Court Opinion

ID: 3611976
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:55:53.449785+00
Date Added: 2024-06-11T14:24:17.450057
License: Public Domain

The act of April 1, 1854, which was an act to increase the capital stock of the Buffalo, Corning and New York Railroad Company, by the issuing and sale of a certain number of shares of preferred stock, provided and declared that no such stock should be issued until the provisions of the act should be accepted by a vote representing at least two-thirds of the stock of the company, at a stockholders' meeting, or until the written assent of the holders of two-thirds of the stock should be obtained. By the terms of the act, the holders of the stock existing at the time of the passage were allowed to subscribe for one share of the new preferred stock for every three shares of the old stock held by them; and on paying the par value of such share of new stock, the other three shares of old stock might be converted also into new preferred stock. It is at once seen that if the act should be accepted by those owning two-thirds of the stock, and the directors of the company should cause the new preferred stock to be issued, it might be very desirable for the holders to convert their old stock, or a portion thereof, into such new stock. In that event they could make their subscriptions; and at the same time, by section 2 of the act, the directors could not demand immediate payment. The language of that part of section 2 is: "Provided that not more than one-half of the amount of such new stock so taken by each stockholder shall be required to be paid in by him within three months, and the remaining half may be required to be paid within six months after the acceptance of this act by the stockholders." This provision was for the benefit of the old stockholders; and it is difficult to see why, if the company should give further and additional time to any or all such stockholders, that thereby the subscription would be illegal and invalid. When Badger, who was a holder and owner of old stock, subscribed for three shares of the new stock, with a view of preferring nine shares of old stock, and gave, on making such subscription, his note payable in twelve months, and the company accepted it, payable at such time — thus, in his case, giving him a longer time for payment than the act required — he made, in my judgment, a perfectly valid and binding *Page 251 
contract. True, he never got his stock, because he never paid his note; but, on the contrary, refused to pay it when it became due. But the note was valid in the hands of the company, being given on his subscription. The payment for the new stock was to be made "in such manner as the board of directors of the said company shall direct at the time of subscribing." They had directed that Badger should pay for his stock at the end of twelve months, and should give his note therefor.
It seems to me very clear that this was a legal and valid note in the hands of the company, and was so in the hands of Davis, who owned it, and caused suit to be brought to enforce its collection. The note in controversy was given on the settlement of that suit, and, embracing interest, was simply and virtually a renewal of that first note. It might be added, in this connection, that the settlement of that suit formed a good consideration for the present note, even if there were doubts as to the validity of the first note. But, in my opinion, the first note was perfectly good, and, therefore, the second note was given for a full and perfect consideration, and good in the hands of Davis, to whom it was given. But it is said that the second note was rendered illegal, even if the first was good, because the secretary converted into preferred stock a much larger proportion of Badger's old stock than he was entitled to by his original subscription, and that this illegal act formed a part of the consideration of the new note. But this was not so. If the first note was a legal and valid note, then Badger was indebted on it dollar for dollar of the new note, and Davis got no more than he was legally entitled to receive, and which was justly his due. The suggestion as to the issue of the excess of preferred stock seems to have come from Bergen. The stock, at that time, it seems, was worthless. If Davis was inclined to issue this worthless stock in order to get his debt secured, while the act may not be commendable, it is difficult to see how it could destroy a good and valid claim then subsisting. *Page 252 
Upon the admitted and uncontradicted facts of this case, and without considering the exceptions, it seems to me very clear that this judgment must be affirmed.
Judgment affirmed. *Page 253