Grimsmoe v. Kendrick

• Decision Date: 21 April 1926
• Citation: 247 P. 746,42 Idaho 491
• Parties: C. I. GRIMSMOE, Administrator of the Estate of JOHN C. FEEHAN, Deceased, Appellant, v. F. D. KENDRICK, Respondent
• Court: Idaho Supreme Court

247 P. 746

42 Idaho 491

C. I. GRIMSMOE, Administrator of the Estate of JOHN C. FEEHAN, Deceased, Appellant, v. F. D. KENDRICK, Respondent

Supreme Court of Idaho

April 21, 1926

CORPORATIONS-STOCKHOLDER'S LIABILITY FOR UNPAID STOCK-PLEADING-SUFFICIENCY OF COMPLAINT-EXCESSIVE VALUATION OF PROPERTY EXCHANGED FOR MINING STOCK.

1. Complaint, in action to enforce stockholder's liability for unpaid stock under C. S., sec. 4728, alleging that stock had been acquired with knowledge of fraud in issuance, in that attempt had been made to make stock fully paid by exchanging property at excessive valuation, was not subject to demurrer for failure to state cause of action.

2. Allegation that stockholder had actual knowledge that par value of stock had not been fully paid, and that property received in exchange for stock was taken at excessive valuation, states cause of action to enforce stockholder's liability for unpaid stock, under C. S sec. 4728, although reciting that stock was fully paid.

3. Corporate stock, exchanged for property given excessive valuation, remains unpaid to extent of difference between actual value of property and par value of stock.

4. Assignee of stock issued in payment for property to amount grossly in excess of its value must have notice therefor before liability for unpaid stock, under C. S., sec. 4728 will arise.

5. Complaint to enforce stockholder's liability, under C S., sec. 4728, alleging different dates of purchase of stock held not subject to demurrer for uncertainty.

6. Where complaint in action to enforce stockholder's liability for unpaid stock, under C. S., sec. 4728, set out in detail indebtedness owing from corporation to plaintiff, it was not subject to demurrer for failure to disclose when debts sued on were incurred.

7. Provisions of Const., art. 11, sec. 9, and C. S., sec. 4728, relative to stockholder's liability, on unpaid stock, are equally applicable to mining corporations as well as to others.

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

Action to enforce stockholder's liability for unpaid stock. Demurrer to complaint sustained and judgment of dismissal entered. Reversed and remanded.

Reversed and remanded with instructions. Costs awarded to appellant.

John P. Gray and James A. Wayne, for Appellant.

The second amended complaint states a cause of action, and is not uncertain. (Feehan v. Kendrick, 32 Idaho 220.)

Where stock in a corporation is issued as paid up in exchange for property, and a grossly excessive valuation is placed upon such property, such stock is unpaid to the extent of the difference between the actual value of said property and the par value of said stock. (Lloyd v. Preston, 146 U.S. 630, 13 S.Ct. 131, 36 L.Ed. 1111; Babbitt v. Read, 215 F. 395, 236 F. 42, 149 C. C. A. 252; Kelly v. Fourth of July Min. Co., 21 Mont. 291, 69 Am. St. 668, 53 P. 959, 42 L. R. A. 621; Macbeth v. Banfield, 45 Ore. 553, 106 Am. St. 670, 78 P. 693; R. H. Herron Co. v. Shaw, 165 Cal. 668, Ann. Cas. 1915A, 1265; 133 P. 488,; Moore v. Universal Elev. Co., 122 Mich. 48, 80 N.W. 1015; State Trust Co. v. Turner, 111 Iowa 664, 82 N.W. 1029, 53 L. R. A. 136; Webre v. Christ, 130 La. 450, 58 So. 145; Holcombe v. Trenton White C. Co., 80 N.J. Eq. 122, 82 A. 618; 82 N.J. Eq. 364, 91 A. 1069.)

Walter H. Hanson and C. W. Beale, for Respondent.

The second amended complaint does not state facts sufficient to constitute a cause of action. (Morawetz on Private Corporations, secs. 591, 830; Richardson v. Treasure Hill Min. Co., 23 Utah 366, 65 P. 74; 1 Cook on Corporations, sec. 46; Rubino v. Pressed Steel Car Co. (N. J.) 53 A. 1051, 1053; McCarthy v. Bunker Hill & Sullivan Min. & Con. Co., 147 F. 981; Dillion v. Barnard, 88 U.S. 430, 22 L.Ed. 673; Pullman Car Co. v. Missouri Pacific Co., 115 U.S. 587, 596, 6 S.Ct. 194, 29 L.Ed. 499; C. S. secs. 4752, 5435; Anderson v. Avey, 272 F. 664; Nelson v. Hudgel, 23 Idaho 327, 335, 130 P. 85; 2 Pomeroy on Equity Jurisprudence, sec. 876; Coit v. North Carolina Gold Amalgamating Co., 119 U.S. 343, 345, 7 S.Ct. 231, 30 L.Ed. 420; Clark v. White, 12 Pet. (U.S.) 178, 200, 9 L.Ed. 1046; John A. Roebling's Sons v. Kinnicutt, 248 F. 596; Troup v. Horback, 53 Neb. 795, 74 N.W. 326; Southern Dev. Co. v. Silva, 125 U.S. 247, 8 S.Ct. 881, 31 L.Ed. 678; Cardoner v. Day, 253 F. 572; Coffin v. Ransdell, 110 Ind. 417, 11 N.E. 20; Davies v. Ball, 64 Wash. 292, Ann. Cas. 1914B, 750, 116 P. 833; Fogg v. Blair, 139 U.S. 118, 11 S.Ct. 476, 35 L.Ed. 104; McDowall v. Sheehan, 129 N.Y. 200, 29 N.E. 299; Hospes v. Northwestern Mfg. & Car Co., 48 Minn. 174, 31 Am. St. 637, 50 N.W. 1117, 15 L. R. A. 470; Wilson v. St. Louis & W. R. Co., 120 Mo. 45, 25 S.W. 527.)

The second amended complaint is uncertain. (Winona Wagon Co. v. Bull, 108 Cal. 1, 40 P. 1077; Whitehurst v. Stuart, 129 Cal. 194, 61 P. 963; John A. Roebling's Sons Co. v. Butler, 112 Cal. 677, 45 P. 6; Bidwell v. Babcock, 87 Cal. 29, 25 P. 752.)

BUDGE, J. William A. Lee, C. J., Wm. E. Lee, and Givens and Taylor, JJ., concur.

OPINION

BUDGE, J.

Pending the appeal of this case appellant died and the administrator of his estate has been substituted in his stead.

The action was brought by appellant to recover from respondent a debt originally incurred by the Coeur d'Alene North Fork Mining & Smelting Company, stock in which corporation had been issued as fully paid in exchange for mining property, and in which corporation respondent was a stockholder.

To the first complaint filed a demurrer was interposed and sustained. Thereafter appellant filed an amended complaint alleging, inter alia, that in 1908 there was organized under the laws of this state a corporation known as the Coeur d'Alene North Fork Mining & Smelting Company, the purpose of the company being, generally, to acquire, own and operate mining property; that the company was incorporated for $ 1,500,000, divided into 150,000 shares of the par value of $ 10 per share; that only three shares of said stock were really subscribed and paid for; that the corporation owned no property whatever at the time of its organization; that one Spalding, one of its incorporators, and a purchaser of one share of its capital stock, was the owner of three undeveloped lode mining claims and one placer mining claim situated near Murray, Idaho; that these four claims were of little value, to wit, not exceeding $ 500; that by resolution of its three stockholders, one of them being Spalding, and all of them together owning but three shares of stock, the corporation purchased these four mining claims at a valuation of $ 1,500,000, paying for the same by the issuance of all of the 150,000 shares of the capital stock of the corporation, except the three shares owned by the original promoters.

It is alleged that the manifest purpose of the resolution above mentioned was an attempt to make the entire issue of stock fully paid and to fraudulently relieve all persons who might thereafter purchase any of such stock from any personal liability, thus avoiding the personal liability of stockholders imposed by C. S., sec. 4728. It is further alleged that at the time of this transaction the three stockholders of such corporation, who were also the directors thereof, well knew that the four mining claims in question were not worth more than $ 500.

The amended complaint further alleged that respondent was a stockholder in said mining corporation from about the time of its organization in 1908; that he was the owner of 17,000 shares of its capital stock of the par value of $ 170,000; that for 4,500 shares of this stock respondent paid $ 5 per share, leaving a balance due thereon of $ 22,500; that for the remaining 12,500 shares owned by respondent he paid no consideration whatever, so that the full par value of the latter number of shares, amounting to $ 125,000, was unpaid.

Appellant alleged that he was a judgment creditor of said mining company to the extent of its owing him $ 11,515.30, the judgment bearing date of February 11, 1915.

It is further alleged in the amended complaint that on July 7, 1913, respondent, by foreclosure proceedings, purchased all of the property of said mining corporation; that no redemption was had within the time provided for and that respondent was therefore the owner of all of the property of said corporation, and that the corporation was without assets, and insolvent. It is specifically alleged that respondent was a stockholder in said corporation during all of the times when the original indebtedness was incurred, which said indebtedness was included in and made up the judgment of appellant; and that respondent was not and never had been a resident of the state of Idaho.

The prayer of the complaint was to the effect that the court determine the amount of the par value of the stock held by the respondent in the corporation which was unpaid; that the same be paid into court, and that the judgment of the appellant be ordered paid.

To the amended complaint respondent demurred. Numerous grounds of demurrer were interposed and relied upon, including the bar of the statute of limitations, under the provisions of subdivision 1 of C. S., sec. 6611 and C. S., sec. 6630. The trial court sustained the demurrer upon the ground that the action was barred by the provisions of C. S., sec. 6630, and the action was dismissed. From the judgment of dismissal an appeal was prosecuted to this court. (Feehan v. Kendrick, 32 Idaho 220, 179 P. 507.) The judgment was sustained, this court holding that the trial court erred in sustained the demurrer on the ground that the cause of action was barred by the provisions above referred to, but holding that the complaint was fatally defective for the...