The Helena independent., 1894-11-13
STOCKHOLDERS LIABLE.
An lmpoTant Decision Rendered by
Judge Buck in the District
Court
Kellsy Got Judgment for $4,000
Against the Fourth OF
July.
10 IL unsAtsnsd aud shareholders win
no Held tor tho Uapaid Part OF
1hsir stock.

Nlslpn IN lnc case OF Nhhflcs helcy Nel
sus the Fourth OF July Mining com
pany. II effects the liability OF stock
holders In mining companies. and tn,
matter VIII be taken to the suprem,
court for final determination. Th'
Fourth OF July Mining company wat
i'.o' rporatrd In lsos under the laws %
Montana. It's capital stock was iixeS
at F,5OO00O, divided into 100000 share'
OF $40 each All the stock was ISSUED
TO ]. X, Pardee for the purchase OF q
scven-eighths interest In the Fourth OF
July. This interest at the time did
not exceed IN actual value $4,000. fAr
dee distributed and sold this stock Il
persons knowing the condition of af.
fairs. The decision says "thls trans.
action OF overrating the mining inter
est and Issuing fun paid stock at the
overestimated value, was fraud and
was entered into with fraudulent
intent"
Kelley on July 2S last. in Judge
Hunts department Of the district court.
got judgement against the Fourth OF
July Mining company for $4,000 for
injuries sustained while working in
the mine. An execution issued on this
judgement was returned wholly unsat-
isfed, ''The company is insolvent.
says the court; "the plaintiff in this
action claims In behalf OF himself and
all other creditors of she company
that the stockholders are indebted 10
the company TO the extent that the
| ah Nf h.I hxsN har hax ~
been pald-that Is, on each share i'm
the proportion OF $4,000 TO $500, 900.
A demurrer was lnterposed 10 the COM
plant but was waived. The court is
asked now by counsel on both sides
20 consider the points of law intended
TO be raised by the demurrer and to
give expression TO it's Views on the
principles of law applicable TO the case,
one OF the defendants disclaims any
Intentional fraud in the transaction
and denies that the mine was worth
no more than $4,000. A motion for
| judgment on the pleadings filed by
Kelley's attorney. Is TO be decided" )"
The decision quotes numerous cases
where IL has been held that a gross
and obvious generalization of property
would be strong evidence of fraud,
and Judge Buck declares that "by good
faith Is meant an actual belief In the
valuation placed upon the property
| such belief as man of ordinary intel
ligence might reasonably entertain In
ordinary business transactions. This
valuation cannot be fixed by a guess
evolved from hope of possible profits
however, IL must result from actual
conditions. from existing facts, or rea-
sonable evidence of the existence OF
facts. Hasty conjecture and sanguine
nv 10 kffaB MI Nsat aaaaa
A valuation placed upon property pur.
chased for stock in any other way Ii
a fraud, however innocent OF any con
Hciously premeditated bad faith It's
perpetrators may be. In the eyes OF
the law one who with design TO in
fiuence others represents something &c
be true which he has no reason for be,
lieving to be true, is as culpable as one
who represents something TO be true
which he knows 10 be false. SO viewed
| believe the good faith rule to have
been followed by many OF the ablesl
courts OF this country.
Men avail themselves of the stat.
utes providing for the organization OF
corporations in order to escape unlim.
tied personal liability in the business
enterprises they desire TO engage In. BY
a compliance with these laws they pur.
chase the immunity desired, the con
sideration to the people for the immu.
nifty so granted being the more rapid
and certain development of the re-
sources of the country by reason ol
united enterprise and united capital.
Legislatures acting for the people
prescribe the terms OF the contract e
be entered into between the public and
the incorporators OF these companies
The grant OF this immunity from un'
limited liability is conditional. II Is
not gift. not a right to be demanded
at will. Therefore il is absolutely es.
sential, for the general welfare, that
the terms OF this contract should bt
strictly complied with by those who or
ganize and those who become share
holders in a corporation" Many de
cisions TO this effect are quoted.
Judge Buck also quotes some Call
fornia decisions TO the effect that th'
capital stock is not supposed 20 beal
the slightest relation to the real valu'
Iof the property, and continues: "Thes'
decisions / cannot follow. trst. because
1.-THE statutes OF California; nnde
which they were rendered differ ma
terially from those of this state, and
secondly, because their reasoning as {,
the exception In favor OF mining cor
porations on the grounds of expediency
land custom, impress me as sophlstica
and wholly opposed to law and goot
morals.
"Conceding that at the present tim,
in this state mining corporations ar,
Iorganized daily with capital stock 81
largely IN excess Of the purchased
mines Il represents as to deceive few
people; granting that the promoters o.
many Of these corporations place fic
titious estimates upon mines purchaser
with no consciously evil intent; tina
there Is nothing secret or clandestine
In the placing of these valuations; tina
they only follow a custom which di,
not begin here, but came from Cali
fornia, was followed I'm Nevada. pre-
walls in Colorado Idaho, Utah, New
Mexico. and elsewhere in the west Ad
nit that they have done this as other
have done before them. under the be
lief that they have not disobeyed IN,
law. Still fail to gee any valid or eVei
plausible reason for the existence o.
continuation OF the practice.
while many have followed this Gus
tom thnughtlessly, others since It's yer!
Inception have deliberately availe,
themselves Of It's fundamentally 10 de
celVe and decpy unsuspicious anC
lthoughtiess investors, The temptation
no buy, At few cents each, shares In 4
corporation cnpitaliIed lur "a sun
largely In excess ~ the valul
.uf the mines which the incor
porutors have agreed shall reprcsen
the stock, Is as allurlng 10 grown ul
Ichildren as candies poisonously c0lore,
Iby dealers are tp little children. !
dealer IN this colorcd candy might In
sist that he had had nothing ca do will
The original discovery Of the injuri0u
coloriug dyes. that the practice nf col
oring them was very common; that IN
candy was not absolutely fatal, an
moreover that prudent parents shoul
guard their offspring against eating to