124 Minn. 279 | Minn. | 1914
Appeal by plaintiff from an order denying a new trial, after trial, by the court and findings denying plaintiff relief.
Thé action is to recover from defendants as promoters the face value of stock alleged to have been issued to them by the corporation,, without consideration, while they were the sole owners and officers, or for its cancelation. The general facts, stated most favorably to plaintiff, are:
Prior to December 18, 1907, defendants were copartners experimenting in building a type of automobile for market. As such they expended considerable time and money, and acquired property of various kinds, for use in the business, of value not exceeding $3,000,, but no patents. On the day stated they incorporated as a manufacturing concern under R. L. 1905, § 3068, with $100,000 authorized capita], and were made its board of directors and only officers. At the first meeting of the corporation, held January 27, 1908, they caused to be issued to themselves in severalty shares aggregating at face value $40,000, as fully paid, and transferred the same
“No corporation shall issue any share of stock for a less amount to be actually paid in than the par value of those first issued.”
Said Mr. Justice Bunn, in Randall Printing Co. v. Sanitas Mineral Water Co. 120 Minn. 268, 273, 139 N. W. 606, 608, 43 L.R.A.(N.S.) 706:
“A corporation, unless prohibited by some constitutional or statutory provision, may in good faith issue paid-up shares for the purchase of property, or for services actually rendered; but when the stock is not paid for in fact, either in money, property, or services, equity will not regard the fictitious arrangement by which it is issued as fully paid up, and will inquire into the actual transaction, including the actual value of the property or services which were received as payment.”
Under this rule, if the present case turned merely upon the question of adequacy of consideration on the theory of the shares being worth par, or more than the property exchanged for them, we would find no difficulty in overturning the transaction, nor in concluding it was constructively fraudulent. But the observations quoted were made in connection with a creditor’s suit, and this court, in order to protect the rights of creditors, has carefully limited the application of the statute to cases where such rights are involved, and held that shares purchased and paid for at less than par, though voidable at the suit of creditors, are, until set aside at their instance, valid between the corporation and stockholders, and also between the several stockholders. Shaw v. Staight, 107 Minn. 152, 157, 119 N. W. 951, 20 L.R.A.(N.S.) 1077. The rule in the Eandall case cannot be generally applied. No rights of creditors are here involved, and actual fraud is disclaimed, but constructive fraud is relied upon. Neither of plaintiff’s claims, therefore, can be sustained. This statute fixes no penalty under which a recovery of damages could be allowed, and such cannot be interpolated by construction. Insurance Press v. Montauk Fire D. W. Co. 103 App. Div. 472, 93 N. Y. Supp. 134, 138. Neither can an agreement for payment of the stock be declared otherwise than as made in the actual transaction.
Moreover it is clear that plaintiff has suffered no damage by defendants’ acts, and without this no recovery at law can be had. The corporation when organized and prior to transfer of the partnership property, had no assets other than its capital stock, and thereafter only such as were so transferred. Hence the entire capital stock had only such value as the partnership property gave it. If defendants had issued all of it to themselves in exchange for the partnership property, or even without consideration, no profit or loss would have resulted to either, and neither the corporation nor any person could have been harmed or deceived by the transaction itself. Similarly, the stock issue actually made simply evidenced the change from partnership to corporate ownership. Subsequent creditors might object as being misled. Persons thereafter purchasing stock might also have a remedy, either through estoppel or fraud, and like remedy if additional stock were sold above the $40,000 issue in question; but these liabilities would be personal, enforcible, by rescission or otherwise, at the instance of individual purchasers against those perpetrating the wrong, in which the corporation would have no interest.
Nor is claim here made that any of the subsequent purchasers of .stock were without knowledge of the facts when they purchased, or were in any way deceived. Plaintiff is not entitled to recover damages. Old Dominion C. M. & S. Co. v. Lewisohn, 210 U. S. 206, 28 Sup. Ct. 634, 52 L. ed. 1025; Insurance Press v. Montauk Fire D. W. Co. supra; Hutchinson v. Simpson, 92 App. Div. 382, 87 N. Y. Supp. 369; Seymour v. Spring Forest Cem. Assn. 144 N. Y. 333, 39 N. E. 365, 26 L.R.A. 859; Inland Nursery & Floral Co. v. Rice, 57 Wash. 67, 106 Pac. 499; Iowa Drug Co. v. Souers, 139 Iowa, 72, 19 L.R.A. (N.S.) 115, and note. The fact that defendants were directors of the corporation when the transaction complained •of occurred, is not important under the facts disclosed.
Order affirmed.