Abоut March 12, 1918, the Empire State Motor Transportation Lines, Inc., was incorporated. Its authorized capital stock was 3,000 shares of $100 each, of which 1,502 shares were then subscribed. Soon thereafter the plaintiff and defendant subscribed for capitаl stock. From about April first to April twentieth defendant made three subscriptions aggregating $5,000. He paid $1,000 in cash, gave a note for $2,000 which was discounted at a bank, and subsequently gave notes for $2,000 payable to the corporation six months after date, with thе understanding that they were not to be cashed at the bank. Soon after its date plaintiff, with the knowledge that it was given for stock, purchased for $900 the $1,000 note here sued upon. Defendant knew the note was to be sold.
None of the notes was paid at mаturity, but defendant gave the corporation checks to pay the interest due on them. The certificates of stock were never issued and delivered to defendant, and evidently he never called for them. It does not appear whether thеre was an agreement that the certificates should be withheld until the notes were paid. The company was not obliged to tender the certificates to fix defendant’s liability on his subscription note.
The corporation after a brief period of existence went into bankruptcy. Plaintiff sued defendant on the note. The issue was submitted to the jury under a charge which stated, in substance, that if the note was given in payment of a subscription for stock, it was an illegal transaction; and if the plaintiff knew of the illеgality he was not a holder of the note in good faith and could not recover. The learned trial court declined to charge that if the note was given by a man of financial responsibility and the company accepted it and received the proceeds, the note was good in the hands of any party. The jury found for the defendant, and on a motion for a new trial the court in a memorandum held that the note was not property within the statute, and there was no ratification and no estоppel.
It is claimed that the note was void in the hands of plaintiff because taken in violation of sections 53 and 55 of the Stock Corporation Law of 1909,
On the trial it would seem reliance was had on section 55. It provides that no corporation shall issue stock “ except for money, labor done or property actually received for the use and lawful purposes of such corporation.” In denying the motion fоr a new trial the learned court apparently relied also upon the provisions of section 53 providing as to stock not subscribed on incorporation, that “ at the time of subscribing, every subscriber, whose subscription is payable in money, shall pаy to the directors ten per centum upon the amount subscribed by him in cash, and no such subscription shall be received or taken without such payment.”
Whether defendant’s subscriptions were for a part of the stock not subscribed at the time the certificаte was filed does not appear. His counsel says in his brief that defendant subscribed for 100 shares for which he was to pay $5,000. If the statement is correct, defendant would pay but one-half the par value. That would indicate it was not for unissued stock. This inferenсe is strengthened by proof that when the note was sold there was attached to it as collateral a certificate for twenty shares issued in the name of. one Hunt. Here, as once before, we are left uninformed as to material facts whiсh might have a vital effect on the determination of the controversy. (See
I think we might be justified in the present state of the record and the absence of clearer proof, in acting on the presumption that the transaction was legal. (Otter v. Brevoort Petroleum Co., supra) But for the purpose of considering more important legal principles, I will assume that the stock for which this note was given was the original issue.
It does not necessarily follow that when the law prohibits an act, a contract made in contravention of it may be avoided. The Legislature may impose other penalties than declaring such contract void. (Harris v. Runnels, 12 How. [U. S.] 79; Pratt v. Short,
It is not fully settled in this State just what effect the violation of such statutory provisions has on the contract. The provisions in statutes and in Constitutions relative to the issuance of stock differ somewhat in language in the several jurisdictions, but in general are the same in effect. Generally speaking, a note is personal property, particularly the note of a solvent person, and in many jurisdictions is held valid when given on a subscription for stock. (Pacific Trust Co. v. Dorsey,
Such notes are held valid and collectible by receivers of insolvent corporations for the benefit of creditors (Farmers & Mechanics Bank v. Jenks, 48 Mass. [7 Metc.] 592; Finnell v. Sanford, 56 Ky. [17 B. Mon.] 748); by persons taking them for value without notice (Willmarth v. Crawford,
The note so taken is regarded as another form of subscription or new promise, and an extension of credit by the corporation to the subscriber. (Cook Corp., supra; Fletcher Cyc. Corp., supra.) At commоn law it was not illegal to give credit for stock issued. (Wheeler v. Millar, supra; 14 C. J. 439.) If prohibited now, it is not because it is malum in se. (First National Bank v. Cornell, supra.) At best the note would not be wholly void but voidable only. (Weeks v. Bridgman,
The object of the statute and the result to be obtained are that the corporation shall becоme vested with assets so that strangers dealing with it, and stockholders, may be protécted. (First National Bank v. Fulton, supra.) Although the statute may use the word “ cash,” the form of the payment, either the ten percentum on subscription or the whole amount, is- unimportant. An equivalent is sufficient. (Matter of Staten Island R. T. R. R. Co.,
It is likely that undеr modern business methods actual cash is rarely delivered in payment for stock. A check given is regarded as the representation of money. (Gould v. Town of Oneonta,
The failure to pay at the time of subscribing does not necessarily release the subscriber from obligation. In Jeffery v. Selwyn (
To the same effect, that subsequent payment on account will validate a subscription, see Black River & Utica R. R. Co. v. Clarke (
A mere promise or conditional agreement to subscribe for capital stock has been held void. (General Electric Co. v. Wightman,
A note of no value or of doubtful value would not constitute
Lord Mansfield said: “ The objection that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of a defendant. It is not for his sake, however, that the objection is ever allowed, but it is founded on general principles of policy, which the defendant has the advantage of, contrary to the real justice as between him and the plaintiff.”
These “ general principles of policy ” are not to be invoked for those in the position of this defendant. While there is some hesitation in our courts in calling the doctrine “ estoppel ” on the ground that both parties are equally infоrmed of the facts (Shapley v. Abbott,
The note was given, defendant paid interest on it, and the cor
I reach the following conclusions: (1) That a nоte given by a person financially responsible in payment for a subscription for stock not issued and delivered, becomes a valid instrument in the hands of a person who has, with notice but in good faith, paid the corporation value therefor, and thеreby has furnished assets on the credit of the subscription. (Ramsay v. Crevlin, supra.) If the officers or directors have sold the note for less than its face, they are personally liable to the corporation or its creditors and stockholders for the balance. (Stock Corp. Law, § 29.) (2) That under these circumstances, the maker of the note would be prevented by “ sound public policy and the plain rules of good faith ” from escaping liability. (Jeffery v. Selwyn, supra)
The judgment appealed from should be reversed; and under the provisions of sеction 584 of the Civil Practice Act, there being no valid defense, the plaintiff should have judgment on his motion for the direction of a verdict in his favor for the amount of the note and interest, with costs. •
All concur, except Sears and Crouch, JJ., who dissent and votе for affirmance.
Judgment and order reversed on the law, with costs, and judgment directed for the plaintiff upon his motion, with costs.
Notes
Now Stock Corp. Law of 1923, §§ 67, 69. See Laws of 1923, chap. 787, §§ 3, 5, 6.—[Rep.
Now Stock Corp. Law of 1923, § 59. See Laws of 1923, chap. 787, §§ 3, 5, 6.— [Rep.
Since amd. by Laws of 1920, chap. 606, a,nd Laws of 1921, chap. 694. Omitted from Stock Corp. Law of 1923.— [Rep.
See Stock Corp. Law of 1909, § 53.— [Rep.
See Laws of 1850, chap. 140, § 4.— [Rep.