156 P. 948 | Utah | 1916
Lead Opinion
The plaintiff, a corporation, commenced this action in equity against Preston A. Blair, Lars Hansen, J. P. Blair, Simon S. Jensen, Stephen S. Blair, and Seth M. Blair, as stockholders of the Blair-Hansen Live Stock Company, a corporation, and also against said corporation. The plaintiff, hereinafter called appellant, sued the individual defendants named above, whom we shall call respondents, to recover an alleged balance due upon their stock subscriptions as stockholders of said Blair-Hansen Live Stock Company, hereinafter called company. Appellant, in its complaint, in substance, alleged that said company was incorporated with a capital stock of $50,000 divided into 500 shares of one hundred dollars each; that Preston A. Blair, Simon S. Jensen, and Lars Hansen had each subscribed for fifty shares, and that Stephen S. and Seth M. Blair had each subscribed for ten shares of said capital stock; that the six subscriptions as aforesaid amounted to a total of 220 shares, or $22,000. It is further alleged that the first four subscribers above named
On the 14th day of January, 1914, when the case was called for trial, the J. S. Campbell Company, a corporation, hereinafter called intervener, was permitted to file its complaint in intervention in the action in which complaint it set up a judgment which it alleged it had obtained by confession against said company on the 10th day of January, 1914, amounting to $1,252.35. The appellant filed a reply to the intervener’s complaint, in which it alleged that said judgment was void and of no force or effect for reasons stated in the reply. We remark that it is not necessary to set forth the reasons alleged by appellant why it claimed the intervener’s judgment void since that judgment, for the reasons hereinafter appearing, in no way affects appellant’s rights in this proceeding.
The evidence adduced at the trial developed that while the articles of incorporation of the company purport to have been prepared and signed by the incorporators on the 20th day of January, 1909, yet they were not sworn to by three of the incorporators, as provided by Comp. Laws 1907, section 315, imtil the 12th day of June, 1909. On that day they were duly
450 wethers, for which the incorporators had paid the sum of.$ 1,241.25
Also 1,464 wethers, for which they, had paid. 4,100.00
Also 500 wethers, for which they had paid. 1,325.00
Also 249 head of sheep, for which they had paid... 1,025.75
They had also advanced on a lot of sheep purchased by them, which were turned oyer to the company, the sum of. 500.00
Upon another lot the sum of.. 250.00
Upon some bucks that they had purchased, the sum of ......i. 25.00
They also claimed that they had paid freight upon the sheep aforesaid in the sum of. 420.80
And for commissions paid the sum of. 112.40 „
They also claimed that they had turned over horses to the company worth. 500.00
A camping outfit wor-th. 175.00
And, one dog worth. 10.00
Making the total amount of property turned over on said date the sum of.'.$ 9,685.20
From which should be deducted an amount received for sheep sold during the period aforesaid, and which were not turned over to the company, amounting to... 388.25
*42 Leaving the net value of the property turned over to the company on said date the sum of.$ 9,296.95^
In addition to the foregoing Mr. Jensen testified that the individual stockholders had paid in cash as follows:
Money deposited in the bank on the 9th day of June, 1909, the sum of. 811.09
Cash on stock subscriptions paid by all, the sum of. 8,600.00
Other items, which we have deemed it proper to allow, the sum of. 1,900.00
Making a grand total paid in upon the stock subscriptions, the sum of.$20,608.64
The capital stock subscribed for, as we have seen, amounted to the sum of $22,000. There remained thus the difference between the amount of the capital stock subscribed for, and what was paid in, both in property and in money, which amounted to $1,391.36.
The individual respondents, however, claimed, and the coúrt allowed them, credit for other items of expenses which were incurred by them prior to June 12, 1909, which, in the judgment of the court, when added to the payments we have enumerated above, paid for the whole of the subscribed stock, *and hence the court found that the respondents had paid their subscriptions in full and entered judgment in their favor and against both the appellant and the intervener dismissing their complaints, and entered judgment for costs against them.
“Where subscriptions to the capital stock of any corporation formed under the provisions of this chapter shall consist, in whole or in part, of property necessary to the pursuit agreed upon, there must appear in the articles of incorporation a description of the property so taken, with a statement*43 of the fair cash value thereof, which- statement, except in the case of corporations organized for mining or irrigation purposes, shall be supplemented by the affidavits of three persons, to the effect that they are acquainted with said property, and that it is reasonably worth-the amount in cash for which it was accepted by the corporation; and the owners of such property shall be deemed to - have subscribed such •amount to the capital stock of such corporation as will represent the fair estimated cash value of so much of such property, or of such interest therein, as they may have conveyed to such corporation by deed actually executed and delivered. ’ ’
The -articles of incorporation in question here did not contain the statement required by the foreging section, nor any statement concerning the taking of property; nor were the articles of incorporation supplemented by the affidavits required by said section, nor by any affidavits or statement whatever. Counsel for appellant, therefore, contended in the court below, and here contend, that under the foregoing statute no credit for property can be given upon a subscription as against the creditors of an insolvent corporation of the character of the corporation in question here unless the incor-porators have complied with .the provisions of the statute. It will be observed that the foregoing statute does not, at least in terms, declare payments in property void; nor does it prescribe any penalty for a failure to strictly comply with its terms. The question here presented has, however, in some form at least,' been passed on by the courts many times. While the decisions are not in full accord, yet we think the great weight of authority is to the effect that payments in property, under a statute like ours, may be allowed by a court of equity as against creditors of an insolvent corporation to the extent of the actual value of the property, when the property received is of the kind or character in which the corporation deals or which it requires in its business, where the transaction between the stockholders and the corporation is entered into in good faith. The rule adopted by the courts is well stated in 10 Cye. pp. 471, 472, 473, 475, thus:
“Where the charter or governing statute does not require payment*44 in cash, then the shares may he paid for in such property as the corporation would have occasion to buy, at a fair valuation provided the transaction is in good faith. * * * Even where the charter,
statute, or other governing instrument, by its terms, requires payment in money, yet unless the language is such as to import a prohibition of anything but.money, the courts are generally agreed that payment may be made in any kind of property or services which the corporation may lawfully purchase in the prosecution of its business, provided it be done in good faith, and provided such property or services be conveyed or rendered at a fair valuation. The reason is that the law does not require the parties to go through the vain transaction which would be exhibited if the subscriber should pay for his shares in cash and if the corporation should hand back the cash in purchasing from the subscriber such property as the corporation might wish to buy from him; or, what would be the equivalent of such a transaction, that there should be a mere exchange of checks between the parties. * * * The ‘true value rule’ is that payment of corporate shares in anything except money will not be regarded as payment, except to the extent of the true or actual value of the property turned in and received in lieu of money, and regardless of the question of fraud. Stated differently, the ‘true value rule’ is that where payment is made in property, labor, services, or in anything other than money, the commodity must be turned in at its true value at the time, and that an overvaluation of it, or an undervaluation of the shares, leaves the shares unpaid to that extent, and the shareholders liable to make up the deficiency in favor of creditors of the corporation, without regard to ■ the question whether the discrepancy was the result of fraud, mistake, bad judgment, or a cheerful optimism. Under this rule, in an action to charge a shareholder with the corporate debts up to the amount o.f his stock, because the stock has been issued for property not worth its par value, it is not necessary to prove that the trustees were guilty of fraudulent intent; but the true inquiry will be: What was the reasonable value, or the reasonable market value, of the property conveyed, or the services rendered? * * * On the theory that the ‘true value rule’ is a rule of public policy, the right of a creditor of the corporation to enforce the liability of its shareholders who have not paid their subscriptions in full is not dependent in any degree upon the fact of his knowledge at the time of extending the credit, that such subscriptions were or were not paid in full, although this is not the doctrine of all the courts.”
We can see no good reason, nor do we discern any equity, in denying to those who, in good faith, have contributed property to a corporation in payment, or in part payment, of
It is contended by appellant, however, that, inasmuch as it was made to appear from the uncontradicted evidence that between , the time the articles of incorporation were signed and the time they were filed, as required by our law, the respondents declared what is called a cash dividend of $2,000, which was divided among the individual respondents here in proportion to their subscriptions as before stated, they should be compelled to pay back said $2,000 to the extent at least that it is required to pay the debts of the corporation. Upon the other hand, it is contended by respondents that there were expenses paid by them during the ninety days preceding the filing of the articles of incorporation, and that the sheep that were purchased during said ninety days and were turned over
In view of the foregoing facts and the law applicable thereto the district court was by far too liberal in allowing the. claims of respondents. Nor does the evidence, taken as a whole, sustain the finding that the subscriptions were paid in full. Indeed, there is no specific finding upon the question of stock payments. All that the court found, or what is called a finding, is a mere conclusion. The so-called finding reads as follows:
"That the said defendants, and each of them, have paid in full their respective said subscriptions to said capital stock of the Blair-Hansen Live Stock Company; that there is nothing due or remaining unpaid, whatever, on their said stock subscriptions.”
“Corporations shall not issue stock, except to bona fide subscribers thereof or their assignee, nor shall any corporation issue any bond, or other obligation, for the payment of money, except for money or property received, or labor done. ’ ’ i
We can find nothing in the foregoing language which prohibits corporations from issuing stock for either property or labor, or for both. As we read the foregoing provision it is in strict harmony with our statute as we have construed it.
Appellant, however, further contends that the court erred in permitting the intervener to introduce in evidence the judgment obtained by it by confession as before stated. If' that judgment were material here it would be very doubtful indeed whether it was properly received in evidence, not upon the ground urged by appellant, however, that it merely represented assigned claims of stockholders of the corporation, since that objection is not good in this jurisdiction. This court is committed to the doctrine that a stockholder as a creditor may maintain an action in equity to recover unpaid subscriptions of stock, but in doing so he must, if delinquent, first pay in the unpaid portion of his subscription and then after having done so he may share ratably with other creditors in the fund derived from unpaid subscriptions. Wilson v. Kiesel, 9 Utah, 406, 35 Pac. 488. To the same effect are Bissit v. Kentucky, etc., Co. (C. C.) 15 Fed. 353, and note; Thompson v. Lake, 19 Nev. 103, 7 Pac. 68, 3 Am. St. Rep. 797; Thompson v. Crockett, 19 Nev. 242, 9 Pac. 121, 3 Am. St. Rep. 883. In Cook on Corporations (6th Ed.), Section 205, the rule is tersely stated thus:
“A stockholder who is also a creditor may file a bill as a creditor to reach unpaid subscriptions. He must, however,, pay his own subscription. ’ ’
The only question, therefore, that remains to be solved is: What, in view of the evidence,. should the findings and judgment be? The respondents Preston A. and J. P. Blair, Lars Hansen, and Simon S. Jensen each subscribed for fifty shares •or for $5,000 of the capital stock of the company. Each one <of those; therefore, subscribed for 5/22 of the amount of the capital stock subscribed. The respondents Stephen S. and •Seth M. Blair each subscribed for 1/22 of the whole stock •subscribed. Each one of the four first-named respondents .■ should therefore be required to pay 5/22 of the unpaid subscriptions, or 20/22 in all, and the last two should each be required to pay 1/22 thereof, or 2/22 in all. Now, as we have seen, the unpaid subscriptions amount to the sum of $1,391.36. ■of which sum each one of the first four subscribers should contribute the sum of $316.218, or the four should contribute the ;sum of $1,264.87; while the last two named should each con
The judgment of the District Court of Weber County is therefore affirmed so far as it relates to the intervener, and should be reversed and the cause remanded to that court, with directions to modify its findings of fact and conclusions of law so far as they relate to the appellant’s claim, and to substitue others and make them conform to the facts as herein stated, and to enter judgment in favor- of appellant and against the individual respondents in amounts hereinbefore stated, and in accordance with the views herein expressed.
Since writing the foregoing my Associates, for reasons satisfactory to themselves, have arrived at the conclusion that the judgment should be affirmed in toto. While, in view of the whole record, as I read it, and the law applicable thereto, I am unable to yield my judgment to theirs, yet, in view that they constitute the court in this case, their judgment, and not mine, must prevail. The judgment appealed from is therefore affirmed, with costs to respondents.
Concurrence Opinion
For the reasons stated I am of the opinion that the judgment of the trial court should be affirmed, with costs to the respondents.
Rehearing
Counsel for appellant have filed a petition for rehearing. No question or point is presented by the petition that was not elaborately discussed in the original briefs filed in the cause and fully argued by counsel in their oral presentation to this court of the questions involved.
Our attention, however, is called to a miscalculation of figures (which we have corrected) that in no way affects the result arrived at in the prevailing opinion. Notwithstanding every point presented by the petition was carefully considered in the opinions heretofore filed in the cause we nevertheless shall, in view of the earnestness of counsel in their insistence that we have both misconceived the facts and misapplied the law to the facts, again partially review the case and again consider the questions presented by the petition.
We say in the prevailing opinions that the property to which the company succeeded at the time it was incorporated ' exceeded $11,000 in value. It is contended that this is error. ¡Counsel assert that the subscribers to stock — the members of the company before it was incorporated — should be allowed the amount only for the property that it cost them; that is, the market value of the property at the time it was purchased by them should be the price at which it should have been listed to the corporation. It will readily be observed that the difference between the opinion of counsel and the judgment of the court on this point is due to the fact that the court based its judgment on the market value of the property, as shown by the undisputed evidence, at the time it was turned over to and accepted by the corporation, and counsel base their opinion as to value on the price paid for the' property by the members of the company some three months before the company was incorporated. Counsel in their brief filed in support of the petition for a rehearing say:
‘ ‘ This court should * * * be very loth to accept the oral testimony of the delinquent subscribers given on the trial of this ease some five years after the transaction in question took*55 place, and to allow them credit for any amount in excess of the amount shown by the books to have been paid by them for the property on hand at the time of the incorporation. * * # The question of value was alone testified to by the interested subscribers and not by * * * disinterested persons who knew the character of the property taken over by the corporation, together with its value.”
And again:
“We propose to show by Mr. Jensen’s testimony and the books of account he kept for the company that the stock subscriptions have not been paid in full. ’ ’
The books of account to which counsel refer, and the correctness of which they vouch for, were introduced in evidence by appellant, and they, in connection with the evidence of Mr. Jensen, secretary of the company, show that the price of sheep during the time the company did business before it was incorporated fluctuated. On February 3, 1909, the company purchased 2,392 head of-sheep for $10,760, and a month later (March 5, 1909) sold 2,365 of these sheep for $14,190, which netted the company (the subscribers for stock) a profit of $2,554.94. The testimony of Mr. Jensen and the books also show that the sheep the company had on hand and turned over to the corporation June 12, 1909, were purchased by the subscribers about four months prior to the incorporation, at about $2.75 per head. The testimony of Jensen and the books also show that on June 9, 1909, a few days — within a week— prior to the incorporation of the company twenty-five head of these sheep were sold for $89.10, which wqs approximately $3.56 per head. Three witnesses testified, and their evidence is not disputed, that the market value of the entire herd on June 12, 1909, was $3.50 per head. In fact there is absolutely no conflict whatever in the evidence on this point.
Regarding the unpaid subscriptions at the time the company was incorporated, June 12, 1909, counsel say:.
“We submit that the second half, which would be $11,000, of the stock subscriptions was not paid in full. The books of the company conclusively establish that after incorporation the following payments were made: Preston A. Blair, $2,000; Lars Hansen, $2,000; Simon S. Jensen, $2,000; Stephen S. Blair, 300; Seth M. Blair, $300; J. P. Blair, $2,000 — a total of $8,600. To this should be added $1,900 covering property thereafter delivered to the company by J. Park Blair and Lars Hansen and applied upon their stock subscriptions, making $10,500. We have endeavored above to show that there remains due on the second half of the stock subscription $500.”
• Mr. Jensen’s testimony, and the books of account he kept for the company, show, that Preston A. Blair subscribed for 50 shares of the capital stock of the corporation, for which he agreed to pay $5,000; that before the incorporation he paid $2,500, leaving a balance of $2,500 due on his stock subscription ; that on March 31, 1910, he paid $2,000, and on July 30, 1910, he paid the balance, $500, on his subscription. It will be noticed that counsel for appellant have inadvertently omitted to include the $500 last mentioned in their foregoing
Concurrence Opinion
I concur with Mr. Justice McCARTY in his statement that counsel have presented nothing new in their petition for a rehearing, and that for that reason it should be denied. In view, however, that silence on my part might be taken as some evidence that I have receded from the position taken in my former opinion I desire to state that I am still firmly convinced that I allowed respondents everything they were entitled to under their own record evidence, and that both my Associates and the trial court have established a rule for allowing credits for subscriptions to stockholders in eases where no attempt is made to comply with the statute which they will find difficult to follow in the future. In this case by permitting the individual stockholders to retain all the profits realized prior to June, 1909, upon the business, and by also allowing them the amounts stated in the prevailing opinions, they are in a much better plight than they would have been had they paid up their subscriptions in cash while the creditors of the corporaton must suffer all the losses.
Concurrence Opinion
I concur with Mr. Justice FRICK on the points and in his conclusions affirming the judgment in part. I dissent from his conclusions reversing the judgment in part. In that I concur with Mr. Justice McCARTY. While the evidence as to the paid-up subscriptions may be in conflict, yet I think there is good and sufficient evidence to support the findings in such respect. I therefore think that the judgment of the court below should be affirmed in all its parts.