State ex rel. Spillman v. Brictson Manufacturing Company
| Decision Date | 29 September 1925 |
| Docket Number | 24140 |
| Parties | STATE, EX REL. ORA S. SPILLMAN, ATTORNEY GENERAL, APPELLEE, v. BRICTSON MANUFACTURING COMPANY, APPELLANT. [*] |
| Court | Nebraska Supreme Court |
APPEAL from the district court for Douglas county: JAMES M FITZGERALD, JUDGE. Affirmed in part, and reversed in part.
AFFIRMED IN PART, AND REVERSED IN PART.
M. E Culhane and Weaver & Giller, for appellant.
Ora S Spillman, Attorney General, and T. J. McGuire, contra.
Heard before MORRISSEY, C. J., ROSE, DAY, GOOD and THOMPSON, JJ.
This is an action in quo warranto brought by the attorney general to oust the Brictson Manufacturing Company, a South Dakota corporation, from doing business in this state. The relator also prayed that the affairs of the corporation in this state be wound up and its assets distributed among its creditors and stockholders. The trial court found generally in favor of the relator, decreed that the respondent be ousted from the state, and that its affairs therein be wound up. Three trustees were appointed to take charge of the property and assets of the corporation within the state, and directed to pay its liabilities and to divide the surplus among the stockholders and creditors. The order further directed that the trustees publish in one or more daily newspapers in South Dakota, Iowa, and Nebraska, a notice directing all persons having claims against the corporation, either as creditors, stockholders, or otherwise, to file their claims with the court for allowance or rejection on or before April 15, 1924. From this decree respondent has appealed.
The petition was based upon the theory that the corporation was organized for the purpose of defrauding those who might become stockholders; that the license to sell its stock in this state was procured by false and fraudulent statements made to the state railway commission concerning its assets and the extent of the business; that it had violated the laws of this state by fraudulently paying dividends to its stockholders which it had not earned; that it was conducting a small and unprofitable business for the purpose of keeping the charter alive, but in reality had ceased to perform the functions for which it was organized; that the capital stock and assets had been depleted by the fraudulent payment of purported dividends, and were being further depleted by the payment of exorbitant salaries and expenses in conducting the business.
The answer of the respondent, among other things, denied all allegations of fraud, denied that it had paid dividends out of its capital stock, and pleaded that the matters now sought to be litigated, in so far as they pertain to the winding up of the affairs of the corporation, had been adjudicated in the case of Brictson Mfg. Co. v. Close, 280 F. 297.
The record shows that for some years prior to November, 1916, O. A. Brictson, under the trade name of the Brictson Manufacturing Company, had been engaged in manufacturing and selling at Brookings, South Dakota, automobile tires which he designated the Brictson tire. The distinguishing feature of the tire was a device for which he received United States letters patent, and, generally speaking, consisted of a chrome leather sheath or covering placed around the tire, through which metal rivets, arranged in irregular rows, were placed so that the exposed ends of the rivets would form the tread of the tire. The purpose of this device was to prevent puncture, skidding, and wear of the tire. From a small beginning the business had grown to considerable proportions, the annual sales ranging from $ 80,000 to $ 100,000. In conducting the business, Brictson would purchase ordinary automobile tires and attach thereto his device which he manufactured.
On November 4, 1916, Brictson and others who joined him organized a corporation under the laws of South Dakota, which they named the Brictson Manufacturing Company. The articles of incorporation, as amended, fixed the capital stock at $ 5,000,000, divided into 50,000 shares of $ 100 each, of which 40,000 shares were common stock and 10,000 shares preferred stock. The articles designated Brookings, South Dakota, as the principle place of transacting its business, but also provided that other business offices might be located in other cities, among them, Omaha, Nebraska. Thirty-nine shares of preferred stock were issued, and officers and directors of the corporation elected.
On January 17, 1917, the board of directors authorized the making of a contract between the corporation and O. A. Brictson, whereby the corporation issued to Brictson 40,000 shares of the common stock and 1,000 shares of preferred stock, and also paid to Brictson $ 2,200 in cash. Brictson immediately donated back to the corporation 8,000 shares of the common stock and 250 shares of the preferred stock. In consideration of the above, Brictson transferred to the corporation the exclusive privilege of using his patent, the good-will of his business, and trade-name, together with his office and factory equipment, stock on hand and accounts receivable. The contract also provided that Brictson was to be employed as manager of the corporation at a salary of not less than $ 7,500 for the first year, and not less than $ 10,000 a year thereafter.
About January 20, 1917, the corporation applied to the Nebraska state railway commission, the department of the state then having the administration of the "Blue Sky" laws, for authority to sell its stock to the public in the state of Nebraska. A similar application was also made to the proper authorities in South Dakota and Iowa. On December 11, 1917, the corporation filed a proper application with the secretary of state for permission to transact business in this state as a foreign corporation, which was granted. In its application to the Nebraska state railway commission, the corporation stated, among other things, that it was organized under the laws of the state of South Dakota, with a capital stock of $ 5,000,000, divided into 40,000 shares of common stock and 10,000 shares of preferred stock; that $ 4,000,000 of common stock had been issued to Brictson for the trade-name and good-will of his business; that $ 100,000 of preferred stock had been issued to Brictson for his plant, equipment, and use of patents, and that 39 shares of preferred stock had been issued for cash. In the detailed statement of the assets and liabilities of the corporation a number of discrepancies appear.
The application recited that the corporation was manufacturing the Brictson detachable tire tread and the Brictson 10,000-mile pneumatic tire, but proposed to extend these operations more extensively and add the manufacturing of all kinds of high grade rubber tires, inner tubes, and all other rubber products. It further recited that "the funds from the sale of the company's preferred stock is to be used in the construction of a large modern factory, purchase of machinery, equipment, working capital, the manufacturing and marketing of the company's products," and that the company proposed to offer its preferred stock for sale through stock salesmen operating on a commission basis.
The application further recited that "the company wishes to call special attention to the fact that only a commission of 20 per cent. in cash and 5 per cent. in common stock donated by O. A. Brictson is being paid for the sale of the company's preferred stock," and recited further that the preferred stock was to be sold at par for cash or bankable notes; that a bonus of three shares of common stock would be given to each purchaser of one share of preferred stock up to the first $ 100,000 of preferred stock sold, two shares up to the second $ 100,000 sold, and one share for the remainder up to 5,000 shares sold. Upon this presentation the company asked for authority to sell $ 500,000 of its preferred stock.
The railway commission through one of its examiners made an examination of the books and plant of the corporation, and upon his...
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State ex rel. Spillman v. Brictson Mfg. Co.
... ... Spillman, Attorney General, to oust the Brictson Manufacturing Company, a foreign corporation, from doing business within the state. Decree for relator, and respondent appeals. Affirmed in part, and reversed in ... ...