R. N. DAVIS, Appellant,
JAMES R. DUNSEATH, Appellee
APPEAL from a judgment of the Superior Court of the County of Pima. Fred W. Fickett, Judge. Judgment reversed and cause remanded, with directions.
Mr. Clifford R. McFall and Mr. Henderson Stockton, for Appellant.
Messrs. Kingan, Darnell & Nave and Mr. Samuel L. Pattee, for Appellee.
The plaintiff, James R. Dunseath, as assignee commenced this action to recover from R. N. DAVIS, defendant, the sum of $1,500 and interest at seven per cent., as evidenced by a note dated January [41 Ariz. 58] 31, 1930, given by Davis to the Realty Mortgage & Bond Company, hereinafter referred to as the company, for 200 shares of its stock, of the par value of $50 per share. The defendant in his amended answer admitted the execution and delivery of the note for the consideration alleged, but denied liability on the ground that the company was an investment company, as defined by chapter 38, Revised Code of Arizona 1928 (section 1887 et seq.), subject to the Blue Sky Law, and had not complied with such law, and had not obtained from the corporation commission any permit to sell stocks, bonds and other securities.
The trial was before the court sitting without a jury and resulted in a judgment in favor of the plaintiff. Defendant has appealed.
We state the facts as disclosed by the pleadings, the admissions of the parties and the evidence. The promoters of the company were Allan Heskett, Conger Poage, Lynn D. Smith and the plaintiff, James R. Dunseath. On January 12, 1929, these four persons entered into a written contract based upon "mutual covenants . . . and the sum of one dollar each to the other in hand paid" to organize "a corporation for the purpose of doing business as a mortgage and loan company, and such other purposes as the parties hereto may deem necessary or expedient," capitalized at $250,000, divided into 5,000 shares, of the par value of $50 per share. In said agreement the stock of the company was appropriated as follows: 630 shares each or 2,520 shares to the four promoters. On the same day these promoters held a preliminary meeting, and the minutes of that meeting show, as we read and interpret them, that it was agreed that the balance of the capital stock, 2,480 shares, par value $124,000, should be retained by the proposed corporation "to be used for the purpose of obtaining sufficient capital to have on hand for the [41 Ariz. 59] purpose of carrying on the business of the corporation."
In pursuance of this agreement, the company was organized by the above promoters, and on February 26, 1929, they received from the corporation commission a certificate to that effect. Their pre-organization meetings and their meetings as directors and stockholders disclosed their plan of financing the corporation to be to sell to the public 2,480 shares of the capital stock left in the treasury after they appropriated 2,520 thereof, and to issue and sell to the public $100,000 twenty-year bonds of the company, in denominations of $100, $500 and $1,000, bearing interest at seven per cent. payable semi-annually. Each bond purchaser was to receive as a bonus five shares of stock of the company on the basis of every $1,000 worth of bonds purchased. The money secured upon the sale of the company's bonds was to be invested in Tucson real estate.
To make a showing that the company had some assets, Poage stated to his colleagues "that he had perfected an organization for the purpose of selling and disposing of certain bonds secured by real estate mortgage on property located in the City of Tucson . . . and that said organization had properties of value to the corporation" and that "he would carry on the purposes for which the organization (company) was incorporated" if the stockholders would transfer to him, or to such other person as he might designate, "all of the stock of the said corporation, fully paid and non-assessable," and that he would use the stock as a bonus to bond purchasers on the basis of five shares for each $1,000 worth of bonds. This proposition of Poage was accepted, the stockholders agreeing to transfer to Poage "all of the capital stock of said corporation not already transferred" in consideration of Poage's transferring "to [41 Ariz. 60] the corporation all of the properties or interests that he might have in the organization he has now perfected," etc.
Accordingly, two certificates, one for 1,250 and the other for 1,230 shares, covering the treasury stock, were made out to Poage but were never detached from the stubs. Poage proceeded with the sale of stocks and bonds, the stock being issued directly to the purchaser, and not to Poage. On the face of the stock it was the company's. Such was the fact in connection with the 200 shares sold to the defendant.
At the first stockholders' meeting these promoters, by virtue of the 2,520 shares of the stock they donated to themselves, elected themselves the board of directors of the company; and at the first directors' meeting the
plaintiff was elected secretary-treasurer of ...