159 S.W.2d 67 | Ark. | 1942
Dr. Vernon R. Fox and others have appealed from a decree foreclosing three mortgages. The causes were consolidated for trial as Case No. 7244.1
Appellants seek to avoid the mortgages on the ground they were given to secure notes for stock issued by the insurance company, in violation of Act 493, approved March 25, 1921. Pope's Digest, 7683. It is also urged *828 that the transactions complained of contravene the constitution. Art. 12, 8.2
Public National Insurance Company, hereinafter called Public, had been domiciled in Missouri. In 1935 it moved to Little Rock and incorporated in this state. It first began selling stock under a tentative permit issued by the bank commissioner November 27, 1935. In January following, the commissioner superseded the conditional permit with its conventional certificate. Application, filed with the bank commissioner showed that incorporators of the company had paid for $80,006.50 of the authorized stock issue of $200,000. The Arkansas certificate permitted the company to sell 20,000 shares of common stock at $5 per share.
December 2, 1935, Fox contracted for 2,400 shares. He borrowed $12,000 from the company with which to make payment, and mortgaged lands to secure the debt. An appraisement disclosed that the property was worth more than twice the amount borrowed. The mortgage was subject to an existing lien of $1,460. Because of delay in clearing title to the land, the company's check to Fox was not delivered until May 15, 1936. It was indorsed and redelivered to the company in payment of stock.3
In August, 1936, Fox contracted for 2,000 additional shares, the consideration being $10,000. This transaction was handled like the first, except that $1,300 was paid in cash. A note for $8,700, secured by mortgage on real estate, was given. Payments aggregating $3,200 were made.4 *829
October 28, 1941, the third mortgage was given to secure a loan of $1,500. Proceeds were used to pay taxes, insurance, and interest, other than the items mentioned in footnotes 3 and 4.
Prior to December 31, 1936, Fox, who is a physician, became the owner of 5,000 shares of Public stock at a cost of $25,000. He was made a member of the board of directors, and was then selected as chief medical director.
By agreement in July, 1936, between Public and the bank commissioner, the company's right to sell stock in Arkansas was suspended ". . . pending compliance with certain requirements made by the department."5
Business of Public was absorbed by the Republic National Life Insurance Company, of Dallas, Texas. Fox followed fortunes of the company when "Republic" superseded "Public." He was elected to the directorate of the Dallas company, and (presumably because of his financial interest and the experience received as an officer and executive6 of the old company) served until January, 1938. *830
After Fox retired from Republic he entered a plea of guilty to a federal indictment and was sentenced to serve two years in prison.7
October 28, 1938, Fox and Republic had a settlement. Fox was paid more than three thousand dollars. Two lots in the town of Manila were released from mortgage. An extension of time was given within which Fox might pay the remaining indebtedness of over $11,000.
The agreement evidencing settlement recites that the mortgages were given to secure sums of money borrowed from Public, and ". . . said mortgages were valid when executed and are now valid, subsisting liens upon the lands."
When Republic acquired assets of the old company, all Public stock was transferred to a voting trust. Pope's Digest, 2175. Fox received 20,000 trust units. He sold 13,809.8
Appellants urge error in the decree (a) because, as they say, Public was without authority to accept real estate mortgages; (b) the notes and mortgages are void because consideration was stock in a corporation; (c) the stock was issued to Fox in violation of the statute regulating issuance and sale of investments.
Appellee insists that it is protected by the statutes embraced within 7679 of Pope's Digest. Section 4 of Act 493 of 1921 authorizes a domestic company to invest its funds in notes or bonds secured by first mortgages or deeds of trust on real estate in Arkansas ". . . for not more than half of the value thereof." The section was amended by Act 47, approved February 18, 1935, and by Act 159, approved March 1, 1937; but the right to take mortgages was not impaired.
We do not agree with appellee that 4 of Act 493 was intended to authorize acceptance of mortgages or deeds of trust securing notes given in payment of stock in an insurance company being created. The statute refers to "the funds of any domestic insurance company," and *831 provides how such funds may be invested. Subdivisions 3 and 5 of the Act refer to "loans previously made," and to "debts previously contracted." It appears, however, that Public had been organized. It was incorporated under the laws of Arkansas July 30, 1935, and its application for authority to sell stock was filed with the state bank department August 22 of the same year. Section 11 of the application, and succeeding sections, set out the general plan ". . . upon which the company is doing business and intends to do business, and the purpose for which said securities are to be sold."9 As far as this record discloses, funds of the company then in the treasury were loaned to Fox on the mortgages.
The constitutional provision relied upon by appellants prohibits a private corporation from issuing its stock or bonds except for money paid, property received, or labor done.
In Bank of Commerce v. Goolsby,
In Bank of Manila v. Wallace,
A note given for stock in a corporation was held void in Lepanto Gin Company v. Barnes,
A headnote to Pollard v. Reisinger,
Foreman v. G. D. Holloway Son,
Lester v. Bemis Lumber Company,
The Supreme Court of Texas, in General Bonding
C. Company v. Mosley,
"A subscriber's note secured by a valid first mortgage upon real estate accepted by the corporation in payment for stock cannot be held as other than property in the full sense of the constitution. The corporation thereby obtains something more than the mere promise of a subscriber to pay. It obtains the right in which the land may be appropriated to the payment of the note. This is a valuable right or property right, as fully as any contract right. The right acquired under such mortgages is clearly property."
Section 39, Art. 9, constitution of Oklahoma, is: "No corporation shall issue stock except for money, labor done, or property actually received, to the amount of the par value thereof." In Harn v. Smith,
Section 193 of Kentucky's constitution provides: "No corporation shall issue stock or bonds except for all equivalent in money paid or labor done." In Clarke v. Lexington Stone Works, (Ky.)
We do not think the Fox obligations were void because of alleged violations of the Arkansas Securities Act. Section 7821 of Pope's Digest requires the capital stock of an insurance corporation to be not less than $50,000. In respect of Public, $80,000 had been paid.
While one may not estop himself to repudiate a void transaction, a voidable commitment is subject to ratification.
By becoming a member of the board of directors when Public entered Arkansas, and by pursuing the same course when the business was taken over by Republic, Fox estopped himself to complain of transactions be now seeks to avoid. Not only did he join the directorate and accept appointment as chief medical advisor, but he sold nearly fourteen thousand units of his voting trust certificates. He must now abide the consequences of his acts.
Affirmed.
