Beaty v. Johnston

• Citation: 52 S.W. 129,66 Ark. 529
• Parties: BEATY v. JOHNSTON
• Decision Date: 17 June 1899
• Court: Supreme Court of Arkansas

52 S.W. 129

66 Ark. 529

BEATY v. JOHNSTON

Supreme Court of Arkansas

June 17, 1899

Cross Appeals from Sebastian County, Fort Smith District, EDGAR E BRYANT, Judge.

Judgment reversed and remanded.

H. C Mechem and F. A. Youmans, for appellant.

The court erred in holding that the decree in the federal court did not merge the contract to convey stock. 1 Freeman, Judg §§ 215, 240; 1 Herman, Est. §§ 125, 222; 54 O. St. 214; 37 Ind. 264; 117 Ind. 315; 111 Pa.St. 99; 24 Minn. 4; 47 N.W. 151; 17 Conn. 420; 59 Mo.App. 26; 15 Ill. 420; 50 Miss. 391; 63 Ark. 259; 54 Conn. 253; 49 Ga. 585; 20 N. J. Law, 249. But the question of whether the contract was entire or severable was never before that court, and the question is not res judicata. 1 Herman, Est. § 129; 140 U.S. 254; 44 Oh. St. 497; 48 P. 569; 41 Cal. 278; 43 Cal. 311; 38 Am. St. Rep. 749; 38 N.Y. 65; 55 Ark. 565; 34 N.J.L. 420; 44 N.Y. 1; 60 Wis. 256. It was error for the court to instruct the jury that "stock is prima facie worth its face value." 4 Ark. 147; id. 534; 58 Ark. 108; 1 Sedg. Dam. § 257; 12 Ill. 190; 3 Met. 196; 17 Wis. 328; 10 Ind. 20; 5 Oh. St. 186; 130 N.Y. 372. If the stock had no ascertainable market value, its real value should have been ascertained by its capacity to earn dividends, and by the relation of the assets to the liabilities of the corporation. 99 Mass. 349; 28 Mo.App. 450. Appellant was entitled to earnings from the date the sale was to go into effect under the terms of the contract. 7 N.H. 454; 83 Ga. 747; 3 Ex. Div. 24.

Read & McDonough, for appellees.

While in a sale in praesenti the dividends belong to the purchaser [Cook, Corp. § 539; 2 Thompson, Corp. § 2172], yet the parties can contract otherwise, and their intention will be effectuated. Cook, Corp. §§ 539, 541; 15 Cal. 21; 56 N.Y. 553; 11 R. T. 569; 13 R. I. 173; 53 Ark. 65; 23 Ark. 582; 3 Ark. 222. The question of the dividends and profits could have been pleaded in the former suit, and is now res judicata. 1 Herman, Est. § 125; 98 N.Y. 351; 45 N.E. 368; 85 N.Y. 427; 45 S.W. 67; 68 Mo.App. 637; 40 A. 1; 2 Black, Judg. § 754; 34 Me. 63; 56 Am. Dec. 631; 27 S.E. 560; 14 Ind.App. 223; 52 Ia. 654; 21 Am. & Eng. Enc. Law, 206, 208, 211; 7 Wall. 613; 37 Ind. 264. It makes no difference that the judgment was by default. 41 Mich. 90; 60 N.W. 803; 69 N.W. 908; 58 Kan. 745; 21 N.Y.S. 133, 284; 75 N.Y. 150; 25 Ill.App. 245; 66 N.Y. 385; 114 Pa.St. 387; 35 Vt. 530; 21 Minn. 515; 28 F. 505. On a default the plaintiff has a right to prove the amount due. 25 Ark. 36; 45 Ind. 14; 1 Heisk. 442; 39 N. J. Law, 195; 14 Ark. 220. The presumption is that the court's adjudication of the amount was made on evidence. 2 Bush (Ky.), 169; 20 O. St. 315. If the contract is indivisible, appellant can not recover on the dividends without delivering the shares of stock. 43 Ark. 185; 34 Neb. 450; 38 Ark. 111; 4 Ark. 577. But the contract was divisible,--at least as to the new stock. 62 N.W. 352; 58 P. 164; 40 P. 409; Clark, Cont. 657-661; 2 Cush. 290; 2 Met. 370; 5 Allen, 4; 55 Mo.App. 389. If not originally divisible, the parties have made the contract so by their actions. 27 A. 960; 37 N.E. 105; 1 Herman, Est. 40, 44; 6 Ore. 258; 82 Mass. 208; 26 N.J.L. 284; 15 Wis. 107; 1 Herman, Est. 40. The matter of the stock is not res judicata. 11 Ark. 666; Black, Judg. §§ 620-621; 44 P. 401; 22 S.E. 889; 17 A. 473; 104 Ill. 369; 72 F. 147; 13 Barb. 160; Clark, Cont. 706; 7 L. R. A. 576. The federal court decided that the contract was severable, and appellant's acquiescence in that decree binds him. 84 Ala. 508; S. C. 5 Am. St. Rep. 387; 25 N.E. 292; 30 S.E. 154. The measure of damages for the non-delivery of the stock was, prima facie, its face value. 12 A. 743; 1 Cook, Corp. § 581, p. 786, note 2; 2 Suth. Dam. § 659.

BUNN, C. J. WOOD and RIDDICK, JJ., did not participate.

OPINION

BUNN, C. J.

This is a suit by appellant, Beaty, against appellees, W. J. Johnston and other stockholders and directors of the Fort Smith Gas Light Company, for the sum of $ 9,885.81, less credits, leaving a balance of $ 5,028.83, being the amount of dividends or net earnings of said company from the 1st of May, 1894, until the 15th of March, 1895, which the defendants had collected and appropriated to their own use. Defendants answered, setting up an off-set about equal to the amount claimed by the plaintiff. Verdict for defendants, and, on motion by plaintiff for new trial, court required a remittitur by defendants, so that the allowed claims of both were substantially equal, and both parties appealed.

On March 15, 1894, the appellees, stockholders and directors of the Fort Smith Gas Light Company, a corporation, bargained and sold their plant to appellant for the sum of $ 76,657.50, to be paid in installments as follows, to-wit: $ 5,000 on the 28th of March, 1894; $ 15,000 on the 15th of April, 1894, and the balance, $ 56,657.50, on the 1st of May, 1894. In addition, Beaty was to give them $ 5,000 in paid-up non-assessable stock of a new corporation he intended to organize, to be known as the Fort Smith & Van Buren Railway Power & Light Company.

Appellant paid the first and second installments when due, but failed to pay the third installment of $ 56,657.50 on the 1st of May, 1894, when the same was due, and also failed to deliver to appellees the $ 5,000 stock in the new company; and they on the 28th of July instituted suit against him in the circuit court of the United States for the Fort Smith district, for said balance and the value of said paid up non-assessable stock, and obtained decree against him for the said balance of $ 56,657.50, with six per cent. per annum interest from the 1st of May, 1894, to the 15th of March, 1895, on which last day appellant paid the same in full satisfaction of said decree. The court, as to the $ 5,000 stock, held, in effect, that the contract under which it should have been issued and delivered was divisible, and that this part was not considered, but left to future controversy between the parties. No appeal was taken from this ruling by either party, and both parties are therefore bound by this decision of the United States court as to this.

Afterwards appellant Beaty brought this suit against appellees, for the dividends or net earnings, less credits, of the old corporation from the 1st of May, 1894, to the 15th of March, 1895, amounting as stated, to the sum of $ 5,028.82, and the appellees answered, denying the right of appellant to said dividends or net earnings, and pleading res judicata as to same, and pleading the value of said $ 5,000 stock, which appellant had failed to deliver to them, as a set-off. Replying to this, the appellant pleaded res judicata as to this $ 5,000 stock, claiming that it had been or should have been determined in the suit in the United States court. Thus were formed the issues in this case.

The dividends or net earnings of the old corporation from the 1st of May, 1894, to the 15th of March, 1895, were not payments upon the appellant's debt sued for in the United States court, as was the case in Warner v. George, 58 F. 435, cited by appellees, and if they were proper set-offs, or might have been used as such, the failure to use them in said suit as such did not create a forfeiture of them as a debt against appellees in behalf of appellant. See Sand. & H. Dig. § 5728. This controversy over the dividends grew out of that part of the contract of sale and purchase of the old corporation which, in substance, provided that the vendors shall have the dividends accruing up to the 1st of May, 1894, when the vendee was to have paid the purchase money in full, and performed other parts of his contract; and afterwards these dividends should go to him. Appellees contend that appellant was entitled to no dividends until he had performed his contract, and thereby became the owner in fact of the corporate plant, stock, franchise and so forth, which he did not become until the 15th of March, 1895. On the other hand, appellant contends that appellees were entitled to no dividends after the 1st of May, 1894, but were only entitled to their debt and interest, which were adjudged against him in the federal court, and all of which he at once paid. In this we think the appellant was correct.

The appellees' set-off of $ 5,000, the face value of the stock which appellant failed to deliver to them, although obliged to do so, as a part of the consideration of the purchase of the old plant, was properly pleaded, and was a proper set-off, to the extent of its value; for it was eliminated from the federal court proceeding expressly by the rulings of that court, from which no appeal has been taken. But the manner of ascertaining the value of said stock was erroneous. Proof should have been made by the appellees of its market value on the 1st of May, 1894, when it should have been delivered; and legal interest allowed on this valuation from that day. Or, if it had no market value at that time, then the value should have been proved by showing the value of the property and business of the corporation as compared with its liabilities at the time. 2 Cook, Corporations, § 581.

The contention of appellees that this value is, prima facie, the face value of the stock, and therefore in this case was $ 5,000, and that the burden was on appellant to show that its value was less than that sum, is sustained by some authorities, as in the Appeal of Harris (Pa.), 9 Sadler 233, 12 A. 743. But the question was not discussed in that case, and the weight of authorities seems to be the other way. The corporation here involved was not a banking institution, and there is no presumption that its paper, its certificates and obligations of any kind were worth dollar...