Mortgage Land Inv. Co. v. McMains

• Decision Date: 08 July 1927
• Docket Number: No. 25735.,25735.
• Citation: 215 N.W. 192,172 Minn. 110
• Parties: MORTGAGE LAND INV. CO. et al. v. McMAINS et al.
• Court: Minnesota Supreme Court

215 N.W. 192

172 Minn. 110

MORTGAGE LAND INV. CO. et al. v. McMAINS et al.

No. 25735.

Supreme Court of Minnesota.

July 8, 1927.

Appeal from District Court, Hennepin County; Bert Fesler, Judge.

Action by the Mortgage Land Investment Company against E.R. McMains and others to cancel corporate stock and for a temporary injunction against holding a proposed stockholders' meeting. Defendants sought to restrain plaintiffs from holding stockholders' meetings and from canceling stock. A temporary injunction was denied, and from the denial of new trials, both parties appeal. Both orders affirmed.

S.R. Child, H.E. Fryberger, and Donald E. Bridgman, all of Minneapolis, for appellants.

Seth Lundquist, Ludwig O. Solem, and Selover, Schultz & Mansfield, all of Minneapolis, for respondents.

WILSON, C.J.

Plaintiffs in the first above-entitled action and defendants in the second appealed from an order denying their motion for a new trial.

The Mortgage Land Investment Company, a Minnesota corporation, was organized in July, 1915, with a common capital stock of $25,000 with shares of the par value of $50. It has been in the hands of a receiver since 1920. Upon incorporating certificates of common stock were issued as follows: Nos. 1, 2, 3, and 4 for 1 share each to C.M. Winslow, S.E. Ranney, Fred Kreofsky, and S. Weiser, respectively, and No. 5 for 3 shares to A.H. Ranney. On December 6, 1915, at the first annual meeting certificates for additional common stock were issued as follows: Nos. 6, 7, and 8 for 1 share each to H.C. Snyder, E.R. McMains, and A.H. Ranney, respectively. On February 15, 1916, two additional certificates for 40 shares each of common stock were issued and delivered in the name of one C. Young. At the time of trial the corporation stock was owned as follows: A.G. Hudson, 2 shares; S.E. Ranney, 1 share; Midland National Bank, as guardian of Fred Kreofsky, 1 share; Sherman Child, 1 share; Roger S. Hume, as executor of the estate of A.H. Ranney, 4 shares; E. R. McMains, 1 share; and C.S. Deaver, 80 shares.

At the first annual meeting of stockholders, A.H. Ranney, H.C. Snyder, E.R. McMains, Fred Kreofsky, and S. Weiser were elected directors. At the second annual meeting, December 6, 1916, the above directors were re-elected, with the exception of H.C. Snyder, who was succeeded by S.E. Ranney, who was not a stockholder. No annual meeting of stockholders was held in 1917 or 1918. In December, 1919, an attempt was made to have an annual meeting, but a controversy arose, which developed into a quarrel, and the meeting broke up without any corporate business being transacted. Those present represented but 6 of the 90 shares which had then been issued. Thereafter no meetings of stockholders were held of which notice was given, as required by the by-laws of the corporation, to E.R. McMains, or to the record or actual owner or holder of the 80 shares of stock then owned by C.S. Deaver, or to H.C. Snyder or C.M. Winslow or to their assigns.

The directors did not meet as they should have following the annual meetings in 1917, 1918, and 1919, and no meeting of a duly elected and qualified board of directors has been held since 1919.

The corporation owns real estate, upon which are located five apartment buildings, of the value of $200,000 to $300,000, subject to a mortgage of $145,000.

In July, 1923, E.R. McMains, A.G. Hudson, and C.S. Deaver executed, issued, and published in a daily financial newspaper a "notice of call for special meeting of the stockholders of the Mortgage Land Investment Company." It recited the death of the president of the corporation and that the purpose of the meeting was to elect members to the board of directors. Thereupon the first above-entitled action was commenced to cancel the stock owned by McMains, Hudson, Deaver, and Betcher, and a temporary injunction, which is still in force, was issued, preventing said persons from holding the proposed stockholders' meeting during the pendency of the action.

In January, 1924, the second action was commenced to restrain the defendants therein from holding stockholders' meetings and to cancel stock which they claimed to own. A temporary injunction was denied.

The appellants have what purports to be certificates of stock of the corporation as follows: Henry Ebert, 2 shares; E.E. Little (a daughter of Henry Ebert), 2 shares; Sherman Child, 1 share; James E. Carr, 1 share; L.W. Child, 1 share; S.W. Child, 10 shares; H.E. Fryberger, 70 shares and 10 shares; S.E. Ranney, 1 share; M.W. Evans, on order of S.R. Child, 70 shares (herein referred to as Child's stock); W.C. Brooks, 1 share; and L.H. Morse, 1 share. The court found that, except in cases of reissues, certificates of this stock were not authorized by any legal board of directors and were not executed by legally elected officers. Much of this stock was issued without consideration. This group claims that the board of directors consists of L.H. Morse (president), Henry Ebert, Sherman Child (secretary), S.E. Ranney, and James Carr. The court ordered judgment for the cancellation of the alleged shares of this group including four certificates of 5 shares each issued to one Vaughan and one certificate for 1 share issued to A.H. Ranney. Vaughan paid the corporation $1,000 for his stock which had been issued in April, 1920. This group represents valid stock as follows: Kreofsky, 1 share; A.H. Ranney, 4 shares; and, perhaps, the S.E. Ranney, 1 share.

1. Appellants attack the sufficiency of the evidence to support the finding that the issuance of the C. Young (now Deaver) 80 shares of stock was valid. They point to the testimony of Henry Ebert and accuse Betcher of stealing these certificates after procuring their execution by representing that Young was to pay $4,000 in cash therefor. The transfers of this stock were not made in the usual way upon the books of the corporation.

However, Rosa Vaaler, who acted as secretary of the meeting of the board of directors in February, 1916, testified that a resolution was passed, authorizing this issue of 80 shares to Young. She also testified that Ranney and Weiser were present and executed the certificates with full knowledge, and that Ranney gave instructions as to the credit of the $4,000 with the First National Holding Company. Betcher's testimony confirmed this and he said the minutes were transcribed by Miss Vaaler and put in the minute book, loose. He said they were signed by Weiser as secretary. A.H. Ranney made admissions to several witnesses tending to support the integrity of the issue of the 80 shares. The book entries of the $4,000 support this contention. The corporation owed the First National Holding Company with whom it was given full credit on account for the $4,000. It managed the buying of the material and the construction of the apartment buildings. The holding company being the owner of the stock hypothecated it with its creditor, the National Manufacturing & Supply Company, from whom it bought building material, which caused it to be issued in the name of C. Young, one of its employees. Upon the payment of the indebtedness for which this stock was held as security, the stock was returned to the First National Holding Company which had a right to sell it. Subsequent transfers carried it to Deaver, who paid $3,000 therefor.

The delay in making a transfer upon the books of the corporation is not a controlling circumstance. As between the parties, a transfer of corporate stock may be made the same as any personal property without any book entries. Baldwin v. Canfield, 26 Minn. 43, 1 N.W. 261, 276; Joslyn v. St. Paul Distilling Co., 44 Minn. 183, 186, 46 N.W. 337; Nicollet Nat. Bank v. City Bank, 38 Minn. 85, 35 N.W. 577, 8 Am. St. Rep. 643. Indeed the issuance of the certificate through its regular officers to a person therein named is an affirmation by the corporation as to his ownership and is a continuing affirmation that the stock is valid. Joslyn v. St. Paul Distilling Co., supra; Weniger v. Success Mining Co. (C.C.A.) 227 F. 548; Windram v. French, 151 Mass. 547, 24 N.E. 914, 8 L. R.A. 750; Fifth Ave. Bank of N.Y. v. Forty-Second St., etc., Ferry R. Co., 137 N.Y. 231, 33 N.E. 378, 19 L.R.A. 331, 33 Am. St. Rep. 712; First Ave. Land Co. v. Parker, 111 Wis. 1, 86 N.W. 604, 87 Am. St. Rep. 841. The transfer of the stock on the books of the corporation is for the protection and benefit of the corporation so that it may know with whom to deal as stockholders and who have a right to vote as such; and, as against the corporation, the transfer of stock is ineffectual until made on its books. Morrill v. Little Falls Mfg. Co., 53 Minn. 371, 55 N.W. 547, 21 L.R.A. 174. It is claimed that it is for the stockholders who attend a meeting to determine who shall vote. But that is only when there is a valid meeting and there is no contrary rule established by the charter or by-laws. State v. Chute, 34 Minn. 135, 24 N.W. 353.

The authorities, to the effect that certificates of stock are not negotiable in either form or character, are not applicable. Each succeeding purchaser of such corporate stock gets just what his vendor legally and equitably has to sell, and no more. But the corporation has no defense to the validity of this stock.

This finding of the trial court is amply supported by the evidence.

2. In the second action appellants assert that the court could not cancel their stock because the corporation was not a party. The rule is that when stockholders sue to cancel stock of a corporation the corporation should be made a party. 5 Fletcher, Cyc. Corp. 5764, § 3485; Campbell v. Morgan, 4 Ill. App. 100; 14 C.J. 941; Shaw v. Staight, 107 Minn. 152, 119 N.W. 951, 20 L.R.A. (N. S.) 1077. In equity proceedings, all persons whose rights may be injuriously affected by the proposed decree should be made parties to the action. The corporation is the representative of all who own any of its stock. It is a party to the contract. It has...