Riegel v. Only Package Pie, Inc.

The Chancellor. The complainant must rest his case on the written proposal made by him and Compton and which appears in the statement of facts. The negotiations which went on from time to time among the persons interested in this corporation and its predecessor, the Louise Allen’s Kitchens, Inc., a corporation of New York, culminated in the making of said offer and so far at least as the defendant is concerned are merged therein. I, therefore, think that all those allegations of the bill which deal in considerable detail with Louise Allen’s Kitchens, Inc., the efforts to refinance it, and the negotiations and undertakings of the several individuals interested therein are immaterial. They are sought to be justified by the complainant on the theory that they are necessary to a correct understanding of the terms of the offer made to the defendant by the complainant and Compton and accepted by it. It is of course true that in ascertaining the meaning which the parties to a contract intend to express, the court may look into the situation as it existed at the time the contract was made and consider all its surrounding circumstances. But I am unable to discover anything in the details of allegation just referred to, which are necessary or helpful to a clear understanding of the terms of the proposal upon which the pending bill is founded. The question raised by the demurrer touching the contract is that the complainant is not entitled to have one-half of the defendant’s stock issued to him because the bill fails to show that he has performed the terms which under the offer are conditions precedent to his right to demand the stock. The allegations referred to in no wise explain or throw light upon the meaning of these terms. So far, therefore, as now appears the demurrer is well taken in this particular. The defendant’s demurrer further raises the point that the complainant is not entitled to have one-half of its authorized stock (250 shares) issued to him for the reason that the bill fails *360 to show that the defendant has corporate power to issue two 'hundred and fifty shares of its stock or that such issue will not be ultra vires. This is not a valid objection. If the defendant is unable to obey such decree as the bill seeks, and if such fact is a good defense to the bill, the defendant should bring it forward by way of answer. It is no more incumbent upon the complainant to show ability on the part of the defendant to perform its contract solemnly entered into, as the bill shows this one to have been, than it is upon the vendee in a bill for specific performance of a contract to sell land to show that his vendor is possessed of the title engaged by him to be conveyed. Another reason urged against the right of the complainant to a decree for the two hundred and fifty shares is that under the terms of the proposal he is not entitled to the shares until he has complied with the terms and conditions set forth in paragraphs (c) and (d) thereof. This contention is well made because the performance of these terms, unless waived or excused, is under the terms of the contract made a condition precedent to the complainant’s right to the stock. What does the bill show with respect to performance of the things referred to in these two paragraphs? With respect to whether the complainant ever made an assignment of the employment contracts mentioned in (c), the bill is silent. It should show a performance of this condition or offer some satisfactory explanation for not complying therewith. It was indicated at the argument that there were no such contracts in existence, that all sides knew this, and consequently (c) as written was incapacble of literal performance. Such facts, however, are not disclosed by the bill and accordingly, assuming them to be sufficient to excuse performance, cannot be considered. But more important than what has just been said with respect to (c) is what follows with respect to the obligation imposed upon the complainant by the lettered paragraph (d). The complainant has not complied with the requirement imposed by this paragraph, that he provide ten thousand dollars as working capital to be protected by secured notes, and alleges his determination not to do so until he secures a fifty per cent, voting control of the corporation which it was agreed among his associates he should have *361 —that is to say, until he has first received the two hundred and fifty shares which carry such voting control. The obligation to supply a loan of ten thousand dollars for working capital is denominated by the complainant as an independent undertaking, by which is meant, I suppose, that it is in no wise to be regarded as connected with the defendant’s obligation to issue the stock. I cannot so view the matter, for it seems plain that the undertakings of each of the parties are mutually conditional upon performance or willingness to perform on the part of the other. But, the complainant argues, a promise to lend money is not a lawful consideration for the issuance of stock by a corporation organized under the law of this State, and accordingly where full lawful consideration has otherwise been paid for stock as here (viz., in the transfer of all the assets of the Louise Allen’s Kitchen, Inc., a concern in which the complainant had put considerable money), the corporation cannot lawfully demand as additional consideration for its stock something which the law refuses to recognize as having value. It may be taken as true that a promise to lend money to a corporation is not such a consideration for stock as will satisfy the constitutional and statutory requirements of this State. But it does not follow that a corporation may not , in agreeing to sell its stock stipulate as a matter of contract that in addition to paying full lawful consideration therefor the subscriber or purchaser shall also lend money to it.. There is nothing unlawful about such an arrangement. Our constitution and statute prohibit corporations organized under the general law from issuing stock “except for money paid, labor done, or personal property, or real estate, or leases thereof actually acquired.” If stock is issued and fully paid for by property of any of these kinds, the lawful requirement is satisfied. There is no provision in the law which forbids the exaction of something additional. When the legal standard of consideration for stock, its quality and amount, is satisfied, the corporation is at liberty to insist on any additional terms by way of contract it may choose, whether such additional terms will furnish what in the first instance would be a lawful consideration or not. The complainant not having advanced the working capital *362 as he engaged to do and not tendering himself willing to do so, the demurrer is for this reason also well taken. The demurrer will be sustained.