MacDonald v. Arrowhead Hot Springs Co.

MR. JUSTICE THOMPSON (R. L.) Delivered the Opinion of the Court.

This is an appeal from that portion of a judgment which was rendered in favor of the defendant Seth Marshall, in an action for the reasonable value of the services of an architect. It is contended the defendant Seth Marshall is personally liable for the obligation as a promoter of the corporation.

The Arrowhead Springs Company is a duly organized corporation. It owns a large tract of land in Cold Water Canyon near San Bernardino, upon which there is located a number of hot mineral springs. This company was engaged in the business of bottling and marketing the water of these springs. The defendant Seth Marshall owned 5.000 shares of the stock of this corporation, which was one-third of the entire capital stock thereof. One of the other shareholders of this company was Mr. Charles G. Anthony, who was its business manager. January 15, 1924, three of the other shareholders of this corporation executed and delivered to John B. Elliott an option to purchase their 10.000 shares thereof at the par value of $100 a share.

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These payments were to be made in semi-annual installments of $100,000. The first installment became due January 1, 1925. Just prior to the last-mentioned date, for a valuable consideration, this option was sold and assigned to Mr. Marshall. This option was, however, not exercised, and became void. Mr. Marshall was anxious to sell his interest in this company, but was unable to do so. Upon the advice of Mr. Anthony, a new corporation, named the Arrowhead Hot Springs Company, was duly incorporated April 24, 1924. This new company was incorporated for $5,000,000. Mr. Marshall owned one-third of the stock in the new company; 1287 acres of the land belonging to the original corporation were to be conveyed to the new company.

Mr. Anthony was elected vice-president and was employed by the new corporation to conduct a campaign for the sale of its stock. The record contains evidence to the effect that he was to receive five per cent of the money paid for the sale of all stock. He employed two expert brokers to assist him in the campaign. July 9, 1924, the corporation commissioner of California authorized the issuing and sale of 35,000 shares of the stock of this new corporation upon specified conditions. Twenty per cent of the money received from the sale of stock was authorized to be expended on account of the cost of the sale thereof. Mr. Marshall testified that Anthony was to retain five per cent of all such receipts for his own compensation, and that he agreed to assume the responsibility of paying for all obligations incurred incident to the sale of stock from the expense money authorized by the corporation commissioner to be retained. At the time of the organization of the new corporation Mr. Marshall was ill and took no active part in the plans for the campaign to sell stock. Mr. Anthony assumed exclusive charge of this task.