Dean v. Baldwin

Mr. Justice Adams delivered the opinion of the court. It sufficiently appears from the bill that the pretended discovery and invention of Angel was no discovery; that what he claimed to have invented and discovered was well known to dye manufacturers before he claimed to have discovered or invented it; that he refused to turn over to the dye company the formulae for his alleged discovery, as he had agreed with the promoters, namely, in payment of stock for which he had subscribed, and which was issued to him and for which he paid nothing. It also appears that Baldwin, Gundling’s attorney, being acquainted with the status of matters as between Angel and the dye company, and knowing that Angel had paid nothing for the stock, purchased from Angel the useless formulae for the sum of $300, and that, thereupon, Angel transferred the fifty shares of stock of the nominal or par value of $5,000 to Baldwin. So far the dye company had received nothing for the Angel stock so transferred. It would seem, from the facts stated in the bill, that while Baldwin was the ■nominal purchaser of the formulae from Angel, and the assignee of the Angel stock, he, in fact, made the purchase for Gundling, and took the assignment of the stock for him, although in his, Baldwin’s, name. Gundling, as the bill avers, had, previous to the alleged purchase by Baldwin, informed stockholders and officers of the dye company that he, Gundling, had made an agreement with Angel to purchase his formulae for the sum of $300. The bill avers that Gundling was acquainted with the affairs of the company, and especially with the dealings between Angel and the company. All of the stock of the company was fully paid for, except the Angel stock. The bill avers that the formulae were not worth nearly $5,000, and substantially that they were valueless, and the very fact that the owner of the formulae, who, as the bill avers, was an expert in the dyeing business, and who, therefore, must have been well acquainted with the value of the formulae, sold them for $300, is evidence that they were not worth more than that sum, to say the least. In view of these facts, the resolution of the board of directors passed October 17, 1900, to the effect that the company should receive the formulae in full payment of the Angel stock, transferred to Baldwin, and for which Angel had paid nothing, was, in law, if not in fact, a fraud on the company and on the stockholders, who had paid in full for their stock. It was a fraud as to the corporation, because, if effective, it deprives it of a large amount of the capital on which it must rely for the carrying on of its business and the payment of its debts. It was also a fraud on other stockholders or subscribers for stock. Melvin v. Lamar Ins. Co., 80 Ill. 446. In that case there was a subscription for 5,500 shares of stock, but there was a private arrangement between the subscribers and the company, by which the subscribers might, subsequently, surrender their shares and withdraw from the company all money paid by them. The court held this arrangement invalid, saying: “All subscriptions are presumably upon the same basis, and all shares entitled to the same benefits and subject to the same burdens. In the subscription of each person every other subscriber has a direct interest. There purported here to have been a large amount of stock taken, whereas, in fact, there was really no stock taken — the issue of the shares to Cushman and Hardin being coupled with the right on their part to surrender them and take back their money. Such a private arrangement with an individual subscriber, although it may not be intended, is, in law, a fraud upon the other subscribers, and such agreement will be disregarded, and the party be held bound to all the responsibilities of a bona, fide subscriber. This is the doctrine, as we regard, abundantly established by judicial decisions.” Ib. 456-7. In the present case the subscription for the Angel stock was absolute and unconditional, and the corporation could not legally receive in payment of the stock anything except money to the amount of its face value or property which the corporation might lawfully possess and use, and of value equal to the face value of the stock, at a fair estimate. Coleman v. Howe, 154 Ill. 458; Sprague v. Nat. Bank of America, 172 Ib. 149; Nat. Bk. of America v. Pac. Ry. Co., 66 Ill. App. 320. In Coleman v. Howe, supra, the court say: “ But if the property contributed is not valued in good faith, the shares of stock will not be fully paid up, either in law or fact, bv the contribution of such property. A declaration by the corporation that the shares are paid up will not avail against the creditors in case of insolvency. (2 Morawetz on Priv. Corp., Sec. 825.) The courts have inflexibly enforced the rule, that payment of stock subscriptions is good as against creditors only where payment has been made in money, or what may be fairly considered as money’s worth.’ (Wetherbee v. Baker, 35 N. J. Eq. 501.)” In 2 Horawetz on Priv. Corp., Sec. 825, this language is used: “ A contribution of property or services by a shareholder Avould undoubtedly discharge his obligation to creditors, in respect of the amount of capital to be contributed by him to the extent of the value of the property or services; and if the property or services so contributed Avere valued by the agents of the corporation, in good faith, at-a certain sum, creditors would be bound thereby, though the valuation may prove to be excessive. However, if property or services contributed by a shareholder to pay up his shares were not valued in good faith at the amount of capital to be contributed in respect to the shares, they Avould not be fully paid up by such contribution, either in fact or in law.” It is clearly contemplated by the general incorporation law, that subscriptions for stock shall be in good faith and for the par value of the stock. Statutes, C. 32, Sec. 7. As between a subscriber for stock, or a stockholder, and the corporation, the market value of the stock is not an element affecting in any Avay the liability of the subscriber or stockholder to the corporation. The liability of a stockholder is measured by the amount of the subscription for the stock, at its par value, less any amount Avhich has been paid on it. This is illustrated by numerous decisions. 1 IVlora-Avetz on Corporations, 2d Ed., Sec. 56. The amount of the subscription for the Angel stock Avas $5,000, namely, fifty shares of the par value of $100 each. Baldwin, the assignee of the shares, Avith full notice that they were not paid for, stands in Angel’s shoes, or G-undling, if he is the real owner of the shares, is in like position. The facts averred in the bill show that the resolution of October 17,1900, was passed by the vote of two directors, Gundling and Sager, the only other director, Thompson, protesting. The wrong-doing directors being a majority of the board of directors, the rule is that stockholders may file a bill. Bruschke v. Chicago S. Verein, 145 Ill. 433, 445. It was error to sustain the demurrer and dismiss the bill, and the decree will be reversed and the cause remanded.