Pasadena Rapid Transit Co. v. Munson

The appellant subscribed for certain shares of the capital stock of the respondent and the subscription contract was consummated prior to the organization of the respondent. A promissory note was given by the appellant to cover a part of the amount subscribed by him and this action was commenced to recover on the note. The plaintiff had judgment and the defendant appeals.

After the respondent was organized it issued all of its shares of stock, none of it, however, going to the appellant. A large block of the stock was issued to another corporation in payment for certain property which that corporation conveyed to the respondent; but on the same day that the shares were issued this second corporation transferred a considerable portion of its shares back to the respondent, "to be held," according to the findings of fact, "as treasury stock of plaintiff and to be sold for the benefit of plaintiff or issued to the subscribers for the capital stock of plaintiff." It is only out of this returned stock that the respondent is able to issue to the appellant any shares as and for the shares subscribed for by him. The appellant contends that this stock is not the stock for which the subscription was made, that he is entitled to an original issue from the treasury, that the consideration for the note has wholly failed, and that judgment should have been pronounced in his favor.

The theory behind the appellant's contention is, of course, that the stock which, alone, the respondent is able now to issue to him is charged with a contingent liability under the law (see R. H. Herron Co. v. Shaw, 165 Cal. 668, [Ann. Cas. 1915A, 1265, 133 P. 488]), different from the subscription or "trust fund" liability which would be incident to shares issued to him in the first instance, from the treasury of the respondent. The appellant does not, however, present such a record as enables him to make this contention. The appeal comes to us upon the judgment-roll alone, without a bill of exceptions. Therefore, the trial court having found that the shares which were returned to respondent were to be held as treasury stock and were to be issued, in part, to the subscribers for the capital stock of the respondent, we are bound to assume that there was evidence to support the finding. (Paine v. San Bernardino V. T. Co., 143 Cal. 654, [77 P. 659].) The finding means, necessarily, that the stock waslegally returned to the treasury to be legally issued to subscribers, and without injury to their rights, if such a thing were possible under any state of facts which might have been presented to the trial court. It is well settled that a contract for an original issue of shares of stock in exchange for property is in legal effect but a subscription to stock, even if it be not a subscription contract in form. (Cook on Corporations, sec. 22.) It is equally well settled that a corporation may, under certain circumstances, and certainly as against all but existing creditors, cancel a subscription to stock, especially if the cancellation relate to only a part of the shares subscribed for (Thomas v. Wentworth Hotel Co.,16 Cal. App. 403, [117 P. 1041, 1046]; Silica Brick Co. v.Winsor, 171 Cal. 18, [151 P. 425]); and there is nothing in the record before us to show that the respondent had creditors at the time the shares of stock in question were returned to the treasury.

The judgment is affirmed.

Conrey, P. J., and James, J., concurred.

A petition for a rehearing of this cause was denied by the district court of appeal on June 25, 1918.