Kimball v. Success Mining Co.

• Decision Date: 27 August 1910
• Docket Number: 2091
• Citation: 110 P. 872,38 Utah 78
• Court: Utah Supreme Court
• Parties: KIMBALL v. SUCCESS MINING COMPANY et al

110 P. 872

38 Utah 78

KIMBALL v. SUCCESS MINING COMPANY et al

No. 2091

Supreme Court of Utah

August 27, 1910

APPEAL from District Court, Third District.--Hon. C. W. Morse Judge.

Action by M. Kimball against the Success Mining Company and others.

Judgment dismissing complaint. Plaintiff appeals.

AFFIRMED.

C. S Patterson and G. W. Moyer for appellants.

APPELLANT'S POINTS.

It is the duty of every corporation to use reasonable diligence in each case to ascertain whether or not a transfer of stock requested is duly authorized by the former owner, to make transfers so authorized, and to prevent those unauthorized and for every breach of this duty it is liable to the injured party for the damage it inflicts. (Geyser-Marion Gold Min. Co. v. Stark, 106 F. 558; Shaw v. Spencer, 100 Mass. 382; Sturtevant v. Jacques, 14 Allen 523; Fisher v. Brown, 104 Mass. 259; Duncan v. Jaudon, 15 Wall. 165; Bank v. Insurance Co., 104 U.S. 54; Welles v. Larrabee (C. C.), 36 F. 866; Bank v. Parsons, 54 Minn. 56 (55 N.W. 825); Gaston v. Bank, 29 N. J. Eq. 98; Bundy v. Monticello, 84 Ind. 119; Gerard v. McCormick, 130 N.Y. 261 ; Bailey v. Finch, L. R. 7 Q. B. 34; Pannell v. Hurley, 2 Colly. 241; Duggan v. Agency Co., 30 Am. & Eng. Corp. Cas. 89: Sweeny v. Bank, 12 Can. S.Ct. 661; Bank v. Lange, 51 Md. 138; Swift v. Williams, 68 Md. 236 ; Marbury v. Ehlen, 72 Md. 206 ; Lowell Stocks, sec. 69; Mor. Priv. Corp., secs. 181, 184; Cook on Corporations, sees. 325, 327; Lowry v. Bank, 15 Fed. Cas. No. 8581; Stewart v. Insurance Co., 53 Md. 575; Chapman v. City Council, 28 S.C. 373; Bayard v. Bank, 52 Pa. St. 232; Mobile & Ohio Ry. v. Humphries, [Miss.], 7 So. 522; Loring v. Salisbury Mills, 125 Mass. 138; Telegraph Co. v. Davenport, 7 Otto. 369; Pollock v. Bank, 3 Selden [N.Y.] 274; Magwood v. Bank, 5 S.C. 379; Perry on Trusts, sec. 242; 10 Cyc. 612.)

The action of the stockholders and directors of the Success Mining Company, and the receipt by it from the Colorado Company of the certificate for 79,500 shares of Colorado stock, made the stockholders of the Success Company stockholders in the Colorado, and the Success and its officers trustees for the proper distribution thereof. (McGill v. Holmes, 52 N.Y.S. 840; King v. Railway Co., 29 N. J. L. 82; March v. Railway Co., 43 N.H. 515; Exp. Winson, 30 Fed. Cas. No. 17884; Matter of Le Blanc, 4 Abb. N. Cas. [N.Y.] 221; Beers v. Bridgeport Spring Co., 42 Conn. 17.)

The Success Company was absolutely bound to know who its stockholders were. (5 Thomp. Corp., sec. 6529, and cases cited; 3 Thompson Corp., sec. 4090 et seq.; 10 Cyc. 787.)

The holder of stock which has been overissued is not a stockholder at all and if he secures any of the property of the corporation he must account for it. See 10 Cyc. 373 and cases cited.

Howat & Macmillan and D. H. Thomas for respondents.

RESPONDENTS' POINTS.

The directors and other officers of a corporation are not trustees in the technical sense for the stockholders collectively, or the corporation, or its creditors, and what duties they owe, they owe to the corporation and not to the individual stockholder of the corporation, and for neglect of duty or any wrong not involving fraud or deceit, the directors are liable only to the corporation and not to the individual stockholder. (3 Clark & Marshall, Priv. Corps., sec. 747, p. 2268 and note; 3 Clark & M. Priv. Corps., sec. 747, p. 3801 and cases cited; Briggs v. Spaulding, 141 U.S. 132, 147; Holland v. Brierfield Company, 150 U.S. 371; Spering's Appeal, 71 Pa. St. 11, 10 Am. Rep. 684; Bloom v. National, etc. Co., 152 N.Y. 114, 46 N.E. 166; Hospes v. Northwestern Co., 48 Minn. 174, 50 N.W. 1117.)

When a corporation disposes of all of its property and goes out of business, the proceeds of the property for distribution is properly called, and is, a dividend. (2 Cook on Corps., [4th Ed.] sec. 535, p. 992; 2 Clark & Marsh. Priv. Corps., sec. 523, p. 1599; 1 Bouvier's Law Dict., dividend.)

The Colorado Mining Company was under no duty to see that the 79,500 shares of stock of its company was distributed by the Success Company to the persons entitled to receive it.

It is the party who assails the action of the board who has the burden of showing that the law was not complied with; it is not incumbent upon the corporation to show that the law has been complied with. (Leavitt v. Mining Company, 3 Utah, 265; Singer v. Copper Company, 17 Utah 143, and cases cited on page 155; 3 Clark and Marshall Private Corp., page 2090, sec. 682.)

The officers of the Success Company had the right to assume the correctness of the books delivered to them by the former secretary. (Briggs v. Spaulding, 141 U.S. 132; Marshall v. Bank, 17 Am. St. R. 84, 96; 2 Cook on Corps. [4th Ed.], sec. 703; Spering's Appeal, 71 Pa. St. 11, 10 Am. Rep. 684; Dovey v. Corey, Appeal Cases [1901], p. 477.)

McCARTY, J. FRICK, J. concurring. STRAUP, C. J., dissenting.

OPINION

McCARTY, J.

This is a suit in equity in which plaintiff seeks to be adjudged the owner of, and entitled to have issued to him, 1,060 shares of the capital stock of the Colorado Mining Company, a corporation organized under the laws of this state. Service of summons was had on Jesse Knight and the Colorado Mining Company, each of whom filed an answer to plaintiff's complaint. The other defendants were not served with process, nor did they appear in the action. A trial was had, and the court found in favor of the defendants Knight and the Colorado Company on the issues presented by the pleadings, and dismissed plaintiff's complaint for want of equity. From the judgment rendered plaintiff prosecutes this appeal.

In order to understand the points and questions involved, it is necessary to make a somewhat elaborate and detailed statement of the issues and facts. The Success Mining Company was incorporated under the laws of this state, with its general place of business in Salt Lake City. It had a capital stock of thirty thousand dollars divided into three hundred thousand shares of the par value of ten cents per share. The capital stock was all subscribed for and fully paid up by the incorporators, six in number, by the conveyance to the corporation of the Success mining claim situate in the Tintic mining district, this state. The articles of incorporation were filed December 7, 1898. There were five directors, three of whom resided at Eureka, and one at Robinson, in Juab County, Utah, and the other, Ernest Williams, who was also secretary and treasurer of the company, lived in Salt Lake City, Utah. The articles of incorporation provided that the persons therein named as officers should continue in office until the annual stockholders' meeting, and until their successors were elected and qualified. No election of officers was held until October 3, 1906, and the persons named as officers of the company in the articles of incorporation continued to be the officers of the company until that date. The company was unable to find any ore or valuable minerals in its ground, and therefore was not a financial success. There were eight assessments levied upon the capital stock. The eighth and last assessment was levied at a meeting of the board of directors held at Eureka, Juab County, February 10, 1900. This was the last meeting held by the board of directors first appointed, and with the exception of an entry made by the secretary in the minute book of the company April 14, 1900, reciting that certain stock had been sold to pay the eighth assessment levied thereon, there was no other or further business transacted in the name of the company thereafter for a period of more than six years. There was not a single transfer of stock made on the books of the company from April 14, 1900, until May 3, 1906. And the undisputed evidence tends to show that during this time the stock had practically no market value whatever. On February 6, 1899, there was issued to plaintiff two thousand shares of the capital stock of this company represented by certificates two hundred and fifty-two and two hundred and fifty-three for one thousand shares each. On March 3, 1898, there was issued to one George W. Heintz certificate number three hundred and four for two thousand shares of said stock. About three weeks prior to the commencement of this action (March 5, 1908) Heintz assigned certificate three hundred and four to plaintiff. On April 14, 1900, there was issued to one C. E. Pearson certificate number three hundred and sixty-five for eighty-four thousand nine hundred and twenty-five shares of stock. On the stub from which the certificate was detached is listed in the handwriting of Ernest Williams, then secretary of the company, certain stock, including the four thousand shares held by plaintiff. The stock so listed was merged in certificate three hundred and sixty-five issued to Pearson. On each of the stubs from which the certificates representing this stock was taken is an indorsement or notation, made with a blue pencil and in the handwriting of the secretary, reciting that the stock was "sold at eighth sale." And on each of these stubs there is also a cross made with a blue pencil. The record book of the company, on page twenty-six, contains the following entry in the handwriting and over the signature of Williams, as secretary: "No. 8. April 14, 1900, Salt Lake City, Utah. The assessment not having been paid on the following described stock, same was sold according to law for assessment and costs." Then follows a description of the certificates, about seventy in number, representing stock alleged to have been sold, the number of the certificate, the number of shares for which it was issued, to whom issued, and the amount of the assessment for which it was sold. The three certificates held by plaintiff are...