Weniger v. Success Mining Co.

• Decision Date: 27 September 1915
• Docket Number: 4375.
• Parties: WENIGER v. SUCCESS MINING CO. et al. (KIMBALL et al., Interveners).
• Court: U.S. Court of Appeals — Eighth Circuit

227 F. 548

WENIGER v. SUCCESS MINING CO. et al. (KIMBALL et al., Interveners).

No. 4375.

United States Court of Appeals, Eighth Circuit.

September 27, 1915

Syllabus by the Court.

While a corporation may recover of the first transferee, or other purchaser with notice, stock unauthorized, or issued on a stolen certificate, or on a forged assignment, or its value it is estopped by its certificate to the first transferee from maintaining a suit to recover the stock, its value, or the dividends thereon from a second transferee, who was a bona fide purchaser for value without notice, in reliance upon its certificate to the first transferee.

Certificates of stock, while not strictly negotiable, are closely analogous to negotiable paper, and should be sustained, in the absence of an insuperable legal obstacle.

Corporations and their officers, who, by the apparent legality of their obligations, or by statements or recitals of their validity induce innocent purchasers to invest in them, are estopped from denying their legality, or the truth of the representations they contain, on the ground that in some preliminary proceedings which led to their execution, or in their execution itself, they failed to comply with some law or rule of action relative to the time or manner of their procedure with which they might have lawfully complied, but which they carelessly disregarded.

'A court of equity can act only on the conscience of a party. If he has done nothing that taints it, no demand can attach upon it, so as to give any jurisdiction.'

The denial by an addressee that he received a letter or postal card, of the mailing of which there is positive testimony, is not conclusive, and should be carefully weighed. Such denials considered, and held insufficient to overcome the testimony of the mailing and the presumption of delivery.

Ignorance which is the effect of inexcusable negligence is no excuse for laches, and knowledge of facts and circumstances which would put a person of ordinary prudence and diligence on inquiry is in the eyes of the law equivalent to a knowledge of all the facts which a reasonably diligent inquiry would disclose.

While mere delay for a time longer than that fixed by the analogous statute of limitations at law may not work laches, the intervention during such delay of great changes in the value of speculative property and of the rights of an innocent purchaser, and the loss, by the disappearance of an important witness, of evidence of the facts of the transactions in controversy, are ample to work the estoppel of a fatal laches.

The silence and inactivity of a stockholder of a corporation for five years after an illegal sale by his company of his stock for an unpaid assessment, and until, upon the certificate of such sale to the purchaser, an innocent purchaser has bought the stock and received a certificate to himself, and a further delay of two years before bringing suit against the second transferee, the bona fide purchaser, estops the stockholder from obtaining any relief in equity against him.

The appellants were the plaintiff and the interveners in a suit in equity against Jesse Knight, W. L. Mangum, Jacob Evans and the Success Mining Company, a corporation, for the restoration to the Success Mining Company of certain stock of that corporation issued to Knight, and for the recovery by that company of the dividends that had been paid thereon. The plaintiff was, prior to 1910, the owner of 4,000 shares of stock in the Success Mining Company, which that company in April, 1900, for a failure to pay the eighth assessment thereon, sold to C. E. Pearson, to whom it issued its stock certificate for this and other stock similarly situated. The interveners comprise other owners of stock prior to 1900 and the assignees of such owners, whose stock the company attempted to sell and certify to Pearson in the same way, and the plaintiff and these interveners will henceforth be termed the complainants, and treated as though all of them were the original owners of this stock. The certificate of this stock issued to Pearson was dated April 14, 1900, and was for 84,925 shares. It was in the usual form, and certified that he was the owner of that number of shares of stock of the Success Mining Company. Complainants claim, and this will be conceded, that 64,925 of these shares were certified to Pearson on account of the attempted sale of complainants stock, and that on account of the failure to prove compliance with all the legal requirements this sale was irregular and illegal. More than five years after this sale, and in 1906, Jesse Knight bought this stock of Pearson, Pearson's certificate was assigned and surrendered to the company, and certificates for the stock, and for other stock which Knight had bought, sufficient in amount to make him the owner of the majority of the stock of the corporation, were issued to Knight. Thereafter, by proper corporate proceedings, he made himself, Mangum, and Evans directors of the Success Company, and by means of the votes of the stockholders and the subsequent action of these defendants as directors he caused the Success Company to sell all its property to the Colorado Mining Company, another corporation, in October, 1906, for 79,500 shares of the stock of the latter company, which was distributed as a stock dividend among the stockholders of the Success Company, so that the share thereof distributable to the stock in controversy went to Knight, and not to the owners of the stock before the attempted sale thereof for failure to pay the eighth assessment.

The complainants commenced this suit on October 17, 1910. The theory of their complaint was that the attempted sale of their stock for failure to pay the eighth assessment was void, that before that sale all the stock of the Success Company had been issued, that they remained the owners of their stock notwithstanding the attempted sale, that the 84,925 shares issued to Pearson on account of the attempted sale under the eighth assessment constituted an overissue of stock and were void, that the Success Company, and Knight, Mangum, and Evans, as directors thereof, wrongfully distributed 17,205 shares of the Colorado Company's stock, which was the share of the 79,500 shares received from that company on account of the sale of complainants' stock to Pearson, to Knight, when they ought to have distributed it to the complainants, and they pray that 'the Success Mining Company have judgment against Jesse Knight and his codefendant directors, that he return and restore to the treasury of said corporation all of the Colorado mining stock which he received as and for a dividend' on the stock of the Success Company issued to Pearson on account of the attempted sale of the complainants' stock for failure to pay the eighth assessment, and bought of Pearson by Knight, and for all the dividends thereon, or that the Success Company recover the value of such Colorado Company stock and the dividends thereon, so that the Success Company may distribute to the complainants the amount so recovered.

The defendant answered, among other things, that the eighth assessment on the complainants' stock was duly levied, that complainants were notified of it, that they failed to pay it, that their stock was thereupon sold on account of that failure to C. E. Pearson in April, 1900, that Knight was a stranger to the Success Company, without stock or interest in it, that in 1906 he bought the stock issued to Pearson in reliance upon the certificate Pearson held, and paid therefor about five cents a share, without any notice of any overissue of stock, or of any other defect in the title of the stock, or in the certificate which Pearson held, that thereupon Pearson's certificate was assigned and surrendered to the company and certificates were issued to him, that it was not until after Knight had made and paid for this purchase that he, Mangum, and Evans became officers or directors of the Success Company, and that their actions, as such were neither fraudulent nor wrongful, but lawful and just.

A large amount of evidence was introduced, the case was argued and submitted on final hearing, and the court below found for the defendants, and dismissed the suit on its merits.

E. A. Walton, of Salt Lake City, Utah (D. B. Hempstead and C. S. Patterson, both of Salt Lake City, Utah, on the brief), for appellants.

Andrew Howat, of Salt Lake City, Utah (H. R. Macmillan and Frank K. Nebeker, both of Salt Lake City, Utah, and E. E. Corfman, of Provo, Utah, on the brief), for appellees.

Before SANBORN and CARLAND, Circuit Judges, and TRIEBER, District judge.

SANBORN Circuit Judge (after stating the facts as above).

The argument on which counsel for the complainants seem to rely most confidently for a reversal of the decree below is that they remained owners of their original stock notwithstanding the Success Company's attempt to sell the same for a failure to pay the eighth assessment thereon, that all the authorized stock of the corporation had been issued before that sale, and that therefore the stock issued to Pearson in place of their stock was an overissue and void. But if the soundness of this contention be conceded, would the complainants be entitled to the relief they seek against the defendants Knight, Mangum, and Evans? This is a suit in equity, which the complainants have brought and based upon the right of the Success Company. They have alleged in their complaint that that company is insolvent, that it has no property but this claim against the defendants, that it is in the control of the defendants, that it is useless to apply to that company or to any of its officers to bring this suit and the only decree they ask against the defendants is one in...