Court Opinion

ID: 6127579
Source: CourtListenerOpinion
Date Created: 2022-02-04 20:40:25.6259+00
Date Added: 2024-06-11T08:40:37.341669
License: Public Domain

Daniels, J.
(dissenting):
The action was prosecuted for the recovery of the sum of $2,500 unpaid upon 100 shares of the capital stock of the Marshall Packing Company of New York city, issued to the defendant. Fifty of these shares were so issued on the 10th day of November, 1877, and the remaining fifty were issued to him on the thirtieth day of the same month. These shares were all sold to William C. Marshall, by the defendant, on the 24th day of July, 1878. At that time there were no unpaid calls upon them, and.as the referee found the sale to have been made in good' faith, he directed judgment in favor of the defendant. And assuming his conclusion to have been warranted by the evidence, he was justified in giving such a direction as to the fifty shares last issued to the defendant,' for they were purchased by him without in any form incurring further liability to the corporation than that which is ordinarily to be inferred from a purchase,of corporate stock. And the rule has become reasonably well settled that a sale in good faith of such stock will discharge the vendor from further liability for the purchase-price to the company. (Mann v. Carrie, 2 Barb., 294; Cowles v. Cromwell, 25 id., 431; Cole v. Ryan, 52 id., 168; Isham v. Buckinghami, 49 N. Y., 216; Seymour v. Sturgess, 26 id., 134; Veiller v. Brown, 18 Hun, 571; Johnson v. Underhill, 52 N. Y., 203; McCullough v. Moss, 5 Denio, 567; Penobscot, etc., R. R. Co., v. Dummer, 40 Me., 172.)
But as to the fifty shares first issued to the defendant, this case is distinguishable from those to which reference has been made. For it appeared that in the summer of 1877, the defendant entered into a formal agreement under which he subscribed for those fifty shares.
.This-agreement was in the following form :
We, the undersign id, hereby agree with the trustees of the Marshall Packing Company and with each other that we will take *137the number of shares of capital stock of the said Marshall Backing Company set opposite our respective names, and pay for the same at the par value of $100 per share as follows, viz.: Twenty per centum on or before the 10th day of August, 1877, and the balance as called for thereafter by the said trustees. It is understood that the capital stock of the said company is $250,000, divided into 2,500 shares of $100 each.
It is also understood and agreed that the first installment of twenty per cent shall not be due and payable until 500 shares of the capital stock have been subscribed for.
It is also understood and agreed and these subscriptions are made on the condition that a committee, to be chosen by the subscribers to the capital stock from their own number, to which committee shall be added all individual subscribers who may desire to act upon it, shall, after thorough investigation, make a favorable report of the prospect of said company.
On the making of such favorable report by the said committee, these subscriptions and this agreement shall be binding and of legal force and effect, but otherwise shall be void.
And it was accepted by the corporation, and the fifty shares of stock subscribed for under it were, in accordance with its terms, awarded to the defendant. So far as the agreement was dependent upon the conditions or stipulations contained in it, they were shown to have been performed, and after the stock was issued to the defendant, he made payment upon its purchase-price. This certainly rendered the agreement a legally binding instrument upon him. (Troy Turnpike, etc., Co v. McChesney, 21 Wend., 296; Sagory v. Dubois, 3 Sandf. Ch., 509; Lake Ontario, etc., R. R. Co. v. Mason, 16 N. Y., 451; Phoenix Warehousing Co., ete., v. Badger, 67 id., 294; Buffalo and Jamestown R. R. Co. v. Clark, 22 Hun, 359; affirmed, see 87 N. Y., 632.)
The liability of the defendant for the purchase-price of the fifty shares issued under this agreement is not, therefore, dependent upon the mere fact that he became the owner of these shares of the capital stock of the company, but it is to be derived from the terms and nature of this instrument, and for that purpose it is to be construed and enforced as other express contracts are which may be entered into by one party with another. (Bucksport, ete., R. R. *138Co. v. Buck, 65 Me., 536; Boston, etc., R. R. Co. v. Wellingtony 113 Mass., 79.)
And, as so construed, the agreement imposed an absolute and' unqualified obligation upon the defendant to pay the par value of $100 for each of the fifty shares of stock issued to him upon his subscription. By the terms of the instrument, he unqualifiedly agreed to make such payment for these fifty shares, twenty per cent of the sum to be paid on or before the 10th day of August, 1877, and the balance as called for thereafter by the trustees. The instrument contained no stipulation whatever, either expressed or to be implied from anything contained in it, under which he could claim to be exonerated from this self-imposed liability upon the sale of the shares whose price he so obligated himself to pay. Its force and effect was in no respect less than that of a note or bond, delivered to the company upon an adequate consideration, for the payment of an equal amount of money. And, although such an instrument might be entered into to pay the purchase-price of corporate shares, the party executing it would be liable to make such payment according to the terpis of his obligation, and no good reason can exist for distinguishing the obligation expressed in this instrument from one which might be made in that manner. It was founded upon a legal consideration, and in equally as positive terms bound the defendant to pay the sum of money mentioned in it.
The statute authorizing the transfer of the stock, contains no provisions relieving its owner, after it may have been transferred, from the force or effect of such an- agreement. It merely regulates the manner in which the shares themselves may be transferred from one person to another (2 R. S. [6th ed.], 509, § 60), without containing any provision or declaration that the transfer shall produce any change' whatever in the measure of liability created by such an instrument as was subscribed by the defendant. And no provisions appear to have been contained in. the by-laws of the company which, by any possible rule of construction, can be attended with the consequence of relieving the defendant from the liability expressly incurred by him by the terms of this agreement. If the company had, in any form, entered into an agreement with the purchaser of the shares accepting his liability for their unpaid price in place of that of the defendant, the case would have *139been different, but it did- not. The sole agency it had in the transaction was to permit the shares issued to the defendant to be surrendered, and to issue others in lieu of them to the purchaser. It did no act, and entered into no arrangement' contemplating the. release or discharge of the defendant from the obligation he had entered into by the terms of this agreement. And the result must, be under the rules of law applicable to contracts, and from which, this cannot be made an exception, that the defendant continued liable under his agreement, notwithstanding the fact that he had sold the shares which he purchased under it, for it was not in his power to relieve himself from the payments he had expressly agreed to make by simply transferring the property, the price of which he had become liable to pay, to another person. And the transaction through which the sale itself was made, indicates that to have-been the view entertained both by the seller and purchaser, for the defendant at that time was careful to take the covenant of Marshall, by which he undertook to indemnify and save him harmless “ of and from all claims, demands and liabilities existing at the time of the delivery hereof against said corporation, and for which he may be responsible by reason of his having been a stockholder therein, and also of and from all calls and assessments on said one hundred shares.”
That a transfer of the shares themselves would not relieve the defendant from this obligation, was very clearly intimated in Schenectady, etc., Plankroad Company v. Thatcher (1 Kernan, 102, 113). But as the shares .which were there the subject of consideration were transferred after the calls upon them had been made, the determination of this point was not required for the decision of the case.
In Messersmith v. Sharon Savings Bank (11 Reporter, 444), this precise point seems to have been presented to the Supreme Court of Pennsylvania, and it was held that a transfer of the shares did not discharge the vendor from his legal obligation to pay for them created by such an agreement. A principle analogous to this has also been applied to the assignments of leases and the conveyance of real property encumbered by mortgage, where the circumstance of the assignee, or grantee, having assumed the liability has never been supposed in and of itself to relieve the party who has *140expressly obligated bimself for the payment of the same debt. (Burr v. Beers, 24 N. Y., 178.)
This is no more than the general principle of law applicable" to the liability of contracting parties, for they are not allowed to discharge themselves merely by subjecting another person to the obligation of performing their contracts. (1 Parsons on Con. [6th ed.], 217, 221, note h.)
No authority has been found warranting the conclusions that the defendant did not remain liable according to the terms of the contract which had been executed by him. But the result of the legal principles under which agreements are enforced is that he still remained liable to the company although he had parted with the property purchased by him. If this had been property of any other description and he had sold it, taking from the purchaser his agreement to pay the debt, it would not have been contended that the transaction would discharge him from liability to pay the price, as he had previously undertaken to do it. And the principle preventing that would appear to be equally as applicable to and controlling over the present action. To the extent of the unpaid purchase-price of this stock the defendant still continued to be liable, and the receiver of the company was entitled to enforce that liability in the present action.
When the stock was transferred the company was embarrassed, owing the sum of about $13,000 over and above its available assets, and that fact appears to have been known to the defendant who was, at the time, one of its officers. The persop to whom the sale was made was not himself in solvent circumstances, unless the affairs of the company should afterwards prove to be prosperous, wdiich they did not, for it soon failed, and the adjustment of its affairs became necessary through the intervention of a receiver. But, as the defendant himself, testified that he was not aware of Marshall’s precarious financial condition when the stock was sold to hipa, the referee concluded the defendant could not be held liable in the action, although he sold his stock for fifty per cent of its par value and reserved the right to take payment upon the notes delivered to him for the purchase-price in paid-up stock of the same company at this rate. It is not necessary to consider whether ■ the referee properly concluded from this and the other circum*141stances in the case that this was a sale in good faith; for the reason that his conclusion as to the effect of the sale of the fifty shares obtained on the express agreement to pay for them by the defendant cannot be sustained. That, of itself, in view of the slender evidence from which the controlling inference of the referee was drawn, requires that there should be another trial of the controversy involved in this case. The judgment should, accordingly, be reversed, and a new trial ordered, with costs to abide the event.
Judgment affirmed, with costs.