284 P. 80 | Wash. | 1930
HOLCOMB, J., dissents. This suit was brought by respondent for the purpose of recovering certain stock of the appellant corporation. A demurrer was sustained to the answer, and, the appellant declining to plead further, a decree was entered. This appeal follows.
Because of the character of the action, the nature of the defense and the many allegations contained in the answer, the pleadings have been set forth in full. The complaint, omitting the formal parts, reads as follows:
"`No. 166 Incorporated under the laws of 15,000 the State of Washington. IDAHO HEWER MINES, INC. Non-Transferable Interim Certificate.
"`THIS CERTIFIES, That certificate No. 168 for fifteen thousand shares of the capital stock of Idaho Hewer Mines, Inc., par value one cent, par fully paid, has this day been issued in the name of DANA CHILD, that said shares are assessable in the sum of TEN CENTS over and above par value, and that said certificate is held in trust by IDAHO HEWER MINES, INC., subject to the following conditions: That the owner thereof has all the rights, privileges and liabilities of a stockholder in said IDAHO HEWER MINES, INC., except that said owner shall not sell nor offer for sale any of the said shares while so held in trust; that this interim certificate is NON-TRANSFERABLE: That the period said certificate shall be held in trust is two years from April 14th, 1926, provided, that the board of trustees of IDAHO HEWER MINES, INC., may, in its discretion, terminate said period and thereupon direct the aforesaid certificate of stock to be delivered.
"`DATED at Spokane, Washington, this 15th day of May, 1926. Idaho Hewer Mines, Inc., "`By H.O. Kent, Secretary.'
"WHEREFORE, Plaintiff prays the issuance of an order and decree of this court adjudging plaintiff to be the owner of the aforesaid 15,000 shares of the capital stock of defendant corporation, and directing and requiring defendant to turn over and deliver to plaintiff *283 the aforesaid stock certificate, together with such other and further relief as in the premises may to the court seem equitable and just, and that plaintiff have and recover his costs and disbursements herein expended.
"O.C. Moore, "Attorney for Plaintiff."
To this complaint, the following answer was interposed:
"And for a further and affirmative defense, this defendant alleges the following facts:
Assessment Date Date Date Nos. Levied Payable Delinquent
1 Apr. 30, 1926 May 15, 1926 May 16, 1926 2 May 18, 1926 June 10, 1926 June 11, 1926 3 June 8, 1926 July 10, 1926 July 11, 1926 4 July 13, 1926 Aug. 10, 1926 Aug. 11, 1926 5 Aug. 10, 1926 Sept. 10, 1926 Sept. 11, 1926 6 Sept. 14, 1926 Oct. 10, 1926 Oct. 11, 1926 7 Oct. 25, 1926 Nov. 10, 1926 Nov. 11, 1926 8 Nov. 9, 1926 Dec. 10, 1926 Dec. 11, 1926 9 Dec. 14, 1926 Jan. 10, 1927 Jan. 11, 1927 10 Jan. 11, 1927 Feb. 10, 1927 Feb. 11, 1927 11 Feb. 8, 1927 A.K. Marsh. 10, 1927 A.K. Marsh. 11, 1927 12 A.K. Marsh. 8, 1927 Apr. 10, 1927 Apr. 11, 1927 13 Apr. 12, 1927 May 10, 1927 May 11, 1927 14 May 10, 1927 June 10, 1927 June 11, 1927 15 June 14, 1927 July 10, 1927 July 11, 1927 16 July 12, 1927 Aug. 10, 1927 Aug. 11, 1927 17 Aug. 9, 1927 Sept. 10, 1927 Sept. 11, 1927 18 Sept. 13, 1927 Oct. 10, 1927 Oct. 11, 1927 "That to each and every of said several assessments the said board of trustees of this defendant caused written notice to be given to the said several assessments stating the sum or sums of such assessments and the time and manner of payment, and further stating that if any stockholder make default in the payment of the assessment upon the shares held by such stockholder, so many of the shares of such stockholder will be sold as will be necessary for the payment of the assessment upon all the shares held by such stockholder; *287 that the notice was signed by the president and secretary of said corporation and was given to each stockholder, and particularly to this plaintiff, by mailing to each stockholder separately, and to this plaintiff, at his or her address more than fifteen days prior to the date fixed for the payment of said assessment.
"WHEREFORE, this defendant prays that the plaintiff take nothing by his said action, and that the same be dismissed, and that the defendant go hence with its costs and disbursements.
"D.M. Drumheller, being first duly sworn, on oath says: That he is the president of the above named defendant corporation; that he makes this affidavit for and on behalf of said corporation for the reason that affiant is the managing agent, to wit, the president thereof; that he has read the above and foregoing answer, knows the contents thereof, and that the same is true as affiant verily believes.
"D.M. Drumheller "Subscribed and sworn to before me this 31st day of December, 1928. Reese H. Voorhees, "Notary Public in and for the State of Washington, residing at Spokane, Washington. *289
"The stock of this corporation is subject to assessments over and above its par value, from time to time, in the discretion of the board of trustees, to the extent in the aggregate of ten (10) cents per share.
"When the board of trustees shall levy any assessment, they shall have the power to demand and call in from the stockholders, the sum or sums so assessed, at such time and in such manner, payments or installments as they may deem proper, and the board of trustees shall cause written notice to be given of any such assessment, stating the sum or sums of such assessment, and the time or times and manner of payments, whether all together or by installments, as the board may deem proper, and further stating that if any stockholder shall make default in the payment of the assessment upon the shares held by such stockholder, so many of the shares of such stockholder will be sold as will be necessary for the payment of the assessment upon all the shares held by such stockholder. Said notice shall *290 be signed by the president or secretary, or his name affixed thereto in print, and given to each stockholder personally by mailing to each stockholder, at his or her address on the books of the company, at least fifteen days prior to the date fixed for payment of said assessment, or notice of such assessment may be given by publication in some newspaper published in Spokane county, Washington, said publication being at least fifteen days prior to the date of payment fixed therein. If after such notice has been given, any stockholder shall make default in the payment of the assessment as therein required, upon any shares held by him, the shares of stock on which such default in payment has been made shall be sold by the president or secretary of this corporation. No sale, however, shall be made except at public auction, to the highest bidder, after a notice of four weeks, published in some newspaper published in Spokane county. Such notice shall state the name of the corporation and its principal place of business, and that there is delinquent upon the stock described therein, on account of an assessment or assessments levied on the date or dates thereof, the several amounts set opposite the names of the respective shareholders, and shall state the number of the certificate and shares of each; and further stating that so many of the shares of each stockholder will be sold as will be necessary for the payment of the delinquent assessment or assessments upon the shares held by each and the expenses of advertising and sale, and that the sale will be made at public auction, giving the time and place thereof, the notice to be signed by the president or secretary or his name affixed thereto in print. At such sale the person or persons who shall pay the assessment or assessments so due upon any shareholder's shares, together with the expenses of advertising and sale, for the smallest number of such shares, or portion of a share as the case may be, shall be deemed the highest bidder, and the stock so bid for shall be, upon such payment being made, transferred and delivered to such bidder; or, in place of present actual delivery a non-transferable interim certificate may be given therefor, providing that said shares shall *291 not be delivered for two years, during which period they shall not be sold or offered for sale, if so ordered by the board of trustees, unless otherwise directed during said period by said board. Provided, however, that no such sale shall be made at the office of the company. And provided further, that this corporation may bid and purchase at such sale for the amount of such assessment and expenses.
It was to this answer that the demurrer was sustained on the ground that the facts therein stated did not constitute a defense.
[1] The reason for the decision, as we gather from the record, was that, by issuing the interim certificate, a copy of which is set forth, the corporation became a trustee for the stockholder and as such trustee held respondent's stock, and that a trustee can not, at a sale made by him as trustee, become a purchaser of the articles which are the subject of his trust. If the legal effect of the interim certificate was to make the corporation a trustee for respondent in the broad sense in which that term is usually used, then, of course, it *292 must be admitted that practically all courts, including our own, hold that a trustee can not purchase the property of the cestuique trust regardless of his good faith. It becomes necessary, then, to consider the objects and purposes to be served by the transactions which took place between respondent and appellant, and the legal effect of the so-called interim certificate, together with the necessary powers, rights and duties of each in their dealings one with the other.
[2] The answer conclusively shows that, when certificate No. 168, being the certificate in question, was issued and respondent became a stockholder in appellant company, this stock was taken subject to the right on the part of the corporation to levy an assessment of ten cents a share on such stock. It is alleged in the answer that the original stock certificate so provided, the interim stock certificate so provides, it is so provided in the articles of incorporation and also in the by-laws. The by-laws also provide the manner and method of levying and collecting such assessments. The authorities all hold that provisions such as these incorporated in the articles of incorporation and by-laws of a company have the force and effect of a contract between the stockholder and the corporation. Seattle Trust Co. v. Pitner,
[3] Let us consider, then, the provisions of this interim certificate, for, in the absence of the interim certificate, there can be no question under the laws of this state, as construed in the case of Mitchell v. Blue Star Mining Co.,supra, but that the sale was properly *293 authorized and properly conducted. The interim certificate purports to make the company a depository of the original certificate of stock, No. 168, for fifteen thousand shares. It provides that the owner has all the rights, privileges and liabilities of a stockholder except the right of sale of the stock.
When we consider the fact, as shown by the answer, that the company was attempting in every way to sell its treasury stock in order to raise funds to prosecute its business and develop its property, and that the evident purpose of depositing all certificates of stock with the company and issuing what purported to be non-assignable interim certificates was to keep the market free from competing privately-owned stock, the end sought to be accomplished becomes apparent. The company at no time purported to relinquish its right to levy and collect the assessment. On the contrary it was at all times asserting its right — in its articles of incorporation, its by-laws and in the interim certificate itself. As we read this interim certificate, it purports to make appellant not a trustee of the stock, but a trustee for the holding of the certificate.
But the certificate is not the stock. It is but the evidence of title to the stock, and all the interim certificate does is to designate the depository where the evidence is lodged, together with an agreement that the stock shall not be sold. In the absence of this agreement not to sell, or if purchased by one who had no knowledge of such an agreement, it cannot be questioned but that respondent could at any time have sold and conveyed good title to the fifteen thousand shares of stock, even though the actual certificate was in the custody of the corporation itself. That there is a vast difference between the stock of a corporation and the certificates of stock, that they are not the same, that the certificate is but the evidence of title, and that the *294
stock itself, or the interest which the stockholder has in the corporation is not dependent upon the certificate, see Cook on Corporations (5th ed.), vol. 5, p. 49, § 13; Fletcher's Cyclopedia of Corporations, p. 5604; and the rule there announced was squarely followed by this court in the case of Gamble v.Dawson,
". . . but the substance of all judicial announcements is that the shares represent an undivided interest in all of the property of the corporation, and that the same right exists whether any certificate to the share has been issued or not; that the issuance of the certificate in no wise affects the right of the shareholders."
So that, if the trust existed at all, if one was created by the interim certificate, the subject of the trust was only certificate No. 168. The assessments were levied on shares of stock. It was shares of stock which were sold to satisfy the assessments. It was the shares of stock which the company purchased, there being no other bidder. That the company could properly buy these, see Mitchell v. Blue Star Mining Co.,supra.
[4] It is also claimed by respondent that it clearly appears that the shares of stock were purchased at such an inadequate price as to conclusively avoid the entire transaction on the ground of fraud. But the burden is upon the one alleging fraud, and there is no necessity of pleading non-fraud where none is alleged. Crandall v. Lee,
[5] It is also suggested by respondent that the bylaw of the company, authorizing and permitting the company to purchase the stock where no one else will bid at a public auction on a sale such as this, constitutes a reduction of the capital stock and violates our statutes and is void. But this court has held contrariwise *295 in Mitchell v. Blue Star Mining Co., supra. That case is sought to be distinguished on the ground that it was a call on unpaid subscriptions, but, as heretofore stated, these shares of stock were taken by respondent in the first instance subject to the ten-cents-a-share assessment, and when the assessment was legally made, the unpaid portion became a debt due the corporation. We do not find it necessary to decide whether this was a personal debt of the stockholder or whether the company could look to the stock only. In either event, it was a debt due.
We hold that, under the interim certificate as issued, the appellant did not become a trustee for the shares of stock, as that term is ordinarily used, but became only custodian of the certificate for the purpose of withdrawing the shares from the market; that respondent still had all of the rights and liabilities of any other stockholder; that what was sold by the corporation was not the certificate No. 168, but, as shown by the answer, it was the shares of stock, and that the answer shows that they were properly and legally sold, and the answer as pleaded constitutes a legal defense to the complaint.
Reversed and remanded for further proceedings in accordance with this opinion.
MITCHELL, C.J., FULLERTON, and MAIN, JJ., concur.
HOLCOMB, J., dissents. *296