46 Neb. 333 | Neb. | 1895
Lead Opinion
December 26, 1891, this action was instituted by the creditors of the Dawson Town & Gas Company, a corporation formed under the laws of this state, against the corporation and the appellants, stockholders therein, to recover the amounts of judgments in favor of such creditors. The original party plaintiff was the Gilkie & Anson Company, the Crane Company becoming a party plaintiff by intervention. In the original petition the organization and existence as a corporation, of the defendant and also the plaintiff company, was averred, the object and purpose for which the defendant company was organized, its place of business, and the sale to it by plaintiff of a quantity of lumber, and that judgment was obtained for the debt thus created, execution issued and returned no property found. The insolvency of the defendant company was also alleged, and it was further stated: “That the authorized capital stock of said defendant corporation is $300,000; that the said defendant refuses to allow the plaintiff to examine its books, and the plaintiff cannot learn and has no means of finding out the exact amount of stock actually issued, or the amount
The answer to the amended petition and petition of intervenor put in issue all the material facts therein stated, except that of the formation of the corporation, and further pleaded as follows: “Defendants aver as true that all stock as owned by them, or either of them, was in good faith taken and paid for at the time, and they, nor either of them, are now or at any time were indebted to said corporation for any amount of said stock or shares thereof. The defendants further answering show to the court that neither said amended petition nor the petition of intervention of the Crane Company states facts sufficient to constitute a cause of action against either of said defendants.”
The plaintiff filed a reply, which was a denial general as to some and special as to others of the allegations of the answer. In the portion of the amended petition which we have copied herein the following words appear, “of all of which defendants Cooley, Kuhn, and Woodworth at the time had knowledge,” which were not in the petition at the time of trial or introduction of testimony. There was a demurrer ore tenus, on the ground that the petition did not state á cause of action, and plaintiff and intervenor asked leave to amend, which, at the time of the rendition of decree, was granted, the amendment to be by interlineation, and pursuant to this leave the words above quoted were inserted in the petition. The petition stated two causes of action against the stockholders, one based upon their ownership of shares of stock for which full value had not been paid, and a second upon a failure to publish an annual notice of the indebtedness of the corporation. Counsel agree in the statement that the second of these was waived and that no evidence was introduced to prove or sustain it; that it was not of the issues litigated, was not urged, or was withdrawn from the issues in the trial court, and is not
The liability upon which this alleged cause of action was predicated, and which was and is relied upon, is provided for in the following section of the constitution of our state, being section 4 of article 11, referring to f<Miscellaneous Corporations”: “In all cases of claims against corporations and joint stock associations the exact amount justly due shall be first ascertained, and after the corporate property shall have been exhausted, the original subscribers thereof shall be individually liable to the extent of their unpaid subscription, and the liability for the unpaid subscription ■shall follow the stock.” The plaintiffs claimed that the transactions which occurred at the inception of the defendant corporation, the issuance of stock and acceptance of the equity in certain land in payment for the stock, were of such a character as to constitute a fraud, and the transfer of the lands will only be considered a payment for the stock to the amount of their true values, and the stockholders be liable individually to creditors for any balance acquired to make the par or face value of the stock. The •defendant company was organized for the following purposes, as shown by its articles of incorporation: “The business to be transacted by said corporation shall be the
It appears from the testimony that Cooley, Hoile, Kuhn, and Woodworth organized the defendant company, signed the articles, and were directors and well acquainted with the ■details of its formation, the pui-chase of the lands and issuance of $240,000 in stock in payment for them. There were two tracts of land, one of 300 acres, known as the 41 Tolle Farm,” and one of 320, known as the “York Farm.” Coal had been discovered on the “ Tolle Farm ” and had been developed, or two shafts sunk on one forty-acre piece. The rights to all coal or all mineral existing under the surface of this forty acres had been conveyed to a Mr. Whiteman. Coal had been prospected for on the
It is urged that the findings ®f the trial court are not sustained by the evidence, and especially as to the points in regard to the alleged overvaluation of the property conveyed to the corporation in payment for stock of the face value of $240,000, the knowledge which it was claimed the parties who were actors in the formation of the corporation had of the excessive valuation of the land at the time it was conveyed to the company and the stock issued, and their participation or aquiescence in the transaction. We have carefully read and considered all the testimony, and, without entering upon a lengthy discussion of or commenting upon it, will say that we are satisfied that it is sufficient to support the findings of the trial judge.
It is further contended by the able counsel for defendants that it is not proved that in accepting the land at the valuation they did in payment for the stock they were acting otherwise than in good faith with each other and with the public, and although it may be claimed, and probably truthfully, that subsequent developments disclosed that there was an error of judgment, yet fraud in law or in fact cannot be imputed, and that in a case similar to the one at bar, in order to establish a basis for a recovery, the law requires that more than proof of an overvaluation of property conveyed or services rendered in payment for stock of corporations be given; that it must be shown that the overvaluation was intentional and therefore fraudulent; that what the parties have constituted a payment will be treated as a payment until impeached for fraud, even where the rights of creditors are involved; that before parties gave the corporation credit they should have examined ifs books, the condition of its affairs, and how the stock was paid for, and to what extent, and not having done so they were at fault, and a number of au
It may be conceded that when the power exists to accept property in payment for stock the corporation and subscriber may agree upon the value of property to be received in payment for stock in such manner as to be binding upon creditors, if there is no considerable advised and deliberate excessive overvaluations of the property, and that the stockholders will not be liable where the valuation was in good faith, although the property may subsequently prove to be of a less value than that placed upon it, or if there was nothing more than an honest mistake of judgment, but “a gross and obvious overvaluation of property, would be strong evidence of fraud,” in an action by a creditor to enforce a personal liability. (Coit v. Gold Amalgamating Co., 119 U.S., 343, 7 Sup. Ct. Rep., 231.) Where property is conveyed to a corporation as payment of a subscription for stock, it is insufficient to satisfy the liability of subscribers to the creditors of the corporation, if there has been a fraudulent overvaluation of the property, — an overvaluation knowingly and advisedly made. The property proffered and received as payment must be of such a value as to make it of the money’s worth stated in the subscription, at a valuation made in good faith in an exercise of judgment honestly and fairly directed. (Williams v. Evans,
It is urged that these parties — creditors,—before they gave credit to the corporation, should have examined the books of the company and ascertained whether appellants had paid in full for the stock or in what manner the payment had been made, and, having failed to do so, cannot now complain or be heard, and cases are cited in support of this proposition. In Cook, Stock, Stockholders & Corporation Law, section 199, it is said: “The public, in dealing with a corporation, has the right to assume that its actual capital in money or money’s worth is equal to the capital stock which it purports to have, unless it has been impaired by business losses.” We think the true rule to be that “ Entries in the books of a corporation are, as a general rule, competent evidence of the proceedings of the corpora
It is claimed that upon the abandonment of the alleged statutory default in respect to publication of notice the petition did not state a cause of action; that there was no sufficient allegation of fraud. We think the petition, as amended by leave of the court, sufficiently stated and charged fraud (Northwestern Mutual Life Ins. Co. v. Cotton Exchange Real Estate Co., 46 Fed. Rep., 22); and the amendment and its allowance were entirely proper under the provisions of the Code.
Complaint is also made of the ruling of the trial court in sustaining an objection to an interrogatory propounded to one of appellants during his examination as a witness. No statement or offer of proof was made, and we cannot hold that the objection was wrongfully sustained. (McMillan v. Malloy, 10 Neb., 235; Stanton County v. Canfield, 10 Neb., 388; Sieber v. Weiden, 17 Neb., 584.) The judgment of the district court is
Affirmed.
Dissenting Opinion
dissenting.
This is a suit by some creditors of an insolvent private corporation against its stockholders. The creditors seek to recover their debts of the stockholders on the ground that the latter are indebted to the corporation on their stock subscription. This corporation was authorized by its charter
The decision df this court treats this conclusion of the district court as a finding that the transaction by which Cooley and Hoile transfered their real estate to the corporation in payment of their stock subscription was a fraud in fact. I do not think the district court found or meant to find that the transaction was a fraud in fact, but, assuming that it did, let us inquire on what evidence this finding was based. Briefly it is that Cooley and Hoile owned 620 acres of land and that they conveyed this land to the corporation in payment and satisfaction of their contract of subscription with it to take $240,000 of its capital stock; that this land at that time was worth only $20,000, and that the debts of the appellees were contracted long after this transaction. If this evidence stood alone — stood unexplained — it might support the finding, but it does not stand alone and unexplained. I quote the evidence given by appellee’s own witness.
A. Yes, sir; there had been considerable prospecting for gas and they might have incidentally prospected for coal at that time.
Q. Had gas been found ?
A. Yes, sir.
Q. How long had gas been found on this farm at this time? In what quantities; state what you can .as to the fact.
A. My recollection as to the time of first, striking gas there is that it was perhaps fifteen to eighteen months after gas was first struck there on this farm until the transfer to the Dawson Town & Gas Company. As to the quantity I would not feel qualified to state more than just what I could naturally see, not being a gas expert. .
Q,. Do you know how many of the gas wells were sunk prior to this time?
A. As to the number I could not definitely say, more than I know that there was one we called the “original well,” and I think that there were one or two others, but I am not sure whether they were sunk. If they were it was just previous to the time of the Dawson Town & Gas Company buying this.
•Q. What can you say as to the flow of the gas from the well or the continuity of it and the amount of it?
A. * * * I have been there a good many times and lived right there, and of course everybody had a natural curiosity to see them, and I have been there a time or two when there were excursions. I know when they were turned on and lighted up flames would flash up there twenty-five or thirty feet and higher.
Q. Was any use or attempted use ever made of this gas after this?
A. After they acquired it ?
A. Yes, sir.
Q. You may state what use it was put to.
A. These wells are situate about a mile from the town of Dawson * * * and probably a mile and a quarter from what is known as the “brick plant,” and the company, after acquiring these wells, laid.pipes from the wells to the brick plant * * * up to the edge of the town or into where the town was planned, * * * and this gas was piped into our store, and we burned it one winter; 1 do not know but two winters.
Q,. Did they ever use it at the brick yard ?
A. They used it there and they piped it into the furnace under the engine, and they also piped it into the brick-kilns.
Q,. When were the developments of coal made there?
A. The first developments?
Q. Yes, sir.
A. The fall of 1886 and the winter of 1886 and 1887.
Q,. Do you know anything about in what quantities coal was taken from this land ?
A. At what time?
Q. Well, after it was developed, from 1887 on.
A. Up to what time?
Q. Well, any time.
A. Well, they sunk a shaft in the fall of 1886 and they took out coal that winter and they run the most of that winter there; they run from eight to fifteen miners and they would take out, oh, probably twenty tons a day. * * *
Q. How long did this continue ?
A. Well, this continued until the Dawson Coal Company bought. * * *
Q,. At the time this property was transferred to the Dawson Town & Gas Company was any of this land platted into a town site?
A. There had been a survey made. * * *
A. There were about three hundred inhabitants.
Q,. Do you know how many of these gas wells there were there?
A. At the present time?
Q. Well.
A. Well, they were all there that was. They were all either sunk in 1889 or previous to that. I think there are five wells, four of these that they have houses over and use, and the fifth one is what we call a gurgle ánd that is filled with $ater and they have trouble with it, but there is more or less gas in it. * * * I think there is only four that is piped that I spoke of.
The lands conveyed to the corporation by Cooley and Hoile are contiguous, all situate in the state of Iowa, and one tract of about 300 acres had been purchased by Cooley from the Tolle estate. Tolle in his lifetime had leased to-certain parties the right to mine coal on forty acres of the lands conveyed to Cooley, the lessees paying Tolle a royalty of ten cents per ton. Now let us hear once more the appellee’s witness:
Q,. Now, there has been some other leases spoken of. Under what particular portion of the lands were those leases?
A. Those were under the lands acquired by Mr. Cooley.
Q,. In the transfer to Cooley, who acquired the right to those leases, did he?
A. Yes. * * *
Q,. So that whatever would accrue on those leases would belong to Mr. Cooley instead of the Tolle heirs?
A. Yes, on those leases, that is right. * * * Mr. Tolle died in February, 1888. In the spring of 1887 * * * Mr. Tolle requested me to make a measurement, to take the measurement on coal and estimate how much royalty he would receive at ten cents per ton on the coal.
Q,. What was the thickness of the vein where you made the measurement?
A. The one vein was three feet ten inches, I believe. These veins vary, however, in different parts of the mine, and they would run from two feet and one-half to fo’ur feet and one-half.
Q. Is this village of Dawson situate on a part of this land?
A. Yes; * * * about a mile and a quarter from the gas well. * * *
Q,. It is the coal land ?
A. Yes, sir.
Q,. Has coal been mined there continuously from that time on?
A. No, sir; coal has not been mined continuously, that is, if you mean by that taken out all the time, because there was a time for nearly a year there was no coal taken out.
Q,. The mines were not worked?
A. No, sir.
Q. When was that?
A. That was previous to this last fall. * * *
Q. When was it first discovered on the York farm; part of the land conveyed by Cooley?
A. It must have been in 1888.
Q,. Prior to the development and discovery of gas and the development of coal there, how much of a town was Dawson ?
A. Well, in January, 1887, there wasn’t only four or five houses in Dawson. * * *
A. Well, I should say, just estimating from my recollection, about fifty.
Q. After the purchase of this land * * * was there any town platted known as the town of Dawson, by the Dawson Town & Gas Company?
A. Yes, sir.
Q. How many acres?
A. One hundred and sixty.
Q. Did you sell any of these lots?
A. A few; yes.
Q. At what price?
A. They varied in price.
Q,. What did the business lots sell for?
A. From $125 to $266.
Q,. How many miners worked there?
A. All the way from one hundred and fifty down at different times.
Q,. How large a brick plant was started there after the gas was used?
A. The main part of the building was about sixty by sixty-five or seventy-five and the drying room was about fifty by probably one hundred and fifty.
Q. Do you know anything about the fire clay there under that ground?
A. I know there is fire clay there.
Q. To what extent?
A. I do not know.
Q. Did you ever make an examination?
A. No, sir; no personal examination. I have been in the mines where fire clay was and asked miners about it.
Q. Out of what was brick manufactured?
A. Brick was manufactured out of shale and fire clay.
Q. Where was that latter to be obtained?
A. Out of the coal mines, and I think some little surface clay was used, but not very much.
A. Yes, sir.
The evidence quoted above stands absolutely uncontradicted, and is the evidence introduced by the appellee itself. This evidence does not show that the appellants intentionally overvalued the lands which they conveyed to the corporation in payment of their stock subscription. Granted that subsequent events have proved that the appellants erred in their judgment as to the valuation put on their lands, will the evidence that the appellants erred in their judgment support a finding of fraud? I think that this evidence shows that at the time these lands were deeded to the corporation for its stock it was honestly believed and reasonably believed by the appellants that they were coal, gas, and fire clay lands. Shafts had been sunk, coal had been mined on part of the lands, on other parts of the lands wells had been drilled and inflammable gas had been found, and the existence of these facts led to the organization of this corporation. The evidence further shows what appellants did after they became stockholders of this corporation, and this is important here in determining with what intention they made the transfer and took the stock; and the evidence shows that these appellants expended thousands of dollars of their money in efforts to develop these lands believed to be coal and gas lands, and had these proved to be what they appeared, if their development had disclosed valuable coal and oil deposits, who can estimate their value? Yet the transaction by which the corporation became possessed of these lands and the intent with which they were conveyed by the appellants would have been the same transaction and the same intent. A transaction cannot be said to be in good faith simply because successful, nor can a fraudulent intent be inferred because the transaction proved unsuccessful. Fraud will never be imputed when the circumstances and facts upon