Ellis Jones Drug Co. v. Williams

Smith, C. J., delivered the opinion of the court. The appellant sued the appellee upon a promissory note executed by him to the Drew Drug & Chemical Company, of which the appellant claims to be the holder in due course, and from an adverse judgment has brought the case to this court. In 1920 several persons, among whom was the appellee agreed to organize a corporation to be known as the Drew Drug & Chemical Company, for the purpose of engaging in the drug business at Drew, Miss., of wliich Caulfield was to be the manager. In order to simplify the matter, each of these persons executed promissory notes payable to the proposed company, covering the amount of stock subscribed for by him therein, and do *175 livered them to Green, who was actively engaged in organizing the corporation, with the understanding that they were to be returned to the makers thereof in event the corporation should not be organized. A charter for the corporation was obtained, but on account of adverse business conditions the proposed incorporators decided to defer organizing the corporation, with the result that it was never organized. Caulfield opened a drug business of his own at Drew, under the name of Drew Drug & Chemical Company, with some sort of an understanding with Green that it would be taken over by the corporation in event it should be organized. The notes executed for stock in the proposed corporation were left by Green with Caulfield for safe keeping. Caulfield became indebted to Ellis Jones Drug Company, and delivered these notes to it as security therefor, and for a small additional credit. According to the evidence for the appellee, the appellant knew at the time it received the notes that the corporation had not been, and probably would not be, organized. The appellant denied having any such knowledge. One of the appellant’s contentions is that all of this evidence as to the nonexistence of the corporation is incompetent, under section 60 of the Negotiable Instruments Law, chapter 244, Laws of 1916 (Hemingway’s Code, section 2638), which provides that: “The maker of a negotiable instrument by making it engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse.” The meaning of this statute and its effect here are wholly immaterial. The note here in question is payable to “Drew Drug & Chemical Company,” and recites on its face that it was given “for five shares of stock in the above company.” Section 921, Code of 1906 (Hemingway’s Code, section 4095), provides that: “A note, obligation, or security of any kind given or transferred by any subscriber for stock in any corpora *176 tion shall not "be considered, taken, or held as payment of any part of the capital stock of the company.” The taking of this note therefore is expressly prohibited by statute, and of itself alone confers no right upon the maker against the corporation even had it come into existence (Alford v. Laurel Improvement Co., 86 Miss. 375, 38 So. 548), nor on the corporation against the maker, for “commercial paper cannot be based on any consideration expressly forbidden by a statute.” 8 C. J. 243; Montjoy v. Delta Bank, 76 Miss. 402, 24 So. 870. We are not here concerned with, and of course express no opinion on, the validity of a subscription to stock for which the corporation has accepted a promissory note in payment (Hayne v. Beauchamp, 5 S. & M. 515; Allen v. Edwards, 93 Miss. 719, 47 So. 382); with the validity of a promissory note discounted by. a corporation and the proceeds thereof applied to the payment of stock in the corporation (Hayne v. Beauchamp, 5 S. & M. 515; Lewis v. Roberts, 13 S. & M. 558; Hepburn v. Kincannon, 74 Miss. 691, 21 So. 569); with the right of a subscriber to recover from a corporation or its receiver the amount of a promissory note transferred to the corporation in payment for stock therein and afterwards collected by the corporation or its receiver (Allen v. Edwards, 93 Miss. 719, 47 So. 382); nor with the validity of a promissory note executed to a corporation for stock therein, the charter of which or a statute provides that it shall not commence business until its capital stock or a specified amount thereof shall be paid (Hayne v. Beauchamp, 5 S. & M. 515; Hepburn v. Kincannon, 74 Miss. 691, 21 So. 569). Whether a b ana-fide purchaser of such a note without notice that it was given for stock in a corporation can collect it is not here involved, and we express no opinion thereon. Affirmed.