Tuttle v. Rohrer
| Decision Date | 29 June 1915 |
| Docket Number | 822 |
| Citation | 23 Wyo. 305,149 P. 857 |
| Parties | TUTTLE v. ROHRER |
| Court | Wyoming Supreme Court |
Rehearing Denied December 6th, 1915, Reported at: 23 Wyo. 305 at 318.
ERROR to the District Court, Laramie County; HON. WILLIAM C MENTZER, Judge.
The material facts are stated in the opinion.
Affirmed.
Marion A. Kline, for plaintiff in error.
Defendant's answer did not set up a legal defense, and plaintiff's demurrer thereto should have been sustained. An over-valuation of property exchanged for corporate stock is a fraud in law. The liability of stockholders is fixed by statute. (Comp. Stats. 1910, Secs. 3988 and 3989.) One receiving stock in a corporation must pay for it either in money or money's worth. Two rules govern the exchange of property for stock, viz.: the "true-value" rule and the "good-faith" rule. Under our statute the "true-value" rule should apply. Property turned in at fictitious or imaginary value is no payment as against creditors of a corporation. (Alling v. Wenzel, 27 Ill.App. 511.) Under the "true-value" rule only cash or property equal in value to cash will be received in lieu of money. (Libby v. Tobbey, 82 Maine, 397, 19 A. 904; Shickle v. Watts, 94 Mo. 410, 7 S.W. 274; Farmer Bank v. Gallagher, 43 Mo.App. 482.) An over-valuation of property exchanged for stock renders shareholders liable for the difference between the actual value of property and the par value of the shares without regard to the question of fraud, mistake, bad judgment or optimism. (Roman v. Demick, 115 Ala. 233, 22 So 109; National Bank v. Pacific Railroad Co., 66 Ill.App. 320; Van Cleave v. Berkeley, 143 Mo. 109, 44 S.W. 743; Gates v. Tippecanoe Stone Co., 57 Oh. State, 60, 48 N.E. 285; Salt Lake Co. v. Milling Co., 13 Utah 432, 45 P. 200; National Tube Works v. Gilfillan, 124 N.Y. 302, 26 N.E. 538.) Similar statutes in other states are construed to mean the actual or par value of property exchanged for stock. (Kelley v. Fourth of July Mining Co., 21 Mont. 291, 53 P. 959; Gamble v. Queens County Water Co., 123 N.Y. 91, 25 N.E. 201, which apparently overruled Schenck v. Andrews, 57 N.Y. 133, and Bointon v. Andrews, 63 N.Y. 93; State Trust Co. v. Turner, 111 Ia. 664, 82 N.W. 1029; Shephard v. Drake, 61 Mo.App. 134; Macbeth v. Banfield, 45 Ore. 553, 78 P. 693; Wallace v. Carpenter, 73 N.W. 189; Elyton Land Co. v. Burningham Co., 92 Ala. 407, 9 So. 129; Gilkie v. Anson Co., 64 N.W. 978.) Defendant, Rohrer, had not acquired a water right and his permit was valueless, as there had been no beneficial use. (Const., Sec. 1, Art. 8; Willey v. Decker, 11 Wyo. 496, 73 P. 210.) An appropriation of water confers a right of use only. (Johnson v. Little Horse Co., 13 Wyo. 208, 79 P. 22.) The permit was without any real value and the allegation of "good-faith" should not be considered. (Coleman v. Howe, 154 Ill. 458, 39 N.E. 725; Lester & Halton v. Lumber Co., 71 Ark. 379, 74 S.W. 518.) The doctrine of ejusdem generis should be applied in the construction of Section 3989. (People v. Dolan, 5 Wyo. 245, 39 P. 752; Baker v. Board of County Comm., 9 Wyo. 51, 59 P. 797; 2nd Lewis Sutherland Stat. Cons., Secs. 422-434.) It follows that the company was without authority to accept property in payment for the capital stock of the corporation, as a water permit is not property of the class or classes mentioned in the section. If the "true-value" rule of construction be adopted, plaintiff's knowledge of the exchange transaction will not alter his right of recovery. (10 Cyc. 475; Sprague v. Bank, 172 Ill. 149, 50 N.E. 19; Moore v. W. S. B. Co., 238 Ill. 544, 78 N.E. 536; Gillette v. Trust Co., 230 Ill. 373, 82 N.E. 891; Williams v. Chamberlain, 29 Ky. L. R. 606, 94 S.W. 29; National Bank v. Brick & Tile Co., 64 A. 917.) The statute should be given its plain and clear meaning, as indicated by the words used. (First Natl. Bank v. Ludvigsen, 8 Wyo. 230, 56 P. 994.) The so-called "trust fund doctrine" established by Sawyer v. Hoag, 17 Wall. 610, 21 L.Ed. 731, has been quite generally repudiated in recent years. It was rejected by this court in Harte Drug Co. v. Rodgers Drug Co., 19 Wyo. 35. If the property is practically worthless, its exchange for stock amounts to no payment at all. (Cook on Corporations (7th Ed.), p. 205; Camden v. Stuart, 144 U.S. 104.)
F. Chatterton and E. H. Garnett, for defendants in error.
Plaintiff's demurrer admitted all facts alleged in the petition and admitted by the answer and all facts well pleaded in the answer. The answer alleges that the directors of the company in "good-faith" valued the permit and rights thereunder at $ 1,000,000.00 in view of the circumstances and apparent opportunities of profit; that said valuation and exchange of stock was not made with intent to defraud creditors, present or future. The questions presented involve a construction of Secs. 3981, 3988, 3989 and 3990, Comp Stats. 1910. The "good-faith" rule should apply. (Schenck v. Andrews, 57 N.Y. 133; Boynton v. Andrews, 63 N.Y. 93.) Where the property involved has a speculative value, a greater scope of discretion is allowed. (Peck v. Calfield Coal Co., 11 Ill.App. 88; McBride v. Farrington, 131 F. 797, affirmed in 149 F. 114.) A similar statute was construed in Pennsylvania in Finletter v. Acetyline Light, Heat & Power Co., 64 A. 429 (Pa.) , where it was held that question of value was to be determined as of the time the stock was issued and that "good-faith" relieved the stockholder from liability. In Rickerson Roller Mill Co. v. Farrell Foundry Co., 75 F. 554, it was held that actual fraud must be shown in order to hold the stockholder liable. In states where the "true-value" rule has been adopted it has always been qualified when the question of estoppel was involved and the indebtedness was created with knowledge of the actual assets of the company. (State Trust Co. v. Turner, 111 Ia. 664; Lea v. Iron Belt Mfg. Co., 147 Ala. 421; First Nat. Bk. v. Gustin Mining Co., 42 Minn. 327; Hosper v. N. W. Mfg. Co., 48 Minn. 175; Berry v. Rood, 168 Mo. 316; Meyer v. Ruby Trust M. & M. Co., 192 Mo. 162; Biggs v. Weston, 154 S.W. (Mo.), 708.) There can be no fraud when a party is not deceived. (Studer v. Bleistein, 22 N.E. 243, 115 N.Y. 316, 5 L. R. A. 702.) Facts constituting alleged fraud must be pleaded. .) Defendant, Rohrer, was not a subscriber, but a purchaser of stock and not liable to the assessment charges prescribed by Section 3981, Comp. Stats. 1910. A subscription to stock is a promise to pay and a right of action thereon is not created until a call has been made. (Otter View Land Co. v. Bollings, 70 S.W. 834, 835; Calloway v. Glenn, 49 S.W. 440, 105 Ky. 648.) The irrigation permit was property. (Const., Art. 8, Secs. 1, 2; also Sec. 3, Art. 8.) This court has designated water as property. (Willey v. Decker, 11 Wyo. 496, 73 P. 210.) By means of a permit, construction rights are acquired. (727 Comp. Stats. 1910.) The right attaches to the land. (Sec. 724, Comp. Stats. 1910; Frank v. Hicks, 4 Wyo. 502.) It may be sold separate from the lands. (McPhail v. Forney, 4 Wyo. 556.) Property may be tangible or intangible, corporal or incorporal. (Vol. 6, Words and Phrases, 5693; Griffith v. Charlotte, C. & A. R. Co., 23 S.C. 25, 38, 55 Am. Rep. 1.) A franchise is property. (Vol. 6, Words and Phrases, 5708, 5710.) A permit is a franchise. (Vol. 3, Words and Phrases, 2930, 2932.) Plaintiff argues that a permit is analagous to a homestead entry and gives no property right. The authorities hold otherwise. The Wyoming statutes recognize possessory rights to unpatented lands as property. (Secs. 3714 and 3716, Comp. Stats. 1910.) See also as to mining rights, Black v. Elkhorn Mining Co., 163 U.S. 449; McBride v. Farrington, 131 F. 797. Stock may be issued for the services of a promoter, which are more intangible than a water permit. (Fitzpatrick v. O'Neill, 43 Mont. 552.) If the directors were without authority to issue the stock, their contract with...
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