Masberg v. Granville
| Decision Date | 02 February 1917 |
| Docket Number | 6 Div. 345 |
| Citation | 75 So. 154,201 Ala. 5 |
| Parties | MASBERG et al. v. GRANVILLE et al. |
| Court | Alabama Supreme Court |
Appeal from Chancery Court, Jefferson County; A.H. Benners, Judge.
Bill by A.C. Granville and others against Arnold Masberg, the Washington Park Land Company, and others. Decree for complainants, and respondents appeal. Reversed and rendered.
W.S Pritchard, of Birmingham, for appellants.
M.J Gregg and W.S. Burrow, both of Birmingham, for appellees.
The bill is by three stockholders of a corporation against the corporation and three other stockholders, and seeks to have certain stock issued to the defendant stockholders canceled as having been issued without consideration, or to compel the defendant stockholders to pay into the corporation the par value of the stock so wrongfully issued. On final hearing relief was denied as against one of the stockholders and the corporation, but was granted as against the other two respondents, and from the decree these two respondents prosecute this appeal.
The undisputed facts, as disclosed by the record, are that in the latter part of 1912 or the early part of 1913 appellant Masberg entered into an option contract with Steiner Bros. to purchase from them a certain tract of land in or near Boyles Station, a suburb of Birmingham, Ala.; that Masberg paid $500 for the option, which amount was to operate as part payment in the event the sale was perfected; that the agreed purchase price was $9,500; that shortly after taking the option Masberg approached Linnehan, the other appellant, and offered to let him into the deal as an equal partner, and after some hesitancy on the latter's part he accepted; that the two conceived the idea of organizing a close corporation, to purchase, develop, and sell the land in question as a business proposition, the profits calculated upon being the advances in the prices at which it was hoped the corporation could sell the lands; that to this end Masberg interested his friend Dr. Elkourie, and Linnehan interested Granville, and the latter interested Zyne; that they all went on the property and inspected it, and agreed to form a corporation with the capital stock of $12,500, to be divided into 125 shares of the par value of $100 each, and that the corporation should purchase the property at the price of $12,500, which was done; that appellants each were to subscribe for 30 shares of the stock, and appellees each for 20 shares, the other 5 shares not being subscribed for by any of the organizers, but being held for some purpose, possibly for the attorney who organized the corporation, or to be used in some way promotive of the organization or in payment of expenses, or to be held as treasury stock; that all the stock was issued as fully paid-up stock, and that the land was conveyed by Steiner Bros. to the corporation; that each of the complainants, appellees here, actually paid $1,000 in cash on his stock, being half of the amount due therefor while the respondents (appellants) actually paid in money only the $500 required to secure the option, but treated their option or interest in the land as worth $3,000, and on this basis treated and argued payments by them as the actual payments of one-half the par value of their shares of stock; that $5,000 of the $12,500 purchase price at which the land was sold to the corporation was paid to Steiner Bros. out of the cash payments made by complainants upon their stock subscriptions, appellants' interests in the property being treated as paid, and the corporation executed notes to Steiner Bros. for $7,500, the amount of the deferred payment; that these notes were indorsed personally by appellants; Steiner Bros. requiring this before they would agree to convey to the corporation instead of to appellants according to the option contract.
The bone of contention is the $3,000, the difference between the price which Steiner Bros. actually received or are to receive for the land and the price at which it was ostensibly sold to the corporation formed for the purpose of buying it at that figure. The appellants contend that $3,000 was the price which they required to be paid them for their interest or option in the land; that instead of requiring the corporation to pay them the $3,000, and then paying it back to the corporation as payment of one-half the price of the stock subscribed for by them, they merely treated their interest in the land as paid and satisfied, by applying the amount to the payment pro tanto for their stock.
The theory and contention of appellees is that appellants induced them to believe that they had actually paid $3,000 on the land, when in fact appellants had paid only $500, that a fraud or wrong was thus perpetrated on appellees, leading to their participating in the formation of the corporation to purchase, and which did purchase, the land at the price of $12,500; whereas the land could have been purchased for $9,500.
We are unable to find in this record, after careful and repeated examinations of all the evidence, any facts established which show that appellants ever represented to appellees, or any one of them, that appellants, one or both, had actually paid $3,000 or any other sum on the land purchased by the corporation. Appellants, one or both, did represent to appellees, or some of them, that appellants had an interest in the land to be purchased to the amount of $3,000, but never (that we can find) that they had actually paid that amount to Steiner Bros. or any other person. In truth and in fact they did have a valuable interest in the land, in that they had an option to purchase it at the price of $9,500, and had paid $500 for this option or interest therein. If the land was in fact and in truth worth $12,500, then their interest was worth in truth and in fact $3,000. All of the parties and witnesses, including the complainants themselves, say that the land was in fact worth $12,500, which the corporation and the complainants agreed to pay. When appellants had with Steiner Bros. a contract for which they had paid $500, or even a gratuitous option, to purchase land worth $12,500 at the price of $9,500, the value of this contract was the property of the appellants, just as much as if the difference tn price had been separate, distinct, tangible property. When the negotiations between these parties began, this difference of value was the property right of appellants, and not of appellees, nor of the corporation, for the corporation had no existence. If it amounted to $3,000, and the undisputed evidence shows that it did, then there was no more wrong in procuring the agreement that the corporation to be formed should pay appellants this $3,000 than there was that it should pay Steiner Bros. the $9,500.
It is conceded that no fraud was perpetrated on the corporation because it got value received. It issued stock based on the price to be paid, and appellants purchased 60 shares of the stock at par value, and have paid $3,000 for it, and are ready, able, and willing to pay the other $3,000; so no injury was done, or can be done, the corporation.
If appellants, when they obtained the option from Steiner Bros had then been acting as the agents of the corporation, or of appellees, then the corporation, appellees, or the principal would be entitled to receive the profits or value of the option, whatever it might be. The contract and its value would be the property of the principal, and not of the agents. But no such relation existed when the option was obtained by appellants. The corporation did not exist, had not been thought of, and neither of the appellees had ever heard of the land or thought of buying it for themselves or for a corporation. When their relations and connections with the land began, the appellants were the owners of this option to purchase, and for it they had paid $500. As before stated, if the land was really worth $12,500, then their option was worth $3,000. There is shown no reason why appellants should give this $3,000 to appellees or to the corporation. There is no pretense that appellants ever promised or agreed to divide or share this amount with appel...
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