Allen v. Grant

Lamar, J. (After stating the foregoing facts.) The plaintiffs in error insist that whatever might be the right of an individual creditor, the trustee in bankruptcy has no cause of action on a subscription which was expressly made payable in specifics, the value of which was known to the corporation when it accepted a conveyance of the property and issued the certificate. And this might be a complete defense in jurisdictions where, as in England, the contract of subscription is an entirety. There it is either good or it is bad. If void, there is no contract of subscription, and ■consequently no liability thereon. If good, it is good according to its terms, and the company can not receive the subscription payable in specifics and afterwards, by itself, creditors, or liquidator, hold the subscriber for the difference between the value of the property and the face of the ^shares. But the American •doctrine is that a subscriber must pay before he can be relieved from liability to the creditors of the corporation. There is, how■ever, some difference in the method of determining what is payment where other than money is the medium. In those States which adopt the “ true-value ” rule, motive, intent, and good faith .are disregarded. In order for a subscriber to relieve himself he must show that the property conveyed in satisfaction' of the subscription was its equivalent in money, and was worth in dollars the face of the shares. In those States which adopt the “good557 faith” rule it is recognized that value is a matter about which men may honestly differ. In them it is therefore held, that if the parties fairly and in good faith value the property. conveyed in payment of the subscription, the courts will not go behind their assessment. But under either rule there must be payment, and if it is not made the subscriber remains liable as for an unpaid, subscription.' This record does not call for a determination of the question as to whether in Georgia the liability of a subscriber is to be measured by the “ true-value ’’-rule or the “ good-faith rule. For here the defendants by their demurrer admit that, when the subscription was made and the certificates were issued,, both parties to the transaction knew that the property was worth not more than ten per cent, of the stock. Under no rule would this be considered payment, and the trustee in bankruptcy could maintain a suit, whether it be treated as based on the contract or arising out of a fraudulent valuation. The cause of action is for the unpaid subscription. To the-creditors it makes no difference whether the failure to pay was; the result of an express contract or the result of frand. If there-could be difference in the rights of the trustee, it would seem that-he ought to be more bound by a contract than by fraud.. And if' the contract to receive less in money than the face of the stock will not defeat his right to recover, neither should it be defeated by a fraudulent agreement to receive less in property. Compare 1 Cook on Stockholders, § 47, with Elyton Land Co. v. Birmingham Co., 92 Ala. 407, 25 Am. St. Rep. 79. For it has long been held in this State that capital stock is a trust fund for the payment of debts. Hightower v. Thornton, 8 Ga. 486. The liability-on the part of the stockholder to pay his subscription in money or in money’s worth arises out of his relation to that trust fund,, and is imposed by law. The obligation is in part for the benefit-of the company’s creditors. Neither the corporation nor the subscriber, nor the two together, can defeat the creditor’s rights.. They can not do so by an express contract to issue non-assessable-fully paid-up stock for any number of dollars less than the-amount of the subscription. Neither can they bring about such a result by agreeing to receive property whose value is less than the amount of the subscription. Whatever may be the rights and remedies between the parties, when the interests of creditors are [558] concerned the law looks only to so much of the contract as made the subscription, and disregards every stipulation therein by which anything less can be received as a discharge. This liability can be enforced by the trustee in bankruptcy. For while he represents the corporation in a sense he also represents the creditors. Inasmuch as all the subscribers who have not paid in full can be joined as defendants in one suit (Dalton Co. v. McDaniel, 56 Ga. 195(1); Moore v. Ripley, 106 Ga. 556 (1); 1 Cook, Corp. § 206), it is manifestly to their interest, to that of the creditors, and to that of the estate, that the trustee should be permitted to be the plaintiff in that action. It avoids a multiplicity of suits. Civil Code, § 3989 ; compare §§ 4842, 4846. It permits the court to pass upon the rights of the several creditors, and to determine whether any are precluded from the right to share in the fund when realized. It also enables the court in one action to have an accounting, to determine the varying rights of each creditor, whether any of the subscribers are insolvent, to mold a decree accordingly, and to do. complete equity in one proceeding. That the trustee in bankruptcy is the proper party plaintiff to maintain such a suit against the stockholders who made their subscriptions payable in specifics was in terms decided in Falco v. Kaupisch Co. (Or.), 70 Pac. 286. The same principle was in effect recognized in Commercial Bank v. Warthen, 119 Ga. 990, even though it does not appear that the subscription was payable in other than cash. When the stock was transferred to the defendant Bona Allen, with full knowledge on his part that it had been issued in consideration of specific property thus overvalued, he acquired the rights, and became subject to 'the liabilities, of a stockholder, Fouché v. Merchants Bank, 110 Ga. 836. There was a.demand by the trustee and a refusal to pay by the defendants. 10 Cyc. 496 (111). If this was not sufficient the petition presented to the bankrupt court by the trustee set forth the debts and assets of the corporation, the amount of the capital stock and the sums paid in on account thereof, the amount due on account of subscriptions, the necessity of proceeding to collect the unpaid subscriptions; and prayed for an order authorizing him to institute such proceedings as might be necessary to recover the sums due. The order of the bankrupt court permitting the trustee to sue was a sufficient [559] judicial call or assessmeut to entitle him. to institute and maintain the present proceeding. 1 Cook, Corp. § 207. Judgment affirmed. All the Justices concur.