Sangamon Coal Mining Co. v. Richardson

Garnett, P. J. Judgment having been rendered in favor of Charles W. Merriam, Isaac S. Collins and George W. Dexter against the Sangamon Coal Mining Company, upon which an execution was duly issued and returned unsatisfied, this proceeding in garnishment under Chap. 62 E. S., was commenced in the name of the company for the use of the judgment creditors, against the appellees. The purpose of the garnishment is to recover from appellees certain liabilities which are alleged to be due from them on shares of stock which they own -in said company. Appellees do not deny that they are the holders of the shares of stock, but in defense they set up and prove that when the stock was originally subscribed the entire capital stock was subscribed by the parties who paid therefor, by conveying and turning over to the company certain property and business interests, which were accepted and received by the company in full payment of such subscriptions. The value of what was thus paid is matter of dispute, and although it was clearly of a substantial character, for the purpose of this case it may be admitted that the evidence gives good reason to believe that it was not ■worth more than one-third of the face of the stock. The inadequate value of the consideration given by the stockholders is relied upon by appellant as ground for holding garnishees on their stock liability. Can they be so held in this proceeding? That is the sole question for decision. Garnishment is a proceeding at law, and only debts which, the judgment debtor could recover by action at law can be reached by process of garnishment. In this respect the statute remains as it was when Webster v. Steele, 75 Ill. 544, Richardson v. Lester, 83 Ill. 55, and Netter v. Board of Trade, 12 Ill. App. 607, were decided. Those cases hold the negative of the proposition and are conclusive on the point. When the company-received the consideration mentioned in full payment for the stock it no longer had any right of action against the stockholders. Their liability was to the creditors of the company alone, and even the creditors could make thqm respond only after the discharge given by the company was set aside by bill in equity. In Scovill v. Thayer, 105 U. S. 143, it appeared that when the shares of stock were subscribed for, the company agreed with the subscribers to accept a certain percentage of the face value thereof, and that agreement was carried out, certificates of full paid shares being issued. The company becoming bankrupt and the assignee seeking to recover the amounts unpaid on the stock, the holders of the shares set up a defense presenting directly the question now before us, which the court disposed of in these words: “ The stock held by the defendant was evidenced by certificates of full paid shares. It is conceded to have been the contract between him and the company that he should never be called upon to pay any further assessments upon it. The same contract was made with all the other shareholders and the fact was known to all. As between them and the company this was a perfectly valid agreement. It was not forbidden by the charter, or by any law or public policy, and as between the company and the stockholders was just as binding as if it had been expressly authorized by the charter. If the company, for the purpose of increasing its business, had called upon the stockholders to pay up that part of their stock which had been satisfied by discount, according to their contract, they could have successfully resisted such a demand. Ho suit could have been maintained by the company to collect the unpaid stock for such a purpose. The shares were issued as full paid, on a fair understanding, and that bound the company. * * * In this case there was no obligation resting on the stockholders to pay at all until some authorized demand in behalf of creditors was made for payment. The defendant owed the creditors nothing, and he owed the company nothing save such unpaid portions of his stock as might be necessary to satisfy the claims of creditors. Upon the bankruptcy of the company his obligation was to pay to the. assignees, upon demand, such an amount upon his unpaid stock as would be sufficient, with the other assets of the company, to pay its debts. He was under no obligation to pay anything until the amount necessary for him to pay was at least approximately ascertained. Until then his obligation to pay did not become complete. But not only was it necessary that the amount required to satisfy creditors should be ascertained, but that the agreement between the company and the stockholder, to the effect that the latter should not be required to make any further payments on his stock, should be set aside as in fraud of creditors. Ho action at law would lie to recover the unpaid balance due on the stock until this was done.” The same rule was held in Peck v. Coalfield Coal Co., 3 Ill. App. 624. The last case was reversed in the Supreme Court, but without affecting this question. There is no error in the judgment and it is affirmed. Judgment affirmed.