Court Opinion

ID: 9864983
Source: CourtListenerOpinion
Date Created: 2023-09-25 16:18:58.970401+00
Date Added: 2024-06-11T12:36:34.265068
License: Public Domain

Mr. Justice Young,
specially concurring.
Inasmuch as I now concur in the opinion of Mr. Justice Holland to which I formerly dissented I deem it proper that I state the additional reasons that impel me to such concurrence.
The reasons assigned for the conclusion in that opinion are substantially the same as those given for a similar holding in the case of In re Haas Co. (Taylor v. Ziegenhagen), 131 Fed. 232, decided by the Circuit Court of Appeals for the 7th Circuit and in which the facts were almost identical with those in the case at bar.
From an investigation suggested by the case of Pueblo Foundry Co. v. Lannon, 68 Colo. 131, 187 Pac. 1031, cited by defendants in error in their brief, I am convinced that section 2261 C. L. 1921, which is an enactment verbatim of part of section 9 of article 15 of the Colorado Constitution, requires a reversal of the judgment. If that statute and constitutional provision are applicable to the case, at bar, as I believe they are, we are not concerned with the soundness of the reasons given for the enactment of the one and adoption of the other. The makers of the Constitution and the legislature were satisfied with such reasons and we must be. The statutory section is as follows: “No corporation shall issue stocks or bonds except for labor done, services performed, or money or property actually received, and all fictitious increase of stock or indebtedness shall be void.”
*317The foregoing statute and constitutional provision have been held applicable to cases involving the original issue of stock where no consideration was paid therefor, such an issue being held fictitious under the statute. In the case of Arkansas River, Land, Town & Canal Co. v. Farmers’ Loan & Trust Co., 13 Colo. 587, 22 Pac. 954, in an opinion by Pattison, Commissioner, it was said: “Section 9 of article 15 of the constitution provides that ‘no corporation shall issue stocks or bonds, except for labor done, services performed, or money or property actually received, and all fictitious increase of stock or indebtedness shall be void.’ This constitutional provision has been embodied in sections 251 and 340 of the statute relating to corporations. The meaning of the language of the Constitution is clear and unmistakable. If stocks or bonds be issued, ‘except for labor done, services performed, or money or property actually received,’ such issue is in direct violation of the Constitution and the statutes, and ipso facto invalid. * * *
“On the contrary, by the express allegations of the complaint it appears that they acquired the stock, not only in fraud of the rights of the corporation, but in express violation of the constitutional mandate of the state, and of the provisions of the. law under which the corporation was organized. The stock held by them is fictitious, within the meaning of the constitution, and no rights can be predicated upon it, either in law or equity. The bill was therefore properly dismissed as to them.”
Frink v. Carman Co., 97 Colo. 211, 48 P. (2d) 805, is to the same effect.
Reference is made to section 2261, supra, in Pueblo Foundry Co. v. Lannon, supra, an action to foreclose a mortgage securing the payment of bonds, in which it was held that as the bonds issued ratably to stockholders by the consent of all the stockholders, although without consideration they were valid as against attack by stockholders who became such by purchase of stock from stockholders who had participated in the authorization of the *318bond issue. This holding was predicated on the ground of estoppel. The rights of creditors were not involved in that case. The court said: ‘ ‘ This is not a case where the board of directors have dealt with the corporation or with others for their individual profit. It is not a fact that the shares which Burris sought to purchase were property of the company; they were the shares of the Lannons; and the bond issue reduced, ratably, the value of the shares of stock retained by them as well as of those sold to Burris. The loss, if any, was not sustained by the corporation, but by the holders of the shares. By participation in the transaction the shareholders are estopped to deny its legality, and the corporate entity cannot act for them. Home Ins. Co. v. Barber, 67 Neb. 644, 93 N. W. 1024, 60 L. R. A. 927, 108 Am. St. 716.
“The entire body of stockholders acquiesced and participated in the transaction. They are accordingly bound by it, and their transferees are also bound. In Gumaer v. Cripple Creek Tunnel Transportation & Mining Co., 40 Colo. 1, 90 Pac. 81, 22 Ann. Cas. 781, this court in speaking to this question said, at page 17: ‘Not only the participating and acquiescing stockholders, but also their transferees, are bound by the participation or acquiescence. The transferee cannot claim to have greater rights than this transferer as regards a general remedy invalidating the whole transaction. He cannot bring suit in behalf of the corporation and other stockholders against the party or parties participating in the issue, inasmuch as his own title is tainted with the same fraud. Nor can he bring an action against the corporation.’ ”
If the attack on the mortgage in the case at bar were being made by the stockholders, Pueblo Foundry Co. v. Lannon, supra, would be in point, but that case is distinguishable from the case before us in that the attack here is made by a trustee representing creditors, either existing at the time of the mortgage or subsequent, and whether one or the other or both is not material.
For a general discussion of the effect of constitutional *319provisions and statutes similar to ours see 7 R. C. L., pp. 596-598, §§590, 591 and 592.
In the case of a fictitious issue of stock a stockholder may be compelled to pay into the corporation for the benefit of its creditors what he should have paid for his stock; in the case of a fictitious indebtedness he should be compelled to leave in, or if taken out, to put back what should have remained there for the benefit of creditors.
For the reasons stated I am of the opinion that the judgment should be reversed. I am authorized to state that Mr. Justice Burke concurs in this specially concurring opinion, and that Mr. Justice Butler concurs herein solely on the ground that the transaction involved is void under section 9 of article 15 of the Constitution and section 2261 C. L. 1921.