Wallace v. Carpenter Electric Heating Mnfg. Co.
| Decision Date | 03 December 1897 |
| Docket Number | Nos. 10,815-(149).,s. 10,815-(149). |
| Citation | 70 Minn. 321 |
| Parties | THOMAS WALLACE v. CARPENTER ELECTRIC HEATING MANUFACTURING COMPANY and Another.<SMALL><SUP>1</SUP></SMALL> |
| Court | Minnesota Supreme Court |
Action in the district court for Ramsey county against the Carpenter Electric Heating Manufacturing Company and the American Electric Heating Corporation to ascertain and enforce the liability of the Heating Corporation for unpaid instalments on the stock of the Manufacturing Company owned by it, in case the Heating Corporation failed to pay a judgment in favor of plaintiff against the Manufacturing Company amounting to $5,587.71. From a judgment dismissing the action, entered pursuant to findings and an order of Otis, J., plaintiff appealed. Reversed.
W. S. Dwinnell, for appellant.
Otto Kueffner, for respondent.
This is an equitable action by a judgment creditor to enforce payment of his judgment by a stockholder of the debtor corporation on the ground that its stock was fraudulently issued as fully paid up, when in fact it was not.
The material facts, as found by the trial court, are substantially these: The plaintiff on October 31, 1895, recovered judgment for $5,587.71 against a corporation of this state known as the "Carpenter Electric Heating Manufacturing Company," which will be designated as the "Carpenter Company." The judgment has never been paid. The capital stock of the defendant Carpenter Company was $400,000, divided into 4,000 shares of the par value of $100 each. Prior to the recovery of such judgment the other defendant herein, the American Electric Heating Corporation, which will be designated as the "American Company," purchased and became and now is the owner of 3,946 shares of the stock of the Carpenter Company, and immediately thereafter the latter sold all of its assets for full value to the American Company. Shortly prior to May, 1891, a third corporation, which for brevity we designate the Nevins Company, then owning certain letters patent upon devices used in manufacturing electric heating apparatus, entered into a written contract with George H. Finn, whereby the Nevins Company granted to Finn and his assigns the exclusive right to manufacture and sell, and also the right to sell to others the right to use, this patented device; also all other like patented devices the Nevins Company might thereafter acquire.
In consideration of this grant, Finn agreed to pay to the Nevins Company a royalty of 25 per cent. of the list prices of all goods manufactured thereunder. He also agreed to organize a corporation for the manufacture of such devices, with a nominal capital stock of $400,000, to which corporation he would transfer the license so obtained, and pay such corporation $5,000 for developing the devices and carrying on the business of such corporation, for which he or those named by him should receive 1,500 shares of the full-paid capital stock of the new corporation, and cause 1,000 other shares of such stock to be issued and delivered to the Nevins Company. The remaining 1,500 shares of stock were to be held in trust and sold for the benefit of the corporation.
Finn, pursuant to such contract, organized the Carpenter Company in May, 1891, and immediately upon its organization paid to it $5,000, and transferred to it all the rights acquired by him under his contract with the Nevins Company, and in consideration thereof the Carpenter Company issued to Finn 4,000 shares of its capital stock, purporting to be full-paid stock, upon condition that he should transfer 1,000 shares thereof to the Nevins Company, and 1,500 shares to a trustee, to be held and known as "treasury stock," and sold for the benefit of the corporation issuing it. He so transferred the 1,000 shares and the 1,500 shares, and received and retained for himself and associates the remaining 1,500 shares of this stock. The 1,500 shares of treasury stock were sold for the benefit of the Carpenter Company for $25,000, and no more. Other than as here stated, no consideration was paid to the Carpenter Company for the 4,000 shares of its capital stock. The value of the license and right so transferred by Finn to the Carpenter Company was at the time worth no more than he had so agreed to pay therefor.
The defendant the American Company, when it acquired the title of the 3,946 shares of the Carpenter Company stock, had full notice and knowledge of the circumstances under which the original 4,000 shares of stock were issued, and the consideration paid therefor; but it did not appear that the American Company acquired title to any of this stock from the persons who originally took the same, except the 1,000 shares transferred to the Nevins Company in payment of the license, nor did it appear that any of the parties other than the Nevins Company, from whom the American Company acquired its stock, had any knowledge of the facts under which the 4,000 shares were originally issued, or that they did not in good faith believe that such shares of stock were paid for in cash at their par value when issued. This negative statement of what did not appear inserted by the trial court in its findings of fact, interpreted in the light of the evidence, means simply this: that neither party offered any evidence as to whether or not the parties, except the Nevins Company, from whom the American Company acquired its shares of stock, were or were not bona fide purchasers of the stock for value, without any notice that it was not in fact fully paid for when it was originally issued.
Upon these facts, the trial court, as a conclusion of law, held that the plaintiff was not entitled to any relief, and that the action be dismissed. Judgment was so entered, from which the plaintiff appealed.
The decision of the trial court was based upon two grounds: (a) That G. S. 1894, § 3415, authorizes a manufacturing corporation to issue its stock as full paid, and dispose of it at less than par and on such terms as its directors deem advisable. (b) That, although the defendant the American Company had notice of the circumstances under which its stock was originally issued and the consideration paid therefor when it purchased the stock, yet, if it acquired the stock from bona fide purchasers, the latter would be protected, and their equities would inure to the benefit of the American Company, and it would also be protected. This last ground necessarily implies that the burden of proof was upon the plaintiff to show that the transferrors of the American Company were not bona fide purchasers of the stock, for there was no finding or evidence that they were such.
If either of the reasons are good, it follows that the trial court's conclusion of law is sustained by the facts found; but, if both are untenable, such facts do not sustain the judgment rendered.
1. The respondent, however, does not concede this, but claims that the trial court found that the stock of the Carpenter Company was paid for in full when issued; that the plaintiff failed to show any fraudulent issue of stock or overvaluation of the property taken in payment of it; that the trial court refused to find any fraud.
If these claims are justified by the record, the judgment in this case is right, whether the reasons assigned by the court for its decision are correct or not.
The finding of the court was that the stock was "issued as purporting to be full-paid stock," not that it was in fact fully paid for. While the court did not find in express words that there was a fraudulent issue of stock as to creditors of the corporation, and an overvaluation of the property received in payment of the stock, it found the facts from which such a conclusion necessarily and legally follows.
It expressly found that the license and rights transferred to the Carpenter Company by Finn were worth no more than he agreed to pay therefor. He agreed to pay $5,000 therefor, and cause 1,000 shares of stock of the corporation to be organized (the Carpenter Company) to be issued to the Nevins Company as fully paid up. Hence the Carpenter Company received only $5,000 for the $150,000 of stock issued to Finn, and he never paid in money or property any greater sum therefor, and for the $150,000 of treasury stock the corporation received only $25,000; that is, for $300,000 of its stock the Carpenter Company received only $30,000, or an average of $10 per share, and for $100,000 of its stock it received the exclusive right to manufacture and sell the devices covered by the patent by paying a royalty of 25 per cent. of the list prices of all goods manufactured. It commenced business by falsely and intentionally representing to the commercial world that it had a paid-up capital of $400,000, when, taking the most favorable view for the corporation of the admitted facts, it had been paid only $130,000 in money and property for the whole of its stock, or less than one-third of its par value. Upon the facts found by the trial court it is idle to claim that the issuing of the stock of the Carpenter Company as paid up was an honest transaction. There was no room for any honest mistake of judgment in the premises. It was upon the facts found from its inception a gross fraud, as a matter of law, unless it was expressly authorized by the statute.
While the precise date when the plaintiff's debt was contracted was not found by the court, yet it necessarily follows, from the finding of the court that the whole stock was issued as purporting to be fully paid immediately upon the organization of the corporation, that the plaintiff's debt was contracted after the stock was so issued. The findings of fact, then, bring this case within the principles laid down in the former decisions of this court, and ...
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