Upton, Assignee v. Tribilcock

• Citation: 91 U.S. 45,23 L.Ed. 203
• Parties: UPTON, ASSIGNEE, v. TRIBILCOCK
• Decision Date: 01 October 1875
• Court: United States Supreme Court

91 U.S. 45

23 L.Ed. 203

UPTON, ASSIGNEE, v. TRIBILCOCK.

October Term, 1875

ERROR to the Circuit Court of the United States for the District of Iowa.

The facts are stated in the opinion of the court.

Mr. C. C. Nourse for the plaintiff in error.

Mr. George G. Wright for the defendant in error.

MR. JUSTICE HUNT delivered the opinion of the court.

Two points are presented in this case. Upon the first point, the facts are as follows:——

The plaintiff, as assignee of the Great Western Insurance Company, a corporation organized under the statute of the State of Illinois, brought his action against the defendant, alleging that he was a stockholder of said corporation to the amount of ten thousand dollars; that twenty per cent only had been paid upon his stock; alleging also the bankruptcy of the company, the appointment of the plaintiff as assignee, and the demand of the amount claimed, and seeking to recover the eight thousand dollars remaining unpaid. The complaint averred that the defendant did verbally agree to become such stockholder, and, with intent to become such, did accept a certificate for the same, whereby he became bound to pay the full amount thereof, as follows: Five per cent upon delivery of the certificates; five per cent in three months; five per cent in six months; five per cent in nine months; and the residue whenever called for by the company, according to the charter of the company and the laws of the State of Illinois.

The defence is, that the subscription was obtained by the fraudulent representations of the agent of the company to the effect that the defendant would only be responsible for twenty per cent of the subscription made by him; that afterwards he executed his promissory note for the twenty per cent, and secured the same by a mortgage of real estate; 'and that thereupon (in the language of the answer), and pursuant to agreement, said subscription contract was surrendered and delivered up to defendant;' and also in the language of the answer, 'that said note was a full payment and discharge of all obligations and personal liabilities of all kinds whatsoever by reason of his contract so made and the relations created by the delivery to him of said certificate, and said note was received in full payment.'

In his third amended answer, the defendant avers that he did subscribe for stock on the conditions mentioned; that after that contract was made, and before a certificate was delivered to him, and before executing his note, an agreement was made with Overton on behalf of the company to the effect before stated; and thereupon he made and delivered the note and mortgage which was received by Overton in full discharge and payment of the amount due on his said subscription.

The evidence contained in the bill of exceptions leaves the case substantially as is averred in the pleadings. The defendant offered evidence tending to prove representations that twenty per cent only was required to be paid; that eighty per cent was non-assessable, and created no personal liability; that the agent, Overton, exhibited a blank form of certificate with the word 'non-assessable' printed across the face, 'being a copy similar to that subsequently filled up and delivered to defendant by Overton.' It appears, that, before the defendant made his subscription, a copy of the charter and by-laws had been furnished to him by Overton; and that, in returns made by the company to the Auditor of the State of Illinois of the amount of 'unpaid subscribed capital for which the subscribers were liable,' the amount of the defendant's note was included.

The case standing in this position upon the pleadings and the evidence, the plaintiff requested the court to charge the jury as follows:——

2d. That any contract between the company or its agents and the stockholders, limiting their liability as to unpaid instalments of stock, is void as to creditors of the company, and as to the rights of the assignee who represents the creditors in this action.

3d. That if the jury find from the evidence that the defendant, J. D. Tribilcock, became a stockholder of the Great Western Insurance Company in the month of August, 1870, and that he continued to own and hold said stock until after the insolvency of the company in February, 1873, that any representations by any agent of the company at the time defendant became such stockholder as to the matter of his liability for eighty per cent of the stock, or any indorsement on the stock of the word 'non-assessable,' are wholly immaterial, and constitute no defence to this action.

This request was refused.

It is hardly necessary to argue the proposition, that if the defendant became a holder of shares of the capital of this insurance company to the amount of $10,000, and had paid but twenty per cent thereof, its creditors were entitled to require of him the payment of the eighty per cent remaining unpaid. The acceptance and holding of a certificate of shares in an incorporation makes the holder liable to the responsibilities of a shareholder. Brigham v. Mead, 10 Allen, 245; Buff. City R. R. Co. v. Douglass, 14 N. Y. 336; Seymour v. Sturges, 26 id. 134. The capital stock of a moneyed corporation is a fund for the payment of its debts. It is a trust fund, of which the directors are the trustees. It is a trust to be managed for the benefit of its shareholders during its life, and for the benefit of its creditors in the event of its dissolution. This duty is a sacred one, and cannot be disregarded. Its violation will not be undertaken by any just-minded man, and will not be permitted by the courts. The idea that the capital of a corporation is a foot-ball to be thrown into the market for the purposes of speculation, that its value may be elevated or depressed to advance the interests of its managers, is a modern and wicked invention. Equally unsound is the opinion, that the obligation of a subscriber to pay his subscription may be released or surrendered to him by the trustees of the company. This has been often attempted, but never successfully. The capital paid in, and promised to be paid in, is a fund which the trustees cannot squander or give away. They are bound to call in what is unpaid, and carefully to husband it when received. Sawyer v. Hoag, 17 Wall. 610; Tuckerman v. Brown, 33 N. Y. 297; Ogilvie v. Knox Ins. Co., 22 How. 380; Osgood v. Laytin, 3 Keys, 521; 37 How. Pr. 63, affg. 48 Barb. 463; Gross, Ill. Stat., p. 356, § 16.

We are of the opinion that the alleged representation of the non-assessability of the stock held by him was quite immaterial. It was so held in Ogilvie v. Knox Ins. Co., 22 How. 380.

Again: if full effect is given to the evidence of the defendant and to his claim in this respect, it shows this, and nothing more: He became a stockholder under a certificate signed by the president and secretary that he was entitled to one hundred shares of the stock of $100 each, payable five per cent on receipt of the certificate; five per cent in three months; five per cent in six months; five per cent in nine months from date; the time or manner of the payment of the residue not being specified. Upon the face of this certificate were stamped in red ink the figures '$100,' and in another place was stamped the word 'non-assessable.' This certificate he held until the insolvency of the company in 1873 was known to him.

The legal effect of this instrument was to make the remaining eighty per cent payable upon the demand of the company. We see no qualification of this result in the word 'non-assessable,' assuming it to be incorporated into and to form a part of the contract. It is quite extravagant to allege that this word operates as a waiver of the obligation created by the acceptance and holding of a certificate to pay the amount due upon his shares. A promise to take shares of stock or a promise to pay for them. The same effect results from an acceptance and holding of a certificate. Palmer v. Lawrence, 3 Sand. S. C. 761; Brigham v. Mead, 10 Allen, 245. At the most, the legal effect of the word in question is a stipulation against liability to further taxation or assessment after the holder shall have fulfilled his contract to pay the one hundred per cent in the manner and at the times indicated. We cannot give to it the consequence of destroying the legal effect of the certificate.

Still, again, the representations relied upon as a defence, it will be noticed, were as to the legal effect of the defendant's subscription and certificate. It is alleged that the agent represented, that by the laws of the State of Illinois, and by the charter of this company, the defendant might become a subscriber to the amount of $10,000; and, by means of a certificate to be given to him like that exhibited, he would really be liable only to the extent of one-fifth of his said subscription, and that good lawyers had given their advice to this effect.

There was here no error, mistake, or misrepresentation of any fact. The defendant made the subscription he intended to make, and received the certificate he had stipulated for; and, as there is no evidence to the contrary, it is to be presumed the good lawyers advised as was stated: but, in law, the defendant incurred a larger liability than he anticipated. Leavitt v. Palmer, 3 N. Y. 19.

He had received, several days before this time, a copy of the charter and by-laws of the company, and then had them in his possession. The twenty-fifth section of the by-laws was as follows: 'Every person who shall subscribe for $10,000 of stock, and pay twenty per cent thereof, shall be constituted a director of this company, and shall continue such director so long as he shall retain of such stock an amount equal to $10,000; but such $10,000 shall not be reckoned in the election of other directors.'

It was under this section and the succeeding one, authorizing the establishment of a branch in any place where such subscription was made, and by...