Christensen v. Eno

• Decision Date: 07 June 1887
• Citation: 106 N.Y. 97,12 N.E. 648
• Parties: CHRISTENSEN v. ENO, impleaded, etc.
• Court: New York Court of Appeals Court of Appeals

106 N.Y. 97

12 N.E. 648

CHRISTENSEN

v.ENO, impleaded, etc.¹

Court of Appeals of New York.

June 7, 1887.

William Man, for appellant.

C. E. Tracy, for respondent.

ANDREWS, J.

The judgment below proceeds on the ground that the 40 per cent. credited as paid on the 25 shares of stock of the Illinois & St. Louis Bridge Company, issued to the defendant Eno in 1871, but which was not in fact paid, and also the sum of $5,332.18, realized by him on the sale of second mortgage bonds of the company, received as his share on the distribution of the same among stockholders, pursuant to the resolution of the company of December 20, 1871, were equitable assets in the hands of the defendant Eno applicable to the payment of the debts of the corporation, and which the plaintiff, as a judgment and execution creditor, may reach in this action, and have applied to the satisfaction of his judgment. It is very plain, upon the facts, that the plaintiff, in asserting this claim, cannot stand upon any right existing in the corporation itself to proceed against the defendant Eno. The transactions by which he acquired the shares as paid-up shares to the extent of 40 per cent. of their nominal amount, and received the bonds, created no obligation as between him and the company to pay the amount unpaid on the stock, or to account to the company for the bond or their proceeds. As between Eno and the company it was not intended that the former should be accountable to the company for the amount unpaid on the stock or for the bonds. Viewing the transactions in the light most favorable to the plaintiff, the credit on the stock, and the transfer of the bonds were intended as a gratuity to the stockholders who had been called upon to pay calls on their original subscriptions in excess of what was expected, and of what was represented would be necessary at the commencement of the enterprise. There can be no doubt that, as between the corporation and its stockholders, these transactions were binding according to the actual intention. The corporation itself would have no standing to demand that the defendant Eno should pay the 40 per cent. on the stock which it acknowledged had been paid, or that he should account for the proceeds of the bonds. The claim of the plaintiff, therefore, must be maintained, if at all, not in the right of the corporation, or by way of equitable subrogation to any right of the corporation against Eno, but in hostility to the arrangement between them under which he received the stock and bonds. The plaintiff, to entitle himself to the relief demanded, is compelled to maintain that, as a creditor of the corporation, he has rights superior to those of the corporation itself, and may hold the defendant to account for the unpaid 40 per cent. on the stock as though he had been a subscriber therefor, and for the proceeds of the bonds as though he had purchased them of the corporation, or had sold them on its account.

So far as respects the claim to recover the 40 per cent. unpaid on the 25 shares of stock, we understand it is placed by the learned counsel for the plaintiff mainly on the proposition that the capital stock of a corporation is a trust fund for the security of creditors, which cannot be given away or distributed among stockholders so long as debts of the corporation remain unpaid, and that the transaction in question was a violation of this principle. The general principle asserted is doubtless well founded; but, if it had an appropriate application in the present case, the plaintiff would encounter some difficulty, under the authorities in this state, in maintaining a separate action, as an individual creditor of the corporation, to reach assets which constitute a trust fund, not for the protection of one creditor only, but equally for all the creditors of the corporation. Griffith v. Mangam, 73 N. Y. 611, and cases cited.

But, passing this, we are of opinion that the 40 per cent. credited on the 25 shares of stock issued to the defendant Eno cannot be considered as, and does not constitute, a trust fund applicable to the payment of creditors. The capital of a corporation consists of its funds, securities, credits, and property, of whatever kind, which it possesses. The word ‘capital,’ applied to corporations, is often used interchangeably with the words ‘capital stock,’ and both are frequently used to express the same thing,-the property and assets of the corporation. Strictly, the capital stock of a corporation is the money contributed by the corporators to the capital, and is usually represented by shares issued to subscribers to the stock on the initiation of the corporate enterprise. See Burrall v. Bushwick R. Co., 75 N. Y. 212, and cases cited. It may be admitted that the liability of subscribers on unpaid stock subscriptions constitutes an...