Kilbride v. Moss
Before: Searls
Synopsis
Corporations—Purchase op Capital Stock — Verbal Guaranty by Stockholders—Statute oe Frauds—Original Contract.—Where a purchase is made of the capital stock of a corporation, at the request of a large stockholder therein, who, in order to induce the purchase, verbally promised the purchaser to return the money paid by him if the stock should become worthless, such promise is not collateral to any obligation of the corporation to the purchaser, and is not void as being a verbal contract of guaranty, or a verbal agreement to answer for the debt, default, or miscarriage of another, but is an original contract, which need not be in writing, and upon which the stockholder making the promise is liable to the purchaser.
Id. — Nature oe Guaranty — Collateral Undertaking — Original Promise.—A contract of guaranty is a collateral undertaking, and cannot exist without the presence of a main or substantive liability to which it is collateral; and, where there is no primary liability of a third person to the promise, which continues after the contract is made, the contract cannot be one of guaranty, but is an original promise, which need not be in writing.
Searls, C. This is an action to recover fifteen hundred dollars under the following circumstances:
The “California Lustral Company” was a corporation, duly organized under the laws of the state of California. Defendant Franklin Moss was a large stockholder therein, a director and vice-president of the company, and, with another, held a mortgage upon the property of the company.
The corporation was indebted to sundry creditors, some of whom were pressing payment.
Plaintiff had fifteen hundred dollars, and defendant Moss proposed to him to purchase therewith six thousand shares of the capital stock of the corporation, and at first offered to secure him therefor by a second mortgage on the corporate property. This offer was declined.
Thereupon it was verbally agreed between plaintiff and defendant that the plaintiff should purchase the six thousand shares of stock, pay fifteen hundred dollars therefor to the company, and, in the event that the stock became worthless or of no value, he, the said defendant, would return and pay to plaintiff the said sum of fifteen hundred dollars.
This was on the 25th of May, 1891. Plaintiff pur[434]chased the stock, paid therefor the fifteen hundred dollars which was used in payment of company debts.
In 1892, the capital stock of the corporation having become worthless and of no value, plaintiff., offered to return the same to defendant and demanded payment of the fifteen hundred dollars, all of which was refused. Plaintiff thereupon brought this action and obtained judgment for said fifteen hundred dollars, from which judgment and from an order denying his motion for new trial defendant appeals.
At the trial defendant’s counsel objected to all evidence tending to show a verbal guaranty by defendant of the stock or its value. The objection was overruled, and the ruling is assigned as error.
A guaranty is defined by section 2787 of the Civil Code as follows:- “A guaranty is a promise to answer for the debt, default, or miscarriage of another person.”
Under section 2793 of the Civil Code a guaranty, save in the cases excepted .by the following sections, “must be in writing and signed by the guarantor; but the writing need not express a consideration.”
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