Young v. Enfield

SEAWELL, J.

Defendants Elmer Enfield and Southland Home Laundry Corporation appealed from the judgment entered in this action brought by plaintiff James A. Young to obtain an accounting of the business conducted by said corporation and a determination of his interest in the capital stock of said corporation and his right to participate in the management thereof. The terms and provisions of said judgment will be set forth in detail hereinafter.

The facts which gave rise to the action are as follows: Defendant Elmer Enfield desired to acquire an interest in a laundry business. Plaintiff wished to find a partner or to sell the laundry business operated by him in the city of Los Angeles under the name of Elysian Laundry. By his own admission, he was in debt and it was difficult for him to get along without additional capital. Defendant represented that he could provide the needed capital. It was orally agreed that a corporation should be formed to conduct the business. No written agreement was ever entered into. Defendant employed the Nevada Agency and Trust Company to form the corporation. It was organized under the laws of Nevada as the Southland Home Laundry Corporation on November 17, 1927, by three incorporators, who were persons connected with said agency company, and who became the first directors. At the first directors’ meeting, held in Reno, Nevada, on November 17, 1927, a resolution was passed which ordered that stock be issued in accordance with the following table, and it was so issued:

At the conclusion of this meeting the original incorporators and directors resigned and elected defendant, plaintiff and one Lambert directors. This issue of stock left 400 shares of preferred stock and 400 shares of class B common stock undisposed of. Dividends at the rate of eight per cent per

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annum, to be cumulative, were required to be paid on preferred stock before any dividends should be declared on common stock. Only holders of class B common stock had the right to vote. The 200 Shares of class A common stock are not here involved. A plan was to be arranged for distribution of this stock to employees as a bonus, and defendant admittedly holds it in trust for such purpose.

Plaintiff Young transferred all assets of the Elysian Laundry to the Southland Home Laundry Corporation. He did not own the real property on which the laundry was operated. The 280 shares of preferred stock issued to him had a par value of $25 a share, or a total par value of $7,000, which is the value placed by him in his complaint on the assets transferred, after allowing for liabilities. P. W. Meckfessel, father-in-law of defendant Enfield, paid $3,000 in cash for the 120 shares of preferred stock, par value $25 per share, issued to him. It had originally been intended that Enfield should purchase and transfer to the corporation a laundry route known as the Pope Laundry, but on March 25, 1928, the corporation by resolution voted to accept the demand note of Enfield for $5,000 in lieu of said route, and this note was subsequently paid in full. The 200 shares of "preferred stock issued to Enfield had a par value of $5,000. Plaintiff Young and Meckfessel each received the same number of shares of class B common stock as of preferred stock, to wit, 280 and 120 shares, respectively, but to Enfield, who received 200 shares of preferred stock, 1200 shares of class B common stock, the no par value voting stock, were issued. He subsequently sold 40 shares of class B stock to F. W. Meckfessel and 20 shares to W. R. Meckfessel, his brother-in-law, leaving him with 1140 shares, or 1138 after transfer of one share to plaintiff and one to another person, who became the third director of the corporation. Defendant Enfield claims that it was understood as a condition of his entering the business that he should have voting control, and that the 1200 shares of voting stock, upon which no dividends could be paid until eight per cent cumulative dividends had been paid on preferred stock, were issued to him by express agreement and in consideration of the fact that he promised to and did obtain additional capital for the business. By the judgment appealed from the court ordered redistribution of the