161 N.W. 722 | N.D. | 1917
Lead Opinion
On Juno 20th, 1908, the defendant executed a note for $100, payable to the Cavalier County Farmers’ Co-operative Mercantile Company on November 1st, 1910, and delivered such note to one Welo, the secretary of the Cavalier County Farmers’ Co-operative Mercantile Company. Both Welo and the defendant testified in regard to the transaction, and, while they disagree as to what was said at the time, they agree that the only consideration defendant was to receive for such note was a share of capital stock in the Cavalier County Farmers’ Co-operative Company.
The defendant testified in part: “We had quite a lengthy conversation about the giving of this note; were speaking of it quite a while in there; Mr. Welo got me in there and we was speaking of it quite a while in there; we was speaking about this note, and he wanted me to go in there and speak to him in there, and we was speaking back and forth, and I said I didn’t want a share in there, in that company, be
Defendant also made the following offer of proof: “Defendant at this time offers to prove by Mr. Sabie, now on the stand, that, sometime before the note in question was payable, he spoke to the manager, Mr. Welo, and asked Welo to give defendant back the noto in question,which Welo then said ho would do, but could not give it back just then as the safe was locked, and the note was in the safe, but told defendant he would get it another time.” The offer was rejected, and defendant denied permission to offer evidence tending to- establish the matters therein referred to.
It is undisputed that the Cavalier County Farmers’ Co-operative Company was a going concern at the time of the execution and delivery of the said promissory note involved herein, and had been so for a considerable length of time prior thereto, and that such corporation remained a going concern until July, 1910, or more than two years after the execution of the note. In July, 1910, however, the corporation executed a trust deed and thereby assigned its assets to plaintiff as trustee for the benefit of its creditors, and plaintiff claims that the note involved in this action came into his hands as part of the assets of said corporation under said trust deed.
It was stipulated as a fact upon the trial “that no stock was ever issued to Mr. Sabie, or offered to him.” And the undisputed evidence shows that the defendant at no time received any notice of acceptance of his offer to purchase stock, nor did he ever receive any notice of' meetings of stockholders, or any notice whatever relative to the affairs; of the corporation, nor was he in any manner .whatsoever treated or recognized as a stockholder by the corporation or any of its officers, j
The books of the corporation wore not offered in evidence, although the defendant demanded their production, and there was no evidence
The court directed a verdict against the defendant, and he appeals from the judgment and the order denying his motion for a new trial.
Defendant has assigned numerous errors, but we find it necessary to consider only one; viz., the error assigned upon the direction of a verdict in plaintiff’s favor. Did all the evidence in the case prove that the defendant was a stockholder in the Cavalier County Farmers’ Co-operative Mercantile Company to such a degree of certainty that upon a fair consideration thereof reasonable men could draw only the conclusion that he was such stockholder ? If so, the verdict was properly directed. If the evidence failed to show this, or if it was a question upon which reasonable men in the exercise of their reason might arrive at different conclusions, it was error to direct a verdict.
Under the laws of this state, a stockholder is one who owns capital stock in a corporation (Comp. Laws 1913, § 4515) ; and “all corporations for profit must issue certificates of stock when fully paid up, . . . . such shares of stock are personal property, and may be transferred by indorsement . . . and delivery of the certificate.” Comp-. Laws 1913, § 4521. And the note or obligation of a stockholder may not be accepted in payment of stock in the corporation (Comp. Laws 1913, § 4529), unless it is stock which the corporation has purchased from its surplus profits, under the provisions of § 4531, Compiled Laws 1913, and holds among its assets the same as other property. See German Mercantile Co. v. Metz, 21 N. D. 230, 130 N. W. 221.
It is well to remember that we are not dealing here with a subscription to stock in a corporation to be thereafter formed, where the rights of other subscribers are involved (see Thomp. Corp. 2d ed. § 514) ; but, we are dealing with a case wherein a person, at the solicitation of an officer of an existing operating corporation, makes an offer to
But it is immaterial whether the stock which defendant offered to purchase was stock theretofore issued and repurchased by the corporation and held in its treasury, or was part of its potential or authorized capital stock not theretofore issued. In any event the evidence tends to show that defendant offered to purchase from an existing ■operating corporation, a share of stock, and the undisputed evidence shows that the defendant was to receive as the only consideration for the promissory note sued upon in this action capital stock in said ■corporation. The plaintiff in this case seeks to recover on the strength •of the title of the corporation; and its title and right depended upon its contractual relations with the defendant. The mere act of subscribing did not necessarily constitute the defendant a stockholder. Thomp. Oorp. 2d ed. § 560. In the absence of regulations to the' con“trary, the principles which govern the formation of an ordinary con-traet apply with full force to a contract of subscription to corporate stock. Helliwell, Stock & Stockholders, § 49. And “as in the case •of a proposition for any other contract, there is no contract until the proposition has been accepted.” 10 Oyc. 384.
Bor “the American doctrine seems to be that the subscription must he accepted in terms, or else that it must be acted upon, which conduct is tantamount to an acceptance, and this within a reasonable time.” Bor although “no particular form of acceptance is essential in order to constitute this proposition to become a shareholder a binding contract . . . there must be some unequivocal act on the part of the agents having authority to accept the offer, so that there can be no
And, while it is true, as plaintiff contends, that a certificate of stock need not ordinarily be tendered as a condition precedent to the maintenance of a suit upon a stock subscription, it by no means follows that a person who offers to purchase, or who subscribes for, stock in a corporation thereby becomes liable for the payment of stock. The question in such suit generally resolves itself into an inquiry as to whether the party sought to be held has actually become the owner of stock in the corporation. If he has, then the mere fact that a stock certificate has not been issued is of no consequence, as the certificate is merely the paper representative or evidence of his stock, and the mere issuance and delivery thereof are not the acts which confer upon the owner his rights in the corporation, but such certificate is merely evidence of his ownership of stock. A stockholder is one who owns stock. Such ownership carries with it not only the liabilities, but also the rights and privileges, incident thereto; i. e., the owner of such stock acquires an interest in the franchises and business of the 'company, and also becomes subject to all the liabilities of a stockholder, including the obligation to pay for the stock so held. But the obligation to pay for the stock exists only in case it is also binding upon the corporation. If the obligation is not mutual and equally binding upon the corporation, the promise to pay is not supported by -a. sufficient consideration. The criterion of liability is whether any apt has been done by which the corporation is compelled to recognize the promisor as a stockholder. If the corporation is not bound by what took place to recognize a person as a. stockholder, neither -is. he bound to pay for stock.
“On the plainest principles; of"-law, and as a general rule, a subscription to the capital stock of á corporation is not binding unless there ■ is a consideration. It is equalty essential that there be mutuality of obligations, and that both parties be bound by the instrument or contract. ‘The obligations of one can only be sustained by the corresponding obligation of the other. If both are not bound, neither is bound, and the transaction is a nullity.’ ” 1 Thomp. Corp. § 570.
In the case 'at bar, it is conceded that no certificate was ever issued’ to Sabie or delivered to him. It is undisputed that the corporation remained a going concern for more than two years after defendant’
Rehearing
On Petition for Rehearing. (Filed March 15, 1917.)
The plaintiff has filed a petition for a rehearing wherein he asserts that the issue in the case is not whether there was any consideration for the note in suit (as discussed in the former opinion), but “that the only issue in the case is as to whether or not there was a failure of consideration.”
In support of this contention plaintiff refers to certain statements in the answer, which he contends are, in effect, an admission on the part of the defendant that he became a stockholder in the company: The ansiver contained three defenses. Want of consideration and failure of consideration were both asserted as defenses. The statements relied upon by the plaintiff are:
1. Certain language in paragraph 3 of the first defense to the effect that defendant on or about April 11, 1908, signed his name to an offer in writing Avhereby he offered said company to subscribe for $100 worth of its capital stock at par; and
2. Certain language in paragraph 5 of the same defense to the effect that on or about June 20, 1908, payment was demanded by the company, and that defendant, being unable to pay, was induced by Welo to execute and deliver the note in suit.
Plaintiff, however, wholly ignores paragraph 4 of the first defense-in the answer (found between the two statements relied upon by
It may also be mentioned that the answer was not verified; and that upon the trial the defendant positively denied that he signed any written offer to subscribe for stock, and we are unable to find that the .alleged admissions in the answer were invoked against him. And the record shows that the plaintiff placed upon the stand Welo, the person with whom defendant’s negotiations were had, for the purpose of controverting defendant’s testimony on this point. The theory adopted in the court below, therefore, seems to have been contrary to that for which plaintiff now contends.
It is true defendant in his answer alleged, and upon the trial offered ■evidence to show, that at the time he executed and delivered the note to Welo, certain promises were made to him by Welo to the effect that he might, within a certain specified time, upon demand, have his note returned. Plaintiff contends that these promises were void as .against creditors of the corporation, and cannot be asserted after the ■corporation has become insolvent. This contention is predicated upon the assumption that defendant became a stockholder. In our opinion defendant made a prima facie showing that he never became a stockholder, and consequently it is not necessary to consider the question respecting the validity of such oral promises.
Plaintiff also asserts that in our former opinion we were in error in stating that “the undisputed evidence shows that the defendant at no time received any notice of acceptance of his offer to purchase stock.” A careful examination of the record discloses that there is no positive statement to this effect. But there is a stipulation efitered into upon the trial stipulating it to be a fact that no stock was issued to Sabie ■or offered to him. The defendant testified as follows: “I never received any notice to participate in any of the meetings of the stockholders in that concern.”
While not very material upon this appeal, it may be mentioned that -the affidavits submitted in support of the motion for a new trial show that the by-laws of the company in force at the time involved in this action provide as follows: “Any person not a competitor in any line -of business carried on by this organization may become a member of this organization by applying for such membership to the president ■or secretary thereof, who shall decide upon all applications for stock in the corporation, in accordance with the constitution and by-laws •thereof and with such rules and regulations as the board of directors may adopt. If they cannot agree, they shall call in one of the directors, -and the majority shall decide. Providing that the final approval is left to the next directors’ meeting.”
. “No certificate of shares shall be issued to any person until the full .amount thereof shall have been paid in cash or its equivalent. No person shall be allowed to become a shareholder in said corporation «except by consent of the board of directors of the same.” These bylaws rather lend force to the claim of the defendant that he never became a stockholder, and more fully confirm our belief that the judgment should be reversed, and a new trial had. We adhere to our former npinion. A rehearing is denied.
