Water Valley Manufacturing Co. v. Seaman

Chalmers, J., delivered the opinion of the court. The Water Valley Manufacturing Company, which consisted of eleven persons, finding itself embarrassed in its operations for want of means, sought and obtained from the legislature an [659] amendment to its charter, by which its shares of capital stock were reduced in value from $500 to $50 per share. For the purpose of encouraging subscriptions, they then resolved to put their buildings and twenty acres of land into the new organization contemplated, at a valuation of $19,250, to be ratably divided among the eleven old stockholders, and against this sum were to be set the new shares that might be taken by the incoming subscribers. Two of the old stockholders held considerable debts against the corporation, and they agreed to release the buildings and the twenty acres of land which were put into the new organization, and to look alone to other lands owned by the old company. One Mrs. Wagner held, as guardian of her minor children, and as administratrix of her husband’s estate, a trust-deed for $4,000 on all the property of the company. She, too, agreed to release the twenty acres and buildings, and to look alone to the other lands, and executed a formal release in writing to this effect, which was duly recorded. These matters having been arranged, a public meeting of the citizens of the town and vicinity was called, which the officers and directors of the company attended, and there proclaimed these things, and urged the people to subscribe, assuring them that there no longer remained any debts against so much of the property as it was proposed to put into the new-enterprise. They also sent out a special canvassing agent to procure subscriptions, who everywhere announced, as he was instructed to do, that the organization would no longer be crippled by these old debts. The defendant Seaman was induced by these assurances to subscribe for two shares of the capital stock, to enforce payment of which this suit is brought. His defence is that these assurances, upon which he relied, and upon which he had a right to rely, were false in fact; that one of the old stockholders, who pretended to have released his debt, except as to the outside lands, had successfully asserted in the courts a claim for $2,000, under a mechanic’s lien, against the building, and would have sold the same, had not Mrs. Wagner, who pretended to have released her mortgage, prevented a sale, by enjoining him, setting up her own superior rights under her mortgage ; and that the administrator of the other old stock [660] holder (he being dead) had also brought suit, and recovered judgment upon his claim, which was pretended to have been released. The answer to this on the part of the company (the case originating in .the magistrate’s court, and all the pleadings being oral) is, that these creditors were equitably estopped, as against the new subscribers, from enforcing their debts; that the new subscribers, or the company acting in their behalf, could and would enjoin a prosecution of these demands against any thing save the outside lands belonging to the old company ; and that inasmuch, therefore, as the new subscribers never could be damnified by these demands, the attempted inequitable enforcement of them constituted no ground to resist payment of the subscriptions. If we concede that this position is sound with reference to the suits brought by the two original stockholders, it certainly is not as regards the Wagner mortgage. That was given to secure money belonging to the children, of whom Mrs. Wagner was guardian, and the estate of which she was administratrix. Neither a guardian nor administrator can release without payment any valid security belonging to the trust estate in his hands ; and the debt secured by the mortgage in this case regained as much an incumbrance on the whole property after Mrs. Wagner’s void release as before. As to that debt, therefore, there was a clear misrepresentation made to the subscribers, under all these circumstances, which, in Selma, &c. Railroad v. Anderson, 51 Miss. 829, it was said would avoid the subscription. It was sought to obviate this by an offer to show that, if the resisting subscribers (there are f25,000 of subscription depending upon this case) had paid up their subscriptions, it would have put the enterprise into such a condition of prosperity that the outside lands (lying immediately adjacent to the town of Water Valley) would have enhanced in value to such an extent as to have paid off the Wagner mortgage and all other debts, and thus preserve intact the property put into the new organization. This testimony was properly excluded. This is not a case, as argued by counsel for the appellant, where one party to a contract is setting up a failure of consid [661] eration, produced by his own failure to pay, which was held inadmissible in Cook v. Whitfield, 41 Miss. 541. The defence here is that the party has been entrapped into a contract by false representations ; and it is sought to meet this defence by showing that, if the defendant will pay, notwithstanding the fraud, his money will be so used that he will sustain no harm. This is inadmissible. The defence is complete when the fraud is shown; and it cannot be overcome by any considerations of future possible advantages to arise from an enforcement of the contract. * It is unnecessary to consider the other points discussed ; but we are specially requested to pass upon the questions whether there had been a declaration of forfeiture of the stock, as shown by the minutes of the directory, and whether the subscription would have been void if the subscriber had failed to pay one per cent at the time of making it. We answer both questions in the negative. The company had the right, under the charter, to declare a forfeiture of stock for non-payment; but it does not appear that they exercised it, though there was a threat to do so in some of their resolutions. The obligation to pay one per cent at date of subscription was not a requirement of the charter, and, therefore, a failure to pay it does not avoid the contract. Hayne v. Beauchamp, 5 S. & M. 515, 588. Judgment affirmed.