49 Wash. 217 | Wash. | 1908
This action was commenced by J. C. Miller to recover $2,000 paid on a subscription for twenty shares of capital stock in the German-American Trust Company of Spokane. On January 27, 1906, the defendants C. Denman, W. W. Parry, C. E. Clure, E. W. Swanson, J. L. Foskett, W. S. Foster, J. F. Kunz, and one Abram E. Sever, executed and acknowledged an organization certificate for the German-American Trust Company of Spokane, with $100,000 capital stock, under chapter 176, Laws 1903, page 367, known as the “trust company act.” On the same date the .-incorporators, as a first board of directors, organized, adopted by-laws, elected officers, and authorized the defendants E. W: Swanson and C. E. Clure, respectively elected secretary and assistant secretary, to solicit aqd collect the required subscriptions of capital stock. In the performance of this duty Clure procured from the plaintiff, Miller, two subscriptions of $500 and $1,500, which the plaintiff paid. The incorporators were unable to obtain full subscriptions, and the organization of the trust company was never perfected. The plaintiff sued all of the incorporators except Abram E. Sever, and also joined as defendant one James McCann, who was not served and did not appear, but who seems to have been interested in the organization although -not an incorporator. The plaintiff’s contention was that the defendants, instead of returning his subscription money, had, without authority, appropriated and diverted it to another purpose. On a jury trial a nonsuit was granted, and a judgment was entered dismissing the action. The plaintiff has appealed.
“German-American Trust Company,
“Spokane, Wash., Feby. 14, 1906.
“Received of J. C. Miller Five Flundred Dollars in payment of five shares of the capital stock of the German-American Trust Company. Certificate for same to be issued as soon as received — not later than 90 days from date hereof.
“German-American Trust Company,
“C. E. Clure, Assistant Secy.”
As no business could be transacted by the proposed corporation until the $100,000 of capital had been fully subscribed and paid, this receipt indicated that the organization was to be sufficiently perfected within ninety days to require an issue of all the capital stock. There was further evidence that, before the appellant made any additional subscription, the respondents elected him director and vice president of the proposed German-American Trust Company, although he was then ineligible, not being entitled to stock to the amount of
“Spokane, Wash., March 10, 1906.
“Mr. J. C. Miller,
“Dear Sir, — Owing to delay in securing the full $100,-000 capital stock required by the German-American Trust Company, we have decided to commence business as a’State Bank. And for that purpose have taken over the State Bank of Washington and herewith hand you a certificate of stock for twenty shares, being the amount of your subscription in the German-American Trust Company. We do this to enable us to use the capital so that we can pay you a dividend at the close of the year. We will continue to solicit stock in the G. A. T. Co. and when the full amount is secured will open for business under that name, and Avill take over the business acquired through the operation of the State Bank of Washington. Assuring you that Ave are working for the best interests of all concerned and with the idea that in the future we will be able to launch the ‘German American Trust Com*221 pany’ under the most favorable conditions we desire your most hearty co-operation.
“Trusting this will meet with your approval, we are,
“Very truly yours, C. E. Clure, Cashier.”
that like letters were mailed to all the other subscribers, including some of the respondents; that in fact the cash and notes were not turned over to the State Bank of Washington for several days after March 10, 1906; that the appellant made no answer to the letter, neither did he return the bank stock; that the State Bank of Washington was organized in May, 1905; that it did business as such for about two months; that its business was transferred to and conducted by the People’s Bank, which was managed by the respondent Swanson and his brother; that while the People’s Bank was in business, the State Bank of Washington received no deposits; that about March 15, 1906, the State Bank of Washington, being reorganized, again commenced business; that the appellant’s money was then turned over to it; that about one month later it suspended and passed into the hands of a receiver, and that shortly thereafter the appellant demanded his money from the respondents, and commenced this action.
Chapter 176, Laws 1903, p. 367, is an act relating to trust companies. Section 2 provides for the execution of a certificate of organization by not less than seven persons mentioned in § 1. These persons, under § 5, constitute the first board of directors. Sections 1 and 3 provide that, before the corporation shall be authorized to transact business, the capital stock shall be fully paid and the secretary of state shall issue to the company a certificate of authority. Prom these and other provisions it is evident that the organization would not be complete until all conditions precedent in the act required had been performed and the certificate of the secretary of state had been issued. Necessarily subscriptions and payments of capital stock could only be solicited and received by the original incorporators who constituted the first board of directors, or by their duly authorized agents. They were author
In England a charter is not granted to a corporation until all stock is subscribed and the proposed corporation is ready to proceed Avith its business. Hence, provision for money paid •on stock subscriptions is ordinarily made by the appointment of a conditional committee of directors. Formerly this was done by promoters, and in the preliminary business transactions, the promoters noAV ordinarily constitute the conditional committee. The English courts have repeatedly held that, when money has been paid on stock subscriptions and the enterprise fails for Avant of a complete subscription, the individual promoters or provisional committee jointly and severally become liable to the subscribers for the return of their
In Johnson v. Goslett, supra, the court said:
“The question then arises, on what contract did the depositors or subscribers for shares in fact pay their money? Was it not that the receivers should hold it to be applied to the purposes of the projected company if, and when, it should be fairly established? and, if it should not be established, to be returned to them? In other words, that, in the event of the non-establishment, and in the absence of authority to employ it in the meantime otherwise, it should be held to the use of the parties paying it in? . . . Here, a great proportion of the shares were not taken; and the concern was in fact abandoned. There would, therefore, have been ample evidence in an ordinary case to warrant the jury in finding that the state of facts had arisen on which the deposits ought to be returned.”
In the case last mentioned it was also held that each and all of seven original directors were liable to the plaintiff, although his payments on stock subscribed by him had been deposited in a bank in the names of only five of them.
The case of Hudson v. West, 189 Pa. St. 491, 42 Atl. 190, is especially applicable to the facts before us, not only on the question of the liability of the original promoters or directors, but also as to the effect of an investment of subscription money claimed to have been made, with the alleged ratification and consent of subscribers. In that case the court •said:
“This question seems to be of the simplest character. There was no pretense of any compliance on the part of the defendants with the terms of the contract. They received the plaintiff’s money in consideration that they would form a company*224 and give him stock therein to the amount of $10,000, and they did nothing of the kind. They certainly cannot keep the plaintiff’s money in those circumstances. Their want of success in the formation of the company is no concern of the plaintiff, and it is no defense in this action.”
In Alger on the Law of Promoters and the Promotion of Corporations, § 162 reads as follows:
“When a subscriber for shares in a projected corporation has paid money thereon in advance to the promoters, and the scheme proves abortive, he may recover back his money. This right rests on the failure of the consideration on which the money was paid. But the scheme is not to be deemed abortive until the formation of the corporation has been abandoned or has become impracticable, or a reasonable time for the formation has elapsed. It is reasonable, in the absence of agreement to the contrary, that the expense of exploiting the proposed undertaking should, in case it collapses, fall upon the original projectors, and not on those who advanced their money on the faith of the ability of the projectors to do that which they undertook to do.”
See, also, 10 Cyc. 265; 1 Cook, Corporations (5th ed.), § 63.
We think the principles announced in the above authorities apply with especial force to the facts of this case, and that the defendants, as original directors occupying a position kindred to that of promoters, would be liable to the plaintiff for the return of his subscription even though they have been guilty of neither fraud nor conspiracy. There was sufficient evidence of their negligence, breach of trust, and failure of duty to require the question of their liability to be submitted to the jury.
The respondents contend that the appellant ratified the investment of his money in the State Bank of Washington by the defendants Clure, Foskett, and Swanson, and that he is now estopped from claiming its return. He was not familiar with the business methods of bank or trust companies. He was a plain German farmer, living in Idaho some distance from Spokane. He subscribed and paid for the stock, relying upon assurances of Clure that the investment would prove
“Knowledge of all material facts and circumstances. is an essential element to an effective ratification; without such knowledge the adoption of the acts of an unauthorized agent, or one who has exceeded his authority, will not bind the principal ; but on the contrary, if he has given his assent while in ignorance of the facts of the case, he may on being informed, disavow the unauthorized transaction.” 1 Am. & Eng. Ency. Law (2d ed.), 1189.
Mr. Clure’s letter did not advise appellant of all the facts and circumstances pertaining to the disposition of his money. The appellant is in no manner compromised by the fact that the respondents, against his protest, pretended to elect him director and vice president of the German-American Trust
“Although it is said that the conduct of the principal will be liberally construed in favor of a ratification or adoption of the acts of the agent, yet a ratification is not to be presumed from a doubtful state of facts, but the question should be left to the jury.” 1 Am. & Eng. Ency. Law (2d ed.), 1195.
The trial court refused to permit the appellant to show that the stock in the State Bank of Washington which had been delivered to him was an overissue. We think this was prejudicial error. If the stock was an overissue there was no investment of appellant’s money which he could afterwards ratify. The court also refused evidence offered by appellant tending to show that a portion of the subscription money paid by himself and others had been used to start a bank in a small town some distance from Spokane. This evidence should have been admitted as tending to show a breach of trust and lack of good faith on the part of the respondents. We will not pass on all of the contentions made by appellant in the matter of the rejection of evidence. He pleaded conspiracy and fraud, which he was entitled to prove if he could do so. He was compelled to call the respondents to testify in his behalf. They were not only unwilling witnesses, but their interests were adverse to his. Under such circumstances much liberality should have been allowed him in conducting their examination. With
The judgment is reversed, and the cause remanded for a new trial.
Hadley, C. J., Root, Mount, and Fullerton, JJ., concur.
Dunbar and Rudkin, JJ., took no part.