. Upon the retrial plaintiff should receive a verdict by direction of the court, unless facts not previously developed be presented to the contrary. See Harr, Secretary of Banking, v. Fairmount Foundry,Inc.,
The order of the court below granting plaintiff's motion for a new trial is affirmed.
"Date Pay't Balance "1-9-34 $215.00 $1,495.00 "12-1-37 1.00 1,494.00"