Maxcy v. Peavey

Jones, J. • It is undisputed that the defendant executed the notes in question, but it is claimed by defendant that his liability was not absolute and that it was conditional only; and that since the notes never passed out of the hands of the payee, they are subject to all defenses against any claim arising out of a non-negotiable contract. It is urged, and much "authority is cited for the proposition, that notes bearing on their face a binding obligation may be shown to have been delivered conditionally and that they should not take effect until the happening of some specified event, without the happening of which event or condition, théy will have no validity as between the parties. It is undoubtedly true that under some circumstances proof of such conditions does not violate the parol-evidence rule and that such evidence only goes to show that the instrument never had vitality as a contract. It is urged by appellant’s counsel that the contract between the parties dated October 30, 1911, is ambiguous and that it may be construed to mean that the delivery of the notes was conditioned and that the Peavey Realty Company was the party primarily liable to the plaintiff for repayment of [145] the funds and that the liability of the defendant Peavey on the notes was conditional only. It is claimed that the contract contemplated that any money plaintiff might advance for the purposes mentioned should be repaid out of the proceeds of the sale of the land, and that only in the event that he should find it impossible to compel repayment from this source was recourse to be had to the notes, — in short, that the contract was therefore a guaranty of collection only. We confess that we are unable to give any such construction to the contract. The agreement between the three parties interested was typical of many similar ventures which have been undertaken by parties having a desire to profit in real-estate transactions. The defendant Peavey and D. M. Maxcy were supposed to be familiar with the lands in question and to have had experience in operations of this character, but they were without requisite capital to make the desired investment. The plaintiff, living in a distant state, was able and willing to furnish the capital. Upon the terms specified in the agreement the Wisconsin parties were willing to give the time and labor necessary to make the undertaking a success. Doubtless they all expected the venture would be crowned with success or they would not have undertaken it. We are unable to read into the contract any provision from which it can fairly be inferred that the payment of the notes was to depend upon the success of the enterprise or to be made out of the profits or dividends. It is argued that this construction of the contract works injustice to Peavey, but in our view the construction contended for would work serious injustice to the plaintiff, and that no such construction could have been contemplated by the parties. If the enterprise had been a success, the defendant Peavey might have made very handsome profits without the expenditure of any capital whatever. From its very nature the undertaking was a speculation, [146] the success of which depended upon the manner in which it might be managed, general financial conditions, and other future events which none of the parties could with any certainty predict. We find no' ambiguity in the contract itself, and no language in it from which it should be inferred that the makers of the notes did not expect to share in losses as well as gains, if losses should occur. We do not find in the contract any language at all inconsistent with the plain terms of the notes. Some claim is made that there was a parol agreement that the payment of the notes was not to be a primary liability, but out of profits to- be realized by the corporation. But the only proof of this character related to some vague understanding between the two .defendants, and the defendant Peavey testified that he never had any such agreement with the plaintiff. It is argued by appellant’s counsel that no money was received directly by the defendant and that there was no consideration for the notes. It is clear from the contract and the evidence that the money was advanced by plaintiff for the purpose of forming the corporation suggested by the other parties. The corporation was doubtless deemed the most convenient instrumentality for obtaining, holding, and conveying the title to the lands in question. The money represented by the notes in question was advanced for defendant’s benefit, whether paid to defendant directly or to the corporation, and to. enable him to share in the profits, if any, of the ambitious business enterprise. The agreement seems to have been carried out except that it was amended in some respects and was extended as to time. We are convinced by the testimony.that, although the money furnished by plaintiff was used in buying the land, it was in legal effect a direct lo.an to defendant for the purposes stated in the contract and that there was full consideration for the notes. The claim is made that the last five notes rest upon a different basis from the others, as they were given after the [147] expiration of the period mentioned in the contract of October 30, 1911. There is testimony that there was an oral agreement to extend beyond 1912 the portion of the contract which provides for advances, although defendant denied such an agreement. There is no dispute but plaintiff made the advances for taxes and other general expenses of the corporation and that the notes were given therefor. It is plain to us that all the moneys advanced by plaintiff were for the general purposes of the enterprise in which the three parties were interested, and with the full knowledge and sanction of defendant. It is argued by defendant that none of the money advanced by plaintiff. may properly be considered as having been applied in payment on behalf of defendant for any stock in the Peavey Realty Company. There were undoubtedly irregularities in the attempt to form the corporation. There was no regular stock subscription. The statute was not complied with in respect to issuing stock certificates. Nevertheless such proceedings were had that articles were filed, a certificate was issued by the secretary of state, certificates of stock were issued and delivered to each of the three parties, a meeting of stockholders was held, and directors and officers were chosen. Defendant Peavey was elected president and D. M. Maxcy secretary, and they acted as such officers and directed the affairs of the company as if it had been properly organized. The Wisconsin parties in the enterprise were the originators and promoters. They received the plaintiff’s money, managed the affairs of the concern, and if it was not properly organized as a corporation it was. primarily their fault. There is no evidence of bad faith in the manner of effecting the organization, and the parties interested no doubt supposed that the statutes had been complied with. Assuming to act for a corporation legally organized, the president and secretary made their reports, -bought and sold land, and made important contracts. If the venture had [148] been successful the defendant would have reaped the benefits of the investment and the validity of the corporation would probably have never been questioned. We do' not think that he is now in a situation to repudiate his acts and to avoid liability on his notes because of irregularities in the manner of organizing the corporation. In other words, we hold that, at least so far as defehdant’s claims are concerned, the Peavey Realty Company was a de facto corporation and that the moneys advanced by plaintiff in payment for the land bought by the company and for the expenses were in part paid for the benefit of defendant and were the consideration for the stocjc received by him. It follows that he is estopped from urging as a defense in this case the invalidity of the corporate organization. Slocum v. Head, 105 Wis. 431, 81 N. W. 673; Gilman v. Druse, 111 Wis. 400, 87 N. W. 557; Clausen v. Head, 110 Wis. 405, 85 N. W. 1028; Citizens Bank v. Jones, 117 Wis. 446, 94 N. W. 329; Wells v. Green Bay & M. C. Co. 90 Wis. 442, 64 N. W. 69; Black River Imp. Co. v. Holway, 85 Wis. 344, 55 N. W. 418. It is clear that if defendant had any valid counterclaim for services rendered in behalf of the corporation, it was against the latter and not against the plaintiff. At the beginning of the trial a motion was made by defendant to have the Peavey Realty Company made a party defendant, and it was renewed at the close of the trial. The motion was denied by the court. In claiming that the motion should have been granted, appellant’s counsel rely on sec. 2610, Stats., but no affidavit was made in conformity with the statute. Moreover, under the circumstances, the granting or denying of the motion was within the discretion of the court, and in our judgment the discretion was properly exercised. By the Court. — Judgment affirmed.