153 N.W. 279 | N.D. | 1915
Lead Opinion
(after stating the facts as above). It is difficult for us to find in the voluminous record which is before us or in the brief of counsel any ground whatever on which the plaintiff can seek equitable relief. He seeks the control of the corporation, and complains that stock has been sold since he obtained the majority thereof, and that the purpose of this sale was to take the control from him, when as a matter of fact the only purpose for which he acquired the stock which he did, and which he admits was acquired through “dummies” and in violation of the agreement between the stockholders- that no person should acquire more than ten shares, was in order that he himself might get that control. The evidence is clear that the stock of the corporation has at all times been for sale, and that quite recently and before the sale of the seventy shares which plaintiff now seeks to set aside, he himself had the opportunity of buying fifty of these shares and thus of gaining a permanent control. His proposition, however, is that if the motive of the directors of a corporation in selling the balance of the unsold capital stock, or in taking subscriptions thereto, is to take the control from one who holds the majority of the shares before such sale, such sale is fraudulent and may be set aside, even though such stock is sold at par and the money therefor is collected." This proposition is to us a novel one and has no support whatever in principle or in the authorities. Section 4525, Compiled Laws, of 1918 provides that, “after the secretary of state issues the certificates of incorporation as provided in § 4512, the directors named in the articles of incorporation must proceed in the manner specified . ' . . in their by-laws or if none, then in such manner as they may by order adopt, to open books of subscription to the capital stock then unsubscribed, and to secure subscriptions to the full amount of the fixed capital; and to levy and collect assessments thereon in the manner provided by article 10 of this chapter.”
The only understanding that we can derive from this section is that it was the intention of the legislature that the stock of private corporations, even if not to be looked upon as a trust fund, so that the same might not be depleted by dividends after once having been collected (see discussion in 4 Thompson on Corporations, 2d ed. §§ 3415, et seq; On this question we are not here required to pass), should be fully subscribed for as soon as possible, and this not merely for the protec
It may be, and on this question we are not required to pass, that the stockholders of a corporation have a preference in regard to subscriptions to the treasury stock, but we as yet know of no case which has held that one who has purchased a majority of the stock of a corporation at a time before the stock has been fully subscribed has a vested interest in the control of the corporation so that the remaining stock may not be sold and subscribed for, nor can we see any reason
Not only is this true, but tbe plaintiff is hardly in tbe position to come into-a court of equity and complain of bis loss of tbe control of tbe corporation. It is clear from tbe record that be was tbe original promoter of tbe enterprise, and that as sucb be drew an agreement and a contract of subscription in which it was provided that no stockholder should bold more than ten shares. Tbe purpose of this agreement was that tbe elevator could be in fact, as well as in name, a fanners’ elevator, and that tbe farmers of tbe community might be generally interested and benefited thereby. It is clear that, even though he may not have signed this agreement himself, a number of tbe subscriptions were taken on it with bis knowledge and acquiescence. It is also shown that this agreement was later embraced in tbe by-laws of tbe company, and we find no objection in tbe record made by tbe plaintiff to tbe adoption of this by-law. It is also clear from" the testimony that, though plaintiff may have bad some doubt of tbe validity of tbe by-law, be was so far controlled thereby that be obtained tbe subscriptions to tbe shares of stock which gave him bis- majority in tbe names of bis family and bis friends for tbe purpose of evading the same. He now comes into a court of equity and asks relief because tbe officers of tbe corporation at one time refused to transfer on tbe books of tbe corporation tbe assignments of these “dummies” to him, though in spite of this fact be was allowed to vote tbe shares of stock at tbe meetings of this corporation. It is unnecessary for us to say whether tbe by-law was valid or not. It is sufficient to say that “tbe subscribers to tbe stock of a corporation may enter into an agreement under the terms of which neither themselves nor subsequent subscribers to tbe stock will be entitled to and receive more than tbe stipulated number of shares, and this agreement will be binding upon tbe parties to it, though not on tbe corporation. 4 Thomp. Corp. 2d ed. § 3523 • Hladovec v. Paul, 222 Ill. 254, 78 N. E. 619. A plaintiff who has violated this agreement, and thus obtained tbe control of a corporation,
There is, too, no merit in the proposition that, on account of the prosperous condition of the corporation and some accumulated earnings, the stock was worth more than par, and that a fraud was committed on the plaintiff by the sale at par. We are here, it is to be remembered, not dealing with treasury stock, but with the original unsubscribed capital stock, the value of which was fixed by the articles of incorporation. The record of the corporation in the past has shown that it has not been a wise thing to dissipate all of its earnings in dividends, and though the plaintiff complains that the directors are about to declare dividends and to apportion the same on the new stock, as well as on the old, there is absolutely no proof in the record of this fact. Whether the new stock would share in the past profits it is not necessary for us to determine. It is shown, indeed, that during the second year of the existence of the corporation accumulated profits of 1 per cent were entirely swept away by a failure of crops. The record shows also that no provision has been made for deterioration. It also shows that a feed mill is a part of the scheme of the corporation and reasonably necessary. It further shows that running capital is necessary in order to save borrowing money, and to be able to take advantage of the exigencies of the market.
Plaintiff’s sole and only ground of complaint when reduced to its essentials is that he has lost the control of the corporation by the officers of the corporation doing that which the statute contemplates that they should do, — that is, by obtaining subscriptions to all of the shares of capital stock, when he himself at no time would have had that control if he had not violated his agreement with the other stockholders. The record shows no mismanagement or business inability on the part of the directors. There is no pretense that any of the other stockholders own or control more than ten shares. We .agree thoroughly with the finding of the trial court that he does not come into equity with clean hands, and that he is not entitled to any relief herein, but should be left in the position in which the court finds him.
The judgment of the District Court is affirmed.
Rehearing
On Petition for Rehearing.
Our attention is called in the petition for a rehearing, to the decision in the case of Luther v. C. J. Luther Co. 118 Wis. 112, 99 Am. St. Rep. 977, 94 N. W. 69, which although referred to in the main brief, is claimed to have been overlooked by us. In that case, however, although relief was granted to the plaintiff and his co-complainants, it was granted wholly on account of the co-complainants, and not on account of the plaintiff. The court in the opinion expressly said: “Were Clarence J. Luther the sole plaintiff, we should have little doubt that he ought to be dismissed from a court of equity without relief, for the reason that his own conduct has been so in outrage of his duties as a director and officer of the corporation that no court can patiently listen to his prayer for enforcement of fiduciary principles and duties. That objection does not, however, exist to some of the other plaintiffs who, as stockholders, ask that their rights be protected as to them.”
In the ease at bar, O. A. Cross is the sole plaintiff. No other creditors or stockholders complain. He does not come into equity, therefore, with clean hands, and even the decision of Luther v. C. J. Luther Co. would deny him relief.
The petition for a rehearing is denied.
