Cornell & Michler's Appeal

Mr. Justice Trunkey delivered the opinion of the court, The Keystone Iron Company was incorporated March 24th, 1873, under the Act of June 16th, 1836, and its supplements. Its capital stock was originally $100,000. By the unanimous resolve of the stockholders the capital was authorized to be increased $100,000; and in 1874 it was increased by additional subscriptions amounting to $75,000. A small part of the increase was unconditional; the greater .part was on condition that no subscription should be.binding unless the total subscriptions to the captial stock should equal $175,000. On the face of the subscriptions they equalled the stipulated sum. All the additional capital was subscribed before December 26th, 1874, and on that date the treasurer was instructed to call in ten per centum per month until otherwise directed. In pursuance of this call of which notice was given within a week thereafter to — 162 — all the subscribers, all said stock was paid except $10,161 and $8,811, of that sum stands against the defendants. The balance, $1,350, was subscribed by Mrs. Robertson, $250; Mrs. Bercaw, $600; and A. Eraley, $500. Mrs. Robertson and Mrs. Bercaw are married women, and Fraley is insolvent. The company erected a furnace at a cost exceeding $175,000. Its real estate and tangible personal property were sold at sheriff’s sale in 1876. The plaintiffs are judgment-creditors of the company and executions issued on their respective judgments were returned “ No goods.” A board of directors has not been elected since 1876, and the last meeting of directors' was April 7th, 1877. The only assets of the company for payment of its debts are the unpaid subscriptions to its capital stock. The foregoing facts are averred in the bill, some pf which are admitted and none denied in the answer, except that it is denied that the subscriptions are binding on defendants. All the defendants signed the subscription after the signatures of Mrs. Robertson and Mrs. Bercaw. The subscription is referred to as part of the bill, and none answers that he did not know they were married when he subscribed. Nor does any defendant aver in answer that he notified the company, or other subscribers, that he was not bound by, or would not pay, his subscription by reason of non-performance of the condition, or for other cause. Arndt’s signature is the second after Mrs. Robertson’s, and the fifth after Mrs. Bercaw’s. It is not denied in answer that all the subscribers had due notice of the call; nor is bad faith on the part of the company, or its agents, alleged. T. R. Sitgreaves was a member of the firm of Welch & Co.; E. B. Mack of Mack & Edelman ; and A. Keller Michler, of Cornell & Michler. Sitgreaves and Mack were directors in 1874, and were continued in that office thereafter while the company did business. The minutes show that they were attentive and active in their official duties. Michler was at the stockholder’s meeting on April 13th, 1875; also on April 11th, 1876, when he was one of the committe to make nominations and prepare a ticket. Welch & Co. and Mack & Edleman made three subscriptions to the increase of stock; and Cornell & Michler, two; each firm paid a considerable part of its subscriptions. It is apparent, viewed in connection with the circumstances that their last subscriptions were to make up the sum of $175,000. It is proved and scarcely controverted that when the capital of $100,000, had been expended, the furnace was not nearly completed, and the increase of $75,000 was for the purpose of its completion. That purpose seems to have been well understood — 163 — bj the subscribers. Dr. Arndt, one of the defendants, testifies: ‘'Abraham Bercaw came to me and said, Doctor, we have to have some more money. I said, What for, and he replied, We have the furnace all ready with the exception that we must raise $175,000, and each stockholder must subscribo in order to put the furnace in running order. If we don’t succeed in raising'the $175,000, you won’t have to pay.” Every interested party knew that the sum of $75,000 was required to put the furnace in running order. The Act of 1836 provides, “ That the stockholders in the corporation to be created under this Act, shall be individually liable for the amounts of capital stock by them respectively subscribed in such corporations, which have not been paid in: ” P. L. 799. This suit is to enforce that liability. Nothing more is demanded of each defendant than so much of his subscription as remains unpaid. The plaintiffs put little stress on the claim that they gave credit on the faith of these subscriptions. They are creditors, and as such demand that part of the trust fund for payment of the debts of the company which remains in the hands of the defendants. There are other creditors of the company, but none of them have asked to be made parties. They might have come in as plaintiffs, had they chosen to do so, and if they stand aloof no party in the litigation shall thereafter suffer by their action. For reasons satisfactory to themselves, the defendants have not pressed for the appointment of a receiver, or that anything else be done in the interest of all the creditors. The plaintiffs are not bound to prosecute .the suit in the interest of others who might if they would come in as co-plaintiffs. Nor was it necessary to make all stockholders, who had not paid, defendants. The burden does not rest on the plaintiffs to adjust the equities between persons who individually hold portions of the trust fund, especially where each denies that he holds any part of the fund. Every person who holds any of the fund is bound to pay all that he holds, if necessary for satisfaction of tire plaintiff’s debt, although he may-have right of contribution. Under the facts in this case, the bill praying for direct payment byr the defendants to the plaintiffs, is not fatally defective, but is sanctioned by precedent. Of the numerous cases referred to by the Master and court below only two will be noted. The capital of a corporation is a fund to which creditors look for payment of their claims, and if the stockholders diminished that fund by dividing any part of it among themselves, without first providing for payment of all debts of the corporation, they receive it on the implied trust to pay the liabilities. And a creditor who has exhausted his remedy at — 164 — law, is clearly entitled to tlie assistance of equitj- to aid him in obtaining satisfaction of his claim out of the assets in the hands of the stockholders who possess them. The right of the claimant to immediate and entire relief is not to be delayed by any questions of expediency, or of the ultimate rights of the defendants to contribution. Each is bound to contribute his part of the trust fund in toto, and it is unnecessary that the creditor make all who receive the trust fund parties: Staug’s Appeal, 10 W. N. C., 409. Can it be said that the controlling principles in that case .are inapplicable to this ? In Hatch v. Dana, 101 U. S. R., 205, upon review of the authorities by Justice Strong, it was ruled that creditors of an incorporated company who have exhausted their remedy at law, can in order to obtain satisfaction of their judgments, proved in equity against a stockholder to enforce his liability to the company for the amount remaining due upon his subscription, although no account is taken of the other indebtedness of the company, and the other stockholders are not made parties. Nothing in Lane and Bunn’s Appeal, 14 W. N. C., 193, is inconsistent with the doctrine in Staug’s Appeal, or in Hatcli v. Dana. In that case John Maxwell and others, suing as well for themselves as for all other creditors who might become parties, brought suit in equity against the corporation and the holders of its capital stock, to compel payment of the unpaid capital. In the elaborate opinion, at the outset, Justice Green thus states the points for consideration: “ The chief contention before the Master as in this court, was upon the liability of the stockholders in this proceeding. It was contended on behalf of the defendants that they could not be called upon by bill in equity, as proposed in this case, for two reasons: First, because the complainants have a complete and adequate remedy at law specifically provided by the Act of April 29th, 1874, under which the company was incorporated; and second, that the plaintiff, John Maxwell, the principal creditor, had a complete and adequate remedy by attachment in.execution upon his judgment.” These were the defences considered, and it was clearly shown that a bill in equity was the proper proceeding. Doubtless there are cases where the action should be by or for all creditors, and against all persons liable to pay, or to contribute to payment of the debts. Arid cases may arise when, upon proper application, creditors who were not parties in the first instance will be made parties, and where all persons liable to contribute must be made defendants. The second point urged by appellants, is, that the subscription having been made on condition that the whole amount — 165 — of the additional $75,000, should be subscribed, and part thereof having been made by married women, is not binding. Both their subscriptions were made on the same condition, and a part of the stipulated sum. They knew the condition of the subscription, that it contained the names of Mrs. B,obertson and Mrs. Bercaw, and for aught that appears they were as well informed respecting those persons as any officer or other stockholder in the company. Cornell says the subscription was to complete the furnace; they did not have money enough to complete it. The appellants paid on the twenty shares first subscribed. What difference does it make whether the payment was made on the first or second ? Each was part of the same sum. If one was binding so was the other. By paying the first calls on one subscription they waived the written condition. Their payment of call, their active part in the meetings of stockholders, their silence respecting nonliability until after payment of more than seven-tenths of the whole additional subscription, forbid that they may now evade payment of the balance on the ground that one seventy-fifth part of the subscription was inadvertently received from married women. They paid part, others paid all they subscribed, liad the business proved successful the appellants would have been entitled to every share of stock for which they agreed to pay. They must bear their share of the burden in common with the shareholders who paid in full, while they were actively and openly recognizing their liability. The third ground of defence relates to the ten shares last subscribed, “having been made upon the further parol condition that it was not to be called in until the furnace was put in blast by the company, and to be used only as working capital.” As shown by the testimony of one of the appellants, none knew better than they that the increased subscription was needed and made for the completion of the furnace. They do not pretend that the parol agreement was such as to vitiate the subscription already made. The parol agreement related to further subscriptions, made after more than two-thirds of the stipulated sum had been subscribed. It is a part of the $75,000, but the time of its payment was agreed tó be postponed until completion of the furnace. A disinterested 'witness, called by defendants, testifies: “At the time the subscriptions were made the question had not yet arisen whether the furnace should be put in blast by any other person than the company. The expression used was.that the subscriptions should not be paid until the furnace was put in blast. The linderstanding was that the furnace was to be put in blast by the company. Upon that day nothing was said about putting — 166 — in the blast by the company. The subscription was to be used as working capital.” In view of all the evidence, that is a fair statement of the oral promises at the time the appellant subscribed for. the ten shares. — Dr. Arndt was not then present. Debts were contracted for completion of the furnace, the unpaid capital was insufficient for working capital, the furnace was leased by authority of the stockholders, and the tenant put it in blast in 1876. The court did hot err in holding that the condition was performed according to its reasonable intendment. In any view the subscription is not void, or voidable. Its condition is stated in the answer thus: “That the same was not to be called in or payable until the furnace of said company was put in blast by the company, and that the same should only be used for working capital.” It was due when the furnace was put in blast. It was payable before it could be used for working capital. If the company failed to pay its debts, the creditors could demand it from the shareholders as soon as due and payable. The company had right of action for its recovery immediately after it became due. No false representation of fact is alleged, and the contract is not voidable. A failure on the part of the corporation to comply with the special terms of a subscription for shares, is merely a cause for an action against the company: Morowetz on Corp. § 803. This principle will surely apply when the promise is to use the money after its payment as working capital. Upon the appellants’ own contention and showing, the money for' the ten shares did not become due and payable until in the year 1876. The bill was filed April 23d, 1881. All the calls on the prior subscription for twenty shares, made more than six years before the filing of the bill, were paid. The Statute of Limitations is not a bar to any part of the demand. Decree affirmed, and appeal dismissed at costs of appellants.