Sims v. Crowley

KNIGHT, J.

This is an action to collect two promissory notes, one for $1500 and the other for $2,000, given by the defendant David Crowley to John Rossi, in part payment of the purchase of corporate stock, and subsequently endorsed without recourse to the plaintiff J. M. Sims. Among the defenses pleaded was the violation of the state Corporate Securities Act. Judgment was entered in plaintiff’s favor, and defendant appeals.

The transactions leading up to the execution, delivery and endorsement of said notes were as follows: Sims and Rossi owned all of the issued class A stock of the Bayshore Garbage Company, consisting of 150 shares. Sims owned 76 shares thereof, and Rossi 74 shares. The stock was issued and deposited in escrow pursuant to a permit issued by the corporation commissioner, which provided that “the persons entitled to said shares shall not consummate a sale or transfer of said shares, or any interest therein, until the written consent of said Commissioner shall have been obtained so to do”. On February 19, 1934, Rossi obtained an option from Sims to purchase 74 shares of his stock and Sims agreed to accept in payment thereof two notes given to Rossi by Crowley. On the same day Rossi entered into a written agreement with Crowley to sell the latter 75 shares of said stock. The agree

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ment recited, among other things, that the stock was then held in escrow under a permit issued by said commissioner; that Crowley desired to purchase fifty per cent thereof, and to pay therefor with his promissory notes. It then provided for the sale to Crowley of 75 shares for $8,000, payable as follows: a 90-day note for $1,000; a 180-day note for $2,500; an eight-months’ note for $1,000; an eight-months’ note for $1500; and a fourteen-months’ note for $2,000, all bearing interest at 6 per cent per annum. The agreement then went on to provide that the first three notes, aggregating the sum of $4,500, should be turned over to, become the assets of, and made available as capital for said corporation; that when said notes were paid class B stock of the par value of $4,500 should be issued to Rossi. It was further provided that upon default in payment of any of said notes, all of them should become immediately due and payable; that the stock Crowley was purchasing should remain in escrow subject to the permit of the corporation commissioner, and should not be delivered or transferred to Crowley until all notes were paid, unless the parties agreed in writing that a portion of the stock be transferred to Crowley while the stock was in escrow; furthermore, that until all notes were paid the stock should remain the property of Rossi, and any amounts previously paid thereon should be considered liquidated damages, in case of default in payment of the balance.