Haule v. Consumers' Park Brewing Co.

Ingraham, P. J.:

The defendant, originally organized as a West Virginia corporation, received from the plaintiff a sum of money upon an agreement by the West Virginia corporation to issue to him bonds of the corporation and the corporation transferred to the plaintiff certain shares of its stock to be held as security for the delivery of the bonds when the corporation acquired them and was able to deliver them. In the absence of proof that such a contract was prohibited by the laws of the State of West Virginia under which the corporation was organized I assume that it was valid and could have been enforced as against the corporation. The defendant, however, is a corporation organized on September 26, 1904, under the laws of the State of Hew York as a stock corporation. Its stock was issued in pursuance of the laws of this State.

The complaint alleges that the stock held by the plaintiff in the West Virginia corporation was transferred to the defendant, the Hew York corporation, “which issued a like amount of its capital stock, share and share alike, for the stock of The Consumers Park Brewing Company of Brooklyn, H. Y., surrendered as aforesaid; * * * that the said fifty shares of the capital stock of defendant corporation are still held by plaintiff in place of the fifty shares surrendered as aforesaid;” and “that the above defendant on or about the date of its organization did take over the assets, and did assume the liabilities of the said The Consumers Park Brewing Company of Brooklyn, H.Y.” (the West Virginia corporation). These allegations are admitted by the- answer. The plaintiff now seeks to enforce 'as against this New York corporation the contract which he had made with the West Virginia corporation to either deliver the bonds of the West Virginia corporation to the plaintiff or payback to it the money that plaintiff paid when the stock of the West Virginia corporation was issued to him.

The defendant was organized under the laws of the State of New York, and its powers and contracts are to be determined by its laws. The issue of stock of a domestic corporation is regulated by article 3 of the former Stock Corporation Law (Gen. Laws, chap. 36 [Laws of 1890, chap. 564; Laws of 1892, chap. 688], as and.), now re-enacted as part of article 4 of the present Stock Corporation Law (Consol. Laws, chap. 59; Laws of 1909, chap. 61). Section 53 of the present act (section 41 of the former act) provides that if the whole of the capita! stock shall not have been subscribed at the time of filing the certificate of incorporation the directors may open books of subscription to fill up the' capital stock, and at the time of subscribing every subscriber whose subscription is payable in money shall pay to the directors ten per centum upon the amount subscribed by him in cash. Section 55 (section 42 of the former act as amd. by Laws of 1901, chap. 354) provides that no corporation shall issue either stock or bonds except for money, labor' done or property actually received for the use and- lawful purposes of such corporation; and that any corporation may purchase any property authorized by its certificate of incorporation or necessary for the use and lawful purposes of such corporation and may issue stock to the amount of the value thereof in payment therefor, and the stock so issued shall be full-paid stock and not liable to any further call, and neither shall the holder thereof be liable for any further payment under any of the provisions of this chapter. Neither the defendant nor its directors or stockholders had power to issue stock of the defendant corporation except in accordance with these sections. Assuming that the defendant under section 55 (former section 42) of the Stock Corporation Law had power to issue its stock for the purchase of stock of the West Virginia corporation, when its stock was thus issued it became full-paid-up stock; but as Í read these provisions of the statute it had no power to issue its stock to the plaintiff except for actual cash or for the purchase of property as authorized by its certificate of incorporation or necessary for the use and lawful purposes of such corporation. ' Therefore, when the plaintiff surrendered his stock in this West Virginia corporation to the defendant and received from it a corresponding number of shares of the defendant corporation he became' the owner of the stock of the defendant corporation which was issued in consideration of the transfer to the defendant corporation of the stock of the West Virginia corporation. It would be a distinct violation of the law of this State for a domestic corporation to issue its stock in pursuance of such an agreement as the West Virginia corporation had made with the plaintiff when he acquired the stock in question, and it had, therefore, no power to assume a contract made with the West Virginia corporation which would require the defendant to repay to the plaintiff the money paid to the West Virginia corporation when the stock was issued. I think, therefore, that when the plaintiff transferred the stock held by him in the West Virginia corporation to the defendant and received as a condition of such transfer the fifty shares of stock in the defendant corporation he became a holder of the defendant’s stock not subject to the contract under which it had been issued by the West Virginia corporation. It is not alleged that the West Virginia corporation has been dissolved' and I assume that the plaintiff here still has a cause of action against the West Virginia corporation to recover back the money that he paid to it under the contract set forth in the complaint, but I think that contract was one that a New York corporation could not make as the basis of an issue of its capital stock and it could not, therefore, assume the obligation of the West Virginia corporation to repay to the plaintiff the sum of money that he paid to the West Virginia corporation on the issue of its stock to him. Therefore, when the plaintiff transferred to the New York corporation the stock that he had received from the West Virginia corporation and all his rights under it and accepted as consideration for such a transfer the capital stock of the New York corporation, he became a stockholder in that corporation entitled to the rights accruing to such a stockholder and subject to all of the liabilities and obligations imposed upon a stockholder by the laws of the State of New York.

For these reasons I think the defendant was not liable under this agreement made by the West Virginia corporation, and that, therefore, no cause of action was established against it. The judgment should be reversed and a new trial ordered, with costs to the defendant to abide the event.

Laughlin, J., concurred; Clarke and Miller, JJ., dissented.