## Facts

- In 1974, James M. Yates and others formed Bridge Holding Company (Holding), a Missouri corporation.
- Holding owned two closely related subsidiaries: Bridge Trading Company (Old Trading) and Bridge Data Company (Data), both incorporated in Delaware and operating principally in Missouri.
- Most Old Trading shareholders lived in Missouri.
- In 1977, Holding sold all of its stock in Old Trading to a brokerage firm, but Old Trading continued to be closely affiliated with Holding and Data.
- In 1983, Yates entered into a written stock-purchase agreement under which he agreed to buy shares of Old Trading and pay the purchase price using a promissory note.
- The stock-purchase agreement included a clause selecting Missouri law to govern the agreement.
- By June 1987, Old Trading had started dissolution proceedings, and Yates still had made no payments on the promissory note.
- After dissolution began, Yates sought to obtain the stock certificate so he could sell the shares to an outside company.
- The other founders refused to release the stock certificate, and Old Trading refused to accept Yates’s check for the remaining balance and refused to deliver the shares.
- Yates sued Old Trading and related defendants seeking to obtain the disputed shares and asserted, among other theories, conversion.
- The trial court applied Missouri law and held the stock-purchase agreement void because the shares were to be paid for by a promissory note; judgment was entered for defendants.
- Yates appealed, arguing that Delaware law should control under the internal-affairs doctrine and that, under Delaware law, the transaction would be voidable rather than void.

## Issues

1. Whether the internal-affairs doctrine required application of Delaware law (the state of incorporation) to the validity of Old Trading’s stock issuance, despite the agreement’s Missouri choice-of-law clause and the transaction’s Missouri contacts.
2. Whether Missouri’s statutory rule barring issuance of stock for a promissory note (Mo. Rev. Stat. § 351.160) applied to make the stock-purchase agreement void.
3. Whether Yates’s later tender of full payment could validate the transaction or require delivery of the shares.
4. Whether Yates could recover for conversion when his claimed ownership depended on a stock issuance held void under Missouri law.

## Decision

- The Missouri Court of Appeals (Eastern District) affirmed the trial court’s judgment for defendants.
- The court applied Missouri law as specified in the stock-purchase agreement, aided by the strong Missouri connections of the parties and transaction.
- Under Mo. Rev. Stat. § 351.160, stock issued in exchange for a promissory note was void; therefore, Yates did not acquire valid shareholder rights in the disputed shares.
- Because the issuance was void, Yates’s later tender of payment did not cure the defect or create an enforceable right to a stock certificate.
- Without a valid property interest in the shares, Yates’s conversion claim failed.

## Legal Principles

- A contractual choice-of-law clause selecting Missouri law may be enforced for a stock-purchase agreement involving a foreign corporation when the transaction and parties have substantial Missouri connections, and the internal-affairs doctrine does not require a different result on these facts.
- Under Mo. Rev. Stat. § 351.160 (as applied), issuing corporate stock for a promissory note is void rather than merely voidable.
- A void stock issuance cannot be made valid by later payment or by equitable theories that would matter only if the transaction were voidable.
- Conversion requires a lawful ownership or possessory interest; a plaintiff cannot recover for conversion of stock when the asserted ownership depends on a void issuance.

## Conclusion

The court held that Missouri law governed the stock-purchase agreement and, under Missouri’s statutory restriction on consideration for shares, the promissory-note transaction was void from the start. Because Yates never obtained valid rights to the shares, his later tender of full payment did not require Old Trading to accept payment or deliver the stock certificate, and his conversion claim failed for lack of a valid property interest.


Yates v. Bridge Trading Co., 844 S.W.2d 56 (1992)