A. C. Frost & Co. v. Coeur D'Alene Mines Corp.

• Decision Date: 10 July 1939
• Docket Number: 6595
• Court: Idaho Supreme Court
• Parties: A. C. FROST & COMPANY, a Corporation, A. C. FROST and C. C. SHEDD, Respondents, v. COEUR D'ALENE MINES CORPORATION, a Corporation, et al., Appellants

92 P.2d 1057

60 Idaho 491

A. C. FROST & COMPANY, a Corporation, A. C. FROST and C. C. SHEDD, Respondents, v. COEUR D'ALENE MINES CORPORATION, a Corporation, et al., Appellants

No. 6595

Supreme Court of Idaho

July 10, 1939

CORPORATIONS-VOTE MAKING STOCK ASSESSABLE-STATUTES-CONSTITUTIONAL LAW.

1. Capital stock issued to subscribers by corporation as fully paid and non-assessable could not be changed by two-thirds majority vote of stockholders into assessable stock. (Rev Codes, sec. 2750; I. C. A., secs. 29-145, 29-156; Const art. 11, sec. 2.)

2. A corporation which accepted another corporation as assignee of option contract for purchase of its stock, which agreed with assignee to modify dates and amounts of payments thereunder and which accepted payments from assignee, was estopped to deny assignee's corporate existence as basis for assertion that contracts under which assignee claimed that stock was non-assessable were void. (Const., art. 11, sec 2.)

APPEAL from the District Court of the First Judicial District, for Shoshone County. Hon. Albert H. Featherstone, Judge.

Action to restrain collection of a pending assessment and to permanently enjoin the collection of any future assessments, upon 175,000 shares of the capital stock of appellant Coeur d'Alene Mines Corporation standing in the name of respondent A. C. Frost & Company. Judgment for respondent. Affirmed.

Judgment affirmed. Costs awarded to respondent.

James A. Wayne, for Appellants.

A foreign corporation transacting business in Idaho without complying with the Idaho statute, cannot enforce its contracts in any court of this state. (I. C. A., sec. 29-504; Dickens West Min. Co. v. Crescent Min. & Mill. Co., 26 Idaho 153, 141 P. 566; John Hancock Mutual Life Ins. Co. v. Girard, 57 Idaho 198, 64 P.2d 254.)

Stock in an Idaho corporation may be made non-assessable only by a provision in its articles of incorporation. (I. C. A., sec. 29-156.), and if made non-assessable may thereafter be made assessable by amendment of such articles of incorporation. (I. C. A., sec. 29-145; Wall v. Basin Min. Co., Ltd., 16 Idaho 313, 101 P. 733, 22 L. R. A., N. S., 1013.)

C. H. Potts and H. J. Hull, for Respondents.

If an Idaho corporation contracts with a shareholder that his stock shall be non-assessable, it is bound by that contract and has no power or authority to subsequently levy an assessment on the stock. Such contract may be evidenced by the certificates of stock, or it may be proved by any competent evidence. ( Wall v. Basin Min. Co., Ltd., 16 Idaho 313-329 et seq., 101 P. 733, 22 L. R. A., N. S., 1013; Jonas v. Frost, 32 Idaho 214-219, 179 P. 949; Reinertsen v. Idaho Power etc. Co., Ltd., 32 Idaho 353-357, 182 P. 851; Whicher v. Delaware Mines Corp., 52 Idaho 304-315, 15 P.2d 610; Porter v. Northern Fire & Marine Ins. Co., 36 N.D. 199, 161 N.W. 1012; Lum v. American Wheel & Vehicle Co., 165 Cal. 657, 133 P. 303, Ann. Cas. 1915A, 816.)

A statute authorizing assessments to be made on existing non-assessable stock is unconstitutional and void as to existing stockholders. (Fletcher's Encyclopedia of Corporations (rev. ed.), vol. 7, secs. 3680, 3681; Thompson on Corporations, 3d ed., sec. 4826; Garey v. St. Joe Min. Co., 32 Utah 497, 91 P. 369, 12 L. R. A., N. S., 554; Coombes v. Getz, 285 U.S. 434, 52 S.Ct. 435, 436, 76 L.Ed. 866; Vanden Bosch v. Michigan Trust Co., 35 F.2d 643, 645.)

HOLDEN, J. Ailshie, C. J., and Budge, J., concur. GIVENS, J., Morgan, J., Dissenting.

OPINION

HOLDEN, J.

--Appellant Coeur d'Alene Mines Corporation was incorporated under the laws of the state of Idaho in October, 1928, with an authorized capital stock of $ 3,000,000 divided into 3,000,000 shares of the par value of $ 1 each. All the authorized capital stock of the corporation was issued to subscribers therefor, as fully paid and non-assessable, and in the same month of the same year, after incorporation, certificates of stock were immediately issued and delivered to subscribers or their assignees.

September 8, 1934, respondent A. C. Frost & Co. was incorporated under the laws of the state of Washington.

Prior to May 6, 1929, appellant issued and delivered to A. C. Frost, 40,000 shares of its capital stock with the words printed on the face: "Fully paid up and non-assessable." In 1929 what is styled "The Business Corporation Act" was enacted (1929 Sess. Laws, p. 545). It did not carry an emergency clause and, therefore, did not become effective until May 7, 1929. Section 33 (now sec. 29-145, I. C. A.) authorizes corporations to amend their articles by a two-thirds vote of the stockholders.

September 10, 1934, appellant Coeur d'Alene Mines Corporation gave W. J. Boland a written option to purchase 1,300,000 shares of its capital stock at 10[cent] per share, the purchase price to be paid in deferred installments, excepting the sum of $ 2,500, paid at the time. While the option was nominally executed between Coeur d'Alene Mines Corporation and Boland, Boland acted for and as the trustee of respondent A. C. Frost & Co., through which option the last-named corporation became the owner of 135,000 shares (in addition to the 40,000 shares it theretofore acquired from Frost) of the capital stock of appellant Coeur d'Alene Mines Corporation, with the words also printed on the face of the certificates: "Fully paid up and non-assessable." By the terms of the option Coeur d'Alene Mines Corporation contracted with Boland that all of the stock covered by it "shall be issued to party of the second part (Boland) or his nominee, as paid for, and shall be issued 'fully paid and non-assessable.'"

In March, 1937, at a specially called meeting for that purpose, the stockholders of appellant corporation, by more than a two-thirds vote (respondent dissenting), voted to make the stock thereof assessable, and subsequently levied two assessments thereon which respondent refused to pay bringing this suit to restrain their enforcement.

January 31, 1938, the cause was tried. March 3, 1938 findings of fact and conclusions of law were made and filed. On the same day a decree was entered thereon forever restraining and enjoining appellant from levying an assessment or assessments against or upon the 175,000 shares of the stock of appellant so owned by respondent, from which an appeal was prosecuted to this court.

While the statutes (Rev. Codes, sec. 2750, and sec. 44, "Business Corp. Act" 1929 Sess. Laws, p. 545) were different when the two blocks (40,000 and 135,000) were purchased, if the 1929 statute constitutionally authorizes a change of the 40,000 shares from non-assessable to assessable shares, it would unquestionably authorize a change of the 135,000 shares from non-assessable to assessable. Hence, the decisive question presented on this appeal is: Are respondent's shares subject to assessment?

In an early case, Wall v. Basin Min. Co., Ltd., 16 Idaho 313, 101 P. 733, 22 L. R. A., N. S., 1013, this court said:

"The sole question presented on this appeal is: Was the appellant's stock subject to assessment and sale?"

"This inquiry may be subdivided into two parts: First. Under the constitution and laws of this state, can fully paid-up stock in a corporation be assessed? Second: Does the fact that certificates of stock bear upon their face the words 'full paid up and non-assessable,' render shares--represented by such certificates, which have been fully paid up--non-assessable?"

After an exhaustive discussion of the question as to whether fully paid up stock of a corporation could be assessed, this court said:

"If a corporation necessarily incurs an indebtedness in maintaining itself or preserving its property, it becomes legally bound to pay and discharge such indebtedness; and the only question of concern is: By what means shall such indebtedness be discharged? Shall the entire property be sold, or has the corporation power to levy an assessment upon its stock and thereby discharge such indebtedness? Certainly a stockholder would lose no more by having his stock subjected to sale for nonpayment of assessments, than he would lose if the entire property owned by the corporation were sold for the payment of the same indebtedness, and we do not believe that it was the intention of the constitution to prohibit a corporation from levying assessments against full paid stock, and upon failure to pay the same, subjecting the stock to sale for the purpose of raising money to meet the obligations of such corporation; for if this cannot be done, a corporation often would be unable to prevent its entire capital from being sacrificed by sale, in order to discharge a small indebtedness, which might be discharged by an inconsequential assessment."

And then the court held:

"So we conclude that Sec. 17, Art. 11 of the constitution relates to and limits the personal liability of a stockholder, but that it in no way limits the power of the corporation to make assessments upon stock fully paid up and subjecting such stock to sale for the purpose of discharging the obligations of such corporation. This conclusion, we think, is supported by the history of the legislation of this state in relation to a stockholder's liability in a corporation."

Having so held on the point involved in the first inquiry, the court proceeded to discuss the second inquiry, to wit: Was the capital stock of the Basin Mining Company subject to assessment and sale:

"This brings us to the consideration of the second inquiry; that it: Does the fact that certificates of stock bear upon their fact the words 'full paid up and nonassessable' render shares represented by such certificates which have been fully paid up nonassessable?"

"The position of counsel for respondent upon this phase of the case is tersely stated in...