Guynn v. Shulters

• Decision Date: 28 February 1955
• Docket Number: Nos. 39348,s. 39348
• Citation: 78 So.2d 114,223 Miss. 232
• Parties: , Blue Sky L. Rep. P 70,257, 50 A.L.R.2d 1088 Charles A. GUYNN et al. v. Earl S. SHULTERS et al. Charles A. GUYNN et al. v. John W. EVANS. Charles A. GUYNN et al. v. Joiner M. HALTOM. Charles A. GUYNN et al. v. Hugh FLETCHER. Charles A. GUYNN et al. v. Thomas M. BATES. Charles A. GUYNN et al. v. E. B. DAVIS. to 39353.
• Court: Mississippi Supreme Court

Page 114

78 So.2d 114

223 Miss. 232, Blue Sky L. Rep. P 70,257,

50 A.L.R.2d 1088

Charles A. GUYNN et al. v. Earl S. SHULTERS et al.

Charles A. GUYNN et al. v. John W. EVANS.

Charles A. GUYNN et al. v. Joiner M. HALTOM.

Charles A. GUYNN et al. v. Hugh FLETCHER.

Charles A. GUYNN et al. v. Thomas M. BATES.

Charles A. GUYNN et al. v. E. B. DAVIS.

Nos. 39348 to 39353.

Supreme Court of Mississippi.

Feb. 28, 1955.

J. D. Stennis, Jr., Biloxi, Chas. S. Mitchell, Pascagoula, for appellants.

Karl Wiesenburg, Pascagoula, for appellees.

ROBERDS, Presiding Justice.

These proceedings involve six separate suits by subscribers of the capital stock of Barton's, Incorporated, an Alabama corporation, to recover the price paid by complainants for such stock, with interest thereon from the dates of purchase.

On October 13, 1950, Earl S. Shulters, George E. Nelson and George D. Rigby filed a bill in the Chancery Court of Jackson County, Mississippi, against Mr. and Mrs. E. S. Barton, man and wife, Charles A. Guynn, Francis Watson, The Ingalls Shipbuilding Corporation and the Ingalls Employees' Credit Union. The cause was transferred to the Federal Court and then remanded to said chancery court. Two amended bills were filed by complainants. In brief they alleged they were induced to purchase the stock by Mr. and Mrs Barton, Guynn and Watson, acting as dealers, or as agents of Barton's, Inc., and that neither said four individual defendants, nor Barton's, Inc., had complied with the requirements either of the Alabama or the Mississippi Blue Sky Laws, and that, under said laws and under the circumstances here involved, complainants had a right to rescind their purchases of the stock and recover from said four individual defendants and Barton's, Inc., the amount they paid therefor, with interest. These three complainants also alleged, as additional ground for recovery, that Mr. and Mrs. Barton and Guynn had made to complainants certain material false representations about the value of the stock, which induced them to subscribe therefor, and which rendered said three individuals liable to them for the purchase price paid for the stock. We will refer to these three complainants as the Shulters group.

In May, 1951, John W. Evans, Joiner M. Halton, Hugh Fletcher, Thomas M. Bates and E. B. Davis filed separate declarations in the Circuit Court of Jackson County, Mississippi, against Guynn and Mr. and Mrs. Barton, seeking to recover of said three defendants the purchase price the plaintiffs had paid for stock in Barton's, Inc., with interest from the dates of purchase. These cases were transferred to the chancery court of said county, where said five named plaintiffs filed separate bills in equity against said three defendants. The ground relied upon for recovery was non-compliance by Barton's, Inc., and by said three defendants, with the Blue Sky Laws of Alabama and Mississippi. These five complainants did not ground their right of recovery on false representations of said three defendants inducing complainants to subscribe for the stock. We will refer to said five complainants as the Evans group.

Barton, Guynn and Mrs. Barton, the only appellants here, in their answers to both groups, admitted that neither Barton's, Inc., nor they, had complied with the Blue Sky Law requirements either of Alabama or Mississippi. But, as a defense to all of the suits, they averred (1) that no defendant was a dealer within the meaning of the Blue Sky Laws; (2) that Barton's was not an investment company engaged in the sale of securities under said Blue Sky Laws; (3) they averred that Barton's was a closed corporation to which said laws had no application; (4) that both grounds had participated in the operation of the corporation after it came into being, all as stockholders, and most as officers thereof, and they were estopped to base suits upon the grounds asserted in the bills, and (5) that both groups were subscribers to stock of a corporation yet to be formed, which later they incorporated themselves, and that the Blue Sky Laws are not applicable to stockholders who agree to subscribe to the original stock of a corporation not in esse and which said stockholders later incorporate and bring into being.

In the suit of the Shulters group, the Shipbuilding Corporation and the Credit Union were made defendants to the bill as garnishees; Watson was a nominal party, and no service of process was had upon Barton's, Inc., and it did not appear. The final decree imposed no liability against the Credit Union, Barton's or Watson. It did adjudicate the Shipyards indebted to Guynn in an amount less than $200. No appeal was taken by any one of the four respondents just mentioned. They are not before this Court.

The final decree imposed personal liability against Barton, Guynn and Mrs. Barton for the price paid by all complainants for their stock, plus legal interest from dates of purchase to date of the decree. These three appeal to this Court. We will call them appellants except where mentioned individually.

By agreement all of the causes were heard and decided together in the lower court, and they are so considered and disposed of here.

We have concluded that the complainants (by which term we include both groups) cannot ground their suits on the Alabama Law. The chancellor found that the purchases of the stock by complainants were made in Mississippi. He had sufficient testimony to support the finding. In addition to that, it is not disputed that whatever defendants said or did with reference to purchase by complainants of subscriptions to the stock was done and said without any pay or compensation whatsoever, and under the Alabama Act there is no personal liability on a solicitor under such circumstances. Section 5(7), Title 53, Code of Ala.1940.

And, since the Mississippi Law is applicable to the transactions here involved, we are confronted at the threshold with the question of whether or not our Blue Sky Law applies to organizers of a corporation who, as a preliminary to the incorporation, agree to subscribe to the stock thereof, and who later organize and bring the corporation into being. A clearer picture, throwing light upon the question, will be revealed by a brief chronological summary of the events here involved.

On and prior to January 27, 1950, Mrs. Barton owned and operated a small chicken business at her home in Grand Bay, Alabama, some twenty-six miles from Pascagoula, Mississippi. The business had prospered. However, on that date she and Mr. Barton owned, and she operated, upon the premises of Ingalls Shipbuilding Corporation at Pascagoula, Mississippi, a cafeteria for use mainly by the employees of that corporation. Her duties at the cafeteria consumed her time. On said date she sold to her husband E. S. Barton and to Charles A. Guyan, as equal partners, the chicken business. The purchasers took charge of the business, although Mrs. Barton continued to assist in the operations as her duties at the cafeteria permitted.

On or about April 25, 1950, a Mr. Levine, engaged in the purchase and sale of poultry in Biloxi, Mississippi, suggested to Guynn that they should incorporate and enlarge their business, indicating he would purchase the output thereof. Guynn was a plant engineer at Ingalls. He discussed the question with some of the other employees of Ingalls, including, perhaps, all of the complainants, and, according to complainants, or some of them, suggested it would be a good investment. Reference will be made after to just what was said. These discussions were had the latter part of April. On April 26th Barton and Guynn and Mr. Hill, an attorney, met at the cafeteria, and Guynn presented to them a list of the prospective stock purchasers. Hill was asked to prepare incorporation papers. Several of the prospective stock subscribers met at the Barton residence in Grand Bay the night of April 27th and discussed the desirability of purchasing stock and organizing the corporation. It is not entirely clear from the testimony who of the complainants were present. However, it is shown that Haltom, Bates and Fletcher were at the meeting.

From April 26th to May 2nd a number of complainants, if not all of them, made inspections of the Barton-Guynn chicken farm. It might be added here that some eight to ten others, in addition to complainants, were interested and finally subscribed for stock.

On the night of May 2nd another meeting was held at the Barton residence. Mr. Hill had prepared, and he presented to the meeting, a form for signature by those who desired to subscribe for stock. The form is headed 'Subscription List', and obligates the signers to subscribe for the number of shares and amount of stock set opposite their names in a corporation to be created with a capital stock of $25,000 under the name 'Barton's, Incorporated.' The form is headed Pascagoula, Jackson County, Mississippi, and the subscribers were to pay $100 per share. The subscription list in the record, used at that meeting, appears to bear the signatures of all complainants except Fletcher, although there is some question as to whether all signed on that occasion. At that meeting it was decided to incorporate. It was part of the agreement and understanding that Barton and Guynn would convey to the corporation, after incorporation, all of their stock of chickens, equipment, etc., at an agreed price of $8,100, and that Barton and Guynn, upon such conveyance, should be issued each forty shares of stock and Watson (who had been auditor of the business of Barton and Guynn) should be issued one share. Mr. Hill had also prepared the charter of incorporation. The charter showed Barton, Guynn and Watson as the incorporations. It also showed the agreement of Barton and Guynn to convey their business to the corporation and receive therefor stock as above indicated. It set out the amount of capital stock, price per share, etc. The meeting instructed Barton, Guynn and...