Gray Construction Co. v. Fantle , 62 S.D. 345 ( 1934 )

I am not able to agree with the majority of the court on the questions decided in this case. In the first place, I think the evidence is amply sufficient to support the finding of the court that the defendants had knowledge when they bought the stock that it had not been fully paid for. There was evidence both oral and written tending to show that they did have such knowledge. The evidence to the contrary consisted of the oral evidence by the defendants themselves, and the court had a perfect right to, and apparently did, disbelieve them. In any event, this is a matter solely within the province of the trial court and with which this court has no right to interfere.

In the second place, I am satisfied that we have put the wrong interpretation on section 8779, Rev. Code 1919. This section, so far as applicable, reads as follows: "Each stockholder of a corporation is individually and personally liable for the debts of the corporation to the extent of the amount that is unpaid upon the stock held by him." This statute is too plain to admit of any construction. Its purpose was to prevent the issuance and distribution of "watered" or "fictitious" stock. It was intended to be of value to creditors who had extended credit to the corporation upon the belief that outstanding stock had been paid for and that the money so paid was in the treasury of the corporation and constituted a fund for the payment of the corporation's debts. It is said in the opinion of the majority that: "There is no direct testimony by any person that the Fantles ever bought any stock from the corporation." They bought the stock from the secretary of the corporation, and the records of the corporation kept by the secretary show that it was new or original stock that had never been issued to anyone before. They may have "had no control or supervision over the books," but they had access to them and should be charged with knowledge of what they contained. They should not be allowed to escape liability because they did not know what they could have learned by making inquiry.

As construed by the court in this opinion, the statute above quoted now reads as follows: "Each stockholder of a corporation is individually and personally liable for the debts of the corporation to the extent of the amount that is unpaid upon the stock held by him; except where he purchased his stock in the open market and without notice that the stock had not been paid for in full." The court has no right to mutilate this statute in any such manner. In Standard Oil Co. v. James McNenny, 62 S.D. 277,252 N.W. 841, just recently handed down, referring to a certain statute, we said: "It would be unreasonable, we believe to read into the said statute a legislative intent which would prevent this judgment from becoming final until one year after the death of A.G. Powers." This rule is equally applicable to the statute involved in this case and should be given the same effect.

Section 8775, Rev. Code 1919, reads as follows: "All corporations for profit must issue certificates of stock when fully paid up, signed by the president and secretary, and may provide in their by-laws for issuing certificates prior to full payment, under such restrictions and for such purposes as their by-laws may provide. Preferred stock may also be issued, as may be provided in the articles of incorporation or in the by-laws, and certificates of preferred stock shall be issued as above provided. When property is taken by the corporation in consideration for the capital stock of the corporation, the judgment of the board of directors, made in good faith and entered in the minutes of the corporation, shall be conclusive as to the value of such property. Whenever the capital stock of any corporation is divided into shares and certificates therefor are issued, such shares of stock are personal property and may be transferred by indorsement by the signature of the owner, or his attorney or legal representative, and delivery of the certificate; but such transfer is not valid, except between the parties thereto, until the same is so entered upon the books of the corporation as to show the names of the parties, by and to whom transferred, the number or designation of the shares, and the date of the transfer."

Where parties purchase stock in the "open market," they purchase the certificates representing the stock from the owner thereof, then present the stock certificate to the secretary of the corporation to have it transferred to him on the books of the corporation. This is done by canceling the old certificate, issuing the purchaser a new certificate, and making an entry to that effect on the stock book of the corporation. No such transaction took place in this case. Defendants purchased their stock directly from the secretary of the corporation. He issued the certificates and made an entry in his stock book to the effect that it was a new issue. This, in the absence of fraud, which is not charged in this case, is the best possible evidence of the transaction that took place.

ROBERTS, P.J., concurs in the dissent.