Webster v. U.S.I. Realty Co.

• Decision Date: 04 March 1927
• Docket Number: No. 25555.,25555.
• Citation: 212 N.W. 806,170 Minn. 360
• Parties: WEBSTER v. U. S. I. REALTY CO. et al.
• Court: Minnesota Supreme Court

212 N.W. 806

170 Minn. 360

WEBSTER v. U. S. I. REALTY CO. et al.

No. 25555.

Supreme Court of Minnesota.

March 4, 1927.

Appeal from District Court, Hennepin County; Paul W. Guilford, Judge.

Action by E. E. Webster against the U. S. I. Realty Company for which Wm. E. Smith was appointed receiver. From an order allowing claims against defendant corporation and assessing the stockholders, the receiver, A. I. Anderson, and other stockholders appeal. Affirmed.

George H. Sullivan, of Stillwater, F. L. Cliff, of Ortonville, A. J. Rockne, of Zumbrota, and Selover, Schultz & Mansfield, of Minneapolis, for appellants.

Chester W. Johnson, Allen & Fletcher and A. X. Schall, Jr., all of Minneapolis, for respondent.

QUINN, J.

Appeal from an order of the district court allowing claims of creditors against an insolvent corporation, and assessing the stockholders 100 per cent. on the amount of stock owned by them.

The defendant corporation was organized under the laws of the state of Minnesota in 1915, with an authorized capital of $1,000,000, to be issued in shares of the par value of $100 each. The stock was sold and issued largely in amounts of from one to five shares, on the monthly installment plan, to people of limited means residing in the country. At the time of the commencement of the bankruptcy proceedings in 1923, there was outstanding 6,338 shares of the capital stock, which had been sold and issued to approximately 800 different people residing in this and the four adjoining states.

The articles of incorporation provide that —

"Article II.

"The general nature of the business of said corporation shall be buying, selling and improving lands and tenements; the loaning of money for itself and as agent for others, upon mortgages or other securities, and the purchasing and selling of lands, and of money obligations secured upon real or personal property; the buying, working, selling and dealing in mineral lands and other lands; the acquiring, holding, selling, hypothecating, assigning, transferring, and conveying of its own obligations, or the obligations of any persons or other corporation, and collecting, foreclosing, compounding, compromising, releasing, satisfying and discharging the same of record; the buying, owning and selling of stock in other corporations; the owning and improving of real estate by erecting buildings and other structures thereon and leasing and cultivating the same; the borrowing of money and executing mortgages or deeds of trust upon real estate or personal property as security therefor; the borrowing of money and the executing and issuing of promissory notes, bills of exchange, bonds, debentures or other negotiable or transferable instruments; the doing of any or all of said acts either on its own behalf or as agent for others; and the doing of any and all acts necessary for the carrying out of the powers above enumerated."

In the spring of 1923 the company issued what are referred to as 3 per cent. contracts, in which it agreed to sell land in Texas at a certain price per acre, payable in installments. These contracts, as executed, were largely for the sale of one-acre tracts and provided for certain options which the purchaser might avail himself of when his part of the contract was performed. Such a contract was considered by this court in the case of State v. Evans, 154 Minn. 95, 191 N. W. 425, 27 A. L. R. 1165, and in Vercellini v. U. S. I. Realty Co., 158 Minn. 72, 196 N. W. 672, where it was held to be an investment contract, under chapter 429, p. 635, Laws 1917, as amended by chapter 105, p. 99, Laws 1919. In the latter decision it was held that the contract was illegal, and that the vendee was entitled to recover from the vendor the money paid thereunder. We adhere to that holding.

A mere reference to these contracts will disclose that all of the things attempted to be provided for therein were authorized under the sweeping power given by the articles of incorporation, and that the issuing of such contracts was within the purpose of the articles and not ultra vires. The same conclusion applies to the so-called waiver and standard forms of contracts issued by the corporation. However, for the purpose of disposing of this appeal, we deem it unimportant whether such contracts were ultra vires or not. Kipp v. Miller, 47 Colo. 598, 108 P. 164, 135 Am. St. Rep. 236. The corporation sold the contracts, and received payments thereon for the benefit of all its stockholders, and, as held in the Vercellini Case, is liable quasi contractually to the purchaser for the amount so paid.

While it may be said that such money was received pursuant to an illegal contract, yet it was received without any consideration passing therefor. The law will not permit a corporation to assert a want of power to make a tortious or ultra vires contract for the purpose of defeating a liability which it had assumed to incur. The purchaser was not a party to the violation of the statute. He is not in pari delicto with the seller. The statute was intended to protect one class of people against the imposition of another class. The basis of this rule is that no one shall be allowed to enrich himself at the expense of another through his own wrongful act. Delaware Farmers' Mut. Fire Ins. Co. v. Wagner, 56 Minn. 240, 57 N. W. 656; Kraniger v. People's Building Society, 60 Minn. 94, 61 N. W. 904; Erb v. Yoerg, 64 Minn. 463, 67 N. W. 355; Bell v. Mendenhall, 78 Minn. 57, 80 N. W. 843; Davis v. National Cas. Co., 115 Minn. 125, 131 N. W. 1013; ...