Ipswich Printing Co. v. Engler
| Decision Date | 06 March 1935 |
| Docket Number | 7689 |
| Citation | 259 N.W. 497,63 S.D. 396 |
| Parties | IPSWICH PRINTING CO., Respondent, v. IRIS I. ENGLER, Appellant. |
| Court | South Dakota Supreme Court |
IRIS I. ENGLER, Appellant. South Dakota Supreme Court Appeal from Circuit Court, Edmunds County, SD Hon. Van Buren Perry, Judge #7689—Reversed J. M. Berry, Ipswich, SD Attorney for Appellant. H. L. Woodworth, James W. McCarter, Ipswich, SD Attorneys for Respondent. Opinion filed Mar 6, 1935
This is an appeal by the defendant from a judgment rendered in favor of the plaintiff corporation and from an order overruling a motion for new trial. In a former action defendant recovered judgment against the corporation and the same was affirmed on appeal [Engler v. Ipswich Printing Co., 256 N.W. 132], but the claims upon which there was recovery in that action are not here involved. Complaint in the instant action alleges in substance that from the time of the incorporation of the plaintiff company in October, 1927, until September 27, 1930, the defendant acted as secretary and had full charge of all the receipts and disbursements of the company; that defendant on December 23, 1927, issued and delivered to herself one share of the capital stock of plaintiff corporation of the par value of $100; that the defendant thereafter on February 12, 1928, issued and delivered to herself six shares of the capital stock of plaintiff corporation of the par value of $600; that defendant failed to pay to the plaintiff corporation any money or consideration or to transfer to it any property for the issuance of such capital stock; that defendant on September 26, 1930, received from the funds of the corporation the sum of $700, converted the same to her own use and benefit, and made a transfer of the seven shares of stock to the corporation without the knowledge or consent of its stockholders and that defendant also received from the funds of the corporation and converted to her own use certain purported dividends on such stock.
Defendant affirmatively pleads that F. J. Tracy, by the owner and publisher of a newspaper known as the Ipswich Independent, immediately prior to the organization of plaintiff company purchased the Ipswich Tribune and the Roscoe Herald; that he transferred and conveyed to the corporation all of the properties of the Ipswich Independent and also the properties acquired by such purchase; that Tracy being entitled to shares of stock for the transfer and conveyance of such property caused to be issued to the defendant six shares of stock in payment for services performed by her for the Ipswich Independent and one share of stock in payment of wages due her for extra services performed for the plaintiff company; and that subsequent to the transfers of the stock by defendant to the corporation, Mary F. Tracy, as the owner of all the outstanding stock of the corporation and in active management of the business, ratified such transfers; and that plaintiff is now bound by her act.
The undisputed evidence discloses that the stock certificates in question were signed by Tracy as president and by defendant as secretary; that F. J. Tracy prior to his death in June, 1928, transferred his shares of stock to his wife, Mary F. Tracy, who at the commencement of this action was the holder of all outstanding stock; that the board of directors did not fix and make entry in the minutes of the corporation of the value of the properties transferred by Tracy to the corporation in consideration of capital stock issued to him; and that the defendant received from funds of the corporation the par value of seven shares of stock upon their transfer to the corporation and payments of dividends upon such stock. Defendant made an offer of proof as to the reasonable value of the properties transferred by Tracy to the plaintiff corporation, and the trial court sustained an objection to such offer. At the close of the trial on motion of the plaintiff, the court instructed the jury to return a verdict for the plaintiff, and a verdict and judgment accordingly were rendered.
The court held in effect that the transactions whereby defendant acquired the seven shares of stock were void, and that when the corporation made payments to the defendant of the par value of the stock thus issued upon its surrender to the corporation no consideration was received for such payments.
In the absence of express prohibition, a corporation may receive or contract to receive property in payment for its stock, providing the acquisition is not ultra vires and the transaction is in good faith and free from fraud. Fletcher, Corporations, § 5185. Undeniably, the organization of the corporation and the transfer of the property were effected in good faith, and the property was of a kind which the corporation could lawfully acquire and hold in carrying out the purposes of its incorporation.
Section 8, art. 17, State Constitution, provides:
“No corporation shall issue stocks or bonds except for money, labor done, or money or property actually received; and all fictitious increase of stock or indebtedness shall be void.” The purpose of these provisions, among others, is to prevent the transfer of original shares of stock without sufficient consideration, either in the form of money, or property, or labor performed for the corporation. But these inhibitions cannot here be invoked. It does not appear that the value of the property was not equivalent to the par value of the stock issued, and the questions of the adequacy of consideration to meet the requirements of these provisions and of the effect of their violation are not before us.
Plaintiff relies principally upon the decision of this court rendered in Walton v. Standard Drilling Co., 97. That action was brought by the purchaser of a certificate of stock for value and without knowledge of the manner in which the certificate was originally issued to compel the defendant corporation to record a transfer of the stock. It was held that the stock having issued for an oil lease, worthless stock of another corporation, and services to be performed, was void and subject to cancellation and that the corporation was not estopped from setting up a defense of no consideration against a purchaser for value and without notice that the stock had been illegally issued.
The pertinent provisions of section 8775, Rev. Code 1919, read as follows:
Construing these provisions, this court in Walton v. Standard Drilling Co., supra, said:
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