Hathaway v. Vaughan

Brooke, J. (after stating the facts). It is urged by appellant that the contract entered into between his insol [273] vent and defendant was an absolute nullity; that it amounted in effect to an agreement on the part of plaintiff’s insolvent to pay dividends upon defendant’s stock, whether such dividends were earned or not; and that, the contract having been performed by the insolvent, the trustee may maintain an action in assumpsit, upon the ground that the defendant has accepted and appropriated the benefit of the contract — this alleged right of action resting, not upon the contract, but upon the duty, promise, or obligation springing from the property, money, or benefit conferred by plaintiff and received by defendant. We think that appellant is in error upon each one of the foregoing propositions. There can be no doubt that the responsible officers of a corporation may sell its capital stock at par, and may likewise, in good faith, sell its personal property for a sum, part to be paid in cash, and the balance, if paid at all, to be paid from dividends thereafter to be declared upon the stock of the corporation sold to the vendee of the personal property in the same transaction. It will be noted that the corporation did not agree to pay dividends upon the $1,000 of stock sold, to the amount of $2,170, within four years. It did agree that it would accept $500 in cash and such dividends upon the stock as might be declared, up to the amount of $2,170, within four years, in full consideration for the automobile, and further, that if, within said period, the dividends declared did not amount to $2,170, then the $500 cash, paid by defendant, should be accepted by the corporation in full of his obligation. This contract was entered into between the corporation and defendant in good faith, and in the evident belief that the stock sold was worth the sum paid for it by defendant, and would produce dividends to meet the balance of the obligation. As a matter of fact, the stock was absolutely worthless. While this was unknown to the corporation, or its responsible officers at the time, it had the means of ascertaining the truth, while the [274] defendant was obliged to rely upon the representations of the corporation as to the value and probable earnings of the stock. This was not a contract between a corporation and a stockholder, but one between the corporation and a stranger, by the terms of which the stranger became a stockholder and vendee of certain personal property. Plaintiff cannot recover upon the theory of an implied contract. The contract was express and fully executed upon both sides. Defendant has done all he agreed to do, and plaintiff’s insolvent has done nothing more than it contracted to do. Galloway v. Holmes, 1 Doug. (Mich.) 330; Van Fleet v. Van Fleet, 50 Mich. 1 (14 N. W. 671); Searles v. Reed, 63 Mich. 485 (29 N. W. 884). An action in assumpsit affirms a contract where there is one. Galloway v. Holmes, supra. Aside from this, neither plaintiff nor his insolvent has attempted to avoid the contract. Plaintiff still retains the $1,500, the fruits of the contract to his insolvent, and now seeks to impose new and alien liabilities upon the defendant. The plainest elements of justice forbid such a course. As was Said in Parish v. Wheeler, 22 N. Y. 494: ‘ ‘ The executed dealings of corporations must be allowed to stand for and against both the parties, when the plainest rules of good faith so require.” See, also, Rehberg v. Tontine Surety Co., 131 Mich. 135 (91 N. W. 132). The judgment is affirmed. Bird, C. J., and McAlvay, Blair, and Stone, JJ., concurred.