Court Opinion

ID: 6651710
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:54:51.702018+00
Date Added: 2024-06-11T15:59:42.452420
License: Public Domain

Ryan, C.
This appeal was advanced for hearing upon an agreement of parties in compliance with rule 2. (52 Neb. ix.) The action was brought in the district court of Gage county, wherein there were judgments against the several defendants conformably with the prayer of the petition. Plaintiffs, alleged that they were creditors of the Beatrice Rapid Transit & Power- Company in various sums which were described in separate paragraphs, and in many instances were evidenced by judgments against that company. They further alleged that under a decree of the United States circuit court for the eighth circuit, district of Nebraska, all the property of the Beatrice Rapid Transit Company had been sold and that it was without any property for the payment of its aforesaid indebtedness. The prayer of the petition was as follows: “Wherefore plaintiffs pray that each of said defendants may be held liable for the several amounts hereinbefore claimed due from them upon the stock of the Beatrice Rapid Transit & Power Company, as herein-before alleged, and that said defendants, and each of them, may be required to pay to these several plaintiffs the amounts of their several claims; that the court may adjudge the amount due from, each may be held and decreed to be due to these several plaintiffs the full amount of their respective claims, and that under the order of 'this court the amounts so. found due from said several defendants may be collected of them, severally, the full amount found to be due to these plaintiffs, together with the costs of this proceeding; that the said John A. Horbach and Paul W. I-Iorbach may be held jointly and severally liable for 'the amount of stock issued to the said Paul W. Horbach, as hereinbefore alleged, and that the several plaintiffs may have such other farther and dif*801ferent relief as in equity they may be entitled to, and for their costs.” From this prayer it is clear that the defendants were proceeded against as being liable as holders of shares of the Beatrice Rapid Transit & Power Company capital stock on .the assumption that these shares had not been paid for. Issues were joined by answers, except in the instances wherein there were defaults.
To illustrate the general theory on which it was sought to hold liable certain of the stockholders' it will be sufficient to quote one sample paragraph of the petition. We shall also quote another paragraph which supplements the allegations of that already referred to. The two paragraphs above indicated are in this language:
“The defendant Beatrice Rapid Transit & PoAver Company issued to the defendant George R. Scott 115 shares of their capital stock of the par value of $11,500; that the only consideration paid by said Scott for the issuing of. said stock was services rendered to the said rapid transit company, and real estate transferred by said Scott and wife to said rapid transit company, and that the total amount of said real estate and sendees did not exceed the amount of $7,000; that there is still due from said Scott on his said stock the sum of $4,500.
“The defendant Beatrice Rapid Transit & Power Company issued to the defendants William Ebright, E. S. Cushman, full Christian name unknown, L. P. Easterday, full name unknoAvn, William Bozarth, Jacob Klein, William H. Tichnor, Jonathan S. Grable, John Ellis one or more shares each of its capital stock of the par value of $100 per share; that the only consideration paid therefor was the conveyance of certain real estate conveyed by each of them severally to the said rapid transit company, but these plaintiffs have not the records of said company and cannot give the exact amount of stock issued to each of them severally, nor the amounts in fact paid thereon, nor the value of the property given in pay-*802merit, therefor, but plaintiffs allege that they did not in fact pay the full par value of their said stock and that tlreie is si ill due from each of said defendants a small amount on each of their said shares of stock so issued to them which plaintiffs ask they may be required, upon a hearing and accounting in this court, to pay to these plaintiffs. And plaintiffs allege that said defendants Schell, Brumback, Spencer, Beatrice Real Estate & Trust Company, Johnston, Davis, Blakely, Blakely, Scott, Ryan, Ebriglit, Cushman, Easterday, Bozarth, Klein, Tichnor, Grable, and Ellis, and each of them, had full knowledge that the respective share's of stock issued to them respectively, as alleged, had not. been paid for in full and that the said property and services had been greatly overvalued, and that the payment for-such stock by said property or services at such overvaluation was a fraud on the creditors of said rapid transit company.”
In the petition there was no charge of fraud against the parties first named except the above language, and this, it is quite clear, was a mere conclusion of the pleader deduced from the facts alleged. Whether or not this deduction was correct, is one of the questions which, later, we shall consider. With reference to the liability of Scott the court found in its decree as follows:
“The court further finds that 200 shares of the capital stock of the rapid transit and power company, being certificates 46 to 50 inclusive, were issued to George R. and W. W. Scott in consideration of the conveyance to said company by said George R. Scott of certain real estate; that said shares were of the value of $20,000, and that the property in exchange for which they were issued was of the fair cash value of $6,000; that said property was grossly overvalued.”
■ In the decree there was a paragraph in this language:
“The court, further finds that at the time that the aforesaid shares of stock were issued to the said L. E. Spencer, N. N. Brumback,. G.' M. Johnston, S’ K. Davis, O. L. Schell, Jacob Klein, Nathan Blakely, Mrs. I. W. Funck, *803J. S. Grable, John Ellis, H. O. Bozarth, William Tichnor, William Ebright, George R. Scott, Ira L. Ryan, Beatrice Real Estate & Trust Company, L. F. Easterday, Walter W. Scott, each and all of the persons had full knowledge that the property or services in consideration for which the said shares of stock were issued by the said corporation to said several persons respectively, was greatly disproportionate in value to the face of the shares of stock exchanged therefor, and that the officer of said corporation issuing said stock, and the parties receiving the same, both well knew that said great disparity in value existed, and each of the said issues of stock to each of the several persons aforesaid was made with the full understanding and knowledge that the property exchanged for said stock was worth for the most part only about one-half of the face value of said stock and- was in fact of the value hereinbefore found by the court.”
If we understand correctly the theory upon which the court proceeded in entering judgment pursuant to the above findings, it was that parties who purchased stock and in payment therefor transferred to the company real property, were only entitled to receive credit for the actual value of such real property at the time it was transferred. There was no evidence that there was any misrepresentation as to the value of this property upon which misrepresentation the company had. acted to its injury, indeed, in most instances misrepresentation of value could scarcely have imposed upon the officers of the company, for the property was within the corporate limits of the city of Beatrice. It was not alleged that any of these purchasers of capital stock owed any duty to the company, or that they were in any way connected with it at the time that they exchanged real property for stock. We therefore assume that the theory was that at any subsequent time, within the limit fixed by the statute of limitations, it was the right of the company, and in case of its insolvency the right of its creditors, to institute an action against stockholders for the *804difference between the par value of the stock and the real value of property which the company had received as full payment for such stock irrespective of the above considerations. In this view we cannot concur. A party, without fraud or misrepresentation, has the right to fix whatever value he chooses upon his property, and a corporation no more than a person can be relieved against its own want of judgment in buying such property at the price named. In making this statement we do not take into consideration fraud, breach of warranty, misrepresentation, suppression of the truth, or other proper grounds for relief which might be proper in some cases to consider. These elements are purposely omitted, for they were neither pleaded, proved, nor found to exist. We are therefore of the opinion that the judgments of the district court rendered in this case against Charles L. Schell, N. N. Brumback, L. E. Spencer, Beatrice Real Estate & Trust Company, S. K. Davis, William Ebright, E. S. Cushman, L. F. Easterday, William Bozarth, D. W. Morrow, Nathan Blakely, and George R. Scott must be reversed. In the same class with the defendants just named there were Jacob Klein, Alexander Moore, and Ira Ryan, but the judgments against them cannot be reviewed, for the reason that they were rendered upon the default of said parties. ■
The judgment against G. M. Johnston must be affirmed to the extent of $1,300, for reasons which shall now be stated. In the petition it was charged that the Beatrice Rapid Transit & Power Company had issued to Johnston 153 shares of its capital stock of the value of $15,300; that the only consideration paid for this stock was $14,000 in property and services; and it was alleged: “That said Johnston still owes on said stock the sum of $1,300.” This petition was signed by Mr. Johnston as an attorney for plaintiffs and was verified by him. The affirmance of this portion of the judgment, to the extent above indicated, is rendered necessary by the attitude thus assumed by Mr. Johnston and by no other consideration.
*805A judgment in form seems to liave been entered against Elsie D. Troup and J. O. Bozarth, but as they were not named in the petition as defendants, and as no relief was asked as against them, we assume that in reality there was no judgment against either of them.
The other defendants against whom judgments were rendered were John A. Horbach, Paul W. Horbach, and Victor G. Lantry, against whom the petition contained the following averments: “The said Beatrice Rapid Transit & Power Company issued to the defendant Paul W. Horbach 1,250 shares of said capital stock of the par value of $125,000; that said Paul W. Horbach paid no consideration whatever for said stock or any of it, but that the same was issued to him by the request of John A. Horbach, who had acquired said stock by virtue of an agreement with the Beatrice Rapid Transit & Power Company by which he was to loan the said Beatrice Rapid Transit & Power Company the sum of $20,000; that said $125,000 of stock was in the nature of a bonus to John A. Horbach and as an inducement to him to malee said loan and was without consideration, and was issued to his son, Paul W. Horbach, for the illegal and collusive purpose of placing it beyond the attack of creditors of the Beatrice Rapid Transit & Power Company, and to relieve him, said John A. Horbach, from any liability on account of said alleged purchase of said stock; that afterwards said $125,000 of capital stock was by said Paul W. Horbach transferred to the said defendant Victor G. Lantry, who surrendered the original certificate issued to Paul W. Horbach and had the stock reissued to him. Plaintiffs believe and allege that the said transfer from said Paul W. Horbach to said Victor G. Lantry was wholly without . consideration, but whether with or without consideration, said Victor G. Lantry never paid to said Beatrice Rapid Transit & Power Company the value of said stock or any part thereof, and said Victor G. Lantry, Paul W. Horbach, and John A. Horbach each knew, and had full notice of *806the fact, that said stock had béen issued wholly without consideration, and that the said par value of said stock or no part thereof had been paid by them or either of them, or by any one at any time, to the- said Beatrice Rapid Transit & Power Company, or to any one else for them, and each of said last named defendants had full knowledge that'the said Beatrice Rapid Transit & Power Company was largely indebted at the time said stock was issued and at the several reissues thereof, and each of said three last named defendants knew that the issue of said $125,000 of stock was a fraud upon creditors of said rapid transit company, and upon the individuals and the public dealing with and extending credit to said rapid transit company, and these plaintiffs in particular; that the defendant Victor G. Lantry afterwards conveyed to the defendant I). W. Morrow and the defendant Alexander Moore, each, one share of said stock of the par value of $100, and that neither of said shares had been paid for, and which fact said defendants Morrow and Moore well knew, and said defendants well knew that said shares of stock so conveyed to them was issued without consideration and without being paid for in whole or in part by any person; that said defendants Paul W. and John A. Horbach, V. G. Lantry each became and still are liable for the full par value of said stock and said Morrow and Moore are each liable for the par value of one share- of the said stock.” With respect to these three defendants the finding of the district court was as follows :
“The court further finds that on about the 8th day of September, 1892, the defendant the Beatrice Rapid Transit & Power Company borrowed from one John A. Horbach, of the city of Omaha, Nebraska, the sum of $20,000 for one year, with interest at the rate of 8 per cent per annum, for the purpose of extending the lines, and completing and improving the plant of said company, and for the purpose of securing the payment of said loan at maturity the said Beatrice Rapid Transit & Power Com-*807party delivered to John A. Horbach, as collateral security, certain mortgage bonds of said company; that as an inducement to John A. Horbach for the making of said loan, said Beatrice Kapid Transit & Power Company through its directors agreed to procure and deliver to said John A. Horbach, as a bonus or premium in addition to the eight per cent interest which they agreed to pay on said loan, and for the purpose of allowing the control of said corporation to be in the hands of said Horbach, shares of stock representing one-half of the total capital stock of said company, to-wit, 1,250 shares of the par value of f125,000; that the agreement as to said shares was made with John A. Horbach in the first place, but that after Avards, at his instance and request, said shares of stock Avere issued to his son, Paul W. Horbach, of said city of Omaha; that at the time of making said loans, and as a part of the same transaction, it Avas agreed between John A. Horbach and Paul W. Horbach and the defendant Beatrice Kapid Transit & Power Company, in consideration of the sum of |20,000, that the said Paul W. Horbach should furnish the material and build the extensions, for the making- of Avliich said |20,-000 Avas borroAved, and that the provision Avith reference to the 1,250 shares aforesaid should be embraced in the contract made Avith Paul W. Horbach, which agreement Avas carried out.
“The court finds that said contract and agreement by Avliich. the said shares .of stock Avere to be issued in the name of Paul W. Horbach, Avas made in fact for the benefit and protection of John A. Horbach, and for the purpose of avoiding any liabilities Avliich the said John A. Horbach might incur by reason of the issuance of said stock to him in his oavu name.
“The court finds that thereafter, to-wit, on the 16th day of September, 1892, the said Beatrice Kapid Transit & PoAver Company, in pursuance of the said agreement AAÚth John A. and Paul W. Horbach, procured an issue to said Paul AY. Horbach of 1,250 shares in said corpora*808tion, which said shares of stock were issued by virtue of certificate No. 86, and were issued upon no other consideration than heretofore stated.
“The court finds that the said John A. Horbach and Paul W. Horbach, prior to the time of the issuance of said stock to Paul W. Horbach, had full knowledge and notice of the financial condition, assets, property, and indebtedness of said Beatrice Rapid Transit & Power Com- ' pany as it stood at the time said contracts or agreements with them were made, and had full knowledge of the manner in which stock had been issued to the persons then holding the stock of the corporation; that the fact that said stock, or a large portion thereof, was issued in excess for property and services which were grossly overvalued, and that none of said stock had ever been fully paid for in money and money’s worth, was well known to them.
“The court finds that defendant Victor G. Lantry, who became the owner of the 1,250 shares of stock assigned to him by Paul W. Horbach, had sufficient knowledge to put a reasonable, prudent man upon inquiry as to the assets of said corporation, its condition, and whether or not said stock had ever been paid for, and that he is not such an innocent purchaser of said stock as to entitle him to be relieved from liability thereon. The court therefore finds that he is liable to the same extent as John A. and Paúl W. Horbach upon the said 1,250 shares of stock.
“The court finds that certificate No. 86, issued t.o Paul W. Horbach, was made up and composed of shares of stock issued to the persons, and certificates, the numbers of which are hereinafter set forth, and that there remained due and unpaid upon each of said several shares of stock the amounts set opposite the name of each party in the following table, together with the total amount due as shown in said table:

*809

“The court finds, as to defendants I). W. Morrow and Alexander Moore, that they are innocent purchasers without notice from the said Victor Lantry of the shares of stock held by them and that they are not liable for any amount whatsoever upon said shares of stock.”
The above table shows who surrendered stock and in what amounts it was surrendered by individuals. Certificate No. 86 was simply an issue in place of stock thus surrendered. The transaction was but the regular and *810proper method of transferring the stock held by these individuals. We can find no evidence that either of the . Horbachs or Mr. Lantry had actual knowledge of the manner in which this stock was issued to the individuals named in the table above given. We think unsustained by the evidence the finding that Lantry, Avhen he became the owner of the 1,250'shares of stock assigned to him, had sufficient knowledge to put a reasonable, prudent man upon inquiry as to the assets of said corporation, its condition, and Avhether or not the stock had been fully paid for. The certificates issued to individuals, and those issued in their stead, recited that the shares were fully paid up and there Avere no facts contradictory of these recitations within the knoAvledge of Lantry, so far as ttíe evidence shows, except such knowledge as Avas possessed by the public at large, and that Avas merely that the corporation was not in a prosperous financial condition. We have already found, however) that the original holders of the stock were not liable under the issues joined and there was therefore no unpaid subscription which could follow the stock. There Avas therefore no grounds for holding John A. Horbach, Paul W. Horbach, or Victor Lantry liable as successors in the ownership of stock when their assignors had already paid for the same, or at least must be deemed to have done so, under the issues tried in this case.
The judgment of the district court against G-. M. Johnston to the extent of $1,300 is affirmed;, the judgments against the other defendants not rendered upon defaults are reArersed and the cause is remanded for further proceedings not inconsistent Avith the vieivs above expressed.
Reversed and remanded.