92 P.2d 1057 | Idaho | 1939
Lead Opinion
Appellant Coeur d'Alene Mines Corporation was incorporated under the laws of the state of Idaho in October, 1928, with an authorized capital stock of $3,000,000 divided into 3,000,000 shares of the par value of $1 each. All the authorized capital stock of the corporation was issued to subscribers therefor, as fully paid and non-assessable, and in the same month of the same year, after *493 incorporation, certificates of stock were immediately issued and delivered to subscribers or their assignees.
September 8, 1934, respondent A. C. Frost Co. was incorporated under the laws of the state of Washington.
Prior to May 6, 1929, appellant issued and delivered to A.C. Frost, 40,000 shares of its capital stock with the words printed on the face: "Fully paid up and non-assessable." In 1929 what is styled "The Business Corporation Act" was enacted (1929 Sess. Laws, p. 545). It did not carry all emergency clause and, therefore, did not become effective until May 7, 1929. Section 33 (now sec. 29-145, I. C. A.) authorizes corporations to amend their articles by a two-thirds vote of the stockholders.
September 10, 1934, appellant Coeur d'Alene Mines Corporation gave W.J. Boland a written option to purchase 1,300,000 shares of its capital stock at 10¢ per share, the purchase price to be paid in deferred instalments, excepting the sum of $2,500, paid at the time. While the option was nominally executed between Coeur d'Alene Mines Corporation and Boland, Boland acted for and as the trustee of respondent A. C. Frost Co., through which option the last-named corporation became the owner of 135,000 shares (in addition to the 40,000 shares it theretofore acquired from Frost) of the capital stock of appellant Coeur d'Alene Mines Corporation, with the words also printed on the face of the certificates: "Fully paid up and non-assessable." By the terms of the option Coeur d'Alene Mines Corporation contracted with Boland that all of the stock covered by it "shall be issued to party of the second part (Boland) or his nominee, as paid for, and shall be issued 'fully paid and non-assessable.' "
In March, 1937, at a specially called meeting for that purpose, the stockholders of appellant corporation, by more than a two-thirds vote (respondent dissenting), voted to make the stock thereof assessable, and subsequently levied two assessments thereon which respondent refused to pay bringing this suit to restrain their enforcement.
January 31, 1938, the cause was tried. March 3, 1938, findings of fact and conclusions of law were made and filed. On the same day a decree was entered thereon forever restraining *494 and enjoining appellant from levying an assessment or assessments against or upon the 175,000 shares of the stock of appellant so owned by respondent, from which an appeal was prosecuted to this court.
While the statutes (Rev. Codes, sec. 2750, and sec. 44, "Business Corp. Act" 1929 Sess. Laws, p. 545) were different when the two blocks (40,000 and 135,000) were purchased, if the 1929 statute constitutionally authorizes a change of the 40,000 shares from non-assessable to assessable shares, it would unquestionably authorize a change of the 135,000 shares from non-assessable to assessable. Hence, the decisive question presented on this appeal is: Are respondent's shares subject to assessment?
In an early case, Wall v. Basin Min. Co., Ltd.,
"The sole question presented on this appeal is: Was the appellant's stock subject to assessment and sale?"
"This inquiry may be subdivided into two parts: First. Under the constitution and laws of this state, can fully paidup stock in a corporation be assessed? Second: Does the fact that certificates of stock bear upon their face the words 'full paid up and non-assessable,' render shares — represented by such certificates, which have been fully paid up — non-assessable?"
After an exhaustive discussion of the question as to whether fully paid up stock of a corporation could be assessed, this court said:
"If a corporation necessarily incurs an indebtedness in maintaining itself or preserving its property, it becomes legally bound to pay and discharge such indebtedness; and the only question of concern is: By what means shall such indebtedness be discharged? Shall the entire property be sold, or has the corporation power to levy an assessment upon its stock and thereby discharge such indebtedness? Certainly a stockholder would lose no more by having his stock subjected to sale for nonpayment of assessments, than he would lose if the entire property owned by the corporation were sold for the payment of the same indebtedness, and we do not believe that it was the intention of the constitution to prohibit a corporation from levying assessments *495 against full paid stock, and upon failure to pay the same, subjecting the stock to sale for the purpose of raising money to meet the obligations of such corporation; for if this cannot be done, a corporation often would be unable to prevent its entire capital from being sacrificed by sale, in order to discharge a small indebtedness, which might be discharged by an inconsequential assessment."
And then the court held:
"So we conclude that Sec. 17, Art. 11 of the constitution relates to and limits the personal liability of a stockholder, but that it in no way limits the power of the corporation to make assessments upon stock fully paid up and subjecting such stock to sale for the purpose of discharging the obligations of such corporation. This conclusion, we think, is supported by the history of the legislation of this state in relation to a stockholder's liability in a corporation."
Having so held on the point involved in the first inquiry, the court proceeded to discuss the second inquiry, to wit: Was the capital stock of the Basin Mining Company subject to assessment and sale:
"This brings us to the consideration of the second inquiry; that it: Does the fact that certificates of stock bear upon their fact the words 'full paid up and nonassessable' render shares represented by such certificates which have been fully paid up nonassessable?"
"The position of counsel for respondent upon this phase of the case is tersely stated in their brief as follows:
" `We maintain, therefore, that where the governing statute imposes upon fully paid stock liability for subsequent assessments, the stockholders cannot vary their liability by abrogating those provisions of the statute, and we do not believe that any sound authority can be cited to the court supporting the contrary doctrine.' "
Continuing, the court said:
"In this connection we call attention to the fact that the controversy in this case arises between the corporation and a stockholder, that the rights of a creditor to enforce his claim against a stockholder or the liability of a stockholder to a creditor for corporate debts is not involved (and that is likewise true in the case at bar). This distinction should be kept *496 in mind in order to apply and distinguish the cases dealing with this subject and cited by counsel, for in the case under consideration the question to be determined is: Can a corporation agree with its stockholders that the stock issued by such corporation shall not be subject to assessment? That is, Can such an arrangement or agreement be made which is binding as between the corporation and the stockholder? Rev. Codes, sec. 2750, provides:
" `The directors of any corporation formed or existing under the laws of this state, after one-fourth of its capital stock has been subscribed, may, for the purpose of paying expenses, conducting business or paying debts, levy and collect assessments upon the subscribed capital stock thereof, in the manner and form, and to the extent, herein provided.' " (An examination of this case (Wall v. Basin Mining Co., Ltd.) will disclose that all of the stock of the company had been subscribed, issued and transferred in full payment of the mining property conveyed to the corporation, pp. 317, 318.). . . .
"The inquiry then arises: Does the fact that a certificate of stock, issued by a corporation, bears upon its face the words `fully paid up and nonassessable' amount to a contract between the corporation and the stockholder; and has the corporation power to make the same?"
. . . .
"When the corporation issued its stock and incorporated in the certificates the statement 'non-assessable,' it certainly did so for some purpose, and that purpose, it would seem clearly appears from the certificate; that is, that the corporation represented and certified to prospective purchasers that the stock was in fact not subject to assessment. By such certificate the corporation so represented to the appellant and the appellant no doubt accepted such stock in payment of his services with the understanding and agreement that the value of his services amounted to the full par value of such stock; and that the company waived the right to levy any assessment against the same. If the words `non-assessable,' when contained in a stock certificate, are not matters of substance and agreement and within the power of the corporation *497 to make, then they are meaningless, and can only be used by the corporation to allure the unsuspecting investor into parting with his money, receiving in return a certificate which falsely represents the nature and character of the stock purchased."
In other words, what the court actually held in that case was: A corporation may contract, either by a provision in its articles of incorporation or a provision in its by-laws, that its capital stock is non-assessable; and it further and also held that "when the corporation certifies (as in the case at bar) the shares represented by a certificate are 'non-assessable,' such provision becomes a part of the contract between the corporation and the stockholder, and, as between the corporation and stockholder, such agreement may be relied upon and enforced."
In the case of Whicher v. Delaware Mines Corp.,
"Appellants urge the further contention that the proposed reorganization simply amounted to an effort to change their nonassessable shares in the Delaware company to assessable shares in the new corporation, and that such a program if carried out would violate their contract rights and deprive them of property in violation of constitutional limitations. This position is also well founded in law.
"It is the settled law of this state that when a corporation organized in the state issues stock certificates as non-assessable, this clause becomes a matter of agreement and a part of the contract and the corporation itself has no power to levy an *498
assessment thereon in violation of the contract. The rule was originally announced by this court in Wall v. Basin Co., Ltd.,
"The rule is approved and followed in Jonas v. Frost,
"Thus it will be observed that the question is no longer open in Idaho." *499
Appellants contend the legislature, under article 11, section 2, of the Constitution1, has reserved power to, and by statute passed in 1929 (Sess. Laws 1929, p. 545) did, authorize corporations to change non-assessable to assessable stock, citing Somerville v. St. Louis Mining Milling Co.,
While the Montana supreme court so held, the supreme court of the state of Utah, in Garey v. St. Joe Min. Co.,
"Bearing in mind that the corporate charter is a dual contract — one between the state and the corporation and its stockholders, the other between the corporation and its stockholders — and that under the reserved power the state may alter or amend the former, but not the latter, the question is: Under which do the legislative enactment of 1903 and the action taken by the majority of the stockholders fall? We are of the opinion that they do not pertain to any right, privilege, or immunity which the state had granted to the corporation or to its stockholders, and that the action by such stockholders in no wise affected or was related to the contract existing between the state and the corporation. It merely pertains to and affects the contract existing among the stockholders themselves. Neither the enactment nor the stockholders' amendment of the articles purport to be for the *500 benefit of the creditors or for the benefit of the public. Thereunder no right or privilege in favor of creditors or the public is created, and thereunder no creditor could assert any right or claim that could not have been asserted by him prior to the enactment. In the original articles of incorporation each stockholder agreed, one with the other, that his full-paid capital stock should be nonassessable. . . . . To permit the Legislature to confer authority upon any number of stockholders less than the whole to bind a dissenting minority to another and a different agreement in such respect is to force them into a contract which they never made and which they are not willing to make. To do so is to confer the power of the majority to determine the amount of contributions that each stockholder is required to make. . . . . The exercise of such a power is something which affects the very core of the contractual relations of the stockholders among themselves; and a legislative enactment which confers such a power is, in our judgment, an impairment of the obligation of a contract which is protected by the federal Constitution."
Assuming but not conceding the legislature, under article 11, section 2, of the Constitution, has reserved power to, and that it did and could, authorize corporations to change nonassessable to assessable stock, without impairing the obligation of a contract that the stock should be non-assessable (as contended by appellants), that could not possibly vest a corporation with authority to commit fraud by inducing investors to purchase its stock upon the false representation that its shares were not assessable. If so, it puts the Constitution to a new and strange use.
We turn now to the contention of appellant that respondent "A. C. Frost Co. having been legally dissolved in the state of its incorporation (it was stricken from the records of the office of the Secretary of State of the State of Washington for failure to pay its annual license fee, under the laws of that state), and no legal existence at the time of the execution of the contract or contracts entered into by it and under which it claims its stock in the defendant corporation is non-assessable, could not legally enter into any contract, and the purported contracts were void from the beginning." *501
The trial court found, upon ample evidence:
"The defendant Coeur d'Alene Mines Corporation accepted the plaintiff A. C. Frost Co., a corporation, as the assignee of that certain contract in writing bearing date of September 10, A.D. 1934, between the defendant Coeur d'Alene Mines Corporation and one W.J. Boland, hereinafter referred to, and accepted performance of said contract by the plaintiff A. C. Frost Co. as a corporation; entered into an agreement in writing with the plaintiff A. C. Frost Co. as a corporation to modify said contract with respect to the dates and amounts of the monthly payments to be made thereunder, on or about April 26, 1935; agreed in writing with the plaintiff A. C. Frost Co. as a corporation to modify said contract on or about May 15, 1935, by accepting an offer submitted to the defendant corporation in writing by the plaintiff corporation in its corporate name and signed by its president, under date of May 11, 1935; accepted performance of said contract by the plaintiff A. C. Frost Co., as a corporation, and as the assignee of the said W.J. Boland, by accepting payments from the plaintiff corporation for all shares of stock issued under said contract, and by issuing the certificates of stock therefor to A. C. Frost Co., a corporation and its nominees, and as directed by it, and generally dealt with the plaintiff A. C. Frost Co., as a corporation, with respect to the performance of said contract and the purchase of the shares of stock hereinafter set forth during all the time that said shares of stock were being purchased and said certificates issued therefor."
Having accepted respondent as the assignee of the Boland contract and the performance of such contract by respondent, and having entered into a written contract with respondent to modify the dates and amounts of the monthly payments to be made thereunder, and having accepted payments from respondent for all shares of stock issued under the Boland contract, and having generally dealt with respondent as a corporation, appellant corporation is estopped to deny the corporate existence of respondent. (Toledo Computing Scale Co. v. Young,
From what has been said it follows the judgment appealed from must be affirmed and it is so ordered. Costs awarded to respondent.
Ailshie, C.J., and Budge, J., concur.
"No charter of incorporation shall be granted, extended, changed or amended by special law, except for such municipal, charitable, educational, penal, or reformatory corporations as are or may be, under the control of the state; but the legislature shall provide by general law for the organization of corporations hereafter to be created: provided, that any such general law shall be subject to future repeal or alteration by the legislature."
Dissenting Opinion
Wall v. Basin Min. Co., Ltd.,
The earliest case we have found under a Constitution identical with ours, and on the precise point herein, isGarey v. St. Joe Min. Co.,
"Bearing in mind that the corporate charter is a dual contract — one between the state and the corporation and its stockholders, the other between the corporation and its stockholders — and that under the reserved power the state may alter or amend the former, but not the latter, the question is: Under which do the legislative enactment of 1903 and the action taken by the majority of the stockholders fall? We *503 are of the opinion that they do not pertain to any right, privilege, or immunity which the state had granted to the corporation or to its stockholders, and that the action by such stockholders in no wise affected or was related to the contract existing between the state and the corporation. It merely pertains to and affects the contract existing among the stockholders themselves. Neither the enactment nor the stockholders' amendment of the articles purport to be for the benefit of the public. Thereunder no right or privilege in favor of creditors or the public is created, and thereunder no creditor could assert any right or claim that could not have been asserted by him prior to the enactment. In the original articles of incorporation each stockholder agreed, one with the other, that his full-paid capital stock should be nonassessable. . . . . To permit the Legislature to confer authority upon any number of stockholders less than the whole to bind a dissenting minority to another and a different agreement in such respect is to force them into a contract which they never made and which they are not willing to make. To do so is to confer the power on the majority to determine the amount of contributions that each stockholder is required to make. . . . . The exercise of such power is something which affects the very core of the contractual relations of the stockholders among themselves; and a legislative enactment which confers such a power is, in our judgment, an impairment of the obligation of a contract which is protected by the federal Constitution."
Somerville v. St. Louis Min. Mill. Co.,
"Certain principles of law relating to corporations are so well settled that, as to them, there is not any difference of opinion. (1) The charter granted by a statement to a corporation, when accepted, becomes a 'contract' within the meaning of the contract clause of the federal Constitution.Dartmouth College v. Woodward, 4 Wheat. 518,
. . . . . . . . . . . . .
". . . . The legislation in force at the time of the organization of a corporation enters into and becomes a part of the contract, to the same extent as if set forth at length in the contract; and, upon the theory which we have adopted, there was read into the charter of the Ajax Mining Company this statement, in effect: This corporation shall not without the unanimous consent of its stockholders dispose of all the corporate property, until such time as the Legislature may authorize it to do so. And upon the same theory, the recital in the charter of the St. Louis Mining Milling Company that its stock should be non-assessable is to be read, in the light of the reserved power, to mean: This stock shall be nonassessable until such time as the Legislature shall provide that it shall be assessable, or until such time as it is rendered assessable pursuant to legislation authorizing such change. If our theory of the reserved power is correct, and these stipulations are to be read into the charters of these companies, it follows, as of course, that section 511, Civil Code, above, does not impair the obligation of the contract entered into when the St. Louis Mining Milling Company accepted its charter."
Garey v. St. Joe Min. Co., supra, has generally not been followed. (Davis v. Louisville Gas Elec. Co.,
The Utah case considered there would be an impairment of the obligation of contract because, by the change the individual could be deprived of his stock; on the other hand Wall v. BasinMin. Co., Ltd., supra, and Somerville v. St. Louis Min Mill.Co., supra, as well as a later Utah case (Weede v. Emma CopperCo.,
If the constitutional provision of article 11, section 2, means anything at all it must mean that the legislature has the power and authority to change the statutes regulating preexisting corporations or previously issued stock, for the legislature without constitutional authority — since there is no restriction thereon — has the undoubted right to legislate with respect to subsequent corporate actions or subsequently issued stock.
It is asserted that this construction of the statute results in unfairness to the stockholders. Let us examine the other side of the picture a moment and see what results from the majority construction of the statute.
Respondent owns such a large block of stock that his refusal to pay assessments thereon might force the corporation to lose all its property, whereupon the property of the corporation might be repurchased by respondent at a low figure. and the other stockholders frozen out. Under such construction the corporation and minority stockholders lose everything. If an enforceable assessment is made any stockholder failing to pay would alone lose his stock but the corporation would be able to retain its property.
It is of course to be kept in mind that we are dealing with assessment of stock after it has been fully paid for and not the question of so-called single or double liability as considered in Fralick v. Guyer,
The point is made that section 2, article 11, reserves power to legislate only as to the relationship between the corporation *506
and the state, and not between the corporation and stockholders and among others, Haberlach v. Tillamook County Bank,
The Oregon cases are distinguishable from the case herein for three reasons: First, they do not rely upon the distinction as to the relationship between the corporation and the state and its stockholders, since they cite with approval the Dartmouth College case, 4 Wheat. 518,
"Although there is some conflict in the decisions, the prevailing rules are as follows: Where the state has not reserved the power to alter, amend, or repeal the charter of a corporation, the provision of the Constitution of the United States (article 1, § 10) against laws impairing the obligation of contracts protects the contract between the corporators or members, and between them and the corporation, as well as the contract between the state and the corporators or corporation (Dartmouth College v. Woodward, 4 Wheat. 518,
In the third place the imposition upon the stockholders there considered was not an assessment as herein, but involved single or double liability, which was not that considered herein, as expressly stated herein, referring to Fralick v. Guyer,
The judgment should therefore be reversed and remanded with instructions to enter judgment in favor of appellants.
Morgan, J., concurs in this dissent.
Petition for rehearing denied.
"No charter of incorporation shall be granted, extended, changed or amended by special law, except for such municipal, charitable, educational, penal, or reformatory corporations as are or may be, under the control of the state; but the legislature shall provide by general law for the organization of corporations hereafter to be created: provided, that any such general law shall be subject to future repeal or alteration by the legislature."
