Steele, Receiver v. Coleman

The opinion of the Court was delivered by Mr. Justice Cothran. Action upon a promissory note signed by the defendant, dated May 24, 1918, due 60 days after date, amount $960, payable to himself and indorsed to the Planters Fertilizer & Oil Company, of which the plaintiff was appointed Receiver by order of Court dated June 18, 1920. The defendant alleges in his answer that the note was given in payment of a subscription made by him to the capital stock of said corporation, 12 shares, par value $100 per share; that he paid $240 cash, and gave said note for the remainder of his subscription; that his subscription was procured by an authorized agent of the corporation upon the representations: (1) That the entire amount of stock authorized and all that had theretofore been issued was to be paid for at par value in cash or in service or property at actual value; (2) ■ that the corporation would at once begin the manufacture of fertilizer and fertilizer material; (3) that- the subscriber would be given the opportunity to buy at factory prices his pro rata share of all the fish scrap produced by the corporation. He further alleges that said representations were false and knowingly so; that capital stock in a large amount had then been issued, or was soon thereafter issued; for which no value was paid in services or otherwise; that the corporation has never manufactured fish scrap or any other commodity,' and has never been in a position to offer its stockholders or others any fish scrap or any other fertilizer material. He further alleges that upon the payment of the $240 cash, and the execution of said note, he was entitled to receive stock of the par value of $1,200; that it has never been issued to him; that the subscription was for that reason *162 without consideration, and that he is entitled to a cancellation of said claim and by way of counterclaim to judgment for the $240 cash paid, with interest from May 23, 1918, at 7 per cent. He further alleges facts which do not appear in the case of Steele v. Singletary, 110 S. E. 833; filed herewith that on the same day his subscription was made he and the agent who had procured it agreed that his subscription should be canceled, and that the money paid and the note delivered should be surrendered to him; that this agreement not having been carried out, the defendant appeared at a regular meeting of the stockholders, and demanded that either his money and note be returned to him, or that he be permitted tO' exercise the privilege of a stockholder; that he was not satisfied by the authorized officer of the company that his demand for the return of his money and note had been acceded to; and that, the entire transaction having been rescinded, he would not be permitted to exercise the rights of a stockholder. To this answer the plaintiff interposed a demurrer upon the ground that it did not state facts sufficient to constitute a defense or counterclaim. The demurrer was sustained by the Circuit Judge, the answer was stricken out, and judgment directed for the full amount of the note in favor of the plaintiff. Erom this order and judgment the defendant appeals. The observations which follow the corresponding portion of the opinion in the case of Steele v. Singletary, 110 S. E., 833 (filed herewith), need not be repeated at this point, and are referred to as if incorporated herein. 1 The first ground upon which the defendant relies to avoid his contract of subscription is the alleged representation that the stock issued was paid for in cash, or in services or property at actual value; that as a matter of fact capital stock in a large amount had been *163 issued, for which no value was paid either in services or otherwise. The subscriber had the right tó assunje, without a representation to that effect, that the corporation had complied with the provisions of Section 2799, Vol. I, Code of Taws, A. D. 1912, prohibiting the issue of stock “éxcept for money paid, property delivered or labor done” the plain purpose of which was to “accord equal rights” to all stockholders. To do otherwise was a manifest wrong to the subscriber who paid in cash. The representation was, therefore, of a very material fact, not a promise, which naturally had its effect upon securing the defendant’s subscription. Certainly if the truth had been known, it may be safely assumed that it would not have been given. 2 The second and third grounds above stated are no more than promises, and, if not included within the terms of the subscription, cannot avail the defendant. 3 The suggestion that the contract of subscription is without consideration for the reason that no certificates of stock were issued to him when he paid the $100 and gave his note for $400 is without merit, as he had the right to enforce compliance with this obligation on the part of the corporation; it is no ground for canceling the contract. As we have endeavored to show, the only ground upon which the defendant should be permitted to contend that his contract should be annulled is that based upon the alleged misrepresentation that the capital stock issued had been paid for in money or services or property. As between him and the corporation, this misrepresentation, if established, would unquestionably avoid the contract. But a further serious question arises: Has the subscriber the right to set up this alleged misrepresentation as a bar to an action brought by the receiver of the corporation upon the subscription? This question is discussed in the *164 opinion just filed in the case of Steele v. Singletary, to which reference is made. For the reasons stated therein, the Circuit Judge was in error in sustaining the demurrer. The judgment of this Court is that the judgment of the Circuit Court be reversed, and that the case be remanded to that Court for a new trial. Mr. Justice Watts did not participate on account of illness.