Fear v. Bartlett
| Decision Date | 19 June 1895 |
| Citation | 32 A. 322,81 Md. 435 |
| Parties | FEAR v. BARTLETT. |
| Court | Maryland Court of Appeals |
Appeal from the court of common pleas.
Action by J. Kemp Bartlett, trustee of the Valley Land & Improvement Company, against Boston Fear on a subscription to capital stock. Plaintiff had judgment, and defendant appeals. Reversed.
Argued before ROBINSON, C.J., and BRYAN, McSHERRY, ROBERTS, BRISCOE PAGE, and BOYD, JJ.
R. B Tippett & Bro. and Goodwin & Culbreth, for appellant.
Charles Marshall and Joseph C. France, for appellee.
The plaintiff is the trustee of the Valley Land & Improvement Company, chartered by the state of Virginia, and this is a suit to enforce the payment of the defendant's subscription to the capital stock of the company. The defense is that the defendant was induced to become a subscriber on the faith of certain representations set forth in a prospectus issued by the company, that these representations were false and fraudulent, and that the defendant, as soon as he became, or could by reasonable diligence become, aware of the fraud, and before the insolvency of the company repudiated his contract of subscription, and so notified the company. The defense is substantially the same as that relied on in Savage v. Bartlett, 78 Md. 561, 28 A. 414, in a suit by the present plaintiff against the defendant in that case to recover his subscription to the stock of the same company; and in that case we said that if the defendant was induced to become a shareholder on the faith of certain representations contained in a prospectus issued by the company, and these representations were false, and within a reasonable time after the discovery of the fraud, and before the insolvency of the company, he repudiated his contract of subscription, and so notified the company, these facts, if found by the jury, constituted a valid defense to the action. The counsel for the appellee did not seem to think we had gone so far in that case, and in view of the fact that there are a number of other suits in the court below involving the same defense, the question has again been fully argued and fully considered by us, and we see no reason to modify or qualify in the least the judgment in the Savage Case. We cannot agree that it is in any manner in conflict with what is known as the "trust-fund doctrine," now recognized in this country. This doctrine, it has been said, was first announced in Wood's Case, 3 Mason, 308, Fed. Cas. No. 17,944, where the stockholders of a bank divided among themselves two-thirds of its capital stock, without leaving sufficient funds to pay its creditors, and Mr. Justice Story held, and justly held, that the property of the bank must first be applied to the payment of its creditors, before there could be any distribution of its assets among the stockholders; and the most emphatic enunciation of the doctrine is to be found in the opinion of Mr. Justice Miller in Sawyer v. Hoag, 17 Wall. 610, where a stockholder of an insurance company, having given his note for his subscription to its capital stock, after the insolvency of the company and with full knowledge of its insolvency, bought up claims against the company for one-third their face value, and then set up these claims as a set-off to his unpaid subscription.
But whatever may have been the origin of the doctrine, it means and can only mean, that when a corporation has been lawfully dissolved or has become insolvent, its entire property, including unpaid subscriptions to its capital stock, becomes a trust fund for the payment of its debts, and that creditors are entitled in equity to have their debts paid out of the assets of the company before there can be any distribution among the stockholders. Fogg v. Blair, 133 U.S. 534, 10 S.Ct. 338; Railway Co. v. Ham, 114 U.S. 587, 5 S.Ct. 1081; Brant v. Ehlen, 59 Md. 1. And no one can question the justice and sound sense of the doctrine as thus understood. But it is only when the company has been dissolved or has become insolvent that this equitable doctrine arises. So long as the company is a going concern, having the possession and management of its property, contracts made by and with the company are governed by the same principles of law as contracts...
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