Efird v. Piedmont Land Improvement & Investment Co.

The opinion of the Court was delivered by Mr. Justice Gary. The facts of this case are fully set forth in the report of the master, which will be set out by the Reporter. The said report was confirmed by the Circuit Court, except in the following particulars, to wit: 1st, the first, second, fourth, and latter part of the fifth conclusions of law were reversed, and 2d, it was ordered that the report be “amended by including in said finding of original subscribers liable for the thirty per cent, upon the amounts of their subscription to the following: C. J. Iredell, twenty shares, $2,000; W. H. Gibbes, ten shares, $1,000; Walter M. Gorham, ten shares, $1,000.” The defendants demurred to the complaint, on the ground that it did not state facts sufficient to constitute a cause of action, inasmuch as it alleges that an assessment for the unpaid instalment of subscription to the capital stock of said company was made, and does not allege that the board of directors of said company had refused to enforce the same, or were derelict in that regard, and that said payment could only be enforced by the corporation itself, or by a receiver duly appointed. Some of the defendants withdrew the demurrer, but others insisted upon it. 1 The first question that will be considered is whether there was error in overruling the demurrer. The return of nulla bona on the execution shows that the corporation was insolvent. Parker v. Bank, 53 S.C., 583. It is not necessary to cite authorities to sustain the principle that under such circumstances the Court, in the exercise of its equitable jurisdiction, will take control for the purpose of winding uj) the affairs of the insolvent corporation. 2 The next question that will be considered is whether there was error in deciding that the original subscribers, who transferred their shares of stock, are'liable for the unpaid subscription. This corporation was organized under the general act of incorporation. In prescribing the powers of such corporations, section 1522 of the Rev. [87] Stat. provides as follows: “Among the powers of such bodies corporate shall be the following: * * * to render the shares or interest of the stockholders transferable, and to prescribe the mode of making such transfers.” Section 1529 of the Rev. Stat. provides that “no transfers of stock shall be valid, except as between the parties thereto, until the same shall have been regularly entered upon the books of the company, so as to show the name of the person, by whom and to whom the transfer is made, the number and other designation of the shares, and the date of the transfer.” The 21 st finding of fact by the master was not reversed by his Honor, the Circuit Judge, although the conclusion of law based thereon was reversed. The plain intent of the law was that in the absence of fraud or collusion, and upon compliance with the requirements as to transfers of shares of stock, the subscriber would not thereafter be liable for his unpaid subscription. This liability devolved upon the transferee of the shares of stock. The Circuit Judge was, therefore, in error when he decided otherwise. 3 The next question that will be considered is whether there was error in refusing to allow certain stockholders to set off their claims against the corporation, in extinguishment of the amounts due by them upon their original subscription. There is no statute conferring such right, and it is only necessary to cite an illustration to show how inequitable this rule would be. Suppose every stockholder of an insolvent corporation had a claim against it equal to the amount of his unpaid subscription, and that there were other creditors holding claims to a much larger amount than those held joy all the stockholders. If the stockholders could set off their claims against the amounts due by them upon their unpaid subscription, no other creditor would get a cent upon his claim. This would give a preference to those whose acts caused the insolvency of the corporation over those who had no control in its management and in no respect chargeable with its failure. The case of Nettles v. Marco, 33 S. C., 47, is relied upon as au [88] thority for the proposition that the right of set off should be allowed.' The facts of that case were quite different from those in this case. In that case the advances were made by Marco, a stockholder, with the knowledge and approval and for the benefit of the corporation,'but the principal reason why he was not compelled to pay the amount he subscribed was because the directors, who were clothed with authority for that purpose, in good faith, released him from any further payments on his subscription. These views practically dispose of all the exceptions. It is the judgment of this Court, that the judgment of the Circuit Court be modified in the manner hereinbefore indicated, and that the case be remanded to the Circuit Court for further proceedings. The defendants named below filed a petition for rehearing, and thereupon the following order was made: May 3, 1899. Per Curiam. The defendants, F. H. Hyatt, Jno. T. Sloan, W. H. Lyles, and Martin Stork, filed a petition for a rehearing in this case on the grounds set forth in their petition. They brought to the attention of the Court that the exceptions by Messrs. Mower and Bynum to that part of the decree releasing the said defendants from liability in the manner set forth in the petition had been withdrawn. They are, therefore, not liable as transferees of the shares of stock described in the complaint. It will not be necessary to order a rehearing in order that the petitioners may have this relief. The judgment of this Court is hereby modified in accordance with these views and the petition for a rehearing is dismissed. The defendant, Sloan, having filed a separate petition for rehearing, the following order was made: [88] May 3, 1899. Per Curiam. The defendant, Jno. T. Sloan, filed a petition for a rehearing in this case on the following grounds: “That your petitioner was named [89] as a party defendant in the above entitled cause, and it was alleged in the complaint, in the fifteenth paragraph, that the five shares of stock of G. Leap-hart had been transferred to him by the executors of said Leaphart, but it was no where alleged in said complaint that this petitioner was a subscriber to the capital stock of said company; that the master reported * * * that your petitioner was an original subscriber to the stock of said company to the extent of ten shares, but your petitioner excepted to said finding, and his ¿xception being disregarded, your petitioner again excepted to ■ the 'Circuit decree on account thereof, * * * and your petitioner respectfully submits that the failure of the Court to pass upon this exception was due to oversight on its part.” The complaint sets forth the names of the original subscribers, and the amounts severally subscribed by them, but for some reason the name of Jno. T. Sloan is not mentioned in said list. When, however, the original subscription list was introduced in evidence, it appeared therefrom that Jno. T. Sloan was an original subscriber for ten shares. No objection was made to this testimony, and the master accordingly- reported that Jno. T. Sloan was an original subscriber for ten shares of stock. Jno. T. Sloan excepted to the report of the master, not on the ground that the master erred in finding that he was an original subscriber, but on the ground that there are no allegations in the complaint charging him with liability as an original subscriber, nor asking for judgment for any such amount. He excepted to the decree of the Circuit Court on the same ground. It was evidently the intention of the plaintiffs to recover judgment against all the original subscribers to the capital stock of the company, and as the testimony clearly showed that Jno. T. Sloan was a subscriber to the capital stock, it would be inequitable to allow him to escape liability. The petition for rehearing is, therefore, dismissed.