Handley v. Stutz

HANDLEY v. STUTZ.

Syllabus. that the cause remanded It is decreed he from,. further the Eastern District directions to the Circuit Court for herewith, enter a in and to decree Louisiana conformity with the herewith accordance court opi/nion proceed filed.

Me. Brewer were not Justice and Mr. Justice Brown the court no members of when this case and took was argued, in thé decision. part

HANDLEY STUTZ. APPEAL EEOM THE CIRCUIT OF COURT THE UNITED STATES EOE

THE MIDDLE OP DISTRICT TENNESSEE. No. 12,1891. Submitted 1516. Decided January 30, 1891. March The failure to enter a vote of stockholders corporation in. a the cor- does, poration adopted records at the time when was affect its validity. corporation organized A resolution of stockholders in a under the laws of capital Kentucky corporation, passed to increase the stock' of the at a State, meeting binding held without limits of the mem- present voting for it. bers Kentucky corporation by capital An increase of its stock within the by law is not invalidated amount authorized reason of the fact that authorizing amendment of charter such no increase ever recorded ; required by published laws State. corporation in a capi- a stockholder who assents to an. When n gratuitous among tal stock and its distribution shareholders, full.paid stock, obligation receives such stock as arises called, full, for it in to do when so creditors whose debts subsequent equity are of the increase: authorization but this does prior not exist favor of creditor debt whose was contracted such authorization. corporation, impaired by finding An active loss or mis- its. fortune, itself, purpose recuperating may, producing for the business, prosecution of issue new conditions successful new market, price put' sell it the best can trust creditor in such case favor of a obtainedand arises faith, who, buys par. purchaser good for less than

VOL. cxxxix —27 TERM,

Statement of the Case. This was a bill filed Sebastian equity, Stutz, Pitts- certain other Pa., burg, persons firm of composing Brothers, Evansville, Indiana, others com- Kagon firm the of Louis Stix & Co., Cincinnati, on posing Ohio, and behalf of themselves such other creditors of the Clifton Coal as should come in and contribute to ex- Company the the suit, Clifton Coal and cer- penses Company tain of its to stockholders, an assessment certain compel shares of stock held the individual defendants, and by payment of the same as a trust fund for satisfaction of the debts of the bill averred in substance that the Clifton company. Coal under the laws of the State Company incorporated with to Kentucky, July, lease and power purchase, mines in coal the State of a operate Kentucky, copy articles of to annexed incorporation being bill; that by articles the said stock of such capital was fixed at divided into shares of $120,000, each, $100 power same to $200,000, a vote of the stock- majority that all ; holders the stock was then taken and paid in some subscribers manner between agreed upon them; that, to the contained in the articles pursuant authority of incorpo- ration, stockholders, all of them and being present voting, “at held'for the meeting duly 1886, unani- purpose May, and resolved ordered that mously stock of said capital and in be, fact it was, then increased company $200,000, in each, of $100 shares an increase of 800 shares of stock ” of said that of the 800 shares then company; created, the other, defendant subscribed for two of Handley shares, 86£ defendants for 15 shares and each, two others for 75 shares each, certificates of which were issued and company, and to, delivered received said by, subscribers, as were they but that neither entitled; one of respectively them ever paid to the of the said company any shares, each, part owe the said full respectively, company value par said shares of the stock subscribed capital for and issued to them.

The bill also averred that on December 1886; having been resolved to issue bonds to previously the amount of STUTZ.

HANDLEY v. the Case. Statement thereof and to secure $50,000, payment by mortgage and said executed to mortgage having property, a contract was executed and delivered recorded, trustees certain others of the defendants, whose in the thereto, We, names were subscribed terms: following the amount set subscribe for our opposite the undersigned, of the Clifton Coal names, bonds respectively, Company, It is that $50,000 $50,000. aggregating Agreed rata, the subscribers to be distributed the above pro among ” defendants subscribed bonds; several conr take tract, amounts; bonds different agreed for the the coal said subscribers paid thus the extent received, $30,000, with the its officers and its debts certain of company paid managers, had liable who become endorsement ever had been for or was or upon any nothing- paid thus and to distrib- for, shares of subscribed capital $50,000 stock, that of said uted them; capital is-to say, among was in fact subscribed for thereof, to 500 shares equivalent to of defendants, whom, and certain distributed the among them received were issued and 1S87,.there respec- May, for shares. certificates tively were that the

The bill further averred plaintiffs judgment- in the courts of obtained creditors judgments company, by all were created before of their debts Kentucky; was and that all of in; stock of said paid capital company n and of and each all $80,000 said capital its for of the amounts to the due any part capital company benefit, for their constituted a trust fund a court of to the were entitled administered to have equity in- insolvent. said debts, satisfaction of their company being that the It further from the testimony company appeared of were after its articles was soon incorporation organized and ; at chief office was filed; Kentucky its Mannington, and made at outlays business once large began and labor. materials buildings, machinery, expenditures 188fi, led was to In the year company early part its and, therefore, coke, products believe that its coal would TERM, Statement the Cáse. extended from and steam could be grate profitably purposes coke. To embark in the manufacture of coke, iron-making was however, needed, a of the stockhold- meeting was held ers March at 31, 1886, which a resolution was passed, was needed $50,000 which to with erect coke reciting ovens, further etc., buildings, improvements, develop and it ; was $50,000 resolved issue property unanimously each, bonds in sums of due corqpany, thirty $1000 years from interest, cent and secured a trust April per of .the mortgage upon property presi- was dent authorized such as in his bonds discre- dispose tion seemed best. was executed mortgage desig- found, trustee It nated and recorded. was that the howWer, could bonds and meet the sold, demands a borrowed company money, its large amount upon endorsed notes, directors and stockholders, and to secure the lenders and of bonds endorsers, $50,000 were deposited two banks Nashville, as additional Tennessee, collateral for the loans. that no one would security Finding purchase bonds, advised that order to effect sale it would be better add an amount of stock to the equal bonds to propose purchasers give.as of stock with each bond, $1000 gratuity $1000 meeting the stockholders of the Nashville, was held at May- all 1886, which were 31,' stockholders present person without call or by proxy, although any previous notice, was “it resolved that stock of the unanimously be increased to $'200,000, authorized the char- This- ter.” resolution was not then entered the records but in the of a corporation, formulated shape pencil and memorandum, vote adopted unanimously, although to have been and taken, no formal record was made appeared until of the summer 1888. of No notice meeting in the amount of its stock was change recorded or pub- n as lished, the laws The subscribers required by Kentucky. to the bonds executed the set forth in subsequently agreement bill, $45,000 the and bonds the amount of were delivered to subscribers amounts of certificates of equal “paid v. STUTZ.

HANDLEY' Appellants. Counsel for “ stock, up” that it receipts was issued with reciting bonds for same amount, per The on agreement.” certificates then- face recited that the shares stock were and fully paid up were non-assessable,” or to that effect. Five thou- language sand dollars of the bonds were left in one of the national banks Nashville as collateral for a loan to the security no one company, subscribed for having them. The remaining- $30,000 shares increased which were not stock, needed to secure subscribers to the bonds, to have been dis- appeared tributed rata the old pro stockholders. In the latter among and in 1887, part early part following year, plain- tiffs obtained which were un- judgments against company, satisfied, and an order Circuit September, Court the entire Hopkins County, Kentucky, property was in the hands of a receiver, company placed stopped. operations

On this bill filed 8, 1889, coal February against and the holders of this stock, increased company compel and to the amounts- of the therefor, recover payment judg- ments court dismissed The the bill as against company. to three of not served with as to defendants process, held the creditors of the rest them liable to all the company whose debts after the increase of originated alleged fixed as the of such increase. As to date debts May, date, contracted were excluded because, prior stockholders, between the the latter held such stock and without liability properly, all creditors who dealt with the such in- company prior crease, and not had no the faith of such equity, could. Five demand more than the itself rendered in defendants whom decrees were excess of to this Court court, $5000 Circuit appealed suspended who could not the execution of the decree as to those appeal, until this court should determine rights appellants. in 41 Fed. of the Circuit Court is reported Hep. opinion Stuart Pilcher for Mr. Edward II. and Mr. James East appellants. TERM, 1890.

Opinion of the Court. and Mr. James R. Evans MacFarla/ne for Mr. Walter appellees. of the Brown delivered court.

Mr. Justice opinion 1886, of the resolution 31. May increasing Although $120,000 $200,000, from was for- of the of the at that- time the books entered mally was then but a made memorandum pencil nothing can be taken its objection meeting, proceedings reason such omission. The shows validity by testimony what took at this It from the clearly place appears meeting. made Allen, memorandum Mr. to have by acting secretary, resolved that the stock of the com- unanimously be increased as $200,000 authorized the charter, pany for which said stock is issued the better- purposes ment plant, of a present new plant construction This resolution coking purposes.” was subsequently, in 18S8,when the omission to record the same have appears to been first discovered, entered formally the minute book The failure to this corporation. enter resolution at the time was did not its adopted affect as most validity, can' acts as corporate well proved as written by parol entries. Moss Averell, 10 N. Y. 449.

2. Nor were the of such bind- less proceedings meeting any those in it that it ing upon reason fact participating was held without call or notice, outside the boundaries the State under the laws of which the incorpo- rated. an act of the By 3, March legislature Kentucky Statutes, 1876, General “all elections for directors page other officers, shall be held private corporations, etc., within the territorial limits of the . . State of . Kentucky. such elections held outside of void.” Any shall be Kentucky the election of offi Beyond iers, is no however, statutory there restriction of action to the limits of the corporate State, in the absence of such inhibition the meet- proceedings within the would, rule laid down court in ing Galveston Railroad v. 11 Wall. Gowdrey, to directors’ regard v. STUTZ.

HANDLEY all those meetings, binding upon it, well participating those the faith acting upon validity, receiving stock authorized be issued at such It is true there meeting. are cases that stockholders’ cannot be holding meetings legally held outside of the home state of the but the corporation, has arisen where a question generally at such majority present had meeting attempted their action to bind a by dissenting or had taken minority, action to the of third prejudicial rights v. Ormsby persons. Vermont Co., 56 N. Y. Copper Mining 623; Hilles Parrish, 14 N. Indeed, J. (1 380. Eq. McCarter,) so far as we know, the are authorities uniform to the effect that the action taken at such is those meetings binding upon who in or take the benefit them. Heath v. Sil participate verthorn Wisconsin, Lead 39 146. In Co., this Mining case was attended all stockholders but meeting by two, who were the vote the stock by represented proxy, increasing was in and it does not lie the mouth of unanimous, those who in this act, or received the stock voted at this participated meeting, question validity.

3. It is this further claimed that issue stock was invalid reason was no of the fact that there amendment of the charter ever such increase recorded authorizing published, as law The required Kentucky. proceeding in is found organization companies chapter incorporated the fifth section General Statutes of Kentucky, for at least four a notice weeks requires published in some as convenient practicable prin- newspaper several cipal business, place particulars, specifying among which is the amount of and the authorized, stock times capital when, and in. which, the conditions is to be Sec- paid tion six is as follows : commence busi- The may corporation ness as soon in the as the articles are filed record office of if clerk, court and their acts shall be valid county pub- lication in filed in is and the made, copy newspaper officeof the is State, when such Secretary necessarjq filing within three months from such office. No clerk’s filing valid, shall be change unless -any particulars foregoing recorded and as the articles are published original required TERM, .OCTOBER nor shall made at

be; time change any any man any would be ner which inconsistent this provisions the final act.” Reliance clause of this placed section, assumed defendants, position never recorded or capital having published, clause, void, case of Scovill v. 'required is cited of this contention. Thayer, support 105 U. S. to recover That was also an action assessments unpaid statutes stock. The of Kansas provided any corporation increase its stock to amount, capital any might exceeding amount of its double the authorized capital. had increased its itas was authorized question and it do, it, increased it by doubling doub subsequently thus again, amount, the- de

ling quadrupling fendant the case attended having by proxy'the meeting which such increase was illegal voted, and received quantity thus of the stock issued. It was held that such increase was and vires and that void, ultra the defendant was not estopped from of the validity his denying over-issue, obligation to for it. pay

In the case under consideration, the articles of however, did incorporation provide should be capital with to increase $120,000, power $200,000 aby majority and vote stockholders, there was no inhibition, statutory in Kansas, as such increase as it against any might thought advisable make. Here, then, Avasthe to increase the power stock to the amount fixed' capital stockholders, precise by at their at Nashville, the defect Avas in meeting merely the failure to record and such as publish change, by required section six of the statute in question.

It is insisted and the learned by appellees, judge Circuit Court so held, that the failure to record and publish this increase of the if stock, AvhichAvasin not fact, capital an name, amendment to the which had fixed articles, stock at was a and in $120,000, capital mere irregularity in the one, effect the such a formality increase; proceedings Chubb as Avas said Upton, court, 95 U. S. by constitute subscriber, no defence to a to such increased HANDLEr v. STL'TZ. case it In that

stock. appeared was made only objection by increased its proceedings stock, on the in ground irregularity informality papers in the offices; filed it was held that public one who con tracted with acting corporation, stock in by purchasing same, could not defend himself a claim against con-' tract, a suit corporation, by urging illegality In Veeder v. 95 N. Y. organization. 295, 310, Mudgett, also an which was action directors stockholders of against to enforce the them liability imposed upon because anof failure in the full amount alleged that the at which the in capital appeared meeting creased stock was voted was called, nor awas formally certificate of the increase made and filed pre scribed the state statute. The stock was, all however, issued stockholders who voted for the increase. These holders received dividends voted thereon, subsequently stockholders’ alb were treated and meetings, respects acted as stockholders. The court held the attempted but that the defendant illegal, stockholders, creditors of the company, by accepting proportions increased for its divi increase, voting by taking dends it, and it out those by holding dealing anas actual of its were component capital, estopped from the increase. It Was denying validity argued as it case, an act this, absolutely wholly void, because could not be made incapable being performed, valid But this was held to be true where estoppel. only there was an entire lack to do the act so power brought and the case of Scovill v. was. But question, cited. Thayer where,” “as in the court, case, the abstract says present did exist, and a there ~was which increase power way could could, fault, be without lawfully made, and the creditors believe that the had effected, lawfully had been there the doctrine taken, necessary steps estoppel be deemed valid as maj' increased stock apply, the creditors faith increase.” who have acted of such upon

It is true that in was the court embar-- those cases neither TERM, 1890. 426' Opinion of tiie Court. a statute that certain conditions must

rassed be declaring n think or the increase would not be But we observed valid.. is the clause of section which reliance 6, upon placed, with read connection section of the same act, must be a no as under corporation persons, acting provides to or act, this be set shall up rely permitted provisions to an action a defence as the want of organization upon legal nor shall a any them as person corporation; brought against made with such corporation, on a contract who be sued may a done or for to its done wrong for an property, or sued injury such want legal interests, rely upon to its permitted It that this section seems defence.” is true his organization a want of an original legal organization rather to apply we it should be but think regarded as'applying the company; and that no de- to amendments organization, well with which a connected organization, party fence original would be to set with disqualified contracting with an amendment made available connection can be up, articles. to the original to the assess- liability

So far proposed question these with concerned, defendants, ments respect into this are divisible two distinct relations corporation, who those of the stockholders received First, classes: original a those who sub- second, increased stock as the $30,000 gift; amount of bonds, and received $50,000 equal scribed or inducement to make the stock, as bonus subscription. stock- 4. With to the first class, regard namely, shares, and voted for this then who increase of holders, shares, themselves 300 of those without distributed among it is difficult see consideration, or why they shadow right for their value. not be called should respond is that never made their .behalf claim they agreed .only ex- the stock was or same; to contribute ” from all claims and “free declared to “fully paid pressly that there demands company;” part of, knew creditors of the evidence tha^jthe relied, ; in their increase, dealings upon, same, and surrender the had to return right HANDLEY v. STUTZ. 427 offered to they do. There is no reason to suppose these stockholders did act in not and in faith, the belief good were entitled to this they stock. The fact that did for it subscribe or to take it until the agree receipt certificates, is as immaterial, of the certificates acceptance is sufficient evidence an of their value. agreement pay par v. 91 U. Sanger Upton, 56, S. 64; Chubb v. 95 U. S. Upton, v. 665; Mead, 10 Brigham Allen,

Ever since the case of v. Wall. it Sawyer 17 has 610, Hoag, settled been the of this doctrine court that the stock an insolvent is a trust fund for the of its corporation payment debts; law sub implies promise by stock scribers of who did not it in or other pay when the same called creditors property ; upon by and that contract between themselves the corporation, stock shall be treated as and non-assessable, fully paid therefor, otherwise is void as liability limiting against of this court creditors. decisions have subject and no uniform, relaxation frequent general has been admitted. U. v. 91 S. Tribilcock, principle Upton 45 v. 56 v. ; ; 91 U. S. 91 U. S. Webster Upton, Upton, Sanger v. 95 U. S. v. 96 65; Chubb Pullman 665; Upton, Upton, 103 U. S. U. S. Haw 328; County v. Allen, 498; Morgan Co., kins v. 131 v. Railroad 102 Glenn, 319; U. S. Graham U. S. U. S. 30. 161; Richardson v. 134 Green,

It is affirmance of this that sec simply general principle tion 56, of the General Statutes de Kentucky chapter clares that in the act franchises, nothing conferring corporate shall permitting exempt organization corporations individual the stockholders of from liability corporation any to the amount -of on stock owned instalments unpaid creditors, them.” If has corporation right fur that no sell or this stock dispose agreement it the ther much less has assessment shall be made it, shareholders, it or distribute right among give away, in thérefor, without a fair receiving equivalent thereby duce credit of such shares, to deal with public Mut. the assets Union representing corporation. TERM, 1890.

Opinion of tlie Court. Co., Illinois, Ins. Co. Frear Stone 537. The Mfg. Life of a stand in the supposed place a of substantial and as value, actual property convenient stockholder in interest of each the method representing it fails to and to the extent to which represent such property, the it fraud is either a public, value upon such deception the value of or evidence that the corporate prop an original (cid:127) market value The become has depreciated. erty the the with an in value of rises corporate shares of loss or the misfortune, and falls case assets, whereby is And the increase of value of such assets impaired. value of an taken to either value is appreciation such stock represent the value of the beyond, par orig property company's shares, to the as so much money paid corporation inal If if be once admitted that a cor such shares. represented a consideration issue stock without receiving may poration it does not actual or substituted and where therefor, represent limit assets, there is value apparently corporate ;i watered,” the which may except (cid:127)extent to anWhile that' of the stockholders. the agreement the caprice never be called or holders of stock shall subscriber’s sanie for the may good held this court not to be bind has been itself, uniformly its creditors. ing to those who different considerations apply Somewhat with the understand- bonds for the

subscribed an of stock to-receive amount were equal that they ing inducement subscription. as an additional bonds are as fol- with this transaction substantially connected facts after the was three Some years organized lows : contem- enterprise, originally became apparent for steam anti coal mining namely, selling plated,- success, be a was likely owing domestic purposes, inferior character product; only hope into an iron- in the manufacture of the coal lay the company is, a coke coke, percentage sulphur containing making to admit manufacture of merchantable pig low enough however, needed, and as embark this, To money iron. was HANDLEY v. STUTZ.

the stock of the was not worth more than 50 cents on the it was evident this could not dollar, be effected simply the issue of new stock. It was proposed meeting March that should be raised the issue $50,000 of add bonds, structures to requisite the plant. But it was soon evident that the bonds could not be negotiated' without the stock, and, óf acting Nash- suggestion ville it was resolved at the banker, May meeting stock should be increased 800 shares, of which should be turned over to the subscribers to the as a bonus additional consideration. The evidence is uncontradicted that bonds could not have without the negotiated stock; were both sold aas that the whole; transaction was and, the risk that faith, good taken considering subscribers, stock and price bonds paid was fair and reasonable. The directors to have done all in appear their to obtain the best terms, and there is possible power impu- tation of unfair on the one dealing part any connected with the transaction. At that time the mines and property inwere condition, good success prospects were fair. The case then resolves itself into the whether an question “

active it or as is called in some cases, a corporation, going concern,” its loss or mis finding original capital impaired by not, fortune, for the itself and may purpose recuperating new conditions for the successful of its providing prosecution issue new it the market and sell it business, stock, put the best that can be obtained. The has never price question court, raised before this and we are conse directly not, embarrassed on decisions quently, by any previous point. In the out the failure of Cases, the Great Upton arising Western Insurance 101 Hatch U. S. Dana, Company; and in 205, Hawkins v. Glenn, defendants U. S. were either stock, increased at a subscribers original far value, below its or transferees of such subscribers; price par and the stock was not as in issued, this case to purchase prop or raise to add to the and facilitate the plant, erty money oper stock ations of the but to increase-its"original simply TERM, 1890. Opinion tlio Court. oí the stock thus issued business, and a to on larger in order carry In capital. if it formed a original was treated'as part S. the same 103 U. principle v. Allen, Morgan, County of stock a county capital to a subscription applied had its which it issued l'or aof railroad company, surrendered the county had been such bonds although creditors. certain its the consent not, under circumstances a may that To corporation say sell the market and indicated, its stock above put to declare that a is bidder, practically highest if the shares, sale a its can never capital doctrine, wholesome so many below has fallen stock par. of an in- that court, capital times enforced its a trust fund payment-of is solvent corporation creditors have the idea that right debts, rests upon have to such stock put subscribers the fact rely upon the amount form, some into the treasury corporation, creditor every but it not follow it; does represented issued of stock to trace each share corpo- has a right of whom holder, its or the whether person ration, inquire it. It value for frequently hap- he has paid purchased, par as well individuals, find necessary corporations, pens to increase order raise prosecute one their business of the most successfully, frequent of stock and methods resorted new shares issuing that can be the market for them the best putting price obtained; and so and not the transaction is bona fde, long mere cover and the consideration watering” the courts obtained the actual value of such represents no one have shown it. course disturb Of disposition stock so a the would take issued at than greater price for, stock could the purchased negotiate hence ability the fact the stock and raise the must depend shall or not be called whether shall purchaser for its observed, value. as-before While, pre- par respond court, are there has never raised cise question rule decisions to the tlie numerous effect general of.stock, in for its creditors, favor must holders par respond

HANDLEY v. STUTZ. where the transaction is not a value, subject exceptions .to for an increase. cover mere illegal 11 Wall. Burke, in New a

Thus sub- Albany city railroad, to the stock of a and issued bonds for scribed a part to issue them for the rest it, subscription, agreeing to a when the road should be built certain The road point. bonds to raise the relied these mainly upon necessary money. denied of the bonds who had validity taxpayers, filed bills to of a tax to the interest, enjoin raising pay the market was and it value was largely impaired, could not be sold without a sacrifice. found Under these they circumstances the a certain company applied city which had been borrowed the road sum pledge other issued, the bonds already sundry moneys, thereof the obtained from the consideration a city company number bonds which had not been large negotiated, In a suit cancellation subscription. brought judg- it ment creditor to enforce the was held original subscription, and the of such that the was sub- payment compromise legal, it enforced, would although subsequently scription n.ot w'orth than bonds were more could turned out that the Mr. Justice for. Said Strong, have been sold speaking to a sold then stranger, court: Had company it will not be con- stranger, from become a city purchaser could And creditor of complain. tended that any whether the was made can no difference purchase make first holder as- bonds, from the directly indirectly n -(cid:127) The transaction . fraud. . . was no there suming than a more substance, inwas, purchase nothing plainly of which had been issued and of its own some city at the issue, call off others of which it was under obligation it in . . . vendor. light subsequent Looking city; it was no doubt events, advantageous purchase is to be was believed, if evidence and, the uncontradicted sale deemed at time an arrangement advantageous add, the evidence is convinc- . . . We may company. between the that -the contract city ing with no intention to faith, made in the utmost wrong good 432 TERM, it was latter; at the creditors of the time considered and it is not company, that all proved advantageous bonds issued and to be issued was not. paid they been, in the market.” sold could have Gold Amalgamating So in v. U. Company, Coit S. 343, authorizes, where the charter of a held that corporation for in stock paid property, share capital in faith for their holders honestly good subscriptions third instead have no money, parties property ground and obvious over-valuation of complaint, although gross evidence fraud in' would an action property strong aby to enforce creditor The court held personal liability. where stock was issued for received full-paid there property f must be actual fraud the transaction to enable creditors o to call the stockholders to account. In corporation deliver of the court that case at the ing judgment circuit, 14 12, Mr. Fed. Justice observed: “That Bradley trust Hep. (in does not favor arise case creditors) absolutely where every has been and where it issued, has settled for It is not ifas the stock by arrangement company. holders had notes for the given amount, these promissory com Avitha construction settlement had a stockholder, Avasalso -a member*for intestate which defendant’s pany, The railroad in the road. being Avorkdone company, building delivered claim of the construction the company, unable pay th.-. of its stock 20 cents On hundred shares to it thirty-five in full satisfaction the same Avere dollar, accepted in market, worth The stock was not debt. anything No other intestate. to the defendant’s issued Avas directly wa,s made on account CArer than the cent per payment filed railroad creditor this stock. judgment A claim, of his the defendant a bill to compel payment actual value of for the that he Avasliable par theory upon the market value at been its Avhatever have such may “ not recoA’er. Of held he could time it Avasreceived. It Avas in Ilarlan, under this Justice course, view,” delivering Mr. says “ claims one court, every against having opinion — — could even laborers employes, railway company, avIio of their became demands, stock payment nothing except get stock at its market A'alue bound, payment, by accepting its full value, creditors for face account to unsatisfied judgment make it Avas them liable, at the time although, sought'to or stock had remained, had ceased to its exist, Avorthless. ... To taken, it AvasAvlien say absolutely Avith re duties, may corporation, charged public public its debt stock at lieve itself from embarrassment by paying — statute such trans its real ATalue there forbidding — his creditor, debt, Avithout action, surrendering subjecting Avhohave ex to stockholders liability agreed, attaching of stock or the face value subscribed pressly impliedly, pay them either to them, is, effect, suspend oper compel unable their current ations the moment become or to borroAV secured debts, by mortgage upon corporate property.” decided at the also ante, 118,

So Blair, present Fogg railroad, for a it Avas held to be term, exercising competent to use its bonds for the con faith, payment' good creditors not, it could of its road, struction although A'OL. CXXXIX—28 TERM, 1890. issue its stock as without stockholders, fully paid getting or reasonable for it. It was there said

some fair : equivalent “ such depends primarily upon What equivalent time it was stock at the contracted to be actual value of the all undér the cir- which, issued, compensation entitled to were receive cumstances, the contractors equitably them.” It work undertaken or done particular ap- that case that full and peared compensation adequate the work had in its done paid by mortgage as the bill bonds, and, contained no whatever as to allegation the real or market value of it was held that the contractors this stock were not liable to creditors for receiving value. It was added: If, when par disposed railroad it was without value, no was done wrong creditors contract made with Blair and If Taylor. to recover in this suit on the plaintiff that expected ground the stock was of substantial it value, was incumbent him — n facts that would enable the distinctly allege court assum- such facts to be true —to the contract ing say between the railroad the contractors company and. was one which, the interest of to be creditors, scrutinized.” It ought closely would seem follow from this that if the stock had been value, of some value, however much less than would par, limit have been the of the holder’s liability.

In Morrow v. Nashville Iron Co., and Steel Tennessee, 87 275, Court of Supreme held, Tennessee that a con- tract with a subscriber to stock of a that for corporation, every share subscribed he should receive bonds to an amount, equal secured on the void as by mortgage company’s plant, and also creditors, between the subscriber and the corporation. the court drew But a distinction between such a case and sales of or to the stock of an subscription and cor- organized going It said: The necessities of the business of an or- poration. demand an ganized company stock, increase of might and if such stock is issued, be offered lawfully well may very terms. In such if upon special case, was less market price than it is clear that a par, for or subscriber such purchaser stock at its fraud, market value would, the absence of be

HANDLEr v. STUTZ. contract for his a liable So case arise where only price. might a concern the stock of was much and going where depreciated, likewise its bonds were below and there was author- lawful par, to issue additional case, stock and ity bonds. Now, such the real market value of an amount of stock and bonds equal exceed, even might In value of either. equal, par such cases, of fraud question would aside, only purchaser be held for his contract This case from Tennessee price.” as an illustration the exact case which'we are now puts dealing. of a subscriber for the value of liability increased par

stock taken him somewhat the circum- may depend under stances for which, which, purposes was made. If it to the for the adding merely purpose and it to do stock of the original capital corporation, enabling would business, and more such subscriber larger profitable a' to the the same basis as subscriber stand practically upon But we think that active corporation capital. original debts, its and for the obtaining money paying may, purpose its stock business, issue the successful prosecution- be obtained. Stein v. best of it for the can price dispose case found As the Howard, California, without the its bonds par impossible negotiate the value enhancing as the stock was issued purpose subscribers to the bonds was taken bonds, of both the value at a price fairly representing sustained, should we think the transaction respond the defendants cannot be called par subscribed if had value of such this-branch of stock of the Our conclusion company. who were héld liable to those the case of it as disposes virtue of their bonds. subscription - held cor circuit learned 6. ¥e have no doubt the judge who were entitled creditors that it rectly only subsequent it is stockholders, since these to enforce their claims against trusted have could, presumption, who by any only they legal First increased stock. the faith company upon Minerva Consolidated National Deadwood Gustin Bank of TERM, 1890. 436 Opinion oí tlie Court. N. W. 2 Morawetz on 198; Rep. Corpo Company,

Mining v. N. C. Gold Co., 832-3; Amalgamating Coit rations, §§ that who him, also creditors 12. We agree Fed. Rep. was voted are Hay, such after became who received the stock, those subsequently entitled to look to until did not receive it after the debts they notwithstanding The circuit found in had contracted. judge connec tion that the had no notice complainants knowledge December 1886, under which subscription paper $45,000 of the new was distributed to those who. subscribed for nor of the distribution the old among of $30,000 stockholders of said it increased nor does affirmatively appear either them dealt with they and trusted the the faith of that company upon increased stock; but the fact stock had been increased was made $200,000 and was known.” The public generally — read in this connection question when be may presumed creditors trusted the faith in corporation upon creased stock? when such increase was ordered. Obviously, That is a fact to which would publicity naturally given;, the creditors could not be know when expected whom such stock would taken. It is true assume the they risk of the stock not taken moment all, but the shares taken, are are so much they supposed represent money put available, into the are which becomes treasury they worth, payment but only future, creditors. existing It is manifest that any stock attempt gauge liability holders the exact time took their stock with reference to the dates when several accrued, claims of creditors fact further whether the creditors knew actually of and relied would, in case like this, where the creditors and numerous, stockholders are both lead to in extricable confusion. Even the of a court of flexibility equity (cid:127)would be inadequate adjust rights parties.

7. With set regard defence special up by Neely, he never consented to nor received certificates increased stock, we with the circuit is not sustained. agree judge didHe not live in but Nashville, had to one given proxy

HALELE Y c. KLUTZ. 437 J., Lamar, Opinion: Fuller, Dissenting J. C. him

Sandford to at stockholders’ he represent knew meetings; of the to issue an amount of the stock arrangement to equal bonds, and distribute of the $3U,000 increased stock, resolution of ordered 1886; on May, 5, 1887, April to Sandford, he the lat power attorney gave authorizing ter, in his name and him, stead, “receipt stock name, transfer, Clifton Coal my Company for. if I there Under the same as were and sell present.” bargain certifi Sandford surrendered Neely’s power attorney, shares, certifi for 375 cate for 300 shares, receipted him as Neely, cates which were delivered agent stockholders’ voted at meetings, (cid:127)which Sandford subsequently his stock. under the from represent Neely general proxy the new stock, of the action issuing Knowing contemplated him all mat (cid:127)and authorized Sandford to represent having him too late for think it therewith, ters connected we additional shares, 75 act in Sandford’s repudiate receiving of 300 the owner (cid:127)which were to him as distributed it to be established finds shares. the circuit Indeed, judge knew of and ac that all of the old stockholders proof and that made; of the new stock quiesced disposition at and voted such increased was subsequent- represented out and held and was stockholders, recognized meetings Under stock company. public part clearly Wall. Neely the case of Sawyer Hoag, creditors his the claim entitled to set-off against and Stock on Stock own claim Cook the corporation. 194. holders, secs. 193 and of counsel in the briefs

There made are several minor points do not we creditors, with to the claims of certain regard there was no find it We think discuss necessary length. these error court in particulars. rulings below must be It results that of the court the deofee Heserved,(cid:127) (cid:127)and the cause remanded proceedings for farther with this conformity opinion. concurred Mr. whom Mr. Chief Jus- Fuller, Justice tice Lamar, dissenting. OCTOBER TERM,

Statement of the Case. from the I dissent conclusion of the court respect received stock the subscribers to the That bonds. or paid worth, or issued money’s pay- debts ment of due from the or at sale purchased the market. It was a mere thrown in with bonus, bonds as inducement to the bond furnishing subscription, control of over the and of larger corporation, gain possible without secured expenditure. creditors Becoming through the subscribers increased the stock. power through view, In there nowas actual my payment it as to treat is to sanction an to relieve paid up, arrangement those would who benefit derived from the reap possession success, event from liability the event failure, consequences, enterprise. When stock of a has im- become business it has paired, has so engaged proven unremunerative as to call for a creditors at change, may large well demand that at rehabilitation should not be experiments conducted their risk.

My brother Lamar concurs with me dissent.

TALBOTT v. SILVER BOW COUNTY. OF APPEAL FROM THE SUPREME COURT THE TERRITORY OF MONTANA. March No. Submitted Decided March 12, 1891. 30, 1891. 221. possess power taxing the same national The territories banks which enjoy. States chapter 1003 of Section fifth division the Revised Statutes of 22, 1881, Territory, February Montana as amended Act Laws p. is not in conflict with Rev. Stat. § system, expressed general organic Territorial the various Under power taxatipn absolute, acts, save restricted the Consti- b^ congressional enactments. tution is stated in the The case opinion. notes but the treasury there are often company; — to which the are stockholders entitled on which equities As one of are stand.” he mentioned the them, case of stock dividends made in consideration of earned fairly profits accumulations of the property company, observed:. It is not true that 'of a creditor in power every and in all as a mere matter of case, cases, to institute an right, as to the valuation of the amount of the consideration inquiry disturb fair for its given arrangements pay inment other than cash. If the stock has been ways fairly created and for, there is an end trusts in favor of paid any that, and this ; does affect the body general proposition trust stock are a fund to be admin unpaid subscriptions istered for the benefit of creditors after a becomes insolvent.” case A nearer is that of Clark v. point Bever, ante, 96, decided at ihc term of this court. In tins present case, rail STÜTZ. HANDLEY Opinion Court. intestate was defendant's president of which road

Case Details

Case Name: Handley v. Stutz

Court Name: Supreme Court of the United States

Date Published: Mar 30, 1891

Citation: 139 U.S. 417

Docket Number: 1516

Court Abbreviation: SCOTUS