Henderson v. Turngren

• Decision Date: 16 January 1894
• Court: Utah Supreme Court
• Parties: WILBUR S. HENDERSON, RESPONDENT, v. DANIEL TURNGREN AND OTHERS, APPELLANTS

35 P. 495

9 Utah 432

WILBUR S. HENDERSON, RESPONDENT, v. DANIEL TURNGREN AND OTHERS, APPELLANTS

Supreme Court of Utah

January 16, 1894

APPEAL from a judgment of the district court of the third district and from an order refusing a new trial, Hon. Charles S. Zane judge. Neither the court nor the counsel notice the statute quoted in paragraph 5 of the syllabus.

The cause was referred to and tried before Hon. J. W. Harris as referee, who reported findings that were confirmed by the court. The pleadings were as follows:

The complaint alleged the incorporation of the Wasatch Stone Co. with a capital of $ 10,000 divided into 5,000 shares of the par value of $ 2 each, to which each of the five defendants subscribed; that certain described property was purported to be contributed to the corporation in full payment of all the capital stock; that said property was valueless and said incorporators never had any title thereto; that the corporation was insolvent, a judgment in favor of plaintiff had been recovered, execution issued, and the sole asset was the unpaid subscriptions, none of which had been paid; that said company and its officers and agents refuse to take any action to collect the unpaid subscriptions. The answer admitted the organization, set out a private agreement among the incorporators, admitted the conveyance of all their title and interest in the said property, denied that they never had any interest therein, but averred that they claimed an interest therein, denied that said interest was valueless but averred that the corporation accepted the same in full payment, denied that said corporators had not fully paid their subscriptions, but alleged that they believed their said interest was worth fully $ 10,000.

The findings showed the corporation, subscription, incorporators attempted full payment by the property, its worthlessness, the non-payment by any of the corporators of any part of their subscriptions, the judgment, the execution and its return nulla bona, the amount due as unpaid from each subscriber. On the trial evidence was rejected that the incorporators honestly thought the claims were valuable. This evidence was rejected because the issue of actual fraud was immaterial.

Affirmed.

Mr. W. G. Van Horne and Messrs. Goodwin and Van Pelt, for the appellants.

The plaintiff does not sue for himself and other corporators and does not make the corporation a party. Patterson v. Lynde, 106 U.S. 519; Crease v. Babcock, 10 Met. 525; Brown v. Fisk, 23 F. 228; Adler v. Milwaukee, etc., Co., 13 Wis. 57; Harper v. Mining Co., 100 Ill. 225; Pfohl v. Simpson, 74 N.Y. 137; Coleman v. White, 14 Wis. 700; Umstead v. Buskin, 17 Ohio St. 113; Beach on Corporations, sec. 698; Cook on Stock. 205; Morawetz on Corporations, 902; Thompson on Stockholders, secs. 351-361. The action should have been on the indebtedness. Tuppe v. Hunshean, 82 Ind. 307; Bohn v. Brown, 33 Mich. 257; Southmayd v. Buss, 3 Conn. 52; Bailey v. Bancker, 3 Hill, 188; Bliss on Code Pleading, 140; Racouillet v. Rene, 32 Cal. 450; Association v. Stoneman, 54 N.W. 1115. There is no allegation that the judgment is unpaid. Vogel v. Walker, 3 Utah 227; Adler v. Milwaukee Co., supra; Frisch v. Caler, 21 Cal. 71; Daveney v. Egganhoof, 43 Cal. 393; Doyle v. Insurance Co., 44 Cal. 264; Roberts v. Treadwell, 50 Cal. 520; Curtis v. Backman, 24 P. Rep. 379. Creditors have no greater rights where property is bartered for stock than the corporation has. Coit v. Amalgamating Co., 119 U.S. 343; Phelan v. Hazard, 5 Dill. 45; Christenson v. Eno, 106 N.Y. 97; Whitehall v. Jacobs, 44 N.W. 632; Hospes v. Manufacturing Co., 50 N.W. 1117; Coffin v. Ransdell, 11 N.E. 20; Brant v. Ehlen, 59 Md. 1; Cook on Stockholders, 230; Beach on Corporations, sec. 121. The articles contained a statement of the property contributed as capital, and creditors had complete knowledge by an inspection of the agreement and the public records, to ascertain just what credit the corporation was entitled to. Young v. Iron Co., 65 Mich. 122; Paper Co. v. Waples, 3 Woods, 34; Morawetz on Corporations, 831. The rejection of the evidence that the incorporators honestly believed in the validity of their claims, and that they expended large sums of money and considerable labor on the claims in reliance upon the validity of their claims, was clearly erroneous. Coit v. Amal. Co., supra; Young v. Iron Co., supra; Brandt v. Ehlen, supra; Iron Co. v. Drexel, 90 N.Y. 87; Coffin v. Ransdell, supra; Phelan v. Hazard, supra; Whitehall v. Jacobs, supra; Cook on Stock, secs. 33-35, 44-47.

Mr. Frank Pierce, for the respondent.

After discussing the other questions at length, cited as to the payment of subscriptions to stock in money or money's worth, the following cases: Sawyer v. Hoag, 17 Wall. 610; Lloyd v. Preston, 146 U.S. 642; Crawford v. Rohrer, 59 Md. 599. All the cases cited by the appellants were cases of over-valuation, where the question of good faith was a material issue. The law charged them with notice of the facts that their locations upon patented ground, were absolutely worthless.

SMITH, J. MINER, J., and BARTCH, J., concurred.

OPINION

SMITH, J.:

The plaintiff is a judgment creditor of the Wasatch Stone Company, an insolvent corporation. The defendants are the corporators of said Wasatch Stone Company.

This is an action in equity to recover of defendants unpaid subscriptions to the capital stock of the company, it being alleged among other things: "That none of said defendants have ever paid into said corporation any portion of the capital stock subscribed by them."

The defendants demurred on the ground that the complaint did not state facts sufficient to constitute a cause of action. The demurrer was overruled. Defendants answered, admitting they were incorporators of the Wasatch Stone Company and denying they had not paid their subscriptions, but alleged that they and each of them had paid their subscriptions by conveying to the company certain mining locations owned by them.

The articles of incorporation introduced in evidence contain the following, among other provisions:

"That in consideration of the amount of capital stock of this incorporation consisting of the aggregate valuation of the following described mining claims and properties, to-wit: (Here follows a description of certain lands.) All of said mining claims situated in Salt Lake county, Utah for the working, development, management and use of which this corporation is formed and which is to become property of this corporation, the foregoing stock is hereby declared fully paid."

The lands described in this article were at the time of the formation of the corporation held in fee by strangers to the defendants under patents from the United States, and the defendants have never in any way connected themselves with this title, and they had not then and have never had any interest in the land. At the time of the incorporation defendants supposed the lands were public lands of the United States, and defendants neither at that time nor ever since have had any interest in these lands. At the time of incorporation defendants by quit-claim deeds conveyed their pretended interest in these lands to the corporation.

Judgment below was for the plaintiff. A motion for new trial was made and overruled; from the judgment and order denying a new trial defendants prosecute this appeal.

The first question presented is raised by respondent as to the right of appellants to be heard on their exception to the ruling on demurrer. It is claimed by respondent that this exception is waived by the answer of defendant filed subsequently to the demurrer. This objection cannot be sustained. Our statute expressly reserves to a party an exception to a ruling on demurrer made against him. Comp. Laws, vol. 2, sec. 3393. A new trial may be granted for errors of law occurring at the trial and excepted to by the party making the application. Comp. Laws, vol. 2, sec. 3400.

Upon an appeal from a judgment the court may review the verdict or decision or any intermediate order if excepted to, Comp. Laws, vol. 2, sec. 3652.

We have seen that the ruling on demurrer is always deemed excepted to, sec. 3393, supra.

The cases of Spanish Fork v. Hopper, 7 Utah 235, 26 P. 293, and Brown v. Southern P. Co., 7 Utah 288, 26 P. 579, are not in conflict with this view. The case of Young v. Martin, 3 Utah 484, 24 P. 909, was decided in 1867, and long before the code of civil procedure was adopted and is not applicable.

In Spanish Fork v. Hopper, an answer was filed first, a demurrer filed subsequently was overruled; the court in that case, it is true, says that the exception to this ruling was waived by answering first. It would have been strictly correct to say that the right to demur was waived by answering first. The nature of the demurrer is not shown, but all objections to the complaint, except for sufficiency of facts and to the jurisdiction of the court unless taken by answer or demurrer are waived. Comp. Laws, vol. 2, sec. 3225.

In Brown v. Southern P. Co., no demurrer was interposed and the case is not in point at all.

We are of opinion that the ruling on demurrer is before us for review, and we so held in effect in the case of Darger v. Le Sieur, 8 Utah 160, 30 P. 363, at the last term of this court.

It is insisted that the complaint is bad for three reasons:

1. That the corporation is not made a party defendant.

2. That the action should have been upon the indebtedness and not upon judgment.

3. That the complaint fails to allege that the judgment is unpaid.

The first objection is not raised by the demurrer. It is an objection on account of non-joinder of a party defendant. This objection is waived...