PLAINTIFF'S APPEAL. There is abundant authority, both in reason and decisions, for the proposition stated by the late Chief Justice Merrimon in Clayton v. OreKnob Co., 109 N.C. 385: "Very certainly the capital stock, paid or unpaid, of the defendant constitutes a trust fund for the benefit of its creditors, and whatever may be the rights of the stockholders as among themselves, the creditors have the right to have such fund collected and applied to the discharge of their debts. If the capital stock has not been paid for, it is the plain duty of the court to require it to be collected, or so much thereof as may be necessary to pay its unpaid debts." NOTE. — For the meaning of this expression, trust fund, we refer to Bankv. Cotton Mills, post, 507.
The findings of fact by the referee, affirmed and amended by his Honor, show that the corporation defendant was formed under the general law — section 677 of The Code as amended by Laws 1885, (478) ch. 19 (other amendments are not material to our investigation). By this law the articles of agreement filed with the clerk, and upon which letters of incorporation are to be issued, are to contain: (1) the corporation name; (2) the business proposed; (3) the place where it is proposed to be carried on; (4) the length of time desired; (5) the names of persons who have subscribed; (6) the amount of the capital, the number of shares and amount of each.
It will be observed that in the last requirement it is not provided, as it is in similar acts of other States, that the number of shares taken by each subscriber or stockholder should be set out, although in practice it is generally done, and it would have been better had the statute required it.
The incorporators in defendant corporation seem to have complied strictly with the statute in their articles of agreement upon which the letters were issued. It is made to appear, however, as a fact that, although the capital stock was stated in the articles to be $50,000, the property turned over by C. C. Randleman in payment of his subscription of $49,700 to the capital stock was a cotton mill and its products, worth, *Page 326 at a fair valuation, $22,447.57, and that he did not intend to pay in the balance to make up his subscription otherwise than by the application of dividends or profits which he expected to realize from the enterprise, or so much thereof as he might conveniently apply to the payment of said difference, and that he was insolvent and unable to pay it otherwise. It is also found that the other corporators participated in the formation of the company, in the conduct of its business and the dealings with creditors, well knowing the said facts, and that the alleged or represented capital did not in fact exist, and that no part had been or would be paid in except the sum of $22,447.57. It appears that (479) a stock book was kept by the company, which seems to have been mislaid so that it could not be produced before the referee. In said stock book C. C. Randleman subscribed for 497 chares [shares]; T. C. Worth, J. H. Ferree and L. H. Weaver, for one share each. When operations were begun under the letters of incorporation Randleman was insolvent. We suppose by this it is meant that he was unable to pay the balance of his subscription. Weaver was also insolvent, and Worth and Ferree were solvent and possessed of large means. The corporation was rated high by Dun and Bradstreet. The venture was a failure. Large debts were contracted and the concern failed within a year.
It is contended by counsel for plaintiff in this creditor's bill that the conclusion of law reached by the referee should have been sustained and the court should have declared "that the subscription of Randleman over and above the amount he paid by transferring property to the company was not actual and bona fide, and that Randleman, together with his associates, having obtained the charter, organized the company and conducted its business, and having dealt with outside parties, the plaintiff and other creditors who have proved their claims in the case, upon the basis of an actual and bona fide subscribed capital of $50,000, and upon the representation that the actual capital of the company in money, or money's worth, was equal to the capital stock which it purported to have, there being no evidence that said capital has been impaired by any business losses, the said Randleman, Ferree, Weaver and Worth are jointly and severally liable to the said creditors of the corporation for the difference between the amount paid in by Randleman and his full subscription, to wit, the sum of $27,252.43, or for so much of said amount as may be necessary to pay the costs and expenses of the suit and all the just liabilities of the corporation allowed by the referee or the court, after applying the assets of the corporation to the payment of the same, including as part of the assets the amounts (480) due by said Weaver, Worth and Ferree on their individual unpaid subscriptions. *Page 327
There is no doubt of the liability of Randleman for the amount of his unpaid subscription, or so much thereof as may be necessary to pay the debts and costs and expenses of this action. But are the other stockholders liable on their individual unpaid subscription for the same amount? The books of the company showed the amount subscribed by each corporator to be as stated above, and while their liability for all of their said subscription, which is still unpaid, is beyond question, it is equally clear to our minds that upon their contracts they cannot be held for a larger sum than was subscribed by them. It is not the articles of agreement filed with the clerk which bind the liability of each subscriber under our statute. It is true that if in said articles it had been stated that each subscriber had taken a certain number of shares, this notice would have bound them in their dealings, for the agreement could contain this stipulation as well as the subscription on the stock book; but the statute did not require it, and parties dealing with the corporation were not required to go to the articles to ascertain the liability of each corporator. We may say that we consider it a defect in the law not to require the corporators to state the number and value of shares taken by each corporator, but we cannot make law — we must take it and interpret it as it is written. The statute, then, only requiring the number of shares and the amount of each to be set out in the articles, we cannot hold any corporator liable for the whole amount of the capital stock, because upon the articles filed it did not appear how many shares were taken by each corporator. The law require the stockholders to name their capital and publish it to the world, and they did it, but it does not, though it ought to, require it to be stated how those shares are apportioned among the stockholders. There is a record commonly kept by corporations called a stock-book, and to this book (481) persons interested, before dealing with said company, may have access to enable them to ascertain by whom the said shares are held. If access to this book, or information on the subject, shall be withheld, there is no law to compel persons to deal with the corporation. It nowhere appears that any false statements were made in reference to the ownership of the stock. Its distribution did not appear and was not required to appear in the articles of agreement. It was therefore necessary for their protection that persons proposing to deal with said corporation should inform themselves upon this point. The liability of the corporators to the amount of their subscription was established. The prospectus or published notice of incorporation failed to inform the public as to the number of shares held by each corporator, and consequently as to the liability of each for unpaid subscription. Persons proposing to deal with the said corporation must inform themselves about it. There is no evidence or findings that such information was ever *Page 328 withheld. It would seem, therefore, that the parties dealing with the corporation were not exercising great care in the management of their business in failing to make due examination before making contracts with the corporation.
The fallacy in plaintiff's argument is that the "agreement and charter" failed to set out the distribution of shares, and therefore that all subscribers are bound as if stockholders to the whole number of shares, and that the apportionment of shares as appeared on the stock-book was in derogation of the original agreement. The cases cited do not bear out plaintiff's contention. In Curran v. Arkansas, 15 How., 304, cited also in Myers Fed. Dec., secs. 1316, 1323, the State was the sole stockholder in a bank, and laws passed vesting the property of the bank in the State were in impairment of the contract between the bill-holder and the bank, and were unconstitutional.
Sawyer v. Hogg, 17 Wall., 610, was where one had subscribed (482) for a certain number of shares and paid by check the full amount of his subscription, and had immediately borrowed 85 per cent of the sum paid in. The Court held that this 85 per cent was still unpaid subscription, and its payment could be enforced by an assignee in bankruptcy, for the benefit of the creditors of the insolvent and bankrupt corporation.
Wood v. Pearce, 2 Disney, Cincinnati Superior Court, 411, simply holds a stockholder liable for the full amount of his subscription. And to the same effect are the citations from Angell Ames on Corp., secs. 146, 531. We have examined many of the authorities cited by plaintiff's counsel, and they all go to show — and in this we fully concur — that subscribers, in case of insolvency of the corporation, are strictly held to the payment of the unpaid part of their subscription, and that the public, in dealing with a corporation, has the right to assume that its actual capital in money, or money's worth, is equal to the capital stock which it purports to have, unless it has been impaired by business losses. The public has also the right to assume that the capital stock has been, or will be, fully paid up, if it be necessary, in order to meet the corporate liabilities. But they nowhere reach a case like the present, where it is sought to subject subscribers to a greater amount than their unpaid subscription, such liability not being provided for in the charter.
But the contention of the plaintiffs goes further. They say that permitting the capital stock to be advertised at $50,000, while to the knowledge of all the corporators the property contributed by the largest stockholder was not worth half the amount of his subscription, and he was insolvent and did not intend to pay in the balance unless the venture was a successful one and enabled him to pay it in, was a fraud upon *Page 329 persons dealing with said corporation, and that independent of their liability on their stock subscriptions they are liable for the injury done, and ought to be held to the payment of the balance of the (483) debts of the concern after the exhaustion of its assets.
This rule is stated in plaintiff's brief, with regard to the debts of an insolvent corporation: "When it is made to appear that some of the stockholders are insolvent, the solvent must pay the proportion of the insolvent, to be apportioned among them according to and up to the amount of their stock subscribed and unpaid." 9 Ore., 200.
It will be seen that special reference is made to the amount of their stock subscribed and unpaid. We have found no authority for the position that a shareholder can be held upon his contract of subscription for a greater amount than his unpaid subscription, except in the case of larger liability being imposed by the statute. All tort feasors may be held liable in an action for tort for the immediate consequence of their wrongful acts. We are not prepared to hold that stockholders in corporations who have subscribed for a limited number of shares may be held liable, in case of insolvency of the corporation, for the whole amount of its debts because they knew that other stockholders who were insolvent had not paid their subscription and did not intend to pay it. The books of the company ought to furnish to those with whom it deals a full knowledge of the names of stockholders and the number of their shares, and the charter, or the general law, the measure of their liability.
Does this case fall within the principle of Hauser v. Tate, 85 N.C. 81? In that case the defendant permitted his name to be used and published as the president of a bank, and a business to be operated as an incorporated bank, when in fact there was no organization under the charter and no bank at all; the person holding himself out as cashier, using the defendant's name as president, and carrying on a spurious business. It was held that the liability of the defendant was direct and original, and not the collateral liability of a stockholder upon his unpaid subscription. "The gravamen of the complaint was that (484) there was never any proper organization under the charter, and the bank having no legal corporate existence, its name was assumed by said Simonton and his personal banking transactions conducted thereunder in silent if not active cooperation with the defendant, and that the association of them in imposing upon the public a fraudulent as and for a regular and real banking company, and thus securing and abusing the plaintiff's confidence, to his injury and loss, renders each personally and equally exposed to his demand for redress."
The present case is different from the above. The organization was perfected under the law; the stock-book showed the number of shares held by each stockholder; there is no evidence of concealment from the *Page 330 public of the true status of the concern, and there was nothing to hinder one from informing himself thereof. It is found that there was a stock-book, and that it was mislaid and could not be produced at the hearing before the referee, which was long after the insolvency of the corporation. It was also found that the credit was extended by plaintiff, The Wilson Cotton Mills, upon the report of the financial status of defendant corporation in Dun and Bradstreet, and there was no evidence that this report was procured to be made by defendants. We concur in the view taken by his Honor that the defendant corporators are liable only for their unpaid subscriptions. This disposes of plaintiff's exceptions 6, 7, 8, 9, and 10. Exceptions 1, 2, 3, 5 and 12 to the findings of fact were withdrawn.
The fourth exception is for failure to find that the deed of assignment was not regularly executed, and therefore was void. As we shall hold, on defendant's appeal, that this deed was void under section 685 of The Code, action having been brought by creditors within sixty days from its execution, it will not be necessary for us to consider this (485) exception.
The eleventh is the last exception relied on by the plaintiff — the ruling of his Honor that the commissions of the receiver, Worth, should be included in the expenses and paid as such, instead of being classed as a debt. It seems plain to us that the commissions are a part of the costs and expenses.
No error.
DEFENDANT'S APPEAL.
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