Opinion
October 16, 1908.
Jeremiah J. Coughlan [ Joseph T. Tuttle with him on the brief], for the appellant. Edward J. Krug, Jr., for the respondent Exner.
George M. Mackellar, for the respondents Ast and Hale.
This action is to recover the face value of sixty-six shares of the stock of the Pacific Street Hygeia Ice Company, whose par value is one hundred dollars each, on the theory that the stock was actually issued by the corporation to the plaintiff's assignor of the stock, without any equivalent having been received by the corporation. The defendant Exner was the plaintiff's assignor of this stock. The complaint was dismissed upon the pleadings and the plaintiff's opening.
The facts as they developed are that, while the three defendants were the sole stockholders, directors and officers of the corporation, they caused the corporation to issue to themselves 160 shares of stock of the corporation "for which the said company received no consideration whatever, either in services performed for or property or money turned over to said corporation." Sixty-six of these shares the plaintiff later bought of the defendant Exner. Plaintiff's counsel stated in his opening: "We are now suing to recover the par value of those sixty-six shares of stock on the ground that they were absolutely worthless, were issued in defiance of the law and were issued without any consideration whatever." He also stated: "We rely entirely upon the representation contained on the face of the certificate that it was properly issued stock. We have another suit for false representations at common law. This is an attempt to rely entirely on the face of the certificate. The Court: This is the only representation you claim, is it? Mr. Tuttle: That is the only one. The Court: I don't think you have any cause of action," and the motion to dismiss was granted.
It is true that section 42 of the Stock Corporation Law (Laws of 1892, chap. 688, 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, but nothing in the act contained declares that the stock itself is void where it is issued without such consideration, or that the directors issuing the stock, or a vendor of the particular stock, is liable to a subsequent holder thereof for a violation of the provision of the act.
If the corporation itself, and incidentally the plaintiff, has suffered by such unauthorized issue, a proper action doubtless lies for the benefit of the whole corporation, but here the plaintiff sues in his individual capacity.
Again, the plaintiff probably has his common-law remedy against his vendor for fraud and deceit, and in fact it appears from the record that such an action is actually pending and undetermined. But the complaint in this case not only falls far short of setting forth such a cause of action, but plaintiff's counsel distinctly disavowed that this was such a case.
The judgment should be affirmed, with costs.
JENKS and GAYNOR, JJ., concurred; WOODWARD and MILLER, JJ., dissented on the ground that directors of a corporation who issue stock in violation of the law without any consideration to the corporation are liable to a purchaser thereof.
Judgment affirmed, with costs.