Scottish Security Co.'s Receiver v. Starks

— 614 — Opinion cm the court by JUDGE SETTLE Affirming. The appellant, W. T. Newman, Jr., as receiver of a Scottish Security Company, sued the appellee, John P. Starks, in the lower court, upon an alleged unpaid subscription for twenty shares of the capital stock of the company named, the amount claimed being $1,800. The trial was by jury, and a verdict was found for the defendant, upon which judgment was entered dismissing the pejtitiom and allowing appellee his costs. The appellant’s motion for a new trial was overruled, and the case is here by appeal. The defense interposed by the answer was in substance that the appelleel was never in fact a subscriber to the capital stock of the Scottish Security Company, although his signature appeared to its articles of incorporation as a holder of twenty shares of its stock, but that the only purpose of his appearing, as distinctly understood between himself and' the incorporators, who were then the only stockholders,’ was to enable the company to become incorporated under the laws of West Virginia, and to effect an organization; and, further, that no stock was ever issued to or paid for by him, nor was it so intended, and that he had no connection with the officers or business of the company after its organization, and was, by consent of all the stockholders, released from his subscription to the capital stock of the company. The matters of defense averred in the answer were denied by reply. The facts presented by the record appear to be as follows: D. H. Wilson, W. C. Cowper, Alex Stewart, and Nathan Wolf, desiring to organize the Scottish Security Company, requested the appellee to join with them in the enterprise, which he at first seemed willing to do, but later he attended a meeting held by them, at which he informed them that — 615 — upon full consideration of the matter he had made up his mind not to take stock in the company, or part in its organization, but, in view of the representations of the persons named that the articles of incorporation had been already prepared containing his name as one of the incorporators, appellee was induced to sign the paper that it might be forwarded to West Virginia,- and the incorporation effected under the laws of that State,, without delay; but this act upon his part: was! with the distinct understanding and agreement that' he did not, thereby become a stockholder in the company, or liable for the stock, or any part thereof, set opposite his name, and in fact that he was then released from its payment. As stated, the real parties in interest were D. H. Wilson, W. C. Cowper, Alex.Stewart and Nathan Wolf. The names of Stewart and Wolf do not, however, appear in the articles of incorporation, for the reason that under the laws of West Virginia it was necessary that two of the incorporators be residents of that State; therefore the names of Edward Carder and D. S. Guthrie, residents of that State, and clerks in the office of its Secretary of State, were put in the articles of incorporation with those of Wilson, Cowper, and Starks, in the place of Alex Stewart and Nathan Wolf, each of the incorporators being represented in the articles of incorporation as having taken twenty shares of stock. Upon being incorporated, the company was organized at a meeting held in Charleston, W. Va., at which meeting appellee, to effect ¡the organization of the company, was elected a member of its board of directors. He was not at that meeting, but gave his proxy to another to represent him. The chief office of the company was to be and was kept in Louisville, Ky., and at the first meeting there held the appellee was present and tendered his written resigna — 616 — tion as a director of the company, according to the previous understanding and agreement, though the resignation does not seem to have been formally acted on until the following meeting, when it was duly accepted. In the meantime Carder and Guthrie had, at the meeting in West Virginia, transferred to Stewart and Wolf the stock set opposite their names in the articles of incorporation, and the stock over against the name of appellee in that instrument was never issued to him, but was divided among and issued to Wilson, Cowper, Stewart, and Wolf, as they had agreed with appellee should be done, and they paid tO' the company ten per cent, of the face value thereof, viz., $200. Later, one share each was issued to Stewart’s wife and a relative of Wolf. But at the time appellee signed the articles of incorporation the only real stockholders of the company were Wilson, Cowper, Stewart, and Wolf, the stock of the latter two having bedn subscribed in the names of Carder and Guthrie, and the same persons were in fact the only stockholders of the company when the release of appellee, if he ever was a stockholder, was consummated, when the twenty shares of stock supposed to .have been subscribed by him were divided among the other stockholders named. It was never contemplated by the parties that any of the stock should be issued to or paid for by appellee. It also appears that, at the time of the distribution among the real stockholders of the twenty shares that had' been placed opposite his name in the articles of incorporation, the company had not done any business beyond effecting an organization, nor had it contracted any debts. Upon the facts thus presented the question arises, was the release of the appellee from the payment of the twenty shares of stock legal? Or, in other words, is he liable for — 617 — the twenty shares of stock, or. any part thereof? There can be no question under the evidence hut that all the stockholders of the company consented to the cancellation of the appellee’s subscription, and had the twenty shares of stock intended for him issued to themselves. In 1 Cook on Corporations, section 169. it is said: “A subscriber for stock in a corporation can not obtain a cancellation of his subscription except by the unanimous consent of the other subscribers. Even a majority of the stockholders can not withdraw and refuse to proceed. These rules are just, and based upon a sound public policy. By unanimous consent of the stock holders a subscription may be canceled, and a subsequent creditor of the corporation can not complain.” The doctrine su/pra seems to be recognized in Gathright, etc. v. Oil City Land Co.’s Receiver (21 R., 1657), 56 S. W., 163, though the facts in that case were unlike those of the case at bar. The lower court gave but one instruction in this case, which was as follows: “The court instructs the jury that when the defendant, John P. Starks, signed the articles of incorporation of the Scottish Security Company, he became a subscriber for twenty shares of the capital stock of said company, and they should find for the plaintiff in the sum of §1,800, with interest from the 12th day of November, 1901, unless they shall believe from the evidence that after the said company was incorporated all of the persons then holding or owning stock in said company agreed or consented that the defendant should not be held upon his said subscription, and that the twenty shares of stock subscribed for by him was by reason of the said agreement or consent, if such there was, issued to other persons, and that the company did not then have any outstanding debts. If such is the fact, then they should find for the defendant.” We think this instruction submitted to the jury in explicit terms the — 618 — only question of fact necessary to be decided by them, consequently no other instructions were necessary. The fact that the cancellation of appellee’s subscription was not effected according to the laws of West Virginia is, in our opinion, entitled to no weight. The chief office of the company seemed to be in Louisville, this State; at any rate, the meetings of its board of directors, with one exception were held in that city, and, if the release of the appellee was effected according to the laws of this State, we think it legal and binding. The case here is not one in which,, the appellee is seeking to avoid the execution of a contract by relying upon a contemporaneous parol agreement contradictory of a writing, but he is relying upon the fact that the contract was executed and his release effected, whereby all liability under the contract, if any existed, was discharged. It seems to us therefore, to be immaterial whether the agreement resulted in his release was in parol or otherwise. The fact remains that the release resulted, and that the company by reason thereof issued to others stock which, but for the release, appellee would have been entitled to. How can appfellant compel the payment by appellee of the subscription to its capital stock when it is not in his power to issue to him the certificate of stock to which he would have been entitled in the event of such payment? • Being of the opinion that the" record discloses no error that is prejudicial to the rights of the appellant, the judgment is affirmed.