UNITED STATES STEEL
INDUSTRIES, INC.
v.
MANHART
405 S.W.2d 231
(Civ.App.Tex. 1966)
McDONALD, CHIEF JUSTICE. This is an appeal by defendants, United Steel
Industries, Inc., J. R. Hurt and W. B. Griffitts, from a judgment declaring
void and canceling 5000 shares of stock in United Steel Industries, Inc. issued
to Hurt3 and 4000 shares of stock in such corporation issued to Griffitts.
Plaintiffs Manhart filed this suit individually and as major
stockholders against defendants United Steel
Industries, Inc., Hurt. and Griffitts, alleging the corporation had
issued Hurt 5000 shares of its stock in
consideration of Hurt agreeing to perform CPA and bookkeeping services
for the corporation for one year in the future; and had issued Griffitts 4000
shares of its stock in consideration for the promised conveyance of a 5 acre
tract of land to the Corporation, which land was never conveyed to the
Corporation. Plaintiffs assert the 9000 shares of stock were issued in
violation of Article 2.16 Business Corporation Act, V.A.T.S. and prayed that
such stock be declared void and cancelled.
Trial was before the Court without a jury which, after hearing, entered
judgment declaring the 5000 shares of
stock issued to Hurt) and the 4000 shares issued to Griffitts, issued
without valid consideration, void, and decreeing such stock cancelled.
The trial court found (on ample evidence) that the incorporators of the
Corporation made an agreement with Hurt to issue him 5000 shares . in
consideration of Hurt is agreement to Perform bookkeeping and accounting services
for the Corporation for the first year of its operation. The Corporation
minutes reflect the 5000 shares issued to Hurt "in consideration of labor done,
services in the incorporation and organization of the Corporation." The
trial court found (on ample evidence) that such minutes do not reflect the true
consideration agreed upon, and that Hurt performed no services for the
Corporation prior to February 1, 1965. The Articles of Incorporation were filed
on January 28, 1965, and the 5000 shares were issued to Hurt on May 29, 1965.
There is evidence that Hurt performed some services for the Corporation between
January and May 29, 1965; but Hurt himself testified the "5000 (shares)
were issued to me for services rendered or to be rendered for the first year in
keeping the books . . . ...
The situation is thus one where the stock was issued to Hurt both for
services already performed and for
services to be rendered in the future.
The trial court concluded the promise of future services was not a valid
consideration for the issuance of stock under Article 2.16 Business Corporation
Act; that the issuance was void; and that since there was no apportionment of
the value of future services from the value of services already rendered, the
entire 5000 shares were illegally issued and void.
Article 12, Section 6, Texas Constitution, Vernon's Ann.St. provides:
"No corporation shall issue stock .
except for money paid, labor done, or property actually received. . And
Article 2.16 Texas Business Corporation Act provides: Payment for Shares.
A. The consideration paid for the issuance of shares shall consist of
money paid, labor done, or property actually received. Shares may not be issued
until the full amount Of the consideration, fixed as provided by law, has been
paid. . . .
B. Neither promissory notes nor the promise of future services shall
constitute payment or part payment for shares of a corporation.
C. In the absence of fraud in the transaction, the judgment of the board
of directors . . . as to the value of the consideration received for shares
shall be conclusive.
The Fifth Circuit in Champion v. CIR, 303 F.2d 887 construing the
foregoing constitutional provision and
Article 2.16 of the Business Corporation Act, held:
Where it is provided that stock can be issued for labor done, as in
Texas . . . the requirement is not met where the consideration for the stock is
work or services to be performed in the future. . . . The situation is not changed
by reason of the provision that the stock was to be given . . . for services
rendered as well as to be rendered since there was no allocation or
apportionment of stock between services performed and services to be performed.
The 5000 shares were issued before the future services were rendered.
Such stock was illegally issued and void.
Griffitts was issued 10,000 shares partly in consideration for legal
services to the Corporation and partly in exchange for the 5 acres of land. The
stock was valued at $1 per share and the land had an agreed value of $4000.
The trial court found (upon ample evidence) that the 4000 shares of
stock issued to Griffitts was in consideration of his promise to convey the
land to the Corporation; that Griffitts never conveyed the land; and the
issuance of the stock was illegal and void.
The judgment of the board of directors "as to the value of
consideration received for shares" is conclusive, but such does not
authorize the board to issue shares contrary to the Constitution, for services
to be performed in the future (as in the case of Hurt), or for property not
received (as in the case of Griffitts).
The judgment is correct. Defendants' points and contentions are
overruled.
Affirmed.