Quartz Glass & Manufacturing Co. v. Joyce

California Court of Appeal May 29, 1915 No. Civ. No. 1737.Published

Before: Shaw

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Holding. The court held that a secret agreement between a corporation and a stock purchaser, which conditions payment of a promissory note solely on future dividends, is void as a fraud upon other stockholders and creditors, and therefore unenforceable.

Issues

Whether a written agreement regarding the payment of a promissory note is deemed admitted if not denied by affidavit under section 448 of the Code of Civil Procedure.
Whether a secret agreement to pay a promissory note for corporate stock only through future dividends is a valid defense against the corporation's action to collect on the note.

Disposition. affirmed

Quotations verified verbatim against the opinion

“the genuineness and due execution of the document set forth in the answer and upon which appellant based his defense, must be deemed admitted by reason of this provision.”

“In our opinion, the agreement embodied in the stipulation and which defendant sought to prove was void, and therefore the court did not err in the ruling as to which complaint is made.”

Synopsis

APPEAL from a judgment of the Superior Court of Los Angeles County and from an order denying a new trial. J. P. Wood, Judge.

The facts are stated in the opinion of the court.

[525]

SHAW, J.

This was an action to recover upon a promissory note made by defendant to plaintiff.

Judgment went for plaintiff, from which, and an order denying his motion for a new trial, defendant appeals.

The answer admitted the making of the note, but alleged that it was executed upon the express condition and understanding that payment thereof should be made out of dividends to be declared and paid upon certain shares of the capital stock of plaintiff by it sold to defendant and for the purchase price of which the note was given; that contemporaneously with the making of the note and as a part of the transaction plaintiff and defendant executed a written agreement as follows:

“For a certain valuable consideration, and in lieu of a certain promissory note given by W. H. Joyce, party of the first part, to the Quartz Glass & Manufacturing Co., party of the second part,

“Party of the first part agrees and authorizes party of the second part to apply all accrued dividends which may be declared on stock certificate #38 and 39 of. the Quartz Glass & Manufacturing Co. as part payment and liquidation of the amount due on said note with all accrued interest. When said note is fully paid, party of the second part agrees to surrender said stock certificates with canceled note to party of the first part.

“This agreement to remain in force until the dividends accrued from said stock shall have fully paid face value of note with all interest accrued until paid.

“In witness whereof, we have-hereto set our hands this eleventh day of April, 1908.

“W. H. Joyce.

“Quabtz Glass & Mfg. Co.,

“Geo. F. Eisenmayeb, Gen’rl. Mgr.”

Plaintiff’s objection to the reception of this document in evidence, was sustained, as likewise were objections to all evidence tending to establish this collateral secret agreement that the note was to be paid out of dividends upon the stock.

Respondent justifies the ruling so made upon the grounds: First, “that it did not appear that said written agreement had been executed by the corporation; second, that it did not appear that said agreement was ever properly authorized by the corporation

Quartz Glass & Manufacturing Co. v. Joyce

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Synopsis

SHAW, J.

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