Rood v. Whorton

JENKINS, Circuit Judge, after the statement of the case, delivered the opinion of the court. Without doubt, the capital stock of an incorporated company-is a fund set apart for the operation of its business, and for the payment of its creditors. Sanger v. Upton, 91 U. S. 56. The original subscriber to the stock is liable for unpaid installments, and he cannot be relieved of this obligation by any act of the corporation. Upton v. Tribilcock, Id. 45. Nor is it doubted i.hat, as a general rule, the transferee of stock is liable for the unpaid assessments. Webster v. Upton, Id. 65. Whether a bona fide purchaser for value, and without notice, of stock issued hv a corporation as fully paid up, can be held liable to creditors upon such sto<¿k, although the stock was not in fact paid up as represented, is a question which we are relieved from considering, because, upon the facts disclosed by the record, we think the determination of the case must rest upon other considerations. That he cannot.be so held liable by the corporation, or, possibly, by creditors, seems to have been declared in Burkinshaw v. Nicolls, 3 App. Cas. 1004; Waterhouse v. Jamieson, L. R. 2 H. L. Sc. 29; Young v. Iron Co., 65 Mich. 125, 33 N. W. 814; Steacy v. Railroad Co., 5 Dill. 348, Fed. Cas. No. 13,329. There is not, however, entire agreement in the cases upon the subject. The record discloses that, at the organization of the company, the shares of stock were equally divided among the eight incorporators; that no cash payment was at the time made upon the subscription, but the sum of $220,000 was to be credited generally upon the stock, by the transfer to the company of a certain mining- lease at that stipulated price. There was no application of this payment to any specific shares, nor, it would seem, were any certificates of stock at the time issued. Within a month after the incorporation of the company, and, so far as the record discloses, before the contracting-of any debts, the shareholders, at a meeting at which all were present, unanimously resolved, in order to furnish working capital for ihe purposes of the corporation, that 16,000 shares of the stock of the corporation be contributed by the shareholders to the corporation for such purpose. These shares werfe to be issued to certain persons as trustees for the corporation, who were authorized to sell the same as full-paid and unassessable stock, at a price not less than three dollars per share, two-fifths of the proceeds to be paid to the original incorporators, and three-fifths of the proceeds to be covered into tbe treasury of the corporation for its use. This resolution was signed by each of the stockholders upon the minute book of the corporation. By this arrangement, if the entire 16,000 shares so donated should be sold at the minimum price stated, the company would receive' into its treasury the sum of -828,800, and by so much [124] tbe assets of the company would be increased as a voluntary contribution by the shareholders. The trustees were not obligated to sell the entire amount of stock so held in trust, but only so much thereof as they should deem for the best interest of the corporation; and it is stated in the findings of the court below that the evidence did not disclose that the trustee sold enough of the stock as full j)aid to equal $220,000 of par value of such stock. The defendant purchased, of the stock so issued, 800 shares of one Wambold, in the belief that Wambold was the owner of them. The defendant had not actual notice of the transactions here detailed, nor constructive notice of them, unless he was bound by the facts appearing upon the records of the company. The condition of the corporation at this time may properly be considered. The company was formed to develop the mine it had obtained from the incorporators. It owned the right upon certain conditions to the ore which might be produced. It had no working-capital. It had the property, but not the means to make that property available. To obtain that capital, the proceedings detailed were inaugurated. We are constrained to construe the transaction for the sale of the shares as full paid as an appropriation by the shareholders and by the corporation of the unapplied credit of $220,-000 to the 16,000 shares of stock contributed to the use of the company, or to such of them as should be issued. This is clearly so, and must in equity be so determined, because the shares to be issued and sold were to be issued and sold as fully paid and unassessable stock. To hold otherwise would be to assume a fraud upon the part of the incorporators and. the corporation, which we are not at liberty to do. That such was the contemplation of the parties is also manifested by this: that two-fifths of the proceeds of the stock so to be issued and sold was to be paid to the shareholders, which would be alike fraudulent, unless they designed that the credit of $220,000 to which they were entitled generally upon the stock should be applied upon the stock to be issued. The court below found that it did not appear that, of the 16,000 shares of stock so contributed, there was sold sufficient to equal at their par value the sum of $220,-000, and that there was no proof that that sum would not have equaled the full par value of all the stock sold. If we may not assume that no more stock was issued and sold than at its par value would equal the amount of the credit to which the corporators were entitled, and which was appropriated to and in payment of the stock so contributed and sold, it cannot be said, in the absence of proof that more was issued, that one who has in good faith purchased such stock as full paid can be held liable as for unpaid assessments upon the ground that the $220,000 of property received by the company in part payment of the $1,000,000 of stock subscription had not been, and ought not to be, appropriated as payment to that extent upon the stock so donated to the company, and issued as fully paid stock. We are not called upon to determine the legal result which would follow if it appeared that the 16,000 shares donated for sale if, in the judgment of the trustees, necessary for the purposes of the corporation, had in fact been all issued and sold. This conclusion [125] works no wrong to tbe creditors of the company, for their recourse to the original subscribers to the stock of the company remains unimpaired. The cases of Clark v. Bever, 139 U. S. 117, 11 Sup. Ct. 468, Fogg v. Blair, 139 U. S. 118, 11 Sup. Cf. 476, and Handley v. Stutz, 139 U. S. 417, 11 Sup. Ct. 530, while differing in their facts from those here appearing, are, nevertheless, in the discussion of the principles of law governing such transactions, strong to show the correctness of our conclusion. We arc' careful to observe that this case is ruled upon its peculiar facts, and that we do not mean to be understood as departing in any degree from the principle of law that unpaid subscriptions to the stock of a corporation constitute a trust fund for the benefit of creditors, which may not be given away or disposed of by it without consideration or fraudulently, to the prejudice of creditors; and we withhold any expression of opinion upon the question whether a bona fide purchase.']' for value, and without, notice, of stock issued as paid up, is liable for any part of the par value which may not have been in fact paid. The judgment will be affirmed.