Galbraith v. McDonald , 123 Minn. 208 ( 1913 )

Holt, J.

The only question presented by the appeal is the right to recover upon a promissory note given to a corporation for a share of its stock when the only defense is a failure to deliver or tender a share certificate.

The record discloses that the first meeting of the stockholders of the Washington County Co-operative Company, a corporation, was held in March, 1909. The corporation was organized to carry on & mercantile business at Stillwater. To promote the business the -plan was to obtain patrons for the store by inducing farmers and -others'who lived within trading distance to become shareholders in the corporation. The defendant alleges that he was solicited to -subscribe by a duly-authorized representative of the corporation and pursuant to such solicitation, he on June 24, 1909, bought one share and gave in payment the note in suit. The note was subsequently pledged but is now in the hands of the plaintiff as trustee in bankruptcy of the corporation. The defendant alleged that the note was executed upon the agreement that a share certificate should be delivered concurrently with delivery of the note, but no attempt was made to prove such a contract. The court found upon the uncon"tradicted testimony of defendant that he bought one share of stock in the corporation for which he gave the note in suit for $100, payable to the order of the corporation within one year from date, and ■at the same time he received a receipt so stating. It was also found that no certificate for the share so bought was issued hy the corporation to defendant. Judgment was ordered for plaintiff. • Defendant appeals.

Plaintiff contends that the transaction between defendant and the ■corporation amounted to a subscription to a share of stock; and ■defendant, that it was a contract of sale. There is no statute prescribing the mode in which a person may become a shareholder in a corporation. Previous to organization it is necessarily through subscription to shares of stock to be issued; after incorporation it may also be by subscription, or by purchase from the corporation direct or from other owners of its stock. It might well be claimed that the transaction here under consideration was a subscription. Defendant alleged that his subscription was solicited. He gave the note and obtained the receipt showing him entitled to one share. A promissory note embodying a statement that stock of a corporation is to be issued to the maker, has been held to be a subscription contract. Goshen Turnpike Co. v. Hurtin, 9 Johns, 217, 6 Am. Dec. 273, and Wemple v. St. Louis, J. & S. R. Co. 120 Ill. 196, 11 N. E. 906. In the latter case it is said: “The rule is, when no-formalities are prescribed, any agreement by which a person shows an intention to become a shareholder upon the terms set forth in the company’s charter, is sufficient to constitute a contract of subscription.” If a subscription, then it is settled by Columbia Ele. Co. v. Dixon, 46 Minn. 463, 49 N. W. 244, and Marson v. Deither, 49 Minn. 423, 52 N. W. 38, that the fact that a certificate has not been delivered or tendered is no defense to a suit on the subscription.

Put, even if defendant was not a subscriber to the share of stock, we think his testimony and the findings make it clear that as. between him and the corporation he became a shareholder therein by the transaction. Defendant claims he bought, one share of stock for which the corporation accepted his note in payment. It was-not necessary that a certificate be issued. That is a mere indicia, of title to the share. Randall Printing Co. v. Sanitas Mineral Water Co. 120 Minn. 268, 139 N. W. 606, 43 L.R.A.(N.S.) 706; Marson v. Deither, supra. The defendant did not insist on a certificate;. at the time of the transaction, nothing was said as to when it should issue. Having thus left this matter in abeyance, he must at least, make a demand for it before he can place the other party in default,, or else he must show that a demand would have availed nothing. Plaintiff is not suing upon a contract of sale and. purchase. If defendant instead of giving his note had paid cash and obtained the-receipt he did obtain, could he possibly have any standing in court. to recover back the money so paid by simply proving that he had paid it for a share of the stock, but no certificate had ever' been delivered or tendered to him? We think not. He would at least be under the necessity of proving a demand. He neither pleads nor proves any demand nor any excuse for failing so to do in this case. Text-books and decisions assert that there is distinction to be noted between sales of corporate stock and subscriptions thereto. That is undoubtedly true in respect to executory contracts of sale. But where an actual sale has been made and the title to the stock has passed, we fail to see any distinction between persons who are subscribers to stock and those who have actually bought it of the corporation. Both at some time become entitled to a certificate upon demand, both are entitled to dividends and both must bear risks; as shareholders. Cases like Clark v. Continental Imp. Co. 57 Ind. 135; Nichols v. Reid, 109 Cal. 630, 42 Pac. 298; Bartlett v. Scott, 55 Neb. 477, 75 N. W. 1102, and others which might be cited, are not applicable, because according to the terms of the contracts involved payment was to be made upon delivery of the certificates.. Craig Silver Co. v. Smith, 163 Mass. 262, 39 N. E. 1116, turned? on the point that the certificates tendered were not the ones called for by the contract.

It has been suggested that there is a failure of consideration because it appears that the corporation is now bankrupt. Of course if the rights of a shareholder passed to defendant by his purchase there was a consideration at the time. The mere fact that the value of this right may since have dwindled away does not constitute a defense to the note. The cases of Clark v. Turner, 73 Ga. 1, and Leigh v. Chattanooga R. & C. Ry. Co. 104 Ga. 13, 30 S. E. 381, are not applicable, for it there appeared that no certificate could be issued because no more stock remained. There is no evidence to support the allegations in the answer that the certificate cannot now be delivered, or that the share has now no value.

Order affirmed.