New Haven Trust Co., Receiver v. Gaffney

For the reasons given in the preceding case against Nelson, and which need not be repeated here, we think the court did not err in overruling the demurrer to the complaint in this case.

The answer in this case may fairly be regarded as setting up only two defenses. The first alleges, in substance, that the defendant bought his stock from the corporation upon the express condition that the price he agreed to pay for it should be received and accepted in full payment therefor, and that the stock should be issued to him as full paid and non-assessable. The second is to the effect that under the said sale contract he had the right to return the stock to the company and to receive the cash for it, and that he offered to return it as agreed, both to the corporation and to the plaintiff as its receiver, and demanded from each of them the cash paid for it, but they each refused to receive the stock or return the money.

The court below did not err in sustaining the demurrer to this second defense. The defendant under the sale contract had the right to return the stock, if dissatisfied, "after six months" from the time the stock was issued, and that means that the right was to be exercised, if at all, within a reasonable time after the six months expired; and there is nothing in the answer to show that he attempted to exercise that right within the time agreed upon. This part of the answer was thus clearly defective in respect to a material point, and constituted no defense.

We are also of opinion that the court below did not err in sustaining the demurrer to the first defense. The corporation, whose stock the defendant purchased, was a life insurance company chartered by the legislature of this State. By its charter it is provided that it "shall have a working capital to an amount not exceeding one hundred thousand dollars, divided into shares of one hundred dollars each at their par value, with power to increase the same to an amount not exceeding two hundred and fifty thousand dollars, and may commence business under this charter when fifty thousand dollars shall have been subscribed for and paid in to said working capital, which shall be in lieu of a reserve;" and further that "the shareholders shall not be personally liable, except for the amount of working capital subscribed for by them, but shall be liable for the full amount subscribed, if necessary to pay any valid claims against said corporation." 10 Special Laws, 616, 617.

Upon the facts alleged in the answer, the defendant became the owner of one hundred shares of the par value of $10,000, and by the issue of it to him he became as much obligated to pay its full par value when properly called upon to do so, as if he had been an original subscriber for it. The complaint states a good cause of action upon this obligation, and the defense to it is, in effect, that the defendant is not further liable on his obligation because the corporation agreed with him, in consideration of his purchase of the stock, that he should not be liable for more than sixty-five per cent of its face value. In other words, the defense is, in effect, that the corporation released and discharged him from his liability to pay the full par value. This defense cannot avail him upon the facts as they appear of record. His purchase of the shares in question from the company, it not being alleged that they were ever issued before, was equivalent to an original subscription for them.

The capital of this company was of a peculiar kind. It was, by the terms of its charter, to be in lieu of the re-insurance reserve which life insurance companies are ordinarily required to maintain. Such a reserve is a fund which must equal in amount at all times the aggregate policy liabilities at their then present value. It is created to secure those liabilities, and is from that circumstance impressed in a certain sense with an equity in favor of the holders of the policies. The charter of the Connecticut Indemnity Association fixed its capital stock, which occupied the place of such a re-insurance reserve, at a specified amount, to be divided into shares of $100 each at their par value. The amount thus arbitrarily fixed was not subject to change as the amount of policy liabilities might vary from time to time; and therefore it was the more necessary that this amount should always be preserved intact and unimpaired. Any contract by the company to issue shares at less than par was consequently ultra vires. The defendant, by taking the shares in question, became, under his contract of membership, liable to pay $100 for each of them. The condition that less was to be accepted, being ultra vires, was void. CentralTransp. Co. v. Pullman's Palace Car Co., 139 U.S. 24.

We have no occasion to determine whether an ordinary moneyed corporation could make such a contract. See 1 Cook on Stock Stockh. (3d ed.) §§ 166-170; 2 Thomp. on Pri. Corp. §§ 1511-1514.

The company which the receiver represented could therefore have maintained this action, and the plaintiff has the same right.

There is no error.

In this opinion the other judges concurred.