Parrish v. American Railway Employees Publishing Corp.

KNIGHT, J.

This is an appeal by the defendant corporation from an adverse judgment given on a cross-complaint to recover from plaintiff the par value of 997 shares of defendant’s capital stock issued to plaintiff while he was serving as an officer and employee of said corporation. The question presented for determination is whether the trial court erred in holding as it did that the issuance of said stock was violative of the permit granted by the corporation commissioner and therefore constituted an illegal transaction upon which no recovery may be had.

In February, 1921, defendant, being then engaged in the publishing business, entered into a written contract with plaintiff to manage and conduct its affairs for a period of five years for a stated salary and a percentage of the gross receipts. A year later, in February, 1922, plaintiff commenced the instant action to collect wages claimed to be due in the sum of $987.62; also an assigned claim for printing.

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Besides answering, defendant filed a cross-complaint containing three counts, the second of which was for the recovery of the par value of said stock. The circumstances relating to the issuance of said stock were as follows: After accepting the employment under said written contract, plaintiff was made a member of the board of directors, consisting of five members, and elected treasurer of said corporation. While acting in such capacities the corporation issued and delivered to him two certificates calling for an aggregate of 997 shares of its capital stock of the par value of one dollar each, both certificates being regularly signed by the president and the secretary of said corporation.

The permit granted by the corporation commissioner to defendant authorized the latter to issue and dispose of its stock “at par, for cash,” and it is admitted that plaintiff did not pay or expressly agree to pay any cash or other consideration for said stock. It does not appear from the record why said stock was issued to or accepted by plaintiff, but does show that plaintiff signed no subscription agreement for the same; that the stock was not issued to him as a gratuity, by way of bonus, or on credit; and that, although the same was issued “by the president and secretary of defendant corporation in the regular course of business,” plaintiff made no “arrangements of any kind whatsoever with the board of directors” with reference to the issuance thereof. The stock remained in plaintiff’s possession or under his control, and was voted by him at corporate meetings, until the commencement of the trial of this action in October, 1922, at which time he offered to surrender the two certificates to defendant, who refused to accept them; whereupon the court ordered said certificates deposited with the clerk of the court.