251 F. 957 | D.N.J. | 1918
The bankrupt was incorporated in February, 1912, under the laws of New Jersey, and carried on the lumber business in that state. The total capital stock of the bankrupt issued and outstanding is $10,000, par value, divided into 100 shares. This was issued for property purchased from a copartnership composed of three members, who, for a period of about five months previous thereto, had carried on the same business. This copartnership had begun business with less than $1,000 capital, and the net assets at the time the corporation wás formed were less than $2,000.
It is conceded that the fair value of the property thus turned over was very much less than the par value of the stock issued therefor. James H. Beals is the holder of 95 per cent, of the stock so issued, which he obtained from the incorporators of the bankrupt. He presented a claim against the estate for the sum of $14,947.67. This claim was objected to by one of the creditors. In substance, the only pertinent ground of objection is that the bankrupt issued this stock without receiving any consideration, and that it is liable to assessments in Beals’ hands.
Upon the evidence taken before the referee, he found that the property for which this stock was issued was apparently worth $2,000, that Beals was a holder for value, and that the evidence failed to show that he “was informed, or in any wp.y had notice, of the fact that the shares of stock were not fully paid up,” and that it was not liable to an assessment in his hands. He thereupon made án 'order overruling the objections and allowing the claim, which order is now here for review.
“21. Liability of Stockholders on Nonpaid-up Stock. — Where the whole capital of a corporation shall not have been paid in, and the capital paid shall lie insufficient to satisfy its debts and obligations, each stockholder shall be bound to pay on each share held by him the sum necessary to complete the amount of such share, as fixed by (he charter of the corporation, or such proportion of that sum as shall be required to satisfy such debts and obligations.” P. L. 1896, p. 28-1.
“48. Payment of Capital Slock to be in Money. * * * Nothing but money shall be considered as payment of any part of the capital stock of any corporation organized under this act, except as hereinafter provided in case of the purchase of property. * * * ” P. II. 1896, p. 203.
“49. Purchase of Property and Issue of Slock to Pay Therefor. — Any corporation formed under this act may pux-chase * * * property necessary for its business, * * * and issue slock to the amount of {ho value thereof in payment therefor, and the stock so issued shall be full-paid stock and not liable to any further call, neither shall the holder thereof be liable for any further payment under any of the provisions of this act; and in the absence of actual fraud in the transaction, the judgment of the directors as to the value of the property purchased shall be conclusive; and in all statements and reports of the corporation to be published or filed this stock shall not be stated or reported as being issued for cash paid to the corporation, but shall be reported in this respect according to the fact.” P. L. 1896, p. 293.
Sections 21 and 48 are substantially re-enactments. The part of section 49 relative to the conclusive effect of the directors’ valuation, while legislatively new, is but declaratory of the old law. Holcombe v. Trenton White City Co., 80 N. J. Eq. 122, 141, 142, 82 Atl. 618 and cases cited. With reference to the stockholders’ liability to creditors of insolvent corporations, the rule declared in Wetherbee v. Baker, 35 N. J. Eq. 501, “that payment of stock subscriptions is good as against creditors, only where payment has been made in money or in what may fairly be considered as money’s worth,” has been inexorably enforced in New Jersey whenever that question has been judicially considered. See Donald v. American Smelting & Refining Co., 62 N. J. Eq. 729, 48 Atl. 771, 1116; See v. Heppenheimer, 69 N. J. Eq. 36, 61 Atl. 843: Easton National Bank v. American Brick & Tile Co., 70 N. J. Eq. 722, 64 Atl. 1095, and 70 N. J. Eq. 732, 64 Atl. 917, 8 L. R. A. (N. S.) 271, 10 Ann. Cas. 84 (two cases); Holcombe v. Trenton White City Co., supra.
None of the original holders of the stock had money or credit, and in less than four months after its incorporation it was evident that the company was conducting a losing business. It was struggling along on 'borrowed money. The company’s book accounts and 66 shares of its capital stock, representing the shares of two of the copartners, had been pledged for the payment of some of said loans, and the pledgee was pressing for payment. In May, 1912, Mattison, the other copartner and an incorporator, who held 33 of said shares of capital stock in his •own name, approached Beals, an acquaintance of some years, and asked his financial assistance. After several .interviews, in the course of which he was informed of the company’s financial straits and that two of the copartners had been guilty of fraudulent .practices by padding some of the accounts so pledged, Beals agreed to loan the company ■enough money to redeem the book accounts, upon condition that all its issued capital stock be given to him. After some parleying this condition was accepted, with the modification that, upon the payment of said loan within six years, Mattison was to have his 33 shares returned to him. Thereupon Beals paid to the pledgee of the book accounts, etc., the sum of $8,534.47, the aggregate of its loans, the book accounts were turned over to the company, arid Beals received the latter’s note for that amount and the 66 shares so pledged and Mattison’s 33 shares.
“I hold, further, that the fact that they were receiving for $1,000 in cash a mortgage bond for $1,000 and a bonus of $000 of stock of a company in. process of formation was sufficient, of itself, to show them, or at least to put them, on inquiry, that the stock SO' issued had not been paid for, either in ■cash or in its equivalent in property.”
In Easton National Bank v. American Brick & Tile Co., 69 N. J. Eq. 326, at page 334, 60 Atl. 54, at page 57, decision modified on appeal, but not on this point, 70 N. J. Eq. 722, 64 Atl. 1095, and 70 N. J. Eq. 732, 734, 64 Atl. 917, 8 L. R. A. (N. S.) 271, 10 Ann. Cas. 84, Vice Chancellor (now Justice) Bergen said:.
“The liability of transferees for assessments on account of unpaid stock .has been the subject of much consideration by the courts of this country, re-*961 suiting in radical differences oí opinion, but in my judgment the weight of authority and sound reason support the view that a bona fide transferee of stock, the certificate for which i-ecites that it is full paid, is not liable to make good the contract of the original subscriber if the transferee has no knowledge that the subscriber has not paid in full, nor notice of any fact from which knowledge may be inferred, or which requires him to inquire as to the truth of such statement.”
That imputed notice is the equivalent of actual notice has been held by the courts of other states. See Garden City Sand Co. v. American Refuse Crematory Co., 205 Ill. 42, 68 N. E. 724; Wishard v. Hansen, 99 Iowa, 307, 68 N. W. 691, 61 Am. St. Rep. 238; Gillette v. Chicago Trust Co., 230 Ill. 393, 82 N. E. 891. See, also, Thompson on Corporations (2d Ed.) §§ 4385-4387.
Beals testified that he knew that, if the stock had not been fully paid, it would be subject to assessment. He inquired of Mattison, who was the only one of the three copartners active in the company's business, whether said stock had been fully paid, and was informed that it had, and that it had been paid by property purchased from the partnership. Before he advanced the money, he looked over the plant and had his son examine the books. He seems to have made no further inquiry as to the value of the property for which the stock had been issued, or why stock of the par value of $10,000, rather than some other sum, was fixed as the consideration for its transfer.
Was he chargeable in law to make further inquiry? A perusal of the minutes of the company would have advised him that, in accepting the property and ordering the issuance of stock therefor, the board of directors had given no expression of their judgment of its value. Inquiry of Mattison, who knew that the property so purchased was grossly overvalued, would either have elicited the true value, or, if he had attempted to deceive him, his deception would have been exposed by comparing the property on hand with the assets and liabilities shown" by the books of the company. His inspection of the plant, made before he advanced the loan, disclosed the amount of lumber, etc., on hand. He knew that they had not made money, and the hooks were there to show that the company had been actually losing money from the very beginning.
Beals, in acquiring the stock, was not in the position of one who goes into the open market and purchases stock issued by a company which has been actively engaged in business for a long period, and whose stocks have become marketable merchandise. The protec
The company had but recently been formed. Its business had been unprofitable. This, as well as that the capital stock had been issued for property, was known to Beals. That the property was an inadequate consideration could have been readily ascertained by him before he took over the stock. A superficial examination of the books and merchandise on hand would have yielded this information. As noted, he made some inquiry, examined the plant, and had his son examine the company’s books. If he failed to learn that the property for which the stock was issued was grossly overvalued, it was due to his failure to follow the clue which such inquiry and examination uncovered. Neither stupidity nor heédlessness, any more than a fraudulent motive, will save one who is chargeable with making inquiry from the consequences of a knowledge which such an inquiry would have elicited. The law will not permit -one to take advantage of his own wrong, and it imputes to him that knowledge of facts which he would have ascertained, had he performed, his duty. With this imputed knowedge, Beals would be liable to an assessment on his stock-holdings for such amount, not exceeding the difference between the fair value of the property purchased and the par value of the stock issued therefor, as would be needed to pay the allowed claims and administration expenses.
The referee’s order allowing Beals’ claim is therefore reversed, and the allowance of the claim deferred until after appropriate proceedings to recover the amount due on said shares of stock have been pressed to a finality.