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

• Decision Date: 15 December 1939
• Docket Number: 6646
• Citation: 98 P.2d 965,61 Idaho 21
• Court: Idaho Supreme Court
• Parties: A. C. FROST & COMPANY, a Corporation, Respondent and Cross-appellant, v. COEUR D'ALENE MINES CORPORATION, a Corporation, Appellant and Cross-respondent

98 P.2d 965

61 Idaho 21

A. C. FROST & COMPANY, a Corporation, Respondent and Cross-appellant, v. COEUR D'ALENE MINES CORPORATION, a Corporation, Appellant and Cross-respondent

No. 6646

Supreme Court of Idaho

December 15, 1939

CONTRACTS-ILLEGALITY-EFFECT OF-RIGHTS OF PARTIES.

1. If contract is void because prohibited by law as against public policy, the court will leave parties thereto in identical situation in which the court finds them, and contract cannot be treated as valid by invoking estoppel.

2. Where agreement giving plaintiff's assignor the option to purchase treasury stock of defendant corporation was void under securities acts, plaintiff could not recover difference between contract price of stock as fixed by option and market price of stock at time of breach of option with reference to number of shares covered by option remaining unsold at time of breach. (Securities Act of 1933, sec. 5 (a) (1, 2); sec. 4 (1), as amended, 15 U.S. C. A., secs. 77e (a) (1, 2) 77d (1); Securities Exchange Act of 1934, sec. 29 (b), 15 U.S. C. A sec. 78cc (b).)

3. Where agreement giving plaintiff's assignor the option to purchase treasury stock of defendant corporation at fixed price was void under securities acts, plaintiff could not recover amount received by defendant in excess of contract price, for stock sold by president of defendant. (Securities Act of 1933, sec. 5 (a) (1, 2); sec. 4 (1), as amended, 15 U.S. C. A., secs. 77e (a) (1, 2), 77d (1); Securities Act of 1934, sec. 29 (b), 15 U.S. C. A., sec. 78cc (b).)

APPEAL from the District Court of the Eighth Judicial District, for Kootenai County. Hon. Bert A. Reed, Judge.

Action upon option agreement for sale of stock. Judgment for defendant upon first cause of action. Affirmed. Judgment for plaintiff on second cause of action. Reversed with directions to enter judgment for defendant on second cause of action.

Judgment denying recovery upon the first cause of action affirmed. Judgment permitting recovery upon the second cause of action reversed and remanded with instructions. Petition for rehearing denied.

James A. Wayne and W. H. Langroise, for Appellant and Cross-respondent.

A. C Frost & Company having been legally dissolved in the state of its incorporation, had no legal existence at the time of the execution of the contract entered into by it, by W. J Boland, as its trustee, could not legally enter into any contract, and the purported contract was void from the beginning. (Laws of Washington, 1923, chap. 144, Rem. Rev. Stat., sec. 3846; Hawley v. Bonanza Queen Min. Co., 61 Wash. 90, 111 P. 1073; Grant v. Monterey Gold Min. Co., 93 Wash. 1, 159 P. 895; Peck v. Linney, 97 Wash. 103, 165 P. 1080.)

A void contract is in the eyes of the law seen as a blank piece of paper. (Hirschfeld v. McKinley, 78 F.2d 124.)

And void contracts cannot in any manner be validated. (National Union Indemnity Co. v. Bruce Bros., 44 Ariz. 454, 38 P.2d 648.)

H. J. Hull and C. H. Potts, for Respondent and Cross-appellant.

Where a person has agreed to perform an act, whatever is necessary to the performance of the act is a part of the agreement, and it is implied that he must furnish the means of accomplishing the act. (United States Trading Corp. v. Newmark Grain Co., 56 Cal.App. 176, 205 P. 29; Culp v. Sandoval, 22 N. M. 71, 159 P. 956, L. R. A., N. S., 1157; Harman v. Washington Fuel Co., 228 Ill. 298, 81 N.E. 1017; John O'Brien Lbr. Co. v. Wilkinson, 117 Wis. 468, 94 N.W. 337; Vogt v. Schienebeck, 122 Wis. 491, 100 N.W. 820-822, 106 Am. St. 989, 67 L. R. A. 756.)

Damages for breach of a contract to deliver stock to purchaser are the difference between the contract price and the market price within a reasonable time after date of delivery. (Vos v. Child, Hulswit & Co., 171 Mich. 595, 137 N.W. 209, 43 L. R. A., N. S., 368; McKinley v. Williams, 74 F. 94, 36 U. S. App. 749, 20 C. C. A. 312.)

BUDGE, J. Givens and Morgan, JJ., concur. Ailshie, C. J., dissenting in part, Holden, J., dissents.

OPINION

BUDGE, J.

This action was brought by A. C. Frost & Company, a Washington corporation, against Coeur d'Alene Mines Corporation, an Idaho corporation, upon a contract dated September 10, 1934, for the sale of 1,300,000 shares of the treasury stock of the Coeur d'Alene Mines Corporation at ten cents per share. This contract will be referred to as the option agreement. The complaint contains two causes of action growing out of the option agreement. The first cause of action is for the recovery of damages for an alleged breach of the option agreement. It might be here observed that the option agreement was in the first instance entered into between Coeur d'Alene Mines Corporation and one Boland and by the latter assigned to Frost & Company. The second cause of action was for money had and received by Coeur d'Alene Mines Corporation from the proceeds of the sale of treasury stock by an officer of the Coeur d'Alene Mines Corporation under the option agreement, as modified by subsequent agreements. After trial of the action the trial court allowed an amendment to the second cause of action to conform to the proof, permitting recovery of an amount greater than that mentioned in the second cause of action as originally filed. Under the option agreement Frost & Company had the option to become the purchaser of all or any part of 1,300,000 shares of the treasury stock of Coeur d'Alene Mines Corporation at ten cents per share. The amount sought to be recovered under the second cause of action is the amount received by Coeur d'Alene Mines Corporation in excess of ten cents per share for stock sold by Nuzum, president of the Coeur d'Alene Mines Corporation.

The trial court denied recovery for the alleged breach of the option agreement contained in the first cause of action, entering judgment that Frost & Company take nothing on its first cause of action. Judgment was awarded in favor of Frost & Company on the second cause of action against the Coeur d'Alene Mines Corporation for the sum of $ 16,306, with legal interest thereon, aggregating the total sum of $ 19,132.38.

Frost & Company appealed from that portion of the judgment denying a recovery on the first cause of action and the Coeur d'Alene Mines Corporation appealed from that portion of the judgment allowing a recovery in favor of Frost & Company on the second cause of action.

In view of the determination hereinafter made of this case it will not be necessary to determine all of the assignments of error.

Assignments of error numbered 7 and 13 raise the point that the court was in error in determining that Frost & Company could not recover upon its first cause of action by reason of the fact that the option agreement was entered into in violation of the Securities Act of 1933 and acts amendatory thereof and supplementary thereto. The trial court held that both parties were charged with knowledge of the provisions of the Securities Act of 1933 and its amendments contained in the Securities Exchange Act of 1934, 15 U.S.C. A., sections 77 and 78, and by reason of such fact and the provisions of the foregoing acts the option agreement was unenforceable as to its unexecuted parts. In other words, that Frost & Company could not recover as on a breach the market value of 805,150 shares of the treasury stock covered by the option agreement, remaining unsold on the 13th day of March, 1936, by reason of the fact that the option agreement was unenforceable.

It appears unquestioned that the 1,300,000 shares of treasury stock involved in this action and covered by the option agreement were not registered with the Federal Trade Commission or the Securities and Exchange Commission.

Section 77e of the Securities Act of 1933 provides:

"(a) Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly--

"(1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell or offer to buy such security through the use or medium of any prospectus or otherwise; or

"(2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale. . . . "

The evidence clearly supports the proposition that the dealings between Frost & Company and Coeur d'Alene Mines Corporation were in contravention of the foregoing section. However it is urged that such transactions as were carried on with respect to the option agreement and the securities involved were exempt transactions under section 77d of the Securities Act of 1933 providing:

"The provisions of section 77e shall not apply to any of the following transactions:

Transactions by an issuer not involving any public offering;"

The proof rather than sustaining the burden of showing that the transaction was exempted affirmatively shows that all the stock offered for sale amounted to public offerings and that interstate means of communication and transportation were used in connection therewith. Certainly the facts disclosed by the option agreement itself and the so called subsequent modifications by letter, etc., and the many letters passing between Frost & Company and Coeur d'Alene Mines Company, recognizing that Frost & Company was selling the treasury stock to all and sundry, directing delivery of such treasury stock to other stock firms or brokers for sale to or by them flatly refutes such contention as does likewise the case of Securities and Exchange Com. v. Sunbeam Gold Min. Co., 95 F.2d 699.

The remaining question to be determined is the effect of the foregoing conclusion upon the two causes of action presented. As heretofore set forth the first cause of...