105 F. 217 | U.S. Circuit Court for the District of Massachusetts | 1900
The defendant is a corporation organized. under the laws of New Hampshire. The plaintiff resides in Massachusetts. On April 8, 1891, he entered into a contract with the defendant, covering several matters, to which I need not refer at length, save only as to one. He agreed to contribute $3,000 to the stock of the defendant corporation, at $8 per share. The par of the stock was $10 per share. This sum he paid, through its proper representative, into the treasury of the corporation at or about the date of the contract; and in return the corporation issued him its certificate for 500 shares, on the face of the certificate nonassessable. The purpose of the parties, undoubtedly, was to issue 500 shares of. stock, free from assessments, in return for $3,000, being a deficiency from the par of the stock*of $2,000.
All these transactions were at Boston, in Massachusetts, and at that time the plaintiff was a resident of Massachusetts; and, according to well-settled rules, he was not holden generally to know’the laws of a foreign state. For this purpose, New Hampshire was a foreign state. So far as he and this transaction are concerned, the general rule is that a mistake as to the laws of New Hampshire would be a mistake of fact, from which he would be entitled to relief, the same as from-any ordinary mistake. It is true that it is now well settled
Pub. St. N. H. 1891, c. 149, § 9, provides that no corporation shall dispose of any of the shares of its capital stock at a price less than die par value thereof, with an exception not involved here. Chapter 273, § 11, provides that, if a corporation issues certificates when the par value of the shares represented by the certificates has not fully been paid into its treasury, all such certificates shall he void, and the directors, officers, or other agents of the corporation who shall cake part in the issue of any such certificates shall be fined or imprisoned, or both. The statute, by its letter, declares only the certificates void, yet there can he no question that, so far as obtaining any valuable interest is concerned, this whole transaction was void; so that the plaintiff has not received what can he regarded as anything substantial in return for his $3,000.
In December, 1898, in Kimball v. Grate Co., 69 N. H. 485, 45 Atl. 253, the supreme court of New' Hampshire explicitly, and on an issue made, declared the precise certificates involved in this suit void, and determined that the holder of them was not entitled to vote at any meeting of the corporation. Previous to this decision the plaintiff had sold this stock to two gentlemen by the name of Eider. One of the Eiders, in testifying in this case, admits sufficient to charge them with knowledge of the fact that the stock was issued to the plaintiff at $6 per share, and that the par was $10. Nevertheless the Eiders were nonresidents of New' Hampshire, and the transaction between them and the plaintiff took place in Massachusetts; so that the Eiders were entitled to he regarded as acting under a mistake of fact. Meanwhile, however, each of the Eiders had hc-en elected and acted as directors of the corporation, and they had received on this stock
Prior to bringing this suit no tender was made to the corporation, except as above stated. As the 500 shares are practically worthless, no tender was required;, and it is sufficient that the certificates have been brought into court, and may be surrendered to the corporation, so that the corporation may thus be protected against any possible estoppel by reason of their being outstanding in the hands of innocent parties. These facts reinstate the plaintiff to the same position as though he had never disposed of the stock and clear the way of all preliminary questions.
The defendant maintains that the issue of the stock was against the declared public policy of New Hampshire, and that therefore no action can be maintained in any way arising out of it. In regard to this particular the plaintiff is undoubtedly chargeable, as a stockholder, with the operation of the laws of New Hampshire in a suit in the district of Massachusetts, or in the courts of the state of Massachusetts, precisely as he, or a resident of New Hampshire, would be in a suit brought in the district of New Hampshire, or in the courts of that state. We do not withdraw our determination that, in order that the plaintiff should have a right merely to rescind the transaction, and merely to recover the amount he paid for the stock, it should be held that ignorance on his part of the laws of New Hampshire may amount to a mistake of fact for certain purposes. So far as such ignorance amounts to mistake of fact, and is important with reference to relief against mistakes, it must have the same effect in all tribunals of every jurisdiction; but neither this mistake nor any other will permit any court anywhere to ignore the public policy of New Hampshire when it comes to actually enforcing the rights of the parties with reference to a corporation organized by that state.
There is, of course, a mass of authorities which would seem to sustain the defendant’s position, so far as it rests on the question of
The better view of the law is that, there being no moral turpitude involved, a plaintiff ought not to be the entire loser, and a defendant the entire gainer, out of a prohibited transaction. The provisions of the Public Statutes of New Hampshire must be regarded not so much as declaring any general public policy as establishing regulations pertaining to corporations, intended for the protection of their stockholders and creditors. They come in like the regulations of the statutes of the United States affecting national banking associations, •which, as is now well settled, do not always impair contracts which have been executed in violation of them. Bank v. Matthews, 98 U. S. 621, 25 L. Ed. 188; Thompson v. Bank, 146 U. S. 240, 13 Sup. Ct. 66, 36 L. Ed. 956. There is nothing from which, it can be justly inferred that it is the intention of the statutes of New Hampshire to give a corporation receiving payment of less than the par of its stock the benefit of the entire amount thus received, to the detriment of the party who pays it, whether a nonresident or not, without any moral turpitude on his paid, or without any real intention to defraud. The entire penalties intended to be imposed are those we have stated; ■chat is, that the party making the payment shall fail to be recognized as a stockholder, and the certificates he declared void, and that the officers of the corporation shall be subject to punishment. In this respect the case is substantially like that of the overcertiileation of checks, referred to in Thompson v. Bank, at page 250, 146 U. S., page 69, 13 Sup. Ct. and page 960, 36 L. Ed., where lie court said that the very fact that a statute is enacted punishing criminally an officer, clerk, or agent, improperly certifying a check, .shows that the law intended to impose only the penalties specifically named in it. In the absence of some great public injury to be prevented, or of moral turpitude, the just rule is that a prohibition by a statute intends to impose no penalties beyond what the statute expressly enacts, although. of course, no court will give aid in directly carrying out a transaction which the law forbids.
There is a broad distinction between a suit which seeks to enforce a contract prohibited by statute, while it is entirely executory, and one arising out of.a condition of things, where one party or the other lias had the full advantage to be derived therefrom. For example, the supreme court would undoubtedly refuse to enforce a wholly unexecuted contract which contemplated a loan by a national banking association based on real-estate security, while in Bank v. Matthews, already referred to, it: enforced such a loan, including a foreclosure of the borrower’s mortgage, after the borrower had received the funds which his note represented. So in the case at bar the fact that this court would have refused to have caused to be executed the contract
These suggestions also dispose of the proposition made by the defendant growing out of the fact that the contract of April 8, 1891, contained a stipulation for services to be rendered by the plaintiff for an annual salary, and some other stipulations. Under some circumstances, some of these stipulations’would be contrary to public policy. Whether they are so or not in the present case does not clearly appear. In any event, they are not so involved with the plaintiff’s claim in suit, which is only for a refund of the $3,000 as money had and received by the defendant under a mistake, that they cannot be severed from it, and that severing them could do injustice to the defendant.
Even if the case were not fully covered by the principles of the decision of the supreme court with reference to statutory enactments relating to national banking associations, it would come within the mild rules of Pullman’s Palace-Car Co. v. Central Transp. Co., 171 U. S. 138, 18 Sup. Ct. 808, 43 L. Ed. 108, and of Aldrich v. Bank, 176 U. S. 618, 20 Sup. Ct. 498, 44 L. Ed. 611, in which the court refused to allow defendants to retain the value of what they had received in violation of regulations affecting corporations, rather than within McMullen v. Hoffman, 174 U. S. 639, 19 Sup. Ct. 839, 43 L. Ed. 1117, where the entire transaction involved moral turpitude and an intended fraud on the public. In Aldrich v. Bank, at page 636, 176 U. S., page 505, 20 Sup. Ct., and page 618, 44 L. Ed., the court laid down the broad rule that there is nothing in the acts of congress authorizing or permitting a national bank to appropriate and use the money or property of others for its benefit without liability for so doing. Looking at the similar question, of rescission, and of recovering only what the defendant corporation received without giving any consideration therefor, the question of mistake of fact which we have considered does not seem important, in connection with the rules of Pullman’s Palace-Car Co. v. Central Transp. Co. and of Aldrich v. Bank, except so far. as it relieves the plaintiff from every suggestion of moral guilt, and of any intent to defeat the laws of New Hampshire. We therefore conclude that the plaintiff had fundamentally a right to recover from the defendant the $3,000 paid into its treasury, on surrendering the certificates which he received in exchange therefor.
The difficulty in the way of this suit arises from the delay between the transaction of April 8, 1891, and the time of making a claim for a refund. We must recognize the fact that, during that period, the condition of the defendant corporation may have essentially changed. For aught we know, the shares of the defendant corporation may now be of nominal value, so that, if we should allow the plaintiff to recover the entire $3,000, an injustice might be done the defendant, perhaps equal to that which would have been done the plaintiff if he had promptly sought to rescind the transaction and recovery had been refused him. Natural equity forbids that, after a lapse of so many years, a transaction shall be rescinded without taking into account the possibility of the changed condition of both parties to it.
This, of course, would not interfere with his remedy at equity, which probably still remains. The mistake in the case at bar is one of the class against which equity could undoubtedly grant relief; and while equity would be prohibited by the plaintiff’s laches, even more than the common law, from allowing him to rescind, yet it could do justice according to the existing circumstances. After proper prior proceeding's by the present plaintiff, equity might aid him to demand certificates of stock equal at par to the amount which he paid into the treasury of the defendant corporation, or to demand new certificates for the 500 shares on his making good the deficiency. The common law can only enforce contracts as the parties have made them, or rescind them. It cannot make new contracts; and, while equity cannot directly impose oh parties engagements which they have not entered into, although it may rectify errors contrary to substantial intent, yet it can lay such terms on one party or the other as may be necessary to effectuate equitable results.
There must be judgment for the defendant.