Allen v. Edwards

Whitfield, C. J., delivered the opinion of the court. The plaintiff introduced a note, signed by L. E. Edwards, dated December 16, 1905, for $2,187.59, due December 28, 1906, bearing interest at 10 per centum after maturity, payable to the Bolivar County Bank, or bearer. There was a suit by Allen, receiver of the Bolivar County Bank, against L. E. Edwards on this note; the bank having failed. The defendant, B. E. Edwards, by his plea admitted execution of the note, but claimed that at the maturity of the said note the bank was indebted to him in certain sums, to-wit: Cash on deposit at tbe time of assignment which the bank had made, $1,526.27, arid the amount of the proceeds of a note collected from J. S. Edwards for $750; in all, $2,276.27. The defendant therefore claimed that the .bank would owe him on settlement $88.77. The bank failed on February 8, 1906, and made an assignment. The plaintiff in his replication admitted an indebtedness on the part of the bank to B. E. Edwards at the time of the failure in the sum of $1,065.34, and stated that he stood ready to allow that sum-as a credit on the note of 'the defendant sued on. In his replication he denied that the Bolivar County Bank was in — 726 — debted to tbe defendant in the sum of $750, the proceeds of the. note of J. S. Edwards which had been collected by the receiver, and also denied that L. E. Edwards had on deposit in the bank at the date of its failure any more than $1,065.34 aforesaid, and denied that defendant was entitled to any counterclaim, or-set-off other than that sum.' The question for decision in this case is whether, under the agreed state of facts, this set-off can be allowed. The parties then entered into the following agreed statement of facts: “It is agreed by and between the counsel for plaintiff and defendant that the plaintiff, D. J. Allen, Jr., was at the time of the institution of this suit the duly appointed and qualified receiver of the Bolivar County Bank, and was then and still is acting as such. It is agreed that at the time of the failure of the Bolivar County Bank on February 8, 1906, L. E. Edwards had on deposit in said bank, to the credit of his account as clerk, the sum of $295.50, and a further credit to his account individually of $1,234.52; that at the time of the failure of said bank the firm of Edwards & Williams, of which firm L. E. Edwards was a member, was indebted to the Bolivar County Bank in the sum of $232.28, which amount has since the failure of the bank been charged to the account of L. E. Edwards; and, further, that at the time of the failure of said bank E. G. Galloway was indebted to said bank at the time of its failure in the sum of $170.40, which amount the said L. E. Edwards for valuable consideration assumed, and by his direction the said amount was charged to the account of L. E. Edwards by the receiver. It is agreed for the defendant that some time in the early part of 1905 L. E. Edwards agreed to take some stock in the Bolivar County Bank, and gave to it a note of J. S. Edwards, payable to L. E. Edwards, to .collect and issue to him the stock for the amount of the note; that the said note became due in the fall of 1905, and J. S. Edwards gave a renewal note, payable to the Bolivar County Bank, to pay off and discharge this note; that the renewal note of J. S. Edwards for $750 was collected by — 727 — D. J. Allen, Jr., receiver of said bank. It is further agreed that the stockbook of the Bolivar County Bank shows an over-issue of stock, and shows no stock issued to L. E. Edwards ¿ but at the time the said Edwards agreed to take the six shares of stock in said bank the stock had not been fully issued. It is further agreed that no stock was ever issued or delivered to L. E. Edwards. It is further agreed that on the 20th day of January, 1906, the Bolivar County Bank paid to L. E. Edwards the sum of $64, being a dividend of 8 per centum on eight shares of the capital stock of said Bolivar County Bank, which sum was accepted by the said L. E. Edwards and that on the 4th day of April, 1906, the receiver of the Bolivar County Bank filed a bill in the chancexy court of Bolivar county to recover the said dividend, and at the June term, 1906, of said court, a personal decree was rendered against the said L. E. Edwards for the sum of $64. It is further agreed that the deed of assignment made by the Bolivar County Bank on the 7th day of February, 1906, to B. W. Griffith, assignee, recites that at a special meeting of the board of directors of the Bolivar county Bank, held on the 7th day of February, 1906, there were present B. H. Williams, C. B. Smith, S. T. Bucks, 1. E. Edwards, E. J. Knott, and II. M. Ward, directors of said bank. It is agreed that prior to the failure of the bank, February 8, 1906, L. E. Edwards had purchased and had transferred to him two shares of stock from H. D. Todd, for which the said Todd had fully paid, and which was regularly issued to the said Todd. It is agreed that the note of J. S. Edwards was renewed for $665, and when it was renewed the accumulated interest made the amount $750, and in consideration of the transfer of said renewal note for $665 the Bolivar County Bank was to issue "to said L. E. Edwards six shares of its caiptal stock.” It will be observed that on the 20th day of January, 1906, prior to the failure of the bank, the bank paid L. É. Edwards $64, being a dividend of 8 per centum on eight shares of the capital stock of the hank, which sum was accepted by the said — 728 — Edwards. The eight shares were made up of two shares issued to TI. D. Todd, and sold by him to L. E. Edwards, and the six shares subscribed for, or attempted to be subscribed for, by L. E. Edwards. In view of this fact, the contention on the part of defendant that he was a director aloné in virtue of the two shares received, purchased from Todd, falls to the ground. Undoubtedly the bank treated him as a stockholder on the entire eight shares. Undoubtedly he, in dealing with the bank, so regarded himself, else his reception of the dividend of $64 cannot possibly be explained consistently with good faith and fair dealing towards the creditors and depositors. It is earnestly insisted by learned counsel for defendant that the bank held the note of J. S. Edwards as an escrow merely, under the duty of collecting it for L. E. Edwards, and, when collected, of applying it to the payment of his subscription for the six shares of stock; and, further, that since it was not collected until after the bank failed, and since at that time there had been an overissue of stock, the bank could not issue any stock to L. E. Edwards, and'should have credited the proceeds of this note thus collected to him individually. It is impossible to sustain this contention on the facts in this case; one of the important factsi being that at the time Edwards agreed to take the six shares of stock the stock had not then been fully issued. It is also not denied that L. E. Edwards was a director of the bank, and acted as such in the execution of the assignment. It is also very significant that L. E. Edwards allowed the note of J. S. Edwards to be renewed, payable, not to himself, hut to the bank; he being a director of the bank at the time. It is not for L. -E. Edwards, director and’ stockholder, 'to go on acting as if he were a stockholder as to the whole eight shares, and as if he were a director based on the holding of the entire eight shares, and receiving $64 dividend based on the acknowledgment of the bank, and himself acting on the premise, both by himself and the bank, that he was a stockholder of the whole eight shares, throughout the period of the prosperity of tire — 729 — bank, and then, when tbe crash comes, to attempt to evade tbe obligation which the law has imposed upon him to the depositors and creditors of this failed bank. It would operate the grossest fraud upon the creditors of the institution, as well as on the depositors, to allow any such contention to prevail. He is clearly estopped from making any such defense on the facts of this case. The chief reliance of learned counsel for appellee is section 850, Ann. Code of 1892, which is as follows: “A note, obligation or security of any kind given or transferred by any subscriber for stock in any corporation shall not be considered, taken, or held as payment of any part of the capital stock of the company.” That section has no application in the solution of this case. It Simply provides that there can be no valid subscription to stock without the payment in cash therefor. The rule declared by that section was intended to secure the corporation and its creditors and depositors, and not to benefit a defaulting subscriber. Section 844 of the Annotated Code of 1892, is in the following words: “In all corporations each stockholder shall be individually liable for the debts of the corporation contracted during his ownership of stock, for. the amount of balance that may remain due or unpaid for the stock- subscribed for by him, and may be sued for by any creditor of the corporation; and such liability shall continue for one year after the sale or transfer of the stock. The stock in all corporations shall be transferable by the indorsement and delivery of - the stock certificates and the registry of such' transfer in the books of the corporation; but the legal title to the stock and the beneficial interest therein shall remain in the person appearing to be the owner by the books of the corporation, as to creditors, until after a boncu ftdü transfer has been made on the books.” Section 843 of the Annotated Code of 1892 is in the following words: “Every corporation may sue any subscriber for .stock therein for calls or installments that may remain due, or — 730 — his stock may be sold for such calls or installments in the manner prescribed in the by-laws; and if a mode be not prescribed, therein for the sale of stock, then the same may be sold, iby resolution of the board of directors, by any person who may be authorized by such resolution, to the highest bidder, on three.weeks’ notice, published in some convenient newspaper; but the-subscriber whose stock may be sold shall nevertheless be liable, for any deficiency of the sale under the amount due on the stock. The amount received shall be placed to the credit of' the stock sold and inure to the benefit of the purchaser, who, by such purchase, shall become a stockholder in the place of the-original subscriber.” The stock subscription of the bank was the means of the company, on the faith of which credit was given to it, and every subscriber was liable for debts contracted during his ownership-of stock, and for a year after he had transferred! it, to the amount of his subscription not paid according to its terms. See Scherck v. Montgomery, 81 Miss. 437, 33 South. 507, and Vick v. La Rochelle, 57 Miss. 605. The purpose of these-statutes and of section 850 is perfectly plain. They were all enacted for the purpose of protecting the depositors and creditors of a bank. They were not passed with any view to benefit. a defaulting stockholder. They had no aspect that way, but looked wholly to the security of depositors and protection of creditors. It is utterly immaterial whether L. E. Edwards was in law a valid subscriber to the stock or not. He held-himself out by all his conduct and dealings with the bank as-being a stockholder and a director — as a stockholder of these-six shares. _ He undoubtedly acted as director on tire strength of these shares, as well as the other two, and there is nothing in-the agreed statement of facts which warrants the theory of the-learned counsel of the appellee, that J. S. Edwards’ note was-delivered as an escrow. Having so held himself out towards depositors and creditors as a stockholder of these six shares, the law will take him at his word and deal with him as if he were: — 731 — in fact a stockholder, whether he was or not. In other words, he is estopped to deny as against creditors that he was a stockholder as to these six shares by his own course of dealing in tho-matter. The very authority so much relied upon by the learned counsel for the appellee (Hayne v. Beauchamp, 5 Smed. & M. 518) would clearly hold him liable on the note. It is true that Judge Siiarkey, speaking for majority of the court in that case, held that the subscription was a void act, “vesting no rights, in the subscriber, and imposing no obligation on the corporation;” but it is also true that the court held the party liablo on his note given for the stock, and held him a stockholder (because, it is said, by his consent the proceeds of his note were-applied in payment for stock) to the amount of that payment, “not in virtue of his original subscription, but by the subsequent purchase,” and a majority of the court consequently held him to be liable on his note. But it is to be noted that Judge-Clayton, in his specially concurring opinion, rested his concurrence upon the ground that the subscriber could not plead that he was not a stockholder as against creditors under circumstances like those in that case and in this case. We think Judge Clayton was entirely correct in saying that the “judgment creditor of a corporation has.rights beyond those of a corporation itself.” He says, also, in the close of his opinion: “Both parties treated the subscription as valid. The payment,, though not made at the time, was afterwards made, and, if this did not constitute him a stockholder at the time of the subscription, it' did at the time of the payment.” And he further held “that the opposite holding would enable the defendant to avail himself of his own wrong, and to violate -the elementary principles of law and justice.” We do not find it necessary in this case, on its particular-facts, to say whether this subscription was absolutely void. We do not think it was void in the sense that creditors cannot hold the defaulting subscriber on a note given for the stock. But — 732 — It is enough here that this man acted throughout as a stockholder of the eight shares, received dividends on the whole eight shares, and never intimated anything to the contrary until the calamity overtook the bank. He cannot, under these circumstances, be permitted to set up the invalidity of his stock subscription, or the invalidity of a note given therefor. We need go bo further than hold him estopped on the facts of this particular case. It is sufficient that the armor of Achilles leave his heel uncovered. ^he judgment is reversed, and the case remanded.