Court Opinion

ID: 8655445
Source: CourtListenerOpinion
Date Created: 2022-11-24 21:15:29.386229+00
Date Added: 2024-06-11T16:56:41.339666
License: Public Domain

STRAUP, O. J.
(dissenting).
I dissent. As I view them, tbe essential features of tbe case are: Tbe Success Mining Company was organized in 1898. Its capital stock consisted of three hundred thousand shares fully issued. Its mining claim adjoins, or is adjacent to, those of tbe Colorado Company. In 1899 tbe plaintiff and bis assignor each became tbe owner of two thousand shares of tbe Success Mining Company represented by three certificates which were regularly issued and delivered to them, all of which is made to appear by tbe books and records of tbe Success Company. It was, however, alleged in tbe answer of tbe defendants that tbe certificates of tbe plaintiff and bis assignor were sold for tbe payment of a delinquent assessment. But there is no proof of such fact. Defendants offered no evidence in support of such allegations, except an unsigned recital in one of tbe books of tbe Success Company, said to be in tbe bandwriting of tbe then secretary of that company, that an assessment was levied in February, 1900, by tbe board of directors of tbe company, being assessment No. 8, and that tbe shares of stock of tbe plaintiff and bis assignor were sold in April, 1900, to pay tbe delinquent assessment, and a notation on the stubs of tbe certificates issued to tbe plaintiff and bis assignor, in blue pencil writing, also said to be in tbe bandwriting of tbe then secretary of that company, “sold at tbe eighth sale.” Upon tbe record it is quite apparent to me that such recitals and notation were untrue, and were made not at tbe time of apy such purported transactions. Tbe books of tbe company fail to show that any notice was given of such a meeting of tbe board, or that such a meeting was ever called or held, or that any such assessment was ever levied by tbe board. Nor is there any record of any such transaction *107found in the books of the Success Company. Nor was there any proof made of such facts, or that any such transactions were had. But no matter about that, for it is conceded that the sale of plaintiff’s stock and that of his assignor, if any assessment ever was levied, or if any sale ever was had, was absolutely void for want of notice and advertisement, as by law in such case provided, and that the recitals of the- secretary and the notation made on the stub of the certificates by him were wrongful and without authority. It is made to appear, however, that the then secretary of the Success Company wrongfully and without authority issued to one Pearson certificates for four thousand shares of stock of the Success Company ostensibly in lieu of- those owned and held by the plaintiff and his assignor. After such issue, there then were issued and outstanding three hundred and four thousand shares of capital stock of the Success Company. When the secretary issued such certificates to Pearson, either the certificates for four thousand shares owned and held by the plaintiff and his assignor became ineffectual or the certificates for four thousand shares issued to Pearson were spurious. But it is conceded that the plaintiff and his assignor never parted with, nor were divested of, any right or title in ■or to the four thousand shares of stock held and owned by them, and that they ever since 1899 had been, and at the time of the trial were, the undisputed owners of their four thousand shares of Success stock. And confessedly neither the absolutely void sale of their stock nor the false and wrongful notation and recitals of the secretary on the books of the company could in any manner affect their right or title in or to their stock. The certificates which were- so issued to Pearson, I think, constituted an overissue of stock and were spurious. They were but so much waste paper. The holder thereof could not, and did1 not, become a stockholder ■of the Success Company by reason of them. Such certificate so issued to Pearson were thereafter acquired by Knight in January, 1906. He then was, and prior thereto had been, the president and director and the principal stockholder of the Colorado Company. Between January, 1906, and Octo*108ber, .1906, Knight acquired in. all one hundred and ninety-nine thousand, eight hundred and thirty-three shares of the capital stock of the Success Company, including the certificates which had been issued to Pearson. On the 3d day of October, 1906, at a special stockholders’ meeting of the Success Company, of which the plaintiff and his assignor had no notice or knowledge represented by two hundred and twenty-five thousand, two hundred and eighty-three shares of stock of which Knight then represented one hundred and seventy-six thousand, five hundred shares in person, Knight, the president and a director of the Colorado Company, was made the president and a director of the Success Company. The secretary of the Colorado' Company was made the secretary of the Success Company. Members of the board of directors of the Colorado Company were made members of the board of directors of the Success Company. The members constituting a majority of the board of directors of the Colorado Company then also constituted a majority of the board of directors of the Success Company. - At such meeting, and after such election of officers, a stockholder and director of both companies introduced the resolution referred to in the opinion of the majority members of the court in which it was recited that the Colorado Company had authorized its president and secretary to submit to the Success Company a proposition to purchase the Success mining claim “together with all other real and personal property owned by said Success corporation” for the sum of fifteen thousand dollars cash or seventy-nine thousand, five hundred shares of the treasury stock of the Colorado Company. In such resolution it was further recited that the Success Company was “not a financial success and is not a going concern and has been unable to find any ore or valuable minerals in its ground,” and that the president and secretary of the Success Company be “authorized to accept seventy-nine thousand, five hundred shares of the treasury stock of the Colorado Company” for the Success mining claim “together with all the other real and personal property owned” by the Success Company, and that the seventy-nine thousand, five hundred shares of Colorado *109stock be “declared a dividend and to pay tbe same to tbe stockholders of tbe Success Company pro rata witb tbeir holdings as shown on tbe books” of tbe Success Company. Tbe resolution was adopted. Tbe offices and books of tbe Success Company were thereupon removed to tbe offices of tbe Colorado Company. In accordance witb such resolution Knight and Mangum, tbe president and secretary of tbe Success Company, executed deeds of conveyance conveying and transferring all tbe property both real and personal of tbe Success Company to tbe Colorado Company and delivered them to themselves, and duly accepted them as tbe president and secretary of tbe Colorado Company; and thereupon, as president and secretary of tbe Colorado Company, they isued and delivered to themselves as president and secretary of tbe Success Company a certificate for seventy-nine thousand, five hundred shares of the capital stock of tbe Colorado Company which was thereafter surrendered and cut up' and delivered to shareholders of tbe Success Company, not including tbe plaintiff or bis assignor, in exchange for Success stock held by them. Because on tbe stub book tbe certificates owned and held by tbe plaintiff and bis assignor bad been “blue penciled” out of existence by tbe old secretary of tbe Success Company, tbe plaintiff and bis assignor were not regarded as stockholders “on the books” of tbe Success Company, and consequently were not given any notice of such stockholders’ meeting, and were not permitted to participate in tbe distribution of tbe seventy-nine thousand, five hundred shares of Colorado stock in exchange for tbe Success stock owned and held by them. At tbe time of such distribution Knight held one hundred and ninety-nine thousand, eight hundred and thirty-three shares of tbe capital stock of tbe Success Company. One share of Colorado Company’s stock was given for about three and eight-tenths shares of Success Company’s stock. Tbe distributive share of tbe seventy-nine thousand, five hundred shares of Colorado stock, which ought to have gone to tbe plaintiff and bis assignor in exchange for tbe four thousand shares of Success stock owned and held by them, was given to Knight on the certificates of stock which *110the old secretary of the Success Company had issued to Pear-sou ostensibly in lieu of those owned and held by the plaintiff and his assignor. Knight, who practically had acquired two-thirds of the capital stock of the Success Company, was the active participant and the controlling factor in the transaction, in which the resolution was passed transferring to the Colorado Company everything that the Success Company had in exchange for capital stock, and distributing the Colorado stock, not to the true and rightful owners and holders of shares of stock of the Success Company, but to those whose names appeared “on the books of the Success Company,” whether true or false, and who so aided by his own resolution, was enabled to have distributed to himself the distributive shares on the spurious stock held by him which in equity and good conscience ought to have gone to the plaintiff and his assignor in exchange for the four thousand shares of genuine stock conceded to be owned and held by them.
Where one corporation transfers all its property to another corporation under an arrangement by which the stockholders of the former company exchange their stock for stock in the latter company, a consolidation and not a purchase is effected. The former corporation in such case is for all purposes outside of the winding up of its affairs defunct and in the condition of a dissolved corporation. (Cooper v. Utah L. & Ry. Co., 35 Utah 570, 102 Pac. 202.) Since all of the property of the Success Company was transferred to the Colorado Company under an arrangement by which the stockholders of the former company exchanged their stock for stock in the latter company, the plaintiff and his assignor, conceded to be genuine stockholders of the former, I think, were entitled to maintain an action against the latter to compel it to issue to them the number of its shares constituting their proportion of the exchange. (Anthony v. American Glucose Co., 146 N. Y. 407, 41 N. E. 23; Fletcher v. Newark Tel. Co., 55 N. J. Eq. 47, 35 Atl. 903.) This is but equity.
The position taken by Knight and the Colorado' Company is that notwithstanding the plaintiff and his assignor were at the time of the transfer, and of the distribution, the un*111disputed owners of four thousand shares of stock of the Success Company, and notwithstanding all the property represented by their stock was bodily transferred by Knight to the Colorado Company who received it for an exchange of capital stock, and notwithstanding the plaintiff and his assignor were not permitted' to share in the distribution of such exchange, and notwithstanding the distributive share which ought to have gone to them was given to Knight on his spurious stock, nevertheless, when the plaintiff and his assignor demand an accounting and an exchange of Colorado stock for the four thousand shares of Success stock conceded to be owned and held by them, or a judgment for the value thereof, Knight and his codefendant, in defense, point to the resolution which Knight himself adopted, and assert that the exchanged stock was distributed in accordance therewith, and ask that the plaintiff and his assignor for proper relief in the premises be turned over to the remains of the lately deceased Success Company which was stripped by Knight of all it had and transferred to the Colorado Company.' There is an old and familiar maxim of the law that “equity delights in justice and coverts perfection.” It is apparent that, unless the plaintiff and his assignor are permitted to pursue the Colorado Company at least to the extent of the property received by it from the Success Company, or in some appropriate action the persons who transferred to the Colorado Company all that the Success company had, and who wrongfully withheld the proceeds from them, they have suffered a wrong without a remedy. Knight seems to think, and so apparently do my associates, that, inasmuch as Knight had nothing to do with the books of the Success Company or the issuing of the spurious stock, plaintiff and his assignor, in the absence of proof of negligence or actual fraud on the part of Knight and the Colorado Company, cannot be heard to complain because Knight caused to be transferred to' the Colorado Company everything owned and possessed by the Success Company, and caused a resolution to be passed permitting the distributive shares of the proceeds to be given to himself on spurious stock which ought to have gone to *112plaintiff and bis assignor on genuine stock. True, tbe plaintiff bad alleged that Knight and tbe Colorado Company were guilty of negligence in making tbe distribution in tbe particular that ordinary diligence in inspecting and looking over tbe books of tbe Success Company would bave disclosed tbe false recitals, and that tbe plaintiff and bis assignor were tbe true and lawful owners and holders of four thousand shares of capital stock of that company. There is much to justify tbe conclusion that tbe books of tbe Success Company were written up untruthfully, and to suit occasions, not by Knight, but by tbe old secretary of tbe Success Company, or by some one under bis direction, and that ordinary inspection would bave disclosed tbe unreliability and falsity of tbe books. But I think tbe plaintiff’s case as presented lies deeper than that. Conceding that Knight bad nothing to do with writing up tbe books or tbe issuance of tbe spurious stock, nevertheless be, tbe president and director, bolding nearly two-thirds of tbe, capital stock of tbe Success Company, cannot be permitted to justify what be did in tbe premises by pointing to false and unreliable books of tbe company. Tbe plaintiff and bis assignor were tbe undisputed owners of four thousand shares of Success stock. They never were divested of their title. They were tbe owners of such stock when tbe transfer and distribution were made. Neither tbe false and unauthorized recitals of tbe old secretary of tbe Success Company, nor tbe transfer of all of its property to tbe Colorado Company, nior tbe resolution of Knight and bis associates distributing tbe exchanged stock, not to tbe actual and lawful holders and owners of Success stock, but to those as shown by tbe false recitals of tbe books, could in any manner divest tbe plaintiff and bis assignor of their right and title to their stock, or tbe property represented thereby. And when all of tbe property of tbe Success Company was trans-fei’red to tbe Colorado Company under an arrangement whereby tbe shareholders of tbe former surrendered their stock for stock in tbe latter, thereby in law effecting a consolidation of tbe two companies, and' leaving tbe former in tbe condition of a dissolved corporation. I see no reason *113why the plaintiff and his assignor should not be permitted to look to the Colorado Company, the consolidated company, for proper relief. I think the allegations of the complaint are sufficiently broad to entitle them to such relief. But, if it were thought otherwise, there should not be an adjudication on merits, but a remanding of the cause. Because a litigant may have come into court on a wrong theory is no reason why he in equity should be denied and barred of all relief in the premises, when on the record as presented it is made to appear that he is' entitled to some relief.