68 Colo. 131 | Colo. | 1920
delivered the opinion of the court.
This was an action by defendants in error against The Pueblo Foundry Company to foreclose a mortgage, or deed of trust on its property, securing the payment of an issue of forty thousand dollars of first mortgage bonds of that company/ Defendant in error John M. Lannon, as a holder of certain of these bonds, intervened, and joined in the prayer for foreclosure. The validity of the bonds was denied by the company, it being urged that they were issued without consideration, and therefore in contravention of a provision of our State Constitution. Findings and decree were for defendants in error, and the company brings the case here for review.
The resolution authorizing the issue of the bonds in question was passed on April 1, 3907. At that time the stockholders of the company consisted of the Lannons, who owned all of the shares of the company, which were of the par value of one dollar a share. Shortly prior to the issue of the bonds it was determined by the Lannons to make a change in the affairs of the company, and John M. Lannon, who it appears had never been active in the corporation, agreed to sell his shares therein to one S. J. Burris. As a basis for negotiations it was agreed by the parties that the valuation of the property should be fixed at $100,000.00. The Lannons were to withdraw all the company cash, pay all bills against and collect all accounts due it, with a view. of reducing the actual value of the shares of the concern to the figure agreed upon. Burris, who desired to purchase one-half interest in the company, was unable to raise the $50,000.00 necessary, and to
At the stockholders’ meeting of April 1, 1907, the entire capital stock of the company was owned by Frank and Charles Lannon. The stock of John, not having been yet tránsferred, was represented by proxy. John resigned as a director of the company, and Burris was selected to take his place. At the directors’ meeting, the issue of the bonds, which had been authorized by the stockholders, was directed to be made. The stock was then owned in equal parts, Frank and Charles Lannon the one-half, and Burris the other. The bonds were issued, ten each- to Charles- and Frank Lannon, and twenty to Burris. The two Lannon brothers each paid in $2,000.00 to the company, and Burris $4,000.00. Pending the printing and execution of the ■ bonds, the stock owned by John Lannon was held in escrow, and Charles and Frank Lannon transferred to Burris his shares from their own holdings, and it was through Frank Lannon that Burris paid into the company the four thousand dollars for his twenty bonds. It' ap-. pears that all the books of the corporation except the journal which contained the history of these transactions, were obtainable, but that the defendant corporation could not, or at least failed to produce, this particular record, although it had been in the possession of the company at all times subsequent to the transfer of the stock, and of the reorganization of the board of directors. The testimony, however, shows beyond any possible doubt that the transaction between the parties was in substance and effect as stated above.
It is urged by the company that the bonds are void for lack of consideration under section 9, Article XV of the Constitution. .This point is not well taken, because it is clear that $8,000.00 at least was paid in cash to the company for the bonds. The fact that this amount was paid by the Lannons does not make it any the less a payment to the company. The payment was so made because of the agreement for purchase and sale of the stock between the Lannons and Burris, and the method adopted was an entirely proper and logical way of arriving at an adjustment between the parties. Also, when the transaction is considered as a whole, it is plain that the bonds were issued for the express and agreed purpose of permitting Burris to come into the company on an equal footing with the two Lannons; that to do this it was necessary to lessen the value of the shares of the company, and the bond issue had precisely that effect, as the value so withdrawn from the shares immediately attached to the bonds. Under these circumstances it may well be held that the bonds were sold at approximately par value, in so far as the corporation itself is concerned, and it follows ^inevitably that the claim that the bonds were issued without consideration has no support at all in fact.
This is not a case where the board of directors have dealt with the corporation or with others for their individual profit. It is not a fact that the shares which Burris sought to purchase were property of the company; they were the shares of the Lannons; and the bond issue reduced, ratably, the value of the shares of stock retained by them as well as of those sold to Burris. The loss, if any, was not sustained by the corporation, but by the holders of the shares. By participation in the transaction the shareholders are estopped to deny its legality, and the corporate entity cannot act for them, Home Ins. Co. v. Barber, 67 Neb. 644, 93 N. W. 1024, 60 L. R. A. 927, 108 Am. St. 716.
The entire body of stockholders acquiesced and participated in the transaction. They are accordingly bound by it, and their transferees are also bound. In Gumaer v.
The attempt by the company to avoid foreclosure of the bonds is an attempt to do that which the stockholders cannot do. It is clear that the stockholders have no equitable right to the relief sought, therefore they cannot obtain such relief acting by or> through the corporate entity. Home Ins. Co. v. Barber, supra; Arkansas R. L. T. & C. Co. v. Farmers Co., 13 Colo. 587, 22 Pac. 594; Des Moines Gas Co. v. West, 50 Iowa 16.
It is to be noted that the present stockholders secured their shares subject to the lien of the bonds, and therefore at a lower figure than would have been possible without such incumbrance. They should not now be permitted to repudiate the indebtedness and so add the value of the bond issue to their shares of stock in the company.
It is undoubted that a solvent corporation may not only dispose of its assets as the stockholders see fit, but it may dispose of its bonds at less than par, provided, of course, no creditor be thereby defrauded. Sb long as; present creditors are not injured, future creditors cannot complain. Hamilton v. Menominee Co., 106 Wis. 352, 81 N. W. 876; Little v. Garabrant, 153 N. Y. 661, 90 Hun. 404, 35 N. Y. Sup. 689; Pusey v. N. J. Co., 14 Abb. Pr. (N. S.) 434. Also such corporations, with the unanimous consent of its stockholders, provided no third parties are injured, may issue its bonds for the benefit of individual stockholders. Cook on Corporations, sec. 766; D’Ooge v. Leeds, 176 Mass. 558,
It is apparent that the issue of the bonds in question does not fall within the inhibitions of sec. 9, Article XV of the constitution, because those bonds were manifestly issued for a good and valuable consideration paid to the corporation, and. in no sense constitutes a fictitious increase of company indebtedness.
We have examined the entire record with thei most painstaking care, and fail to discover a syllable of evidence, or anything else contained therein, which shows or tends to show that there is anything in the transaction which is in the slightest tainted, or which did cause or could cause a loss to the company, or which worked or could work it, or any one else, a wrong or injury. The whole matter seems to have been absolutely free from any indirection, fraud, deceit or wrong doing of which complaint either by the company, or by any original or subsequent stockholder, could or can justly or properly be made or upheld.
. The judgment is affirmed.
Decision en banc.