Lilley v. Sterling Oil & Refining Co.

Citations

• 108 Kan. 686
• 197 P. 201
• 1921 Kan. LEXIS 244

Syllabus

<p>SYLLABUS BY THE COURT.</p> <p>1. Corporate Stock — Nonnegotiable Paper — Purchaser Takes It Burdened with All Its Vices and Defects. One who buys or contracts to buy stock in a corporation does not take it freed of its infirmities according to the rules of commercial paper acquired in due course; he merely takes such legal and equitable rights in the' stock as his vendor has to bestow; and although the buyer may be ignorant of the equities and burdens which inhere in the stock, his ignorance does not relieve the stock therefrom, nor enable him to acquire it discharged of any vice or defect which inheres in it.</p> <p>2. Same. The secretary of a corporation in charge of its stock book fraudulently and without consideration issued to himself 232,500 shares of the corporation’s capital stock. In conformity with an order of the state charter board the corporation set about the task of recalling and canceling this illegal issue. Part of this issue, a certificate for 5,000 shares, had passed from hand to hand until it was purchased by plaintiff upon a contract that he was not to pay for it until it had been duly transferred on the books of the company arid a new certificate therefor issued to him. Plaintiff did not know of the fraud in its original issue, nor that any vice or defect inhered in the stock. He sent in the old certificate to the corporation for transfer. The corporation promptly canceled and suppressed it and declined to issue a new certificate therefor. Plaintiff sued the corporation in conversion for the market value of bona fide stock of the company. Held, that he purchased the stock burdened with its vices and defects and cannot recover.</p>