Case Name: CHARLES SMOOT, Respondent, v. NORMAN J. LARSEN, Administrator of the Estate of NIELS C. LARSEN, Deceased, Appellant
Court: Idaho Supreme Court
Jurisdiction: Idaho
Decision Date: 1920-05-04
Citations: 33 Idaho 71
Docket Number: 
Parties: CHARLES SMOOT, Respondent, v. NORMAN J. LARSEN, Administrator of the Estate of NIELS C. LARSEN, Deceased, Appellant.
Judges: Morgan, C. J., concurs.
Reporter: Idaho Reports
Volume: 33
Pages: 71–77

Head Matter:
(May 4, 1920.)
CHARLES SMOOT, Respondent, v. NORMAN J. LARSEN, Administrator of the Estate of NIELS C. LARSEN, Deceased, Appellant.
[189 Pac. 1105.]
Corporations — Stockholders — Transferees — Liability of — Bona Pide Holders — Presumptions — Pleading — Complaint — Sufficiency of.
1. A transferee of certificates of stock is prima facia presumed to be a bona fide holder, and it is incumbent upon a corporate creditor seeking to hold such transferee for any balance actually unpaid upon tlie face or par value of his stock to allege that the latter was not a holder in good faith without notice of the unpaid balance due .upon said stock.
1. On the liability of transferee of corporate stock for debts of corporation, see notes in 3 Ann. Cas. 1120; Ann. Cas. 1914B, 754.
APPEAL from the District Court of the Third Judicial District, for Ada County. Honorable Charles P. McCarthy, Judge.
Action by corporate creditor to recover from stockholder unpaid balance on par value of stock issued in exchange for fraudulently overvalued property. Judgment for .plaintiff.
Reversed.
P. E. Cavaney and John Jackson, for Appellant.
Stockholders who are not original incorporators, and who buy stock in good faith, relying upon its being paid-up stock and nonassessable, are good faith purchasers and not liable for debts of the corporation. (Young v. Erie Iron Go., 65 Mich. Ill, 31 N. W. 814; French, v. Harding, 235 Pa. St. 79, Ann. Cas. 1914B, 744, and note, 83 Atl. 586; Reid v. He Jarnette, 123 Ga. 787, 3 Ann. Cas. 1117, and note; 51 S, E. 770.)
The burden of proof to establish that the stock which appellant held had not .been paid for was upon the respondent in this ease. (Trotter Bros. v. Blount, 162 Ala. 289, 50 So. 130.)
The purchaser^ of stock fully paid and nonassessable is presumed to be a hona fide purchaser and not liable for the corporate debts. (Davies v. Ball, 64 Wash. 292, Ann.. Cas. 1914B, 750, 116 Pac. 833; Johnson v. Lullman, 88 M°- 067, affirming 15 Mo. App. 55; Keystone Bridge Go. v. McGluney, 8 Mo. App. 496; Finletter v. Appleton, 195 Pa. St. 349, 45 Atl. 1063; Steacy v. Little Rock etc. R. Go., 5 Dill. 348, 22 Fed. Cas. (No. 13,329) 1142.)
If any presumption of fact arises from the face of a stock certificate in the customary form, it is that the stock is fully paid. (Du Pont v. Tilden, 42 Fed. 87; Erskine v. Loewenstein, 82 Mo. 301; Cleveland Rolling Mill Co. v. Texas etc. R. R. Co., 27 Fed. 250; West Nashville etc. Mill Co. v. Nashville Sav. Bank, 86 Tenn. 252, 6 Am. St. 835, 6 S. W. 340.)
The presumption of fair dealing is in favor of the transferee of stock. (Troup v. Herbach, 53 Neb. 795, 74 N. W. 326.)
A bona fide transferee has a right to rely on the representations of the corporation that the stock is fully paid. (Davies v. Ball, supra; Bonet Construction Co. v. Central Amusement Co., 153 Mo. App. 185, 132 S. W. 270.)
Laurel E. Elam, for Respondent, cites no authorities on points decided.

Opinion:
BUDGE, J.
This action was brought by respondent as a. creditor of the Boise Natural Hot Water Heating Company, Ltd., a corporation, to recover an amount owed him by the corporation from appellant, a stockholder therein, upon the theory that the stock was issued in exchange for fraudulently overvalued property, and that the stockholder is liable for the balance actually unpaid upon the par or face value of the stock held by him. A demurrer, both general and special, was interposed to the complaint and was overruled. Appellant answered. The cause was tried by the court. At the conclusion of the respondent's case appellant made a motion for a nonsuit, one of the grounds being that the complaint did not state facts sufficient to state a cause of action. The motion for nonsuit was denied, and the appellant refusing to introduce any evidence, findings of fact and conclusions of law were entered in favor of respondent as prayed in his complaint. A motion for a new trial was overruled. This appeal is from the judgment and from the order overruling the motion for a new trial.
It will not be necessary to discuss all of the assignments of error, for we have taken the view that the case can be decided on the demurrer to the complaint. Nor is it necessary to recite in detail the allegations thereof. It is sufficient to observe that those allegations are to the effect that the stock of the corporation was originally issued in ex change for property grossly overvalued, that appellant was not one of the original incorporators, or a purchaser of treasury stock, but was a transferee, and that the stock which he held was a part of the stock originally issued to one Boggs. Nowhere in the complaint is it alleged that appellant either had knowledge or such notice as would impute to him knowledge that the stock had not been fully paid for. In other words, the complaint does not allege that appellant was not a holder of stock in good faith and without notice, and that is an indispensable element of the liability sought to be enforced against him.
The rule is that a transferee of certificates of stock is prima facie presumed to be a bona fide holder, and it is incumbent upon a corporate creditor seeking to hold such transferee for any balance actually unpaid upon the face or par value of his stock to allege that the latter was not a holder in good faith without notice that the stock had not been fully paid for. (Feehan v. Kendrick, 32 Ida. 220, 179 Pac. 507, wherein the leading American authorities are collected; Burkinshaw v. Nicolls, L. R. 3 App. Cas. 1004, 1017; Cleveland Rolling-Mill Co. v. Texas & St. L. Ry. Co., 27 Fed. 250.)
The demurrer to the complaint should have been sustained. The judgment is reversed. Costs are awarded to appellant.
Morgan, C. J., concurs.