Zochrison v. Redemption Gold Corp., 31121.

• Court: Supreme Court of Minnesota (US)
• Writing for the Court: JULIUS J. OLSON
• Citation: 200 Minn. 383,274 N.W. 536
• Parties: ZOCHRISON et al. v. REDEMPTION GOLD CORPORATION et al.
• Docket Number: No. 31121.,31121.
• Decision Date: 02 July 1937

200 Minn. 383
274 N.W. 536

ZOCHRISON et al.
v.
REDEMPTION GOLD CORPORATION et al.

No. 31121.

Supreme Court of Minnesota.

July 2, 1937.

Appeal from District Court, Hennepin County; A. W. Selover, Judge.

Action by Ann Zochrison and others against the Redemption Gold Corporation and others. From an order denying its motion to set aside service of summons, named defendant appeals.

Order reversed.

Syllabus by the Court.

1. The purpose of our blue sky law (1 Mason Minn.St.1927, § 3996-1 et seq.) is to prevent fraud in the sale and disposition of securities within the state.

2. Fraud may be waived, confirmed, or ratified. Where actionable fraud has been practiced the defrauded party may either rescind the contract or he may affirm it and recover the damages sustained by him. But it is his duty upon disocvery of the fraud to elect whether he will perform or rescind. If he elects to perform, he thereby, in effect, makes a new contract, and he cannot under such circumstances recover damages against the one originally accused of fraud.

3. Plaintiffs by electing to sue as minority stockholders in a foreign corporation, seeking an accounting and other equitable relief by virtue of their stock ownership, thereby waived alleged fraudulent practices by defendant (a foreign corporation) in selling the stock.

4. Construction of a statute must be reasonable and practical. Broad and practical considerations should control.

5. Judicial construction of a statute is as much a part thereof as if it had been written into it originally.

PETERSON, J., dissenting.

[274 N.W. 537]

Guesmer, Carson & MacGregor and Donald F. Pratt, all of Minneapolis, for appellant.

Brill & Maslon, of Minneapolis, for respondents.

JULIUS J. OLSON, Justice.

Redemption Gold Corporation appeals from an order denying its motion to set aside service of summons as to it on the ground that service thereof upon the chairman of the securities commission did not give the court jurisdiction of defendant in personam. We shall refer to appellant hereafter as the defendant unless otherwise specially designated.

The facts may be summarized thus: Defendant is a corporation, created and existing under and by virtue of the laws of Colorado. Its general business is that of mining, milling, reduction, and development of ores; to acquire by purchase, lease, etc., title to mines and mining lands, and to develop the same. All of its operations have been carried on and conducted in Colorado, and there all of its directors and officers reside. It has never done any business in this state, and it does not now have nor has it ever had, any property here, nor has it subjected itself to our jurisdiction in any manner except that in 1933, pursuant to its application for resgistration and the right to sell its stock here, our securities commission granted the required authority so to do, all in accordance with the requirements of our blue sky law. 1 Mason Minn.St.1927, § 3996-1 et seq. Between April 12, 1933, and August 13, 1934, ‘some’ of the plaintiffs, ‘although not necessarily all of them,’ became the owners of a minority interest of its stock by virtue of sales made here pursuant to authority so granted. That authority was temporarily revoked August 13, 1934, and on September 11 the revocation was made permanent.

Plaintiffs' cause is based upon certain alleged fraudulent acts and practices on the part of the individual defendants and one D. A. Odell, now deceased. It is

[274 N.W. 538]

claimed that when defendant made application to register its stock for sale in Minnesota it failed to disclose certain labor liens against its properties; that these liens were later reduced to judgment and the corporate properties sold at sheriff's sale. Odell in May, 1934, acquired the certificate of sale which six months later ripened into a fee title.

It is averred that the individual defendants in November, 1933, conspired together to defraud defendant of all of its property. The Cliffords are said to have entered into an agreement with Odell for the purpose of organizing a syndicate to acquire and operate mining property. By the terms of this arrangement Odell became the representative of the syndicate and of the Cliffords. On November 13, 1933, defendant entered into a lease with Odell by the terms of which he was to take over and operate all of its property for a period of five years. Prior to the execution of the lease the Cliffords had acquired control of defendant by acquisition of a majority of its stock. The property of defendant originally had been procured from one Leach and his associates. They had obligated themselves to sell the property to defendant free of encumbrance. By reason of the outstanding labor claims Leach and his associates deposited 75,000 shares with defendant as security against loss therefrom. Defendant foreclosed this collateral and at the sale Odell purchased the entire block for $100. To make effective the fraudulent scheme, so it is alleged, defendants formed the other corporate defendant, Minnesota Mines, Inc., also a Colorado corporation. This enterprise is said to be wholly under the control of the individual defendants. As a consequence all property of the Redemption company has been lost to it and is now being wrongfully held by Minnesota Mines, Inc. The properties thus wrongfully converted are alleged to be very valuable and ‘have produced approximately $250,000 worth of gold above operating expenses during the past year, all of which has been converted by’ the defendants, i. e., the Cliffords and Minnesota Mines, Inc.

This suit is one brought by plaintiffs as minority stockholders in the Redemption Corporation. They demand judgment as follows:

‘1. That the individual defendants and said Minnesota Mines, Inc., be required to account fully for their acts and doings in said premises, including an accounting by the individual defendants for all of the property of the Redemption Gold Corporation used, acquired or converted by them, including all of the gold mined from said properties and the proceeds of the sale thereof, and that the said Minnesota Mines, Inc. be required to account for all of the property of Redemption Gold Corporation held by it or in its name for its own use or for the use and benefit of any individuals.

‘2. That the said individual defendants and said Minnesota Mines, Inc. be adjudged and decreed to hold such property as they took from the said Redemption Gold Corporation as trustees for the said Redemption Gold Corporation, and be required to reconvey and transfer the same to the said Redemption Gold Corporation, if they are in a position so to do, or otherwise to account for the proceeds thereof, or be required to respond in damages for any damage done the Redemption Gold Corporation for which they cannot make amends by the return of specific property.

‘3. That the lease hereinbefore referred to be declared void and of no effect.

‘4. For such other and further relief as may be just and equitable.’

1. The only basis upon which jurisdiction rests is by virtue of 1 Mason Minn.St.1927, § 3996-11, and the power of attorney executed and filed in conformity therewith. Taht section as far as here material reads: ‘Every non-resident person shall, before having any securities registered * * * appoint the chairman of the commission, * * * his attorney, upon whom process may be served in any action or proceeding against such person or in which such person may be a party, in relation to or involving any transaction covered by this act, which appointment shall be irrevocable. Service upon such attorney shall be as valid and binding as if due and personal service had been made upon such person.’ (Italics supplied.)

At the outset it is well to bear in mind the universal concept of what is considered necessary to give a court jurisdiction. In Erickson v. Macy, 231 N.Y. 86, 90, 91, 131 N.E. 744, 745, 16 A.L.R. 1322, 1324, 1325, the court states the rule: ‘Whenever it is necessary to determine whether jurisdiction has been obtained over a defendant in an action by service of the summons in some way other than by personal service thereof, it must be remembered

[274 N.W. 539]

bered that the general rule in regard to the service of process, established by centuries of precedent, is that process must be served personally within the jurisdiction of the court upon the person to be affected thereby. Substituted service when provided by statute is in derogation of such general rule, and, consequently, the directions thereof must be strictly construed and fully carried out to confer any jurisdiction upon the court.’ That is also the rule here. Gilmore v. Lampman, 86 Minn. 493, 90 N.W. 1113,91 Am.St.Rep. 376. Of course the purpose and intent of the cited statute is to give the court jurisdiction of the person where service is made upon an attorney duly appointed, and to make such service as ‘binding as if due and personal service had been made upon’ the person executing the power. This then leaves for consideration here the one and only question: Is this suit one ‘in relation to or involving any transaction covered by’ the act? If this be answered in the affirmative, then clearly the court was right in denying defendant's motion.

In determining that question it is necessary that careful consideration be given to the facts pleaded in the complaint. The transactions to which plaintiffs point as justification for the jurisdiction asserted are: (1) Failure in the application to include the labor claims. These amounted to less than $1,300. The listed assets as therein shown amounted to more than $750,000, so that less than two-tenths of one per centum of the assets were represented thereby. (2) The five-year lease concerning which much is said was an instrument executed in Colorado between parties there domiciled, and there to be performed in its entirety. This was and is clearly a Colorado contract. (3) The 75,000 shares pledged was obviously also a Colorado...