The Anaconda standard. [volume] (Anaconda, Mont.) 1889-1970, 1898-07-06
Special Dispatch TO the STANDARD.


be interested in an opinion handed
down by the supreme court to-day IN
a case that has attracted considerable
attention since its Inception. as points
new to the Montana courts were raised.
The case was entitled Charles Kelly
VS.. Fourth OF July company. 7. II.
kleinschmidt. A j. Seligman. Joseph
X. Clark and l. G. Phelps: Joseph
Clark. appellant. The mine In ques-
tion r. In the Okanogan district in
Washington. The opinion In the case
vas prepared by Justice Hunt and is
generally pronounced by attorneys 10
be one Of the most able, as well as the
most important that the supreme court
OF Montana a rendered. To mining
men II will be of especial importance.
The Judgment:
Charles Kelly was injured through
the negligence OF the Fourth of Juiy
company in 1891 and recovered a sudg-
ment in 1894 against the corporation
for SIS, 900. but It was returned unsat-
isfied in August. 1894. He commenced
this suit against the company, Klein
schmidt, Seligman. Clark and Phelps.
who were shareholders, 10 enforce The
individual liability Of the sharehold-
ers under the statutes Of the state. The
Jury hat tried the Ease found the mine
to be worth sl25. 900; II was lncorpo-
rated for s 800. 900 and the contention
of the plaintiff was that the individual
shareholders were liable to the credi-
tors as the holders OF unpaid stock. All
the defendants except Clark were dis
missed by the district court. Clark
alone appealed 10 the supreme court.
1t was found that there was no rea-
eonable ground TO believe that the mine
was worth the amount of stock issued
for IL, and that the trustees knew IL
was not worth that mount. The ques-
ton being a new one in Montana and Of
great Importance. the court considered
the effect of the statute which author
lies the trustees of n corporation to
purchase mines, manufactures and
other property necessary for their bust
ness and issue stock for the amount Of
the value thereof In payment therefor.
and the stock so issued shall be de
clared and taken TO be full stock and
not liable to any further call. The
court eliminates from the case the idea
that when the property was exchanged
for the stock the incorporators wilfully
entertained a motive 10 perpetrate a
n discusses the case from the
standpoint of whether or not upon the
law II follow as a necessary conse-
quence where the managers OF a cor
roration have advisedly issued stock
Tor property the par value OF which
was known at the time Of its ~issuanc
10 be grossly in excess of the par value
OF the property acquired that fraud
has been committed. The court saws
that this authority 10 trustees OF the
corporation is a specific grant of power
TO buy any species OF property neces-
sary TO the business of the by
paying therefor in stock, but in exer-
cising the authority given the par value
~ hn eAal - .
against the par value OF the property
purchased. IL is further aid that the
statute Of Montana, which is like tina
OF New York, has been construed, in re-
decisions. and a construction
adopted which requires the stock and
property exchanged TO offset one an
Very recent cases in Missouri,
Iowa and other states are
to that effect. The Court says
further that there is no rational basis
which trustees or shareholders
deliberately take in payment for
the stock of n company property in !
and most unfairly under
valued, nj that simulated payments
not constitute excuses for defeating
the trust created in favor Of a creditor
Or a corporation. The measure of proof
Is also discussed and late cases exam
med. The court holds that when there
Is superadded TO a gross n obvious
generalization the element Of dellbera-
Ion and knowledge of the gross over
valuation. fraud IL a necessary legal
from such facts. In such a
ease good faith In valuing the property
Is entirely wanting; II is a fraud upon
he law.
In the expression of the foregoing
OF our own and those adopted by
Is from other courts" says the court.
we DO not mean 70 be understood as
90 NhA A4 - A-fg- -. !
'tockholder may be successfully charged
oy a creditor OF a corporation as a hold
r OF unpaid stock where the property
In exchange for the stock does
lot eventually prove 10 be as valuable
Is II was believed to be at the time OF
transfer. nor that unwise judg-
nent or lndiscretion alone are sufficient.
The judgment OF men Is too apt 10 be err
'oneous In relation to the valuations OF
property. This is especially true In new
where mining excitements fire.
prevail and values fuctuate
rapidly and 20 unusual extents. An
ionest mistake of judgment would seem
o be a complete defense TO such an ac-
lon. but no such feature Is presented
n the case under consideration.
Good faith in the valuation put upon
he property Is what the law demands,
md all that II demands. BY good faith
, HAcdhA atANdl Btlltl IN the NdlQe put 4
the property-the belief that a
'rudent and sensible business man
you'd hold In the ordinary conduct Of
IFS W business affairs. Beliefs based
visionary speculative hopes. IN
by existing conditions or
acts, and without reasonable evidence
rom the h present appearances. are
OF such beliefs as will relieve the share
iolders. Such IL the true rule. we think.
nd such is the n that the law intends
hall be applied"
The constitution is also invoked to
the views OF the court, aud the
which says that no corporation
hall issue stock except for property
ctually received is held applicable. II
also contenoed that these rules per
aiming 10 corporations do not apply %
schemes. The court in reply 20
nat argument says as follows:
"Earnestsly have appellants counsel
ought 70 convince Us that mining cor