Frame v. Mahoney, 187 P. 584

187 P. 584 | Ariz. | 1920

BAKER, J.

(After Stating the Facts as Above.)— The oral evidence adduced at the trial of this case has not been preserved in the record, the appellant having failed to obtain the certificate of the trial judge to the transcript of the testimony as taken by the official court reporter. In this situation of the case, we must assume that the findings of fact as made by the court are in accord with .the weight of the evidence, and consequently we will only consider questions of law involved in the appeal.

The court found, in effect, that Frame was the promoter of the corporation; that he secured title to the eleven mining claims which he transferred to the company as the company’s agent; that he dominated and controlled the directors of the corporation, who caused the stock to be issued to him for the eleven mining claims, and that the transaction was made without disclosing to the plaintiff stockholders and other stockholders the real situation, and without obtaining their express or implied consent thereto.

The court drew the conclusion that the issuance of the stock to Frame for the eleven mining claims was a fraud upon the company, and its stockholders, and constituted a secret profit to Frame as a promoter:

It is now settled law that a promoter sustains a fiduciary relation or a relation of trust and confidence to the corporation and to the stockholders thereof, and as a result of such relation of trust and confidence a promoter will not ordinarily be permitted, to retain a secret profit made out of transactions with, or on behalf of, the corporation. Perfect candor and the utmost good faith and the strictest honesty are required of promoters, and their dealings with the corporation must be open and fair. 1 Fletcher’s Cyc. Corp., pars. 134, 135; Dickerman v. Northern Trust Co., 176 U. S. 181, 44 L. Ed. 423, 20 Sup. Ct. Rep. 311 (see also, Rose’s U. S. Notes); Hughes v. Cadena De Cobre Min. Co., 13 Ariz. 52, 108 Pac. 231; Old Dominion C. M. & S. Co. v. Bigelow, 203 Mass. 159, 40 L. R. A. (N. S.) 314, 89 N. E. 193; Ennis v. New World L. I. Co., 97 Wash. 122, 165 Pac. 1091.

In Camden Land Co. v. Lewis, 101 Me. 78, 63 Atl. 523, the court well said: •

“ . . . Promoters of a corporation stand in a fiduciary relation to the corporation, and to its subscribers for stock, and to those who it is expected will afterwards buy stock from the corporation. The promoters owe to them the utmost good faith. And if they undertake to sell their own property to the corporation they are bound to disclose the whole truth respecting it. If they fail to do this, or if they receive 'secret profits out of the transaction, either in cash or by way of allotments of stock, when there are other stockholders, or it is expected that there will be other holders of the new and additional stock, undoubtedly the corporation may elect to avoid the purchase; or it may hold the promoters accountable for the secret profits, if in cash; or may require the return of the stock if unsold; or if sold an accounting for the profits of its sale.”

See, also, Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030.

We think the findings and conclusions made by the trial court bring the case within the principles announced in the foregoing authorities, and that the stock issued to Frame was properly canceled and annulled as having been fraudulently issued to him, whereby he obtained a secret profit as a promoter of the corporation.

We are also of the opinion that the issuance of the stock to Frame- was in violation of section 6, article 14, of' the Constitution of this state, which provides:

“No corporation shall issue stock, except to bona fide subscribers therefor or their assignees. . . . All fictitious increase of stock or indebtedness shall be void.”

One of the findings of the trial court is substantially to the effect that the eleven mining claims transferred by Frame to the corporation, and in consideration of which he received the shares of stock in question were worthless "and valueless, and it therefore necessarily follows that Frame was not a bona fide subscriber. ' A bona fide subscriber is one who actually turns over to the corporation something of value in lieu of the -stock issued to him. Gordon v. Cummmings et al., 78 Wash. 515, 139 Pac. 489; James v. P. B. Steifer Min. Co., 35 Cal. App. 778, 171 Pac. 117.

After a careful examination of the record before us, and the points urged for a reversal-, we have been unable to discover a just reason for disturbing either the judgment or the order refusing a new trial, and both are therefore affirmed.

CUNNINGHAM,' C. J., and ROSS, J., concur.