Opinion by
This proceeding was begun by 'the plaintiffs below, in the district court of Republic county,
The undisputed evidence shows that the Republic County Cooperative Association, Patrons of Husbandry, was, at the time this proceeding was begun, a corporation organized for other than railway, religious or charitable purposes; that the defendants had a judgment against said corporation upon which there was $201.80 due and unpaid; that the plaintiff was a stockholder in said corporation owning stock to the amount of $250, par value; that execution had issued upon the judgment of the defendants against said corporation and been returned by the sheriff with an indorsement thereon, that he had made diligent search and could find no property of any kind belonging to said corporation, defendant, on which to levy the execution; that the corporation owed other creditors the following sums: C. R. Barnes Milling Company, $135.97; Samuel Bliss, $8.29; D. H. Sallinger, $33.99; Chase Brothers, $35.21; Inglehart, Winning & Co., $36.46; that each of said claims had in fact been assigned to W. T. Dillon, and that W. T. Dillon had upon the back of each of said assignments
The disputed question of fact in the case is: Was Dillon acting for the plaintiff in purchasing the claims assigned to him (Dillon), and therefore took them for the plaintiff, notwithstanding he took the assignments in his own name; or was he acting for himself, without any understanding with the plaintiff, and independent of him?
This question the trial court resolved against the plaintiff, holding that Dillon was acting for him, as his agent, in purchasing the claims assigned to Dillon, and by him receipted to the plaintiff. This is the ruling complained of in the first assignment of error. A careful examination of the evidence of the plaintiff and Mr. Dillon satisfies us that the court below was justified in its conclusion that Dillon acted for the plaintiff in purchasing claims against the corporation. The character of the evidence leads irresistibly to that conclusion. Dillon was plaintiff’s attorney, and had advised him in relation to his liability as a stockholder in said corporation before the motion in this proceeding was filed; had talked with plaintiff about the effect of plaintiff’s purchase of claims against the corporation at less than their face value. When he purchased the claims, though he took an assignment of them in his own name, he bought them with the plaintiff’s money. It is true, he says he borrowed the money of the plaintiff; but all the evidence, taken together, upon that subject, hardly supports that theory; but, on the contrary, shows that the plaintiff, having been informed by Mr. Dillon that it was
The further question in this case therefore is, can a stockholder in a corporation like this purchase claims against the corporation at a discount, and then obtain credit for them at their face value in satisfaction of his liability as a stockholder to creditors of the corporation? We think not. The statute creating a liability on the part of the stockholder guarantees to the creditor of a corporation a trust fund, in the hands of the stockholders, liable for the ultimate payment of the corporation debts. The law says you may combine your capital, create a corporation, relieve yourselves of the common-law liability of co-partners, and obtain the many other advantages growing out of corporate existence; but, as a protection to the public, in lieu of the partnership liability you escape, you shall be held not only liable to the corporation and creditors for the full amount of your stock subscribed, but to guarantee further protection to creditors of the corporation, you shall, if the corporation itself becomes insolvent, be charged with a further liability to such creditors equal to the amount of your stock in the corporation. This liability may be discharged by payment on execution issued pursuant to the statute, as in this case. The authorities also hold, as a matter of equity, that such liability may be discharged by a voluntary payment by the stockholder, in good faith, of the just debts of the corporation equal to the amount of the stock held by him in the
“A stockholder who has voluntarily paid corporate debts to the full extent of his statutory liability is entitled to set up that fact. And when such a payment was bona fide, it is a bar to an action to collect any further amount." (Cook, Law of Stocks, §227c.)
“A stockholder who is individually liable to the amount of his stock in favor of creditors of his corporation may discharge such liability by the payment, in good faith, of the amount of the same to any creditor who is not also a stockholder. But he cannot discharge it by buying up debts owing by the corporation, equal in amount to his liability, at a discount. In such case, if he retain such indebtedness so purchased by him, he can only claim a discharge for the actual sum paid by him for the same." (Thompson v. Meisser, 108 Ill. 359.)
If any but a bona fide payment in good faith by a stockholder were allowed, stockholders of a corporation, who would know of the insolvency of their corporation in advance of creditors, would be able by a little sharp practice to rid themselves to a large extent of liability by purchasing claims against the corporation at a discount, and thus rob creditors of a like amount of the protection guaranteed them by statute. This plan of discharge would also be against public policy, as tending to destroy public confidence in corporations. (Lingle v. Insurance Co., 45 Mo. 109.)
“ In an action to charge a stockholder with a corporate debt, defendant cannot set up as a defense that he has purchased judgments against the corporation aggregating the amount of
“Nor will a shareholder, who has employed an agent to buy up claims at a discount and then confessed judgment in favor of the agent, be permitted to plead such judgment in bar of an action by another creditor.” (Manville v. Karst, 16 Fed. Rep. 175.)
“Payment of the judgment at a discount is no exhaustion of the liability, though the judgments at full value would have exhausted it.” (Kunkleman v. Rentchler, 15 Ill. App. 271.)
“Neither may a shareholder himself buy any claims at a discount and set them off at their face value in an action to enforce his statutory liability to creditors.”
Gauch v. Harrison, 12 Ill. App. 459; Diven v. Phelps, 34 Barb. 224; Balch v. Wilson, 25 Minn. 299; Smith v. Mosby, 9 Heisk. 501.
The plaintiff complains that the cost of the proceeding in the district court was taxed to him. If when notice was served on him he had paid the plaintiff below the amount of his liability, he probably should not have been required to pay any cost. But when he went into the district court and contested the right of the plaintiff below to recover from him, and the matter was decided against him in that contest, it was proper, we think, to tax the cost of such proceeding against him.
For the reasons above given, it is recommended that the judgment of the district court be affirmed.
By the Court: It is so ordered.