Ersfeld v. Exner — 128 A.D. 135

Majority

p. 135

Frederick W. Ersfeld, Appellant, v. Paul J. Exner and Others, Respondents.

Second Department,

October 16, 1908.

Headnote

Corporation — issue of stock without consideration — section 48 of Stock Corporation Law construed — proper form of action by subsequent transferee.

Although a corporation has issued stock without the payment of the consideration in money, labor or property, as required by section 42 of the Stock Corporation Law, one who purchases such stock from the person to whom it was illegally issued cannot recover the face value thereof from his vendor under a complaint not charging him with fraud or deceit, but seeking a recovery solely upon the ground that the stock was void because illegally issued.

Section 42 of the Stock Corporation Law neither makes stock so issued void, nor the directors or vendor of such stock liable to a subsequent holder for a violation of the section.

Woodward and Miller, JJ., dissented.

Appeal by the plaintiff, Frederick W. Ersfeld, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Kings on the 28th day of March, 1907, upon the dismissal of the complaint by direction of the court upon the pleadings and the plaintiff’s opening at the Kings County Trial Term.

Jeremiah J. Coughlan [ Joseph T. Tuttle with him on the brief], for the appellant.

p. 136

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-share's 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, of. a vendor of

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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.