Case Name: NATWICK v. TERWILLIGER
Court: Supreme Court of Wyoming
Jurisdiction: Wyoming
Decision Date: 1916-05-17
Citations: 24 Wyo. 253
Docket Number: No. 823
Parties: NATWICK v. TERWILLIGER.
Judges: Potter, -C. J., and Beard, J., concur.
Reporter: Wyoming Reports
Volume: 24
Pages: 253–280

Head Matter:
NATWICK v. TERWILLIGER.
(No. 823;
Decided May 17th, 1916;
157 Pac. 696.)
(Rehearing denied October 16th, 1916.)
Corporations — Conditional Stock Subscriptions — Executory Contract — Payment in Property — Acceptance of Subscription — . Action by Trustee in Bankruptcy.
1. A stock subscription conditioned on the corporation’s acceptance of specified real estate in full payment therefor was rejected by the corporation with the assent of the subscriber, who at the time was leasing the real estate to the corporation and receiving rent therefor; held, that the trustee in bankruptcy of the corporation cannot enforce payment of the subscription, as it was withdrawn by rejection and defendant’s assent thereto.
on petition for rehearing.
2. A stock subscription conditioned on the acceptance of specified real estate in full payment therefor is a conditional subscription, not binding upon the subscriber until accepted and is not a subscription on special terms.
3. A valid condition to a subscription for capital stock of a corporation must be performed within the time prescribed in the contract or within a reasonable time, if no time is stipulated therein. If not performed within such time, the subscriber is discharged.
4. In an action by a trustee of a bankrupt corporation to recover a money judgment upon a subscription contract for its stock conditioned upon acceptance by the corporation of specified real estate in payment for the stock which was later rejected by the corporation; held, that plaintiff cannot recover, as the subscription was not binding unless accepted and had it been accepted was payable in specified property.
Error to District Court, Carbon County; Hon V. J. Tidball, Judge.
Action by Oscar Natwick, trustee in bankruptcy, against Charles D. Terwilliger. From a judgment for defendant, plaintiff brings error. The facts are stated in the opinion.
Marion A. Kline and N. R. Greenfield, for plaintiff in error.
Stockholders are liable for unpaid subscriptions. (Section 3988, Comp. Stats. 1910.) Insolvency of a corporation does not release from such liability. (Section 4, Bankruptcy Act.) Corporate creditors are represented by the trustee in bankruptcy after incolvency with authority to sue. (Allen v. Grant, 122 G. 552, 50 S. E. 494, 14 A. B. R. 340; Babbitt v. Read, 173 Fed. 712, 23 A. B. R. 254; Roney v. Crawford, 24 A. B. R. 638.) An assessment made by a bankruptcy court is collectable by the trustee. (Sanger v. Upton, 91 U. S. 56; Hawkins v. Glenn, 131 U. S. 319; Bernheimer v. Converse, 206 U. S. 516, 532; Gt. Western Tel. Co. v. Purdy, 162 U. S. 336; In re. Newfoundland Syndicate, 28 A. B. R. 124; Edwards v. Schillinger, 245 Ill. 231, 91 N. E. 1048; Childs v. Cleaver, (Me.) 50 Atl. '716; In re. Remington Automobile Co., 153 Fed. 345, 18 A. B. R. 392; 4 Thompson on Corporations, Sections,3697 and 3455.) Failure to issue certificates of stock does not release. (10 Cyc. 526.) The records of the Bankruptcy Court are competent evidence in this case. (Section 21, Bankruptcy Act.) Terwilliger by participating in the first meeting of stockholders in voting stock is estopped to deny his ownership thereof. (10 Cyc. 531; 4 Thompson on Corporations, 2nd Ed., Sections 2810 and 2836; Casey v. Galli, 94 U. S. 673.) Conditions annexed to stock subscriptions ■may be waived. (1 Thompson on Corporations, Secs. 6x6 and 624; Wyman v. Bowman, 127 Fed. 257; Southern Co. v. Calendar, 29 Pac. 861.) Conditional subscriptions are not favored and where there is doubt as to the intention of parties, a subscription will be construed as an absolute subscription on special terms. (1 Cook on Corporations, (6th Ed.) Sec. 78; 1 Thompson on Corporations, (2nd Ed.) Sec. 632; Chamberlain v. Railroad Co., 15 Ohio St. 224; Railroad Company v. Parks, 86 Tenn. 554, 8 S. W. 842.) Defendant’s subscription was upon special terms. (10 Cyc. 450; Bouton v. Dement, (Ill.) 14 N. E. 64; Upton v. Tribil-'Cock, 91 U. S. 45; Sanger v. Upton, 91 W. S. 56; Jackson v. Traer, (Ia.) 20 N. W. 768; Morgan Co. v. Allen, 103 U. S. 508; Bank v. Am. Brick & Tile Co., (N. J.) 64 Atl. 920; Thomas v. Hotel Co., (Cal.) 117 Pac. 1041; In re. Eureka Furniture Co., 170 Fed. 485; In re. Putman, 193 Fed. 470; Miller v. Dredging Co., (Ia.) 137 N. W. 512.) Although payable in property the subscriber is liable on his subscription to creditors of the corporation. (10 Cyc. 452; Singer v. Given, 61 Ia. 93; 15 N. W. 858; Bank v. Alden, 129 U. S. 372, 32 L. Ed. 725.) If payable in materials and not so paid, it is demandhble in money. (10 Cyc. 482; 4 Thompson on Corporations, Section 3968; Playwood Co., v. Bryan, 51 N. C. 82; In re. Monarch Corporation, 203 Fed. 667; Enslen v. Nathan, 136 Ala. 412, 34 So. 929; Henderson v. Turngren, 9 Utah 432, 35 P'ac. 495.) The rejection of the subscription and release of defendant by the board of directors was void as to creditors. (Haines Co. v. Highland Co., 88 Pac. 865; Curtis, v. Salmon River Co., 130 Cal. 345, 62 Pac. 552; B'outon v. Dement, (Ill.) 14 N. E. 62; Jackson v. Traer, (Ia.) 20 N. W. 768; Upton v. Tribilcock, 91 U. S. 45; Vol. 20 Am. & Eng. Ency. PI. &. Prac. 697; Zirkel v..Opera House Co., 79 Ill. 334; Payne v. Bullard, 23 Miss. 88, 55 Am. Dec. 74; Balfour v. Baker City Gas and Electric Co., 27 Ore. 300, 41 Pac. 164; Hall & Farley v. Ala. Term Co., 39 Southern, 285, 2 L,. R. A. (N. S.) 130; Howell v. Crawford, 77 Ark. 12, 89 S. W. 1046; I-Iall v. Plenderson, 126 Ala. 449, 26 So. 531, 85 Am. St. Rep. 53, 61 L. R. A. 621.) P'arties are bound by their pleadings. (Pardee v. Kuster, 15 Wyo. 368, 91 P'ac. 836.) Defendant was present at the stockholders’ meetings and acted as a director up to the time of bankruptcy. This was ■admitted by the pleadings. The corporation could not compel performance as the agreement was within the Statute of Frauds. (Compiled Statutes 3751, 1910; Beckman v. Mepham, 97 Mo. App. 161, 70 S. W. 1094; Begley v. Tread-way, (Ky.) 93 S. W. 1045; Laufer.v. Powell, (Tex.) 71 S. W. 549.) The corporation was held indebted on March nth, 1908, the date of said alleged release, and that state of things is presumed to have continued. (Hartford Insurance Co. v. Kahn, 4 Wyo. 364, 34 Pac. 895; Weidenhofft v. Primm, 16 Wyo. 340, 94 Pac. 453; Jones on Evi. 58; 2 Chamberlayne on Evidence, Sec. 1047.) The corporation was without authority to release a subscriber to the injury of its creditors. ('Chrisman-Sawyer Banking Co. v. Independence Mfg. Co., (Mo.) 68 S. W. 102; Sprague v. National Bank of America, 172 Ill. 149, 50 N. E. 19; Indiana Novelty Co. v. McGill, 15 Ind. App. 1, 43 N. E. 464; Kentucky &c., Assignees, v. Schaffer, 85 S. W. 1098, 120 Ky. 227; Smathers v. Bank, 135 N. C. 410, 47 S. E. 893; MacB:eth v. Ban-field, 45 Ore. 553, 78 Pac. 693; Shaw v. Gilbert, in Wis. 165, 86 N. W. 188; Hall & Farley v. Improvement Co., 143 Ala. 464, 2 L. R. A. (N. S.) 130.
McMicken cG BlydenbUfgh, for defendant in error.
The question .here is not whether a certificate of stock was issued, but whether the conditions of the contract were carried out; there is no estoppel alleged in the pleadings. (16 Cyc. 808.) It is incumbent upon plaintiff to establish estoppel. (Grier v. Union Life Insurance Company, 217 Fed. 287; Metropolitan Life Insurance Co. v. Howie, 68 N. E. 4.) A conditional subscription contract cannot be converted into an unconditional contract by the courts or by the corporation. (Durlacher v. Frazer, 8 Wyo. 74.) The case of Wyman v. Bowman is not in point, as to the facts. There is no question of waiver in this case; the trust fund doctrine applies only to the assets of insolvent corporation. (Hart Co. v. Rogers 'Co., ig Wyo. 35; Hollins v. Brier-field Co., 150 U. S. 371.) The directors have authority to reject the subscription or make any other lawful contract, as it was a going concern. (Macbeth v. Banfield, 106 Am. St. Rep. 670; Graham v. TaCrosse Co., 102 U. S., Co-op. Ed. 26.) None of the authorities cited by plaintiff with reference to the cancellation of subscriptions of stock are in point, when the facts of this case are considered. The rejection of the subscription and the assent thereto was valid and released the subscriber. (10 Cyc. 780-795.) A contract releasing a subscriber even if voidable will stand until attacked on proper grounds. (Clark & Marshall.Corp. Vol. 3, 2299 and 2300; Twin Lick Oil Co. v. Marbury, 91 U. S. 587.) A contract between a corporation and its officers is not void, but voidable. (Durkcher v. Frazer, 2 Wyo. 75; Thomas w. Brownville Ft. K. & Pac. R. R. Co., 109 U. S. 27; 10 Cyc. 473.) Cancellation of share subscriptions may be invalid as to existing creditors, yet good as to future creditors. (20 Cyc. 453; Erssine v. Peck,-13 Mo. App. 280, 33. Mo. 465; Johnson v. Lullman, 88 Mo. 567; Taylor v. Miami Exporting Co., 6 O. St. 176; Hill v. Silvey, 3 L. R. A. 154; Republic Life Ins. Co. v. Swigert, 12 L. R. A. 328), and as against other stockholders not objecting. (Dunn v. Howe, 9.6 Fed. 160.) Terwilliger signed the subscription list conditionally and the vote of the directors with reference thereto is a sufficient memorandum to satisfy the Statute of Frauds. (Lambkin v. Baldwin Co., 44 L. R. A. 786.) Plaintiff’s remedy, if any, was against the property. (Morgan v. Lewis, 46 O. St. 1.) Solvency is always presumed until the contrary is shown. (7 Enc. Ev., Page 482.) No stock was issued, no stock was forwarded, and no stock was purchased back by the corporation. The subscription was conditional. (Blank v. Brown, 92 Am. St. Rep. 339.) The case of Morgan v. Lewis, 46 O. St. 1, is quite similar on the facts, except that a deed was made to the company and the company deeded the land back. Under the terms of the contract the shares were not to be issued until the property was delivered, and the property delivered only when the shares were issued. The parties had in contemplation a concurrent transaction. (Walter A. Wood Harvester Co. v. Jefferson, 59 N. W. 532.) There was no escape from the conclusion that if the action'of the committe was void, or if the corporation could not rescind its contract, then the matter was placed as it was prior to the resolution of March, 1908, and the corporation is -'the equitable owner of the property, while defendant is the owner of the stock not paid up and not subject to call by creditors, so that the assignee of trustee could only in such case look to the property, but could not get a money judgment in this case. When the stockholders ratified the arrangements to rescind the contract, they ratified the whole proceeding. (10 Cyc.'39o.)
Marion A. Kline and N. R. Greenfield, in reply.
The facts in the case of Wood Harvester Co. v. Jefferson, 59 N. W. 532, cited 'by defendant in error, were quite different from an action by a trustee in bankruptcy. Under Sections 47 and 70 of the Act, the proposition of forfeiture was not considered at the trial; the Terwilliger stock was not issued to other subscribers. The records of the corporation show that Terwilliger subscribed for and voted twenty-five shares. Defendant took possession, of the shares of stock and exercised ownership over the same by voting the shares at the first meeting; -it was also shown that he attempted to sell the shares to another. It was his property. He was never legally released from his obligation to pay for the shares.

Opinion:
Scott, Justice.
The plaintiff in error as Trustee in Bankruptcy of the estate of the "Copper City Commercial Company," which had theretofore been doing a general mercantile business at Encampment, Carbon County, Wyoming, and had been adjudged to be a bankrupt by the U. S. District Court within and for the District of Wyoming, brought this action against the defendant, Charles D. Terwilliger, to recover the sum of $2,400, an alleged balance due upon a subscription to the capital stock of the plaintiff at the time of its organization. The case was tried to the court without the intervention of a jury ^nd the court found and gave judgment for Terwilliger and. the Trustee brings error.
Plaintiff alleged that the defendant subscribed for twenty-five shares of said stock of the par value of $100 each, and had paid for one share only. The defendant admitted having subscribed conditionally but not absolutely for such stock, in that he was to be permitted to turn in as payment for the stock subscribed for a lot and store building thereon in the town of Encampment to be used as company assets, and that he should not be liable on the subscription unless it was accepted on that condition. It is shown by the evidence that the word "conditional" was written by him after his signature on the subscription list, and it is further shown that at the time of the subscription Fry, who as organizer was circulating the subscription list of the company, gave this written statement of the conditions to Terwilliger, viz.:
"Encampment, Wyo., 6-26-1907.
"This is to certify that C. D. Terwilliger having this day signed the original subscription list of the 'Copper City Commercial Company conditionally for twenty-five shares of stock par value $2,500, it is understood that said company shall take in full payment for said 25 shares of stock lot 4, block 22, Townsite Grand Encampment, in full payment for said subscribed stock, and it is understood that he shall not be liable for said subscription unless the said company accepts same under said conditions.
"Said stock to be fully paid and non-assessable.
"W. B. Fry, Organizer."
The company entered into possession and occupied the lot and store with this understanding from the organization un til March 11, 1908, when at a meeting of the executive committee, it was resolved as follows:
"Special Meeting of the Executive Committee of the Copper City Commercial'Company. March nth, 1908. 5 p. m. W. B. Fry acted as chairman in the absence of J. J. Mona-han. C. D. Terwilliger acted as secretary.
"Moved and seconded that inasmuch as the deed to lot 4, block 22, in the Town of Grand Encampment, Carbon County, Wyoming, has not been delivered to the company in accordance with the original agreement, the President and Secretary of the company be and they are hereby instructed not to issue any stock of this company in payment therefor. Motion carried.
"Bill of C. D. Terwilliger rendered for rent for the store building at $37.50 per month from July 22nd, 1907, to March 22nd, 1908, with credit of $100 for payment of one share of stock originally subscribed for by the said C. D. Terwilliger, balance due, $200.
"Motion made and seconded that the bill be allowed and the manager be and he is hereby directed to pay the same in trade, pursuant to agreement to receive same in trade, and that receipt be given for payment of one share. Motion carried. (Signed) C. D. Terwilliger, Sec.
"(Signed) W. B. Ery, Chairman."
This action was ratified at the annual stockholders' meeting early in August, 1908; and after the Executive Committee meeting the company occupied the lót and store building upon a rental basis of $35 per month, up to November, 1908, the time of the bankruptcy proceedings by certain creditors and the appointment of Natwick' as trustee under the National Bankruptcy Law.
As already stated, it is claimed that Terwilliger subscribed for twenty-five -shares of the'capital stock at the par value of $100 per share'when solicited by one Fry, who was promoting the corporation. On July 12, 1907, the subscription list was' presented to the stockholders at a meeting when the following proceedings were had-: "On motion, duly made and carried, 25 shares of the capital stock shall be issued to C. D. Terwilliger, upon the delivery of a good and sufficient deed to lot 4, block 22, in the Town of Encampment, Wyoming, as per condition and agreement ' when he signed said subscription list', said deed to be accepted in full payment of said stock subscribed." The stock subscription list was handed in and returned to the other subscribers at the organization meeting and including Ter-williger's conditional subscription was satisfactory to the other subscribers and -they proceeded to organize the corporation and embarked in the business for which the corporation was created, entering upon and occupying the lot and store as a place of business under this arrangement until March 11, 1908, when the executive committee declined to issue more than one share of stock to Terwilliger, and that upon a different arrangement, and to place the company's occupation of the store building on a rental basis at $35 per month from the time of the incorporation of the company and gave him credit for one share of stock at the sum of $100, that being the par value of one share of stock which was then issued to him.
The arrangement made authorizing the defendant in error to pay his subscription in property at a fixed value, and not to be otherwise liable, was satisfactory to the parties, and the corporation went into possession of the lot and store in pursuance of such understanding. It was an executory contract and by performance of conditions precedent could have been made into a binding contract. Neither of the parties did this. (Minneapolis Threshing Machine Co. v. John A. Davis (January 30, 1899), 40 Minn. no, 41 N. W. 1026, 12 Am. St. Rep. 701, 3 L. R. A. 796.) No deed to the property was delivered or demanded, and the stock was not issued; and in that situation the company finally concluded not to accept the subscription on the conditions named. The evidence shows certain reasons for this, and that it arose generally out of the desire of the company not to take the property or to issue the stock to the defendant. This refusal to accept was assented to by the defendant, and he took the one share on the terms named by the executive committee, whereupon his subscription, which was a mere offer until accepted, was, in effect, withdrawn. The condition of Terwilliger's subscription involved a condition precedent to his becoming liable for the stock; and he did not at any time 'become liable to pay for the stock in money, or otherwise than by conveying the property, and that the company declined. As already stated, the contract was ex-ecutory, while the suit is upon an executed contract. No tender of title deed or of stock in exchange therefor is made as a preliminary — the parties stand in the same relation to the subject matter of the contract as at the beginning.
Aside from this the amount of indebtedness and assets on March 11, 190&, is not shown. It cannot be said from the record that the act of that date was (1) one of insolvency, or (2) contemplated insolvency, and (3) within four months of the institution of the suit by creditors under the National Bankrupt Raw. The contract is mutual and executory. No preliminary steps were taken by either party as a condition precedent to enable him or it to maintain the suit. The right to maintain a suit is originally fixed by the parties, and when the conditions change so as to affect such right that fact must be judicially determined so as to determine the method of procedure. In the case here the suit is based upon the contract as originally made. Courts do not, nor can they, make or change or substitute contracts between the parties, and yet plaintiff will have accomplished that if permitted by this court to carry out his purpose as disclosed by his case. The agreement on March 11, 1908, in any event must be sustained unless made by the corporation when insolvent or in contemplation of insolvency or as an act of insolvency under the National Bankrupt Law. The evidence is insufficient to base the right to proceed upon either of these grounds.
If the right to make such new contract depended upon the question whether the corporation was in failing circum stances at the time and also whether the contract was made in view of insolvency, the fact of insolvency was not shown. There is no room for the application of the trust fund doctrine in this case. .Nor is it necessary to consider when, by whom, or under what circumstances a subscription for stock may be released. The defendant's subscription was conditional, and the condition was not complied with by the company. The judgment will be affirmed. Affirmed.
Potter, -C. J., and Beard, J., concur.