141 Minn. 412 | Minn. | 1918
The following opinion was filed on July 1, 1918:
The respondents were ordered to show cause why ,this court should not grant appellants’ motion to accept as a supersedeas the $3,000 bond given herein and approved by the trial court as a bond for costs only. On the hearing this court was asked to fix the amount of a stay bond, if of the opinion that the said bond was inadequate.
This -court has the power to protect a respondent during the pendency of an appeal'against inadequate or improvident stay bonds approved and filed in the court below. Bock v. Sauk Center Grocery Co. 100 Minn. 71, 110 N. W. 357. And it is argued that the like power exists to pro
The order to show cause is discharged and the temporary stay vacated.
On January 17,1919, the following opinion was filed:
Action brought by Allin Axford and 16 other named stockholders on behalf of themselves and all others similarly situated, as plaintiffs against the Western Syndicate Investment Company, Thomas Dunn, R. E. Johnson and M. D. Crawford, defendants. Subsequent to the service of the summons and pursuant to an order of the court in the premises, M. C. Smith, E. E. Wagner, C. E. Warner, E. R. Morgans and William B. Roberts appeared and filed answers. E. IQaveness appeared of his own motion and filed a complaint in intervention.
The second amended complaint, upon which the action was tried, is, in form, a complaint in a stockholders’ suit for the benefit of the corporation. It is therein alleged that the plaintiffs are bona fide holders of 420 shares of the common stock of the defendant company, issued to them prior to the issuance of the 5,300 shares by this action sought to be canceled; that as the result of a conspiracy between the defendants Dunn, Johnson and Crawford, the said 5,300 shares of stock were issued without consideration to the defendant company and in fraud of all the stockholders and of the said company; that while the certificates were
In their answers the defendants Dunn, Johnson and Crawford, denied the charges of fraud and deception, and alleged that the shares of stock sought to be canceled were issued iñ lawful exchange for an option for the purchase of 9,000 shares of the capital stock in the Surety Company, and that the defendant company duly ratified said transaction. The answer of Smith and Wagner was a general denial, coupled with an allegation that they purchased the stock held by them in good faith, for an adequate consideration, and without notice of any wrong in connection with the issuance thereof. Warner and Morgans pleaded along the lines of the complaint, and Roberts disclaimed owning any of the Crawford issue. The complaint in intervention was along the lines of the second amended complaint.
With issues joined as indicated, a trial lasting for a number of weeks was had. Two days were consumed by the arguments, and the findings of fact bearing upon the issuance and disposal of the 5,300 shares of stock sought to be canceled are in detail. The sufficiency of the testimony to sustain the findings is not raised by the assignments of error.
From the facts so determined, the trial court found as conclusions:
(1) That the 5,300 shares of stock issued to Crawford were without consideration and constituted a ^fictitious increase of stock, and were therefore void under the Constitution and laws of the state of South Dakota.
(2) That none of the parties to this action acquired any right, title or interest in or to any such stock by virtue of any of the certificates issued to Crawford.
E. R. Morgans Oct. 1, 1915 Cert. Nos. 197-198 14 shares
C. E. Warner Oct. 1, 27, 1915 Cert. Nos. 204-215 10 shares
Thomas Dunn Eeb- 12, 1916 Cert. Nos. 246-247 81'shares
M. D. Crawford May 25, 1916 Cert. No. 315 . 125 shares
E. Klaveness May 25, 1916 Cert. Nos. 303 to 308 inc. 675 shares
E. Klaveness June 22, 1916 Cert. No. 323 25 shares
E. Klaveness Sept. 25, 1916 Cert. No. 311 400 shares
E. E. Wagner & M. C. Smith Sept. 25, 1916 Cert. No. 348 2085 shares
Wm. B. Roberts Oct. 6, 1916 Cert. Nos. 378 to 383 inc. 200 shares
(4) That each of said defendants and the intervener surrender into court each of such certificates for cancelation.
(5) Authorizing the receiver, to be hereafter appointed, to bring proper actions for the cancelation of all other certificates representing any of such stock so issued to Crawford.
(6) Directing-an accounting to be taken with the defendants Dunn and Johnson.
(7) Continuing such receivership until the further order of the court in the premises.
(8) Dismissing the cross complaint of Smith and Wagner and the complaint of intervention, insofar as the same set forth any claim in or to any stock under or by virtue of any certificate so issued to Crawford.
(9) That plaintiffs recover 'from the defendants Dunn, Johnson,, Crawford, Wagner and Smith, the costs and disbursements of this action.
The Surety Fund Life Company was incorporated in 1898, under the laws of the state of Minnesota, for the transaction of life and endowment insurance upon the assessment plan. In 1910, Leslie C. Lane, E. J. Miller and W. P. Hobart were respectively president, secretary and treas
With this situation before them, Dunn conceived the idea of incorporating a holding company and of obtaining, in its name, the handling of the Surety Company and other like concerns. Accordingly, on June 26, 1913, he caused the defendant Western Syndicate Investment Company to.be incorporated under the laws of the state of South Dakota, with an authorized capital of $500,000, divided into 10,000 shares of common and 10,000 shares of preferred, nonvoting stock. The sole incorporators were E. E. Johnson, J. E. Mather and C. J. Hedwall, each holding one share of stock. The principal place of business was designated as Sioux Falls, South Dakota, but an office was maintained at Minneapolis, where the books and records were kept. Johnson was a director and the secretary of the company from the time of its organization, and in custody of the books and records.
An option in form had been prepared, purporting to bind Lane, Miller and Hobart to sell to the defendant Dunn the 9,000 shares of stock upon the payment of $249,000, as therein specified. On July 2, 1913, Dunn, Crawford and the three incorporators appeared at the office of the Surety Company and sought to induce Lane, Miller and Hobart to execute such contract. They refused, giving as their reason that they
At the time such entries were made, neither Dunn nor Crawford held an option for the purchase of the Surety stock. The Surety Company was still doing business on the assessment plan, none of its stock had been issued or paid for, and Lane, Miller and Hobart refused to consider any proposition therefor until the same was issued and paid for.
In September, 1913, Dunn and Johnson put out a prospectus in which it appeared that the defendant company held a contract for the purchase of the Surety Company stock. In reliance thereon there were sold to divers bona fide purchasers during the summer of 1914, 516.42 shares of common stock for the par value of $12,910.50, of which 185 shares were sold and issued to certain of the plaintiffs during the month of July, 1914. On August 1, 1914, certificates for 5,300 shares of common stock were issued to Cranford, and thereafter he voted the same at all stockholders’ meetings.
The trial court found specifically, that the transactions and entries upon the records from July 2 to 17, 1913, were wholly sham and fictitious, and that the purpose thereof was to make it appear that the 5,300 shares of stock had been issued to Crawford for a consideration, while in truth and in fact it was the intention of all the parties thereto, in case a transfer of the Surety Company stock to the defendant company should at some future time be effected, that the stock issued therefor in the name of Crawford should be held by Dunn and Johnson as secret profits. The court further found that the certificates for the 5,300 shares were issued to Crawford without consideration; that they were held for the use and benefit of Dunn and those associated with him, in attempting to deprive the company thereof without consideration; that none of the parties to this action holding any of the Crawford issue are bona fide holders thereof, without notice of the defects in the issuance thereof; that the defendants Dunn, Johnson and Crawford, by false and misleading entries in the corporate records, and in the prospectus
The judgment entered is interlocutory. It relates only to the validity of the Crawford stock. It determines no other issue. Subsequent to thi entry thereof, the defendants Dunn, Johnson, and Crawford, moved fo: an order amending the findings of fact and conclusions of law. The mo tion was denied. The appeal is by the defendants Dunn, Johnson anc Crawford alone, from the judgment, the order denying their motion fo amended findings and conclusions, and from an order denying their mo tion for a new trial.
The assignments of error are that the court erred:
(1) In rendering a decree canceling the so-called Crawford stock.
(2) In denying the motion of appellants for amendments of the find ings and conclusions.
(3) In denying appellants’ motion for a new trial.
(4) In excluding the testimony of the witness Austin, as to the valui of the Surety Company stock.
(5) In that the findings of fact do not justify the conclusions of law
Appellants contend that the transaction between Crawford and th< company for the 5,300 shares of its stock was completed on July 17 1913;” that Johnson, Mather and Hedwall were then the only stock holders and directors; that, as appears from the corporate.records, Craw ford made an offer to sell the option to the company for $400,000; tha the company in turn offered to issue to him 5,300 shares of its commoi stock and 100 shares of its preferred stock in exchange for the option which he accepted, and assigned the option to the company; that í resolution was then entered acknowledging assignment and directing the issuance of certificates to him therefor, which completely closed th< transaction, and that Crawford’s title to the stock dates from that time that it is immaterial when the. certificates were issued or delivered; that all of the stockholders and directors having participated in the transac tion, the issuance of the stock cannot now be questioned, either by th< corporation or subsequent stockholders. The difficulty with this conten
A stock certificate is at best a mere writing which evidences the shareholder’s interest in the corporation of which he is a member. It is simply evidence of title to stock. The entries made in the corporate records from July 2 to 17, 1913, standing impeached as they do by the finding of the court, do not furnish proof that Crawford became a member or stockholder of the defendant company. It is true that certificates were in form issued to him on August 1, 1914, and.that he thereafter voted the same at the various stockholders’ meetings, but this of itself did not constitute him a stockholder. He had never subscribed for any stock, had never paid for any or done any act entitling him to any stock in the company. Fairly considered, the most to be said is,, that he had a verbal understanding with Lane, Miller and Hobart, that in case he succeeded in finding a purchaser ready and willing to take the stock in the Surety Company, for which they had subscribed, at the price and upon the terms stated, they would pay him a commission of $1,000 each, and in addition thereto allow him to retain whatever amount he might obtain in excess of the stated selling price. He had no exclusive right of sale. The organization of the company was .completed on June 26, 1913. Seven days thereafter, July 2, Dunn, Crawford and the three incorporators, Johnson, Mather and Hedwall, called upon Lane, Miller and Hobart at their office for the purpose of procuring, in the name of Dunn, an option to purchase the 9,000 shares. They were then informed that no proposition therefor would be .entertained until a loan was procured, the stock paid for and the certificates issued therefor. On that day the entries in the corporate records, upon which the defendants base the rights of Crawford and which the court justly found to be sham and fictitious, were begun, and the efforts continued until August 1, 1914, when another step toward the goal was taken, and certificates for 5,300
The statement by the learned trial judge in his memorandum is pertinent: “This wholly fictitious transaction, conceived and executed for the purpose of robbing the honest stockholders of the corporation for the benefit of officers and agents in duty bound to protect them, surely cannot be given its intended effect. Neither the ingenious methods employed nor the studied efforts to conceal the fraud, continued even to the close of the trial yet effectually exposed, are available to prevent redress.”
The defendant company is a South Dakota corporation, with its principal place of business in that state, and the rights of the parties so far as they involve the ownership of stock therein are governed by the laws of that state. First Nat. Bank of Deadwood v. Gustin Minerva C. M. Co. 42 Minn. 327, 44 N. W. 198, 6 L.R.A. 676, 18 Am. St. 510.
Article 17, § 8, Constitution of South Dakota, provides:
“No corporation shall issue stocks or bonds except for money, labor done, or money or property actually received; and all fictitious increase of stock or indebtedness shall be void.”
Provisions similar to the foregoing exist in several of the states and have been a frequent subject of judicial interpretation and construction. In the case of Rogers v. Gladiator Gold M. & M. Co. 21 S. D. 412, 113 N. W. 86, it was held that a contract made in contravention of the Constitution above quoted was illegal and void. In Anderson v. Scandia
The Crawford issue was a fictitious increase of stock and by the plain terms of the South Dakota Constitution quoted was utterly void.
Stock certificates are not negotiable instruments. . They do not run to bearer or to the order of the person to whom they are given. They simply declare that the person named in the certificate is entitled to a certain number of shares of stock. Central Trust Co. v. West India Imp. Co. 169 N. Y. 314, 62 N. E. 387. An assignment or transfer thereof is necessarily subject to inherent infirmities and to all rights and liabilities attached thereto at the time of the assignment. So that if liability for a loss had previously been incurred by the corporation an unqualified assignee may be called upon to contribute to payment or discharge thereof. In other words, the transfer works a complete substitution, carrying with it, in the absence of a statute to the contrary, all rights and liabilities of the assignor. 9 Modern Am. Law, p. 226; Webster v. Upton, 91 U. S. 65, 23 L. ed. 384.
Under the foregoing rule, the order canceling the shares of stock held by defendants upon transfers on account of the Crawford issue, was fully justified. There was no error in denying the motion for amended findings, nor in the order denying a new trial.
The judgment appealed from, and the orders involved in the appeal, are affirmed.
