Alling v. Ward

• Decision Date: 14 May 1890
• Citation: 24 N.E. 551,133 Ill. 264
• Parties: ALLING et al. v. WARD et al.
• Court: Illinois Supreme Court

133 Ill. 264

24 N.E. 551

ALLING et al.

v.WARD et al.¹

Supreme Court of Illinois.

May 14, 1890.

Appeal from appellate court, first district.

Hutchinson & Liff, for appellants.

Walter M. Howland, for appellees.

SHOPE, J.

This bill is filed by and in behalf of creditors of an insolvent corporation, the Papillon Manufacturing Company, against its stockholders, to subject their unpaid subscriptions for stock to the payment of the debts of the company, and to wind up and close its affairs. Section 8 of the act in reference to corporations for pecuniary profit (Rev. St. c. 32) creates a liability against stockholders for the amount unpaid upon their capital stock. That section provides: ‘Each stockholder shall be liable for the debts of the corporation to the extent of the amount that may be unpaid upon the stock held by him, to be collected in the manner herein provided.’ And further: ‘No assignor of stock shall be released from any such indebtedness by reason of any assignment of his stock, but shall remain liable therefor, jointly with the assignee, until the said stock shall be fully paid. * * * Every assignee or transferee of stock shall be liable to the company for the amount unpaid thereon to the extent, and in the same manner, as if he had been the original subscriber.’ Section 25 of the act provides that, ‘if any corporation or its authorized agents shall * * * allow any execution or decree of any court of record for the payment of money, after demand made by the officer, to be returned, ‘No property found,’ or to remain unsatisfied for not less than ten days after such demand, or shall dissolve or cease doing business, leaving debts unpaid, suits in equity may be brought against all persons who are stockholders at the time, or liable in any way for the debts of the corporation, by joining the corporation in such suits; and each stockholder may be required to pay his pro rata share of such debts or liabilities, to the extent of the unpaid portion of his stock, after exhausting the assets of such corporations.' These two sections, having reference to the same subject,-the liability of stockholders, and the remedies by which to enforce the same,-should be so construed that each may stand, and effect be given to the provisions of each. The first section creates the liability of the stockholder, and defines its extent, and also makes his assignee equally and jointly liable with him. Section 25 authorizes creditors of the corporation to bring suits in equity against the corporation and stockholders to enforce the liability of the latter, if the corporation does, or fails to do, any act subjecting it to a forfeiture of its charter, or fails to make payment, or permits executions to be returned, ‘No property found,’ after demand by the officer, or shall dissolve, or cease to carry on its business as therein provided. The liability of the stockholder is for his unpaid stock. To the extent it is unpaid, he is liable for the debts and obligationsof the corporation. When the liability is once discharged by payment to the corporation, a subsequent assignee or purchaser will take the stock relieved from the burden imposed by the statute. Thebus v. Smiley, 110 Ill. 316.

The first assignment of error presents the question whether the stock of appellants was not full paid-up stock, and therefore not liable to assessment. It appears from the evidence that before the issue of stock, or at least before the issue of the stock of appellants, part of the capital stock was transferred upon the books of the company to the company itself, apparently under the belief that the company thereby became the legal holder and owner thereof, and that it could thereafter be put upon the market at less than its par value. It was therefore called ‘treasury stock.’ On this theory the corporation sold a great portion of such stock to its subscribers at prices ranging from 5 to 20 per cent. of its par value. On February 12, 1883, the following order or resolution was entered upon the books of the corporation: ‘On motion of Mr. Nourse, the market value of the capital stock was placed at 20 cents per dollar until further notice.’ Mr. Holland testificd as follows: ‘The cash payment-the price we had sold the stock at, that is to be paid in, the first payment-was $10 a share. We afterwards raised the price to $20 a share,-20 paid in. The market price was fixed under the by-laws.’ He then quotes the resolution before mentioned, and says: ‘Stock was sold under that order to Mr. Alling and to Mr. Clark. Prior to that time, we had sold at five cents and ten cents on the dollar. I sold Mr. Dunham his stock. He paid ten per cent.’ Of this treasury stock, Clark, Lotz, and Nourse each became the holders and owners or subscribers for 100 shares, aggregating one-half of the capital stock of the company. Appellants now contend that, after this transfer of the capital stock to the treasury of the corporation, it was held, and might be sold, as any other property of the company, and that they purchased their stock, in good faith, as full-paid stock, and that they are not liable to assessment under the statute. It is also contended that the certificates of stock indicated on their face that the stock was paid-up stock. These certificates read: ‘This is to certify that _____ is the owner of one hundred shares of the capital stock of the Papillon Manufacturing Company,’ etc. Receipts were given to some of the purchasers, one of which reads: ‘Papillon Manufacturing Co., 50 Michigan ave. Chicago, Feb. 16, 1883. William G. Hubbard, Esq.-Dear sir: I hereby acknowledge the receipt of your ck., number 3,411, five hundred dollars, ($500,) in full for one hundred shares of stock, certificate No. 47. Yours, respectfully, L. C. F. LOTZ, Treasurer.’ The question...