Coit v. North Carolina Gold Amalgamating Co.

• Decision Date: 07 October 1882
• Citation: 14 F. 12
• Parties: COIT v. NORTH CAROLINA GOLD AMALGAMATING CO. and others. [1]
• Court: U.S. District Court — Eastern District of Pennsylvania

14 F. 12

COIT v. NORTH CAROLINA GOLD AMALGAMATING CO. and others. ^[1]

United States Circuit Court, E.D. Pennsylvania.

October 7, 1882

This was a bill filed by a judgment creditor of a corporation against the corporation and its stockholders for a decree for the payment by the stockholders of his debt. The material facts were as follows:

In January, 1874, a number of persons who had been carrying on mining operations under the name of 'The North Carolina Gold Amalgamating Company, ' applied for and obtained a charter of incorporation under the same name. The charter provided for minimum capital of $100,000, divided into 1,000 shares of $100 each, with power to increase the capital to $2,500,000, or 2,500 shares. The charter further provided 'The subscription to the capital stock of said company shall and may be paid in such installments, and in such manner and such property, real or personal, as a majority of the corporators may determine. ' The $100,000 capital was subscribed as follows: The corporators met and separate valuations were made by them of certain personal property owned by the association, the average valuation being $137,000. It was then agreed that the property should be estimated at $100,000, and shares of stock issued therefor and divided among the corporators in proportion to their interests. In the valuation was included a supposed value of the charter, but it appeared that without this there was over $100,000 worth of property at the valuations made by the corporators.

Some time after this, negotiations were commenced for the purchase of land on which the company was operating, which resulted in an arrangement with the owner by which the land was converted into capital of the company, and the capital was increased to $1,000,000, or 10,000 shares of $100 each, of which the personal property of the corporation was to represent 4,000 shares, the land 2,000 shares, and the residue held for sale to procure money to carry on the operations of the company. This arrangement was carried out, and 4,000 of the new shares were issued to the stockholders upon the surrender of their old certificates. The complainant, Coit, was the holder of a second mortgage on the land purchased, and under an arrangement with the company he surrendered his old mortgage and took obligations of the company secured by a new mortgage.

Some time after the purchase the title to the land was disputed by new claimants, and a new arrangement was made, by which the stockholders surrendered the new stock which had been issued to them, and retained only the $100,000 originally issued.

It was claimed on behalf of complainant that both the original valuation of the property of the association and the valuation of the land purchased were fraudulent, and that only a small part of the $100,000 original capital had ever been actually contributed. On the other hand, the respondents claimed that the valuation of the company's property had been made bona fide, and that the arrangement for the purchase of the real estate and increase of stock had been made with the knowledge and acquiescence of complainant.

George Biddle, Edward F. Hoffman, and Charles Hart, for complainant.

Pierce Archer and Richard C. McMurtrie, for the gold company and certain stockholders.

H. T Fenton, L. R. Fletcher, William A. Husband, Thomas H Neilson, W. H. Smith, George Bull, W. C. Bullitt, and George Junkin, for stockholders.

BRADLEY JUSTICE, (orally.)

The case of Coit v. North Carolina Gold Amalgamating Co. et al. has received our consideration, and we are now prepared to announce an opinion. Complainant's counsel have, by a very fair presentation of authorities, based the claim against the stockholders upon the doctrine that the capital stock of a corporation is a trust fund which is liable for the claims of creditors, and the general proposition cannot of course be controverted; that is to say, it is liable after a corporation becomes insolvent. Prior to its insolvency a corporation holds its property as any other person, not in trust, but absolutely in the exercise of direct dominion and supreme control. But when a corporation becomes insolvent, then, according to the holding of courts of equity, its property becomes a trust fund for the payment of creditors. This is true, at all events, in cases where the property has not been subjected to execution, or disposed of by way of assignment or other appropriation to particular debts. But the principles upon which that trust is administered are not so simple as might at first be supposed. The trust embraces all the property of a corporation; embraces its real estate and its choses in action. If debts are due to the corporation they are part of that fund, and may be collected by the proper representative of the corporation, whether a trustee appointed by a court of equity, an assignee in bankruptcy, or other agent, for the parties interested. But it is only those claims or assets which a company has that belong to the trust fund. Unpaid installments on stock in the ordinary case are assets; they are claims which a company could enforce, and therefore they are claims which the creditors can compel the enforcement of through the instrumentality of a court of equity.

But there are cases in which arrangements have been made for the payment of stock which preclude the company itself from enforcing and further payment thereon, and yet in which, as to creditors who can fairly allege that they have relied, or whom the law presumes to have relied, upon the amount of capital stock of the company, the courts will impose a trust upon the subscription, and set aside the arrangement made for its payment. But that trust does not arise absolutely in every case where capital stock has been issued, and where it has been settled for by arrangement with the company. It is not as if the stockholders had given their promissory notes for the amount, those notes being in the treasury of the company; but there are often equities to which the stockholders are entitled,-- on which they are entitled to stand.

I suppose that in the case of stock dividends fairly made, in consideration of profits earned, and of accumulations of the property of the company,-- made simply to represent the property, and fairly representing the same,-- dividends made of stock as full-paid stock, without any dishonest purpose without any purpose to deceive or defraud anybody,-- I suppose that in a case of that kind a court of chancery would have no power to revive a claim against the stockholders because they had not advanced actual cash for the shares. There are considerations, therefore, affecting this question of liability for stock on which money has not been actually paid, which must be taken into consideration in order to do...