Court Opinion

ID: 9566268
Source: CourtListenerOpinion
Date Created: 2023-08-21 19:35:44.481705+00
Date Added: 2024-06-11T09:34:27.385321
License: Public Domain

MILLER, Justice,
dissenting:
My difference of view with the majority is that they fail to understand the legal principles that control this case.
It is not disputed that George Hodges and his mother were two of the three original incorporators of John Smiley’s Motel, Inc. They co-owned Hodges Realty Co., Inc., the plaintiff below, and subsequently assigned their two shares of stock to that entity. The third incorporator was Mary Lockhart, who was Mr. Lovell’s mother. The incorporation agreement, which was dated October 20, 1967 and introduced as Plaintiff’s Exhibit No. 4, contained this information in Section V:
“The names and post office addresses of the incorporators and the number of shares of s stock subscribed for by each are as follows:
[Name] [Address]
02 | •goal
Mary Lockhart Panther [WV]
George W. Hodges 1510 W. Summit
[Dr.], Charleston, W.Va. Neola Hodges 4703 Kanawha [Ave.], S.E., Charleston, W.Va.” r-H
In Section IV of the corporate charter, the total authorized capital stock was listed at $25,000, consisting of 250 shares of the par value of $100. This section also contains the following statement with regard to the initial issue of capital stock: “The amount of capital stock with which [the corporation] will commence business is One Thousand Dollars ($1,000.00) being Ten (10) shares One Hundred Dollars ($100.00) each.”
Hodges Realty introduced into evidence, as Plaintiff’s Exhibits 8 and 9, typed and signed, but undated minutes of the first meeting of the incorporators and the board of directors of Smiley’s Motel. The incor-porators’ minutes show that Mary Lock-hart, George W. Hodges, and Neola Hodges were elected as directors of the corporation. The board of directors’ minutes reflect that the following officers were elected: President — Mary Lockhart; Vice-President — George W. Hodges; Secretary-Treasurer — Neola Hodges. These minutes also authorized the issuance of the capital stock shares by certificate number to each of the incorporators:
“Upon motion duly made and seconded, it was resolved that certificates of capital stock of this corporation to the amount of One Thousand Dollars ($1,000.00) in form submitted to this meeting, be issued at once; that Certificate No. 1, for eight shares of said capital stock be issued to Mary Lockhart; Certificate No. 2 for one share of stock be issued to George W. Hodges; Certificate No. 3 for one share of stock be issued to Neola Hodges; that the same be issued at once and be signed in the name of this corporation by its President with the corporate seal affixed thereto and attested by said President.”
Hodges Realty also introduced shares of capital stock from the corporate stockbook. These stock certificates were typed, and the persons named, the certificate numbers, and the number of shares authorized therein corresponded to those set out in the minutes of the board meeting. The certificates were not dated or signed by the required corporate officers.
Hodges Realty argues that with this type of documentation, the proof of ownership was established as a matter of law under Snyder v. Charleston & Southside Bridge Co., 65 W.Va. 1, 63 S.E. 616 (1909), and that as a consequence, the trial court *337should not have permitted the advisory jury to make a finding as to whether any actual consideration had been paid for the Hodges’ two shares.
In Snyder, the plaintiff sought to compel the corporation to issue him shares of its capital stock. The certificate of incorporation showed that the plaintiff was to have been issued 100 shares of stock as an original incorporator. Mr. Snyder attended the original organizational meeting on November 18,1889, and was elected a director and vice-president of the corporation. Apparently, no stock was issued at this meeting or the next meeting in April, 1890. There was a dispute as to whether Mr. Snyder attended the next meeting on June 12, 1890,1 at which the situs of the stockholders’ and directors’ meetings was changed from Charleston to Pittsburg, Pennsylvania, where the principal shareholders resided. At the next meeting, held on June 20,1980 in Pittsburg, the company was reorganized. Although Mr. Snyder was not present, the minutes of this meeting showed that he had assigned his stock to another shareholder and had resigned from the board of directors.
Mr. Snyder filed suit to obtain his 100 shares. An attempt was made to defeat this claim based on his purported written assignment of the stock, a writing which he denied making. The stock assignment was not produced at trial, and the court rejected this defense.2
More significant to the present case, the corporation asserted that Mr. Snyder had not paid any consideration for the stock. This argument was rejected mainly on the ground that the corporation was estopped from impeaching its corporate records:
“The certificate of incorporation shows, however, that plaintiff was one of the charter members, and was the owner of 100 shares of the capital stock; he was also elected one of the directors at the first meeting held for the purpose of organization at which all the stock appears to have been represented, and was also elected to the office of vice-president. This action, participated in by all the then stockholders, is in our opinion sufficient to estop the corporation from thereafter denying that plaintiff was a legally constituted member thereof on account of his not having paid anything upon his subscription.” 65 W.Va. at 6, 63 S.E. at 618. (Citations omitted).
Other jurisdictions couch this rule in slightly different terms, recognizing that a subscription by an incorporator who has been elected at an organizational meeting as a director is sufficient to establish a stockholder position, as illustrated by Babbitt v. Pacco Investors Corp., 246 Or. 261, 270-71, 425 P.2d 489, 494 (1967):
“That the plaintiff had not paid for his shares is immaterial: State ex rel. Anderson v. Frederickson, 133 Wash 28, 233 P 291 [(1925)]; Mitchell v. Beckman, 64 Cal 117, 121, 28 P 110 [(1883)]; [4 Fletcher, Cyclopedia of Corporations p.] 40, § 1375. Schwartz v. Manufacturers’ Ins. Co., 335 Pa 130, 6 A2d 299, 122 ALR 1045 [ (1939) ], holds that payment is essential where the subscription is for shares of an existing corporation, but the opinion expressly recognizes that the rule is otherwise in the case of an original subscription for shares in a corporation to be formed. Neither is it necessary, in order for one to become a shareholder, that a certificate of stock, which is only evidence of ownership of an interest in the assets of the corporation, shall have been issued. A few among the numerous cases announcing this principle are cited in the margin.” (Footnote omitted).
See also Prejean v. Commonwealth for Community Change, Inc., 503 So.2d 661 (La.App.1987); Bielinski v. Miller, 118 N.H. 26, 382 A.2d 357 (1978); M/V La Conte, Inc. v. Leisure, 55 Wash.App. 396, *338777 P.2d 1061 (1989). See generally 4 W. Fletcher, Cyclopedia of the Law of Private Corporations § 1969 (1985 Revised Vol.).
The majority, in my judgment, has overruled Syllabus Point 2 of Snyder:
“At a stockholder’s meeting held for the purpose of organizing in pursuance of the certificate of incorporation, at which meeting all the stock is properly represented, one of the persons, appearing from the certificate of incorporation to be a stockholder, is elected director. Held, the corporation is thereby estopped from denying that such person so elected is a legally constituted and bona fide stockholder.”
Although the majority asserts Snyder is distinguishable from the present case because some partial payment had been made, we do not find this fact in that opinion. What the Snyder opinion does suggest is that because the charter reflected that $5,000 had been initially paid in as capital, “from this it may be properly inferred that someone else paid the ten per cent, for the plaintiff.” 65 W.Va. at 7, 63 S.E. at 618. This statement in Snyder is particularly significant in view of the statutory requirement at that time that to be included in the incorporation agreement, the incorporator had to pay “at least ten per cent, of the par value of the ... stock” for which he had subscribed. 1887 W.Va. Code ch. 54, § 7 (1881).3 The Court in Snyder was willing to assume from the fact that the corporation “charter show[ed] that $5,000 has been paid in, which is ten per cent, of the capital stock then subscribed,” that Mr. Snyder’s ten percent had been paid. 65 W.Va. at 6-7, 63 S.E. at 618.
We have much the same situation in the present case, although there is no longer a corporate statute requiring incorporators to pay at least ten percent of the value of their stock. The corporate charter, as earlier pointed out, reflects the initial paid-in capital of the corporation to be $1,000 or ten shares of the value of $100 each. The charter also shows the names of the three incorporators and the division of the ten shares among them. Finally, the minutes of the first directors’ meeting show that the board authorized the issuance of $1,000 worth of stock consisting of ten shares, with eight shares to be issued to Mary Lockhart and one share each to George W. Hodges and Neola Hodges. I submit that this documentation fully comports with the Snyder case and precludes challenge to the consideration for the two shares.
Even if one assumes that the consideration was open to dispute under Snyder, there was no dispute that George W. Hodges endorsed the corporate note for $300,000 payable to the former owner, John Smiley. Courts have recognized that where an individual becomes personally liable on a corporate loan, this may be sufficient consideration for receipt of stock in the corporation in the absence of fraud. In Blish v. Thompson Automatic Arms Corp., 30 Del. Ch. 538, 64 A.2d 581 (1948), Thompson issued shares of its capital stock to another company which had pledged securities to enable Thompson to obtain a bank loan. A Thompson stockholder brought suit to compel cancellation of the stock transfer. In upholding the stock transfer, the Delaware Supreme Court stated:
“Even though a corporation may not issue its shares of capital stock except for the purposes included under the constitutional and statutory provisions as indicated, nevertheless, we are unable to say that a portion of the services rendered, that is the pledging of securities with the Marine Midland Trust Company, were not such services as could be paid for by the issuance of stock.” 30 Del.Ch. at 571-72, 64 A.2d at 598. (Citations omitted).
See also Eastern Okla. Television Co., Inc. v. Ameco, Inc., 437 F.2d 138 (10th Cir.1971) (stock issued for guarantee for corporation obligation); Rogers v. Dodge, 243 Mass. 295, 137 N.E. 537 (1922) (stock *339for shareholder’s continuing indebtedness on corporate notes as well as other services). See generally 11 W. Fletcher, Cyclopedia of the Law of Private Corporations § 5197 (1986 Revised Vol.). In most of these cases, the statutes relative to the issuance of stock were similar to W.Va. Code, 31-1-28 (1923), which was in effect in 1967.4
Although the majority apparently relies on the statement at trial by John Smiley, to whom the corporate note was given, that he never intended to hold Mr. Hodges liable on the note, the note itself contained no such qualification. This Court stated in Syllabus Point 2 of Tabler v. Hoult, 110 W.Va. 542, 158 S.E. 782 (1931):
“Parol evidence to prove an agreement between the maker and the payee of a note that the former should not be required to pay it, is inadmissible under the rule inhibiting the introduction of parol evidence to contradict, vary, add to or detract from the terms of a written instrument.”
Tabler is also instructive as to the procedure used in this case. Here, the advisory jury was given several special instructions on the theory that they would answer questions of disputed fact. The plaintiff objected on the ground that those questions dealing with the consideration Mr. Hodges had paid for the stock were misleading and suggested that payment could only be made in cash. In Tabler, the court had instructed the jury to find for the defendant if they believed that he was never expected to pay for the note. We found this to be a clear error of law and reversed the case.
Unfortunately, the majority’s failure to understand and apply these legal principles not only does a grave injustice to the parties in this case, but will frustrate the rights of other stockholders. I can only conclude that the majority has failed to understand the damage it has done to the business community when it refused to follow established corporate law.
I am authorized to state that Justice McHUGH joins me in this dissent.

. Mr. Snyder stated that he was present when the stockholders assembled, but left before any business was conducted. The minutes showed his presence throughout.

. The reason for rejection is set out in Syllabus Point 4 of Snyder: “Before the contents of a lost paper can be properly given in evidence, it is not only necessary to prove that it is lost and that diligent search has been made to find it, but its due execution as well."

. The full text of 1887 W.Va.Code ch. 54, § 7 is:
"No person shall be included as a corpora-tor in any such agreement, by reason of any stock subscribed for by him, unless he has in good faith paid to the person who may have been appointed or agreed upon to receive the same for the intended corporation, at least ten per cent, of the par value of the said stock.”

. The relevant portion of W.Va.Code, 31-1-28 (1923), is:
“The stockholders of any corporation may authorize the issuance of the authorized amount and number of its shares of stock and convertible securities in payment wholly or partly for cash, labor done, real and/or personal property, or for the use thereof, at such price for any such labor or property or the use thereof!.]"
The current provision, W.Va.Code, 31-1-82 (1974), states, in material part:
“The consideration for the issuance of shares may be paid, in whole or in part, in cash, in other property, tangible or intangible, or in labor or services actually performed for the corporation. When payment of the consideration for which shares are to be issued shall have been received by the corporation, such shares shall be deemed to be fully paid and nonassessable.”