Hawkins v. Citizens' Investment Co.

Mr. Chief Justice Bean, after stating the facts, delivered the opinion of the court. 1. The contention is made for the defendants that L. L. Hawkins and E. A. King, and not the plaintiff, are the real parties in this litigation; but the judgment in plaintiff’s favor and against the corporation is conclusive on this point. When a judgment is rendered against a corporation, it establishes the matter in litigation and the liability of the corporation to pay the debt; and this judgment is conclusive, in the absence of fraud, in a suit by the judgment creditor to enforce his remedy against the stockholders: i Cook, Corp. (4 ed.), § 209; 3 Thompson, Corp., § 3392; 2 Morawetz, Priv. Corp. (2 ed.), § 865. So we think the defendants are precluded from questioning the validity or ownership of the judgment upon which the plaintiff is proceeding. For convenience, the stock involved in this suit may be divided into' three classes: (1) Original stock, or that subscribed before the organization of the company; (2) what is known' and designated in the record as “dividend stock”; (3) the alleged conditional subscription made by Clark on — 550 — December 12, 1894. The only controversy arising upon the subscription for the original stock is that made by the denial of the defendant Clark that he subscribed for ten shares on March 15, 1890, or any greater number than five shares. The stock subscription book of the __ company shows that Mr. Clark subscribed for ten shares, although he was charged on the books of the company with only five; and a certificate for the latter number issued to him. In his testimony he says that, according to his best recollection, he only subscribed for five shares; that he received a certificate for that number, and fully paid therefor before the commencement of the suit. He frankly admitted, however, when shown the original stock book, that the signature thereto; with the number and value of the shares, is in his handwriting. His counsel at the argument sought to explain this inconsistency by saying that five of the shares were for one Robert Janion, who was not a subscriber for stock, but whose name is written in pencil immediately above Clark’s in the stock book, to whom a certificate for five shares was issued, which was receipted for by Clark for Janion, and afterwards paid up in full. The entry on the books and the circumstances of the case tend to support this position; but Mr. Clark, when asked on cross-examination if it was possible for him to' have subscribed for ten shares, with the intention of letting some one else have five of them, said that it was not, and on further inquiry he said that the name of Robert Janion did not occur to him in any way in connection with the matter. Upon this testimony, there seems to be no- escape from.the conclusion that Clark subscribed and became liable for ten shares, and the fact that he was only charged on the books and accounts with five, and no¡ demand was made upon him for payment for the other five, cannot affect his liability to the creditors of the concern: Balfour v. Baker City Gas Co., 27 Or. 300 (41 Pac. 164). 2. The condition attending the issuance of what is called — 551 — the “dividend stock” was substantially as follows: The corporation had what it termed an “appraisement committee,” charged with the duty of valuing the company’s property from time to time, and when such value exceeded the first cost a dividend based upon the cash paid in on stock subscribed was declared, to cover such excess. In pursuance of this plan a dividend of 200 per cent, was declared on May 20, 1890, to be “applied in payment of any installments due or to become due on any additional subscriptions to the capital stock of this company by the present stockholders thereof,” and the secretary was. authorized to open stock books for such subscription. Of this dividend, Mr. Clark was entitled to $50. He thereupon signed the original contract of subscription for one share of the capital stock, agreeing to pay therefor the par value in gold coin at the rate of $5 per month, and received a certificate therefor, upon which was indorsed $50, the amount of the dividend due him. On October 21, 1890, a similar dividend of 30 per cent, was declared, “to be paid in stock of a new issue,” of which Mr. Clark was entitled to $75; and he again signed the original subscription contract for one share, receiving a certificate as in the former case, with a credit of $75 indorsed thereon. On June 16, 1891, another dividend, of 20 per cent., was declared, of which Clark was entitled to receive $140 “in stock of a new issue”; and he again signed the original contract of subscription, for three shares, and received a certificate in the usual form therefor, upon which was indorsed the amount of his dividend. The same course was pursued in the case of the other defendants, the amount of the subscription in one instance being as high as five shares on a dividend of $180. On November 21, 1894, after the debt upon which plaintiff’s judgment is founded had been incurred, a stockholders’ meeting of the company was held, at which a resolution was adopted instructing the secretary to “call in and cancel all certificates representing” the dividend — 552 — stock, and the secretary thereupon credited each of such stockholders with the amount remaining unpaid on the face of his stock. The difference between the par value of the stock so subscribed for and the dividends, has never been paid, and the liability of the defendants to the plaintiff therefor is the principal question in this case. The defendants contend that they incurred no personal liability by reason of their subscriptions; that it was so understood and agreed between them and the corporation, but that, if otherwise, they were released by the resolution of the company retiring and canceling the stock; while the plaintiff insists that, if the resolution referred to is valid at all, it operated to' retire the stock to* the extent of the dividend only, and not the difference between such dividend and the face value. The oral testimony would seem to indicate that it was “the understanding” at the time that subscribers for dividend stock should not be liable to1 pay any money thereon. Their liability, however, cannot be so determined, but must be ascertained from the actual contract which they made. By it they agreed “to take the number of shares of the capital stock in the company set opposite” their names, and “to pay therefor the par value thereof in United States gold coin, at the rate of five dollars per month for each share subscribed, until the same is fully paid”; and the certificates issued to and accepted by them are to the same effect. It would seem clear, therefore, that by their contract the subscribers became bound for the difference between the amount of the dividend and the face value of their stock, and no¡ subsequent action of the corporation or its officers attempting to relieve them from such liability could affect the rights of existing creditors: i Morawetz, Priv. Corp. (2 ed.), §§ 109, 111; Balfour v. Baker City Gas Co., 27 Or. 300 (41 Pac. 164); Bedford R. R. Co. v. Bowser, 48 Pa. 29; Upton v. Tribilcock, 91 U. S. 45. 3. We come next to the alleged subscription of Clark — 553 — made in 1894. The evidence shows that the company was at the time financially embarrassed, and that White, its president, and L. L. Hawkins, its treasurer, undertook to- increase its capital by soliciting additional subscriptions for stock. A writing of some sort was prepared for the signatures of the stockholders, which was signed by Clark and others. The writing has been lost, and is not in evidence, but all the witnesses agree that it was not to- become binding on any of the subscribers unless signed by all, or practically all, of the stockholders of the company. Only a small percentage of them were willing to do so-, however, and the scheme to thus increase the capital did not succeed, and was subsequently abandoned, and therefore Clark’s subscription never became binding upon him: Beloit & M. R. R. Co. v. Palmer, 19 Wis. 574; Brewers’ Ins. Co. v. Burger, 10 Hun, 56. Some time in March, 1895, however, the list was delivered to or came into the hands of the secretary, who entered the names of the signers in the books of the company as subscribers to its capital stock, and a certificate for five shares was issued and delivered to Mr. Clark, who thereafter made several payments thereon, amounting in all to $40; and the contention is that, by accepting such certificate and making payments thereon, he waived the condition on which his subscription was made, and became irrevocably bound as a stockholder. The evidence shows, however, that when the certificate was issued and delivered to him he supposed all the conditions o'fi'the contract had been complied with, and the list properly’delivered to the company, and, acting on this assumption, accepted such certificate and made the payments on the stock, so- there was no ratification or waiver of the conditions: Denny Hotel Co. v. Gilmore, 6 Wash. 152 (32 Pac. 1004); Birge v. Browning, 11 Wash. 249 (39 Pac. 643). 4. In entering the decree against the defendants, the trial court included interest on the unpaid balances due on their subscriptions from the date the last installments be — 554 — came due; and this, it is insisted, is error. As already noted, both the subscription contract and the by-laws of the company provided that payments for stock should be made in monthly installments; hence no call was necessary, but the payments became due at stated times, by virtue of the contract of subscription. The statute provides that “all moneys after the same become due” shall bear interest: Hill’s Ann. Laws, § 3587. And, therefore, as between the corporation and the subscribers, the unpaid installments would clearly bear interest from the date they became due: 1 Cook, Corp. (4 ed.), § 112; Gould v. Town of Oneonta, 71 N. Y. 298; Rikhoff v. Brown's Machine Co., 68 Ind. 388; Goddard v. Ordway, 94 U. S. 672. And, as the unpaid subscriptions are assets of the corporation which a creditor may subject to the payment of his claim, no sufficient reason appears why he may not also collect such interest. 5. The remaining question is as to the liability of the defendant Gordon for the unpaid balance on stock subscribed by him, which depends upon whether his sale and transfer were prior or subsequent to the incurring of the indebtedness upon which plaintiff’s judgment is based. It is admitted that the sale was a voluntary one, and therefore he was liable only to existing, not subsequent, creditors: Hill’s Ann. Laws, § 3230. The loan for which the Hawkins note was given was made September 19, 1891; and Gordon contends that he sold his stock to- Eugene D. White on the first of that month, while the plaintiff insists that the sale was made to one Hart, March 10, 1892. The assignment of the certificate and the transfer on the books of the corporation bear date March 10, 1892. Gordon testifies that on September 1, 1891, he assigned in blank and delivered his stock to White, the president of the corporation, and received from him $225, the amount he had already paid thereon; that he did not turn the stock over to- White to find a purchaser, but that White took it and paid him therefor, and he supposed — 555 — at the time that he had parted with all his interest therein. White says that, to the best of his recollection, Cordon, late in the summer of 1891, wanted to sell his stock, and that he put the matter “in our hands, and we either purchased it for ourselves or for some one else, but it was purchased”; that the date of the assignment “might not have been the date the property was sold. We frequently bought shares or purchased them for some one else, and didn’t transfer the stock for some time. It would lie there before transferred, and frequently we had stock there that was assigned in blank by the party who- owned it.” The general rale is that the transfer of stock by a shareholder in a corporation does not relieve him of liability to the creditors of the concern until such transfer is perfected by being registered on the books of the corporation: 3 Thompson, Corp., § 3283. This doctrine is based on the theory that one who permits his name to appear and remain upon the books of a corporation as a shareholder is estopped, as between himself and the creditors of the concern, to deny that he is a shareholder. But the defendant Gordon contends that when he assigned his stock in blank and delivered it to' White, the president of the corporation, he did all that can be required of him, and such act, in equity, is equivalent to' a transfer on the books of the concern. In support of this position he cites Whitney v. Butler, 118 U. S. 655 (7 Sup. Ct. 61). In that case the purchase of the stock of a bank was made by the bank’s agent for one of its customers, and the certificate of stock, with a power of attorney attached, was delivered to the president of the bank, with the intention that the transfer should be made on the books. In an action against the original shareholder by the receiver of the bank ft> recover the amount of the assessment on such stock, it was held that the responsibility of the shareholder ceased upon the surrender of the certificate to the bank, and the delivery to1 its president of a power of attorney intended to effect the transfer- of the stock — 556 — on the books of the bank. The doctrine, however, can have no application to a case like the one at bar, where the stock is delivered to the president of the corporation as a vendee, and not for the purpose of having the transfer thereof made on the books of the company. The distinction between the case in hand and the one cited is illustrated and pointed out by the Supreme Court of the United States in the subsequent case of Richmond v. Irons, 121 U. S. 27, 58 (7 Sup. Ct. 788), which, so far as the point involved here is concerned, is substantially on all fours with the case at bar. Finding no error in the record, the decree of the court below is affirmed. Affirmed.