Bruner v. Brown
| Decision Date | 11 October 1894 |
| Docket Number | 17,120 |
| Parties | Bruner, Receiver of the Crawfordsville Waterworks Company, v. Brown |
| Court | Indiana Supreme Court |
Petition for Rehearing Overruled Dec. 20, 1894.
From the Montgomery Circuit Court.
The judgment is affirmed.
S. C Kennedy, H. J. Milligan and P. S. Kennedy, for appellant.
C Martindale, B. Crane and A. B. Anderson, for appellee.
This is an action in which the appellant seeks to recover, for the benefit of the creditors of the Crawfordsville Waterworks Company, a judgment against the appellee on a claim alleged to be due from appellee as a holder of alleged unpaid stock in that corporation. The complaint is in two paragraphs, the first of which is for the collection of the par value of $ 20,000 of stock of said company, which it is claimed the defendant owns, and for which it is alleged nothing has ever been paid to the company.
The second paragraph is to collect upon a subscription of $ 1,000 of the stock of the Crawfordsville Waterworks Company made by the appellee.
The defendant answered that the $ 20,000 of stock had been paid for, setting forth the manner in which the same was paid; and also answered that the one thousand dollar subscription to the stock of the company had been paid, setting forth the manner in which the same was paid.
Issues having been made up, the case was submitted to the court for trial, and the court, at the request of the appellant, made a special finding of facts and stated its conclusion thereon, that the plaintiff should recover nothing on either paragraph of his complaint.
As the record is presented to this court, there is but one question that can be properly considered by us, which is: "Did the trial court err in its conclusion of law upon the facts found?" The special finding of facts is quite voluminous, and it is not essential to this opinion that we should embody herein a synopsis of its contents. From the facts found by the court, it appears that the appellee, at the time of the formation of the Crawfordsville Waterworks Company, subscribed for $ 1,000 of the stock therein, and afterwards became the owner by transfer from Comegys & Lewis, who under contract had constructed the entire waterworks plant of said company, of $ 20,000 additional stock, making $ 21,000 of stock held by the appellee in the corporation. In regard to the $ 1,000 subscription to the stock of the company made by the appellee, it is the contention of the appellant that the appellee will not be permitted to avoid the responsibility which he publicly assumed by the act having thereby presumably induced persons to deal with and extend credit to the corporation on the faith of the transaction.
It seems from the record that the appellee and Robert B. F. Peirce and Elijah B. Martindale had obtained from the city of Crawfordsville a franchise to construct waterworks in said city. The franchise belonged to them individually, and not to the Crawfordsville Waterworks Company. They agreed to organize the company, each subscribing $ 1,000, and to turn the franchise over to the corporation and to do likewise with other contracts they made in relation to the building of waterworks in payment of their subscription to the company. As soon as the company was formed, a resolution was passed by the directors ratifying this agreement. The effect of this contract was that the corporation gave to Brown $ 1,000 for his interest in the franchise to construct the waterworks in the city of Crawfordsville, which interest was worth more than one thousand dollars, the whole franchise being worth four thousand dollars. It is the law that a contract made by the promoters of a corporation previous to its organization, which is ratified and confirmed by the corporation, after its organization, is as binding as any contract which the organization can make. Corporations have a right to make contracts with the promoters to pay them for their services and to purchase property from them. Stanton v. N. Y., etc., R. W. Co., 59 Conn. 272, 22 A. 300; Whitney v. Wyman, 101 U.S. 392, 25 L.Ed. 1050; Touche v. Metropolitan, etc., Co., 6 Ch. App. Cas. L. R. 671; Bommer v. American, etc., Co., 81 N.Y. 468; Davis v. Montgomery, etc., Co., 101 Ala. 127, 8 So. 496; Bell's Gap R. R. Co. v. Christy, 79 Pa. 54; Morawetz Priv. Corp., sections 545-548.
The chief point of contest in this appeal is upon the payment for the $ 20,000 of stock held by the defendant. This stock was received by the defendant from Comegys & Lewis, of New York, the contractors who built the waterworks, as fully paid up stock from the corporation. The corporation had entered into a contract with them by which they were given $ 150,000 of the first mortgage bonds of the company and $ 197,000 of the stock of the company fully paid up, in payment for the construction of the works.
In the case of Coffin v. Ransdell, 110 Ind. 417, 11 N.E. 20, and State, ex rel., v. Sullivan, 120 Ind. 197, 21 N.E. 1093, it was held that the receiver of a corporation is bound precisely as it is bound, and occupies the relation to the stockholders that the corporation itself, if waging the suit in its own person, would occupy. This is true although the receiver represents the creditors as well as the stockholders.
In considering the questions involved in this case, we recognize the following well settled principles:
1st. The capital stock of a corporation is a trust fund for the payment of its creditors. Sawyer v. Hoag, 84 U.S. (17 Wall.) 610, 21 L.Ed. 731; Upton v. Tribilcock, 91 U.S. 45, 23 L.Ed. 203; Sanger v. Upton, 91 U.S. 56, 23 L.Ed. 220; Morgan Co. v. Allen, 103 U.S. 498, 26 L.Ed. 498, 26 L.Ed. 583; Jackson v. Traer, 64 Iowa 469, 20 N.W. 764.
2d. Capital stock, being a trust fund, may be followed by creditors in any court of equity into the hands of every person who is not a bona fide purchaser thereof for value without notice, and such person may be held as trustee to the extent of the trust fund in his hands. Wood v. Dummer, 3 Mason, 308 (312); Curran v. State of Arkansas, 56 U.S. (15 Howard) 304, 14 L.Ed. 705; Taylor v. Bowker, 111 U.S. 110, 28 L.Ed. 368, 4 S.Ct. 397.
3d. A simulated payment of stock is not valid as against creditors. Wetherbee v. Baker, 35 N.J. Eq. 501.
4th. The directors of a corporation have no power to release a subscriber to its capital stock to the prejudice of its creditors. Burke v. Smith, 83 U.S. (16 Wall.) 390; Rider v. Morrison, 54 Md. 429; Bedford R. R. Co. v. Bowser, 48 Pa. St. 29; Hawley v. Upton, 102 U.S. 314, 26 L.Ed. 179; Webster v. Upton, 91 U.S. 65, 23 L.Ed. 384.
5th. An agreement between a corporation and its stockholders that the stock shall be considered fully paid and nonassessable is binding on the corporation, and estops it from making any further calls on the stockholders. But if the corporation become insolvent, such agreement does not estop unsatisfied judgment creditors of the corporation from subjecting the unpaid balance on the stock to the payment of their judgments. Scovill v. Thayer, 105 U.S. 143, 26 L.Ed. 968; Drury v. Cross, 74 U.S. (7 Wall.) 299, 19 L.Ed. 40; Jackson v. Ludeling, 88 U.S. (21 Wall.) 616, 22 L.Ed. 492.
Having regard for these principles and such others as are applicable to this case, we will briefly examine the facts as they are disclosed by the record.
It is clearly found by the court that at the time the contract between the waterworks company and Comegys & Lewis was entered into, the corporation had no indebtedness; that every person who had any interest therein had actual knowledge of everything pertaining to the transaction; that a statement was filed in the office of the clerk of the Montgomery Circuit Court in pursuance of section 3861, R. S. 1881; Burns R. S. 1894, section 5062, showing the manner in which the stock was paid up by the execution of the contract for the consideration of the works, so that every one thereafter dealing with the corporation had notice of this transaction. The certificate so filed was a public record required by statute. It was an act done in a public office, open for the information of all parties interested. As such, they were bound to take notice of it. Maddux v. Watkins, 88 Ind. 74; Sanders v. Muegge, 91 Ind. 214.
This rests upon the doctrine of presumptions; for it is a presumption of law that every one will take care of his own concerns; thus the owner and vendor shall be presumed to know of the patent defects in the thing sold. Lane v. Shears, 1 Wend. 434; 1 Phillips on Ev. 500, section 606.
It has been held that creditors can not complain that a transaction by a corporation prior to the creation of their claims, and of which they are presumed to have had notice, was fraudulent as to creditors. Rollins v. Shaver Wagon, etc., Co. (Iowa), 80 Iowa 380, 45 N.W. 1037 (1040); Walburn v. Chenault, 43 Kan. 352, 23 P. 657.
The case of Coffin v. Ransdell, supra, announces two distinct propositions applicable to this case:
1. That any property which a corporation is authorized to purchase, or which is necessary for the purpose of its legitimate business, may be received in payment for its stock.
2. That a transaction by which property is given to a corporation in payment for stock, is binding so long as it is not impeached by the corporation or its assignee, and it can be impeached only for fraud upon the corporation.
There is a long line of decisions that support the doctrine as stated and upholds the principle declared in Coffin v. Ransdell, supra.
In Fogg v. Blair, 139 U.S. 118, 35 L.Ed. 104 11 S.Ct. 476, there was a contract between Blair and a railroad corporation by which Blair took stock and bonds for the construction of the road. The bill alleged that the work was not worth more than...
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