Occidental Insurance v. Ganzhorn

Lewis, J., delivered the opinion of the court. Defendant Ganzhorn subscribed for twenty-live shares of the capital stock of plaintiff, at the par value of $100 per share, paid 10 per cent, of the amount in cash, and gave a negotiable promissory note, in the ordinary commercial form, payable on demand, and signed by himself and his co-defendant, for $2,250, the residue. The petition sets forth that plaintiff’s board of directors had, from time to time, ordered certain assessments on defendants’ said stock-note, amounting in all to $875, for which sum, with interest, plaintiff prayed judgment. It is also alleged that plaintiff is a corporation created under the act concerning corporations, approved March 19, 1866. Defendants’ answer admitted the stock subscription and the execution of the note, but denied that plaintiff was, or had ever been, a corporation, as alleged. It denied that any assessments were ever made, as stated, and charged that the stock of the pretended corporation was a sham and a fraud from the beginning ; that certain persons, mentioned by name, had falsely represented themselves as duly organized in an incorporated association, and fraudulently offered to sell .stock to the public in said pretended corporation ; that all the acts done by said association, in pretended compliance with the statutes concerning corporations, were “utterly void in law, and of no effect;” that the defendants had no part in the so-called organization of said company, nor .any participation in the same, or profit from its business; that defendant Ganzhorn’s subscription, and the execution •of said note, were induced by the fraudulent representations of said associated persons, and after the said pretended organization, ami without any notice or knowledge of its false and fraudulent character. Plaintiff’s reply denied all the allegations in the answer, of new matter. The cause "being tried before the court, sitting as a jury, the issues were found for the defendants. • Two questions are material to the determination of this [208] cause: (1) Could the defendants be permitted, in defending against a note executed by them to a named corporation, to deny the payee’s corporate existence? • (2) If such denial was allowable, did the plaintiff fail to prove itself a. corporation duly created according to law? 1. Plaintiff’s counsel rightly states the general rule that, a party cannot, after contracting with a corporation, as such, and securing to himself the benefits of the compact, escape, its reciprocal obligations by denying the existence of the. other contracting party. Nor can one who, by taking stock, or otherwise, deliberately aids in the formation and introduction of a pretended corporation, not legally authorized or created, assert such illegal or unauthorized origin against his voluntai-y undertaking to pay for the stock subscribed. But fraud vitiates every obligation or undertaking whose, supposed basis of good faith and fair understanding of the facts is found to have been illusory. Hence it is declared that, ‘ ‘ Where a charter has been obtained by means of' fictitious subscriptions for part of the stock, and a fraud has been committed on a bona fide subscriber, by which he has either sustained or might sustain injury, no action can be-maintained against him by the corporation for the amount, of his subscription, unless such subscriber has accepted the. charter, and by his own acts has assisted in jiutting it in operation.” Ang. & Ames on Corp., sec. 531; Center T. R. Co. v. McConaby, 16 Serg. & R. 140. In Central Plank R. Co. v. Clemens, 16 Mo. 365, where a similar question was under consideration, Judge Gamble said: “In the-present case, as it stands admitted upon the record that the defendant has assisted in the organization of this company, he will not be permitted to escape the duty he assumed when he subscribed for the stock, upon the ground that the company was not organized in strict conformity to. the law.” In the case now before us the answer distinctly avers every fact which these authorities declare requisite for. open [209] ing the way to a denial by the defendants of the plaintiff’s corporate existence. It only remained to sustain the averments by their proofs. Plaintiff exhibited in evidence its license, bearing date-June 13, 1866, issued by the secretary of state under section 4, chapter 74, of the “ act concerning private corporations,” approved March 19, 1866, which recited that the-ten corporators therein named had duly filed their articles-of association, verified by the affidavit of over three of the persons signing the same ; that one-half of the capital stock of said company had been in good faith subscribed, and $5,000 thereof paid in by the persons subscribing therefor. The license recited full compliance with the law in other particulars, and thereupon declared the corporators and their successors to be a body politic and corporate, by the name and style of “ Occidental Insurance Company of St. Louis, Mo.,’’ etc. Other testimony was introduced by plaintiff, tending to prove the organization and operations of the company, with the making of the several assessments, set forth in the petition. Defendants introduced in evidence an officially certified transcript of the plaintiff’s articles of association, from which it appeared that the capital stock of the company was $100,000, divided into shares of $100 each; that the whole of said stock was then already subscribed by the ten corporators, who each took 100 shares, or $10,000 thereof. It appeared from this transcript that no affidavit was in fact filed with the original, as stated in the license, but that, instead thereof, an ordinary certificate of acknowledgment was appended by a notary public, in the form used for deeds and conveyances^ Defendants introduced further testimony tending to prove that a considerable number of the alleged stock subscriptions were fictitious — were never intended to be enforced, and were exhibited for the sole purpose of inducing bona fide subscriptions by other parties. That, when the license was issued, the sum of $5,000, as [210] required by the statute, had not been paid by the subscribers, real or pretended* and that not exceeding $4,500 was ever so paid at all; that defendant Granzhorn had been deceived into his subscription of stock and execution 'of the note sued on, by the fraudulent misrepresentations •of the parties managing’ the company, long after its organization, and without any knowledge or suspicion of its tmsoundness in law and in fact. At the close of the testimony the court, of its own motion, •declared the law to be that, upon all the evidence in the case, the plaintiff was not entitled to recover. Plaintiff asked for several declarations of law, which were refused. The three first, in effect, asserted defendant Granzhorn’s incompetency, as a stock subscriber, to deny the plaintiff’s legal existence, in order to avoid liability upon his subscription and note, or to impeach the validity or regularity of the company’s organization and subsequent proceedings. The element of possible fraud committed upon the defendant being ignored in these instructions, there was no error in refusing them. The fourth instruction assumed the existence of an affidavit attached to the articles of association, and was therefore inadmissible. The fifth, upon certain hypotheses which were unobjectionable, declared that, unless the court believed, from the evidence, “ that the said 25 shares of stock were unauthorized by law, and that plaintiff is not now in fact, and never was, a body corporate, and the stock thereof was and is a sham and a fraud, issued with intent to deceive and defraud defendant,” then the plaintiff was entitled to recover, etc. This was objectionable, as requiring too much of the defendant to sustain his defense. It was sufficient for him to show, as already explained, that merely a part of the stock was fictitious, if that was effectual to mislead him. Rut, apart from this verbal inexactness, it is manifest that the refusal of the instruction operated no harm to the plaintiff’s case. The court’s finding upon the facts, as gathered from its treatment of instructions offered on either* [211] side, make it evident that, had the instruction been given, the result would have been the same. The sixth and seventh instructions offered by plaintiff were also objectionable in the presentation of hypotheses of fact upon which it was assumed the defendants would be estopped and the plaintiff •entitled to recover, and which yet ignored all the features of misrepresentation, etc., made essential, by the testimony, to any fair statement of the case. It may be said of these instructions, also, that from the general course of the testimony, and its evident impression upon the court, there would be no ground for reversal, even if it could be shown that they ought to have been given. The finding was manifestly for the right party, upon any view of the theories they suggested. The court, upon defendants’ application, declared the law to be that, “if it appear from the evidence that $50,000 had not been in good faith subscribed to the capital stock of the Occidental Insurance Company, and $5,000 thereo’f actually paid in cash at or before the organization of the company, then the judgment must go for the defendants.” This was the only instruction asked for by ■defendants, and was properly given, as already appears. Many exceptions were saved by plaintiff upon the court’s rulings in admitting or excluding testimony. In all cases, however, the action of the court was conformable with the principles applied to the instructions, and herein approved. Plaintiff’s counsel has preserved and presented here every point, apparently, that could possibly be made in his client’s behalf; but, upon a careful examination of them all, we are unable to discover any available error in the proceedings below. All the judges concurring, the judgment is affirmed.