Pothier v. Reid Air Spring Co. , 103 Conn. 380 ( 1925 )

The trial judge held that the instrument of sale or return, Exhibit C, was illegal, contrary to public policy and in contravention of the statute relating to purchase by a corporation of its capital stock, and that this illegality so tainted the whole transaction between the parties, as to prevent a recovery for money loaned, as claimed in the first count of the complaint, and also for the cause of action as sought in the second count. This claim is not raised by the answer of the defendant, unless the allegation of want of authority of the president to conclude a transaction of the nature developed by Exhibit C can be held to cover the point on which the verdict for defendant was directed. The contract, Exhibit C, if illegal, was illegal upon its face, and the surrounding circumstances were before the court, and the question was fundamental in the case, so that we think the position of the case brings it within the exception recognized in Davis v. Hemming,101 Conn. 713, 727, 728, 127 A. 514, and that the court was justified in its action in considering this point.

Reserving for the present a detailed examination of the question of the illegality of the instrument, and assuming that the transaction was properly so regarded, we proceed to examine the claim that the illegality of the collateral security went to the loan itself and prevented recovery on the first count. The document itself, Exhibit C, is of such wording as to properly be used as collateral to a loan. It creates in effect a privilege to tender six shares of stock to the company and receive therefor $540. It is what is known in the language of the stock market as a "put." Such a contract is in stock dealings frequently used as collateral to a loan.

In this situation the law is clear that the plaintiff could pursue all of his remedies for recovery upon the indebtedness alleged to be due him, one of which was an action upon the contract of indebtedness itself without regard to the collateral pledged to secure it.Stebbins v. Kellogg, 5 Conn. 265, 268; In re Waddell-EntzCo., 67 Conn. 324, 336, 35 A. 257; Robinson v.Hurley, 11 Iowa 410, 79 Amer. Dec. 497, and note, 505; Polhemus v. Prudential Realty Corporation,74 N.J.L. 570, 577, 67 A. 303; 31 Cyc. 868, 869; 21 R. C. L. 685; Jones on Collateral Securities (3d Ed.) § 589; Colebrooke on Collateral Securities (2d Ed.) § 113. The first count in the complaint is framed to recover for an indebtedness, a loan from plaintiff to defendant, and is adequate and sufficient for that purpose. The nature of the collateral pledged does not affect the transaction, whether good or bad, valid or invalid. It is true that this count contains an allegation of an offer to return the collateral, and a refusal to accept it. While a proper allegation to make, it was unnecessary, as appears by the authorities just cited, and it in no way impairs the sufficiency of the complaint. The summary of the evidence for plaintiff contains matter sustaining the allegations of this count, and although contradicted by evidence adduced by the defendant, there remained a question of fact for the consideration of the jury, and the issue of fact should have been committed to the jury. Upon appeal from a directed verdict, this court must assume the truth of the appellant's testimony, though contradicted, if the jury could reasonably have found the fact or facts which such evidence tended to prove.Hayes v. New York, N.H. H.R. Co., 91 Conn. 301,99 A. 694. The court erred in directing a verdict for defendant upon the first count.

The second count of the complaint is based upon the instrument of sale and return itself, Exhibit C, and the trial court rightly held that the illegality of the contract thereby evident upon its face prevented a recovery. In Martin Tire Rubber Co. v. Kelly Tire Rubber Co., 101 Conn. 534, 539, 126 A. 697, we have recently held a contract by a corporation to buy back its own stock is ultra vires as opposed to public policy. General Statutes, § 3429, provides two ways in which a corporation may acquire and hold its own stock, one to prevent loss upon a debt previously contracted, and the other method after approval of stockholders owning three fourths of its capital stock, at a meeting warned and held for that purpose. It does not appear from the record that either of these conditions are present in the case. See also Crandall v. Lincoln, 52 Conn. 73, and Buck v. Ross, 68 Conn. 29,35 A. 763. It is not necessary to again recite the objections to such a procedure, as giving preference to plaintiff over other stockholders and perhaps over creditors. Plaintiff claims that defendant is estopped from raising the point just dealt with, by reason of having taken the plaintiff's money and receiving the consequent benefit. It is sufficient here to quote the concluding paragraph of the decision in Martin Tire Rubber Co. v. Kelly Tire Rubber Co., 101 Conn. 534,541, 126 A. 697: "We do not mean to be understood as acquiescing in the claimant's theory, that if the defendant corporation had in fact received a consideration for its illegal contract, it ought to be compelled to do that which the statute forbids it to do."

Plaintiff further contends that the complaint and the facts present a case permitting a recovery for money had and received, even though the contract be illegal as ultra vires and against public policy, in that in such case the whole contract contained in the instrument was void, and he received no title whatever in the stock transferred to him, and so was entitled to have his money back. Assuming that the extremely liberal and favorable construction of the complaint contended for might be made, we are met by the fact that the record does not give adequate information for us to pass upon the claim. Among the questions left open is that of where the defendant got the stock it sold. Stock in Connecticut corporations is ordinarily acquired by subscription and then belongs to its stockholders. The company can hold what is called "treasury stock," only if acquired by it in accordance with General Statutes, § 3429, just referred to. The query at once arises: Where did the company get the stock it sold? We do not know. The record is incomplete.

There is error and a new trial is ordered.

In this opinion the other judges concurred.