Bergman v. Evans

• Decision Date: 11 July 1916
• Docket Number: 13039.
• Citation: 158 P. 961,92 Wash. 158
• Parties: BERGMAN v. EVANS et al.
• Court: Washington Supreme Court

158 P. 961

92 Wash. 158

BERGMAN v. EVANS et al.

No. 13039.

Supreme Court of Washington

July 11, 1916

Department 1. Appeal from Superior Court, Spokane County; Bruce Blake Judge.

Action by M. L. Bergman, in the name of and for the benefit of the Bergman Clay Manufacturing Company, a corporation, against J H. Evans and others. Judgment for plaintiff, and defendants appeal, and plaintiff takes a cross-appeal. Affirmed.

Twitchell & Wentworth, of Spokane, for appellants.

F. W Girand and B. C. Mosby, both of Spokane, for respondent.

FULLERTON J.

The respondent, a minority stockholder in the Bergman Clay Manufacturing Company, brought this action in the name and for the benefit of that company against the appellants to compel the payment of balances due on their unpaid stock subscriptions. Different phases of the controversy have been before this court in the past, and are reported in Bergman Clay Mfg. Co. v. Bergman, 73 Wash. 144, 131 P. 485, and Triplett v. Bergman, 82 Wash. 639, 144 P. 899. In the first of these cases, we reversed a judgment placing the company in the hands of a receiver charged, among other things, with the recovery of the unpaid stock subscriptions in issue here. The court further held that, inasmuch as the directors had failed for a long period to call in unpaid stock subscriptions for the purpose of paying debts, a stockholder might make and enforce the call in the name and for the benefit of the corporation.

The complaint alleges that appellant Evans had subscribed in writing for 6,500 shares of the capital stock of the Bergman Clay Manufacturing Company at $1 per share, and had failed to pay for 4,250 of such shares; that appellant Hurd had subscribed for 6,000 shares, and had failed to pay for 3,750 of such shares; that appellant Davie had subscribed for 2,000 shares and had failed to pay for 1,000 of such shares; that appellant Erickson had subscribed for 1,665 shares and had failed to pay for 665 of such shares; that respondent Bergman had subscribed for and had fully paid for 6,500 shares, and is now the owner of 5,284 shares; that between the years 1905 and 1912 the corporation borrowed money to the extent of several thousand dollars and paid interest thereon, making the same a charge against the corporation to the prejudice of respondent; that the Idaho Lime Company and the Bergman Clay Manufacturing Company are controlled by the same board of directors, appellants Evans and Hurd being directors of both companies, and that the Lime Company is indebted to the Clay Company by reason of a contract between them in the sum of $19,000; and further:

'That the directors of the Bergman Clay Manufacturing Company have refused to make a call upon the stockholders for their respective unpaid subscriptions and still now refuse to make said call; that this action is brought by the plaintiff in the name of and for the benefit of the corporation to require and compel each of the defendants to pay the amount due upon their unpaid stock subscriptions; that between the years 1905 and the present time said corporation, Bergman Clay Manufacturing Company, has been indebted to various parties, and was in need of the money due upon the stock subscriptions of each of the defendants herein to pay and meet its obligations, and was in need of funds to carry on its business; that the Bergman Clay Manufacturing Company now owes various creditors large sums of money by reason of the directors of the Bergman Clay Manufacturing Company having borrowed money in the name of the Bergman Clay Manufacturing Company; that it is necessary to collect the unpaid stock subscriptions of the defendants mentioned herein for the purpose of liquidating said indebtedness.'

Judgment for the benefit of the Clay Company was prayed against J. H. Evans for $4,250; against J. A. Hurd for $3,750; against J. T. Davie for $1,000; and against Peter Erickson for $665, with legal interest on such sums from the time when they should have been paid.

The answer of each appellant was a denial of practically all the foregoing allegations, and as an affirmative defense each alleged that the respondent was a director and president of the company from the time of its incorporation until June, 1912; that all the money borrowed by the company was borrowed under the direction of the directors in meeting assembled and that the respondent was present at all such meetings and voted for all resolutions to borrow money; that no objection was made by the respondent until he was deposed as a director; that the respondent was guilty of laches in standing by and permitting the affairs of the company to be so carried on without any objection, and that he is estopped from complaining of such action of the board; that he persuaded appellants to become incorporators in the company by false representations as to his competency to make white face brick and sewer pipe and other clay products cheap enough to sell at a profit; that the shares of stock were subscribed for by the appellants under an express agreement with respondent that no more of said subscriptions should ever be paid than the sums of $2,000 by the appellant Evans, $2,000 by the appellant Hurd, $1,000 by the appellant Davie, and $1,000 by the appellant Erickson; that the respondent promised, in case more money should be necessary for carrying on the business, that he would sell and dispose of the balance of the stock contracted for by the appellants; and that no call has been issued by the board of directors of the company or by any one. The reply denied all affirmative matter contained in the answers of the various appellants.

The court found for the respondent on all the issues and gave judgment against J. H. Evans for $4,876.16, against J. A. Hurd for $4,302.50, against J. T. Davie for $1,156.66, and against Peter Erickson for $762.94, these sums including legal interest on the amount of the unpaid subscriptions from August 16, 1912, the date upon which the court found that the board of directors should have issued a call pursuant to the written demand of respondent.

The stock subscription contract which was attached as an exhibit to the answers of the appellants, and produced in evidence, was in the following terms:

'Be it remembered, that on this 28th day of February, 1905, the Bergman Clay Manufacturing Company of Spokane, Washington, being now duly incorporated under the laws of said state by its trustees, did, under and by virtue of the power and authority conferrd so to do by said laws and articles of incorporation, and hereby does, open a subscription list and call for subscriptions to the capital stock of the said corporation, which capital stock consists of 25,000 shares of the par value of $1 per share.

'Subscriptions to the said stock are payable upon call, on 20 days' notice issued

by the board of directors, and no certificates of stock shall be issued until the same are fully paid for at par, provided any subscriber or his assignee may have certificates of stock issued for any portion of his subscription that shall have been fully paid for at par. 'We, the undersigned, each for himself, hereby subscribe to the capital stock of the said corporation, subject to the above conditions, and agree to pay for the number of shares of said stock set opposite our respective names, in consideration for certificates of shares of said stock duly issued and delivered to me or my order upon the same, and to the extent that this subscription has been fully paid for at par, to wit:

Name. Number of shares.

Martin L. Bergman, six thousand five

hundred ............................................ 6,500

C. A. Johnson, twenty-three hundred

thirty-five ........................................ 2,335

James H. Evans, six thousand five hun-

dred ............................................... 6,500

Jno. A. Hurd, six thousand .......................... 6,000

John T. Davie, two thousand ......................... 2,000

Peter Erickson, sixteen hundred sixty-

five .............................................. 1,665"

The evidence shows that in February, 1905, the appellants and respondent, with one Johnson, organized the Bergman Clay Manufacturing Co. with a capital stock of $25,000, and that the incorporators subscribed for all the shares; that respondent has fully paid for his shares; that, as to the appellants, Evans paid $2,250 on his $6,500 subscription, Hurd paid $2,250 on his $6,000 subscription, Davie paid $1,000 on his $2,000 subscription, and Erickson paid $1,000 on his $1,665 subscription; that from the time of organization in 1905 until June 4, 1912, the board of directors consisted of the respondent and the appellants; that the cash paid in on the stock was exhausted within six months, and that the company borrowed $3,000 from a bank on July 11, 1905, $500 from appellant Evans on October 2, 1905, and $1,000 more from Evans on the 16th of October, $2,802.50 from the Idaho Lime Company on the 12th and 13th of December, 1905, and in the year 1906, from the Fidelity National Bank, $1,000 on February 3d, $1,000 on February 16th, $1,000 on March 13th, $1,000 on March 29th, and $1,000 on April 12th; that at the time of trial $4,000 remained due the bank and between $6,000 and $7,000 to the Idaho Lime Company, making the existing indebtedness about $10,700. Interest had been paid on all the loans except the Lime Company account. The only evidence as to profit and loss of the Clay Company was that in 1909 it made a net profit of $420; in 1910 more than $5,000; that it lost $4,100 in 1911; and that in the following year the plant was shut down. No dividends were ever declared.

The respondent testified that as president, he signed the stock certificates in 1906, and demanded that appellants pay the...