239 Mass. 174 | Mass. | 1921
The Guaranty Security Corporation was organized on December 18, 1918, under the business corporation law of this Commonwealth with purposes of a broad nature which included a “ general brokerage and financial business, transaction or operar tian commonly carried on or undertaken by capitalists, promoters, financiers, contractors, merchants, commission men and agents ” and with the power to do almost everything which the ingenuity of the draftsman could conceive for the purpose of carrying out the stated purposes; “To form, promote, and assist financially or otherwise, corporations, syndicates, partnerships and associati'ons of all kinds and to give any guarantee in connection there-? with for the payment of money or for the performance of any obligation or undertaking.” The stated powers also purported to authorize the sale, assignment, mortgage, and pledge of capital stock and bonds created by it or by any other corporation or corporations, and while it was the owner thereof, to exercise all the rights and privileges of ownership, including the right to vote on the stock.
The capital to be employed in this wide field was $100,000, divided into six thousand shares of non-voting preferred stock entitled to cumulative dividends, and four thousand shares of common stock, each of the par value of $10. Only four shares of common stock were subscribed for in the agreement of associatian. The articles of association, however, certified that all the authorized common stock was to be issued in payment for services which are stated to be “ in promotion and procuring a business for the enterprise.”
On April 3, 1919, the president, directors and treasurer of the corporation made a sworn return to the commissioner of corporations that four thousand shares of its common stock had been issued for services and expenses, and that six thousand shares of preferred stock were to be issued for cash in full, as distinguished
On March 14, 1919, at a meeting of the stockholders at which thirty-six hundred and sixty-one shares of common stock out of the four thousand shares authorized and issued were represented, it was voted to increase the capitalization to $1,000,000 by the issue of fifty-four thousand shares of preferred stock and thirty-six thousand shares of common stock in addition to that originally authorized. As appears in the article of amendment filed on April 3, 1919, with the Secretary of the Commonwealth, no preferred stock had, prior to April 2,1919, been issued and the entire amount of common stock originally authorized had been issued for “services and expenses; ” and the thirty-six thousand shares of common stock then provided for were to be issued for services and expenses which are thus stated: “Including underwriting expense and procuring further business for the corporation.” This statement was inserted under the following direction in the printed blank: “Note: — State clearly the nature of such services and expenses.”
The commissioner of corporations on June 28, 1919, approved another certificate of the issuance of capital stock made under the statute hereinbefore referred to, that on June 24, 1919, the directors had voted to issue eight thousand shares of capital stock in addition to that previously issued and certified, that no stock had been issued for cash payable by instalments; that six thousand shares of full paid preferred stock had already been issued for cash and forty thousand of full paid common stock had already been issued for services and expenses; and that eight thousand shares of preferred stock were to be issued to be paid in full by cash. The commissioner of corporations on October 15, 1919, approved a certificate (filed under statutory provisions hereinbefore referred to) reciting that the directors had voted to issue ten thousand more shares of preferred stock to be fully paid for in cash, and that the corporation had already issued fourteen thousand fully paid shares of preferred stock for cash.
At some time before May 31,1919, the defendant had contracted with J. Edward Donahue and Company to “ carry on a campaign for the sale of its stock.” Donahue, called as a witness for the plaintiff, although he had the contract in his possession, refused
When the contract with the plaintiff was made, the defendant w-as authorized to issue sixty thousand shares of preferred stock and had in fact issued six thousand fully paid shares of such stock. The contract did not provide for the issuance to the plaintiff of stock when it was fully paid for, or for its issuance to be paid for in instalments. It unequivocally purported to bind the defendant to sell to the plaintiff fifty shares of its preferred stock “ fully paid and non-assessable, at and for the sum of $600” — a price above par — and upon payment therefor to give to him a bonus of common stock of the par value of $200. The plaintiff gave to the defendant $120 on execution of the contract and the remainder of the consideration was payable in equal instalments of $30, “ until the full purchase price has been paid.”
Between twelve thousand and fourteen thousand agreements similar to that made with the plaintiff were made by the defendant through J. Edward Donahue and Company under its contract with that concern. Altogether $1,000,000 was paid to the company under these agreements and the gross amount payable under them was about $2,250,000. The defendant was engaged in a general financial business making loans secured on collateral “ such as warehouse receipts, bills of lading, et cetera, and also financed business concerns, especially automobile dealers.”
The bill alleges that the defendant made false representations as to various matters, but the master finds that these allegations are not sustained. The defendant did not by demurrer or answer set up the defence that the plaintiff had a plain, adequate and complete remedy at law.
The narrow question involved is whether upon these facts the plaintiff is entitled to relief. When on May 31, 1919, the con
Stock which has been authorized has no validity until actually issued or subscribed for; it is not assets. Spring Co. v. Knowlton, 103 U. S. 49, 57. Sturges v. Stetson, 1 Biss. 246. London & Lancashire Fire Ins. Co. v. Ludwig, 86 Ark. 581, 586. Stemple v. Bruin, 57 Fla. 173. Stock which never has been authorized clearly has no greater standing.
The contract with the plaintiff was not a subscription for stock. On the facts found, the inference is irresistible that the corporation did not have the stock for sale, but on the contrary, by means of the contracts disclosed, engaged in a scheme to sell on an instalment plan stock never authorized, and which so far as it could, properly be issued, could lawfully be put forth only when fully paid. The scheme involved purported sales far in excess of stock which the corporation could lawfully issue or sell.
Under these circumstances, the plaintiff is entitled to relief
No demand was necessary before the bringing of the bill. Dill v. Wareham, supra. Although the plaintiff was a party to the transaction, the contract was not malum in se, and never was completely executed; hence he could rescind it and recover the money paid to the defendant who had done nothing under the contract. Spring Co. v. Knowlton, supra. White v. Franklin Bank, 22 Pick. 181. Atlas Bank v. Nahant Bank, 3 Met. 581, 585.
The decree dismissing the bill is reversed, and a decree with costs is to be entered for the cancellation of the agreement with an injunction forbidding the defendant from asserting any rights thereunder, and for the payment of $300 with interest from the filing of the bill.
So ordered.