Gilkie & Anson Company v. Dawson Town & Gas Company

• Decision Date: 08 November 1895
• Docket Number: 6590
• Parties: GILKIE & ANSON COMPANY, APPELLEE, v. DAWSON TOWN & GAS COMPANY ET AL., APPELLANTS
• Court: Nebraska Supreme Court

64 N.W. 978

64 N.W. 1097, 46 Neb. 333

GILKIE & ANSON COMPANY, APPELLEE, v. DAWSON TOWN & GAS COMPANY ET AL., APPELLANTS

No. 6590

Supreme Court of Nebraska

November 8, 1895

Dissenting opinion appears in 64 N.W. 1097

APPEAL from the district court of Douglas county. Heard below before HOPEWELL, J.

AFFIRMED.

G. W Ambrose, for appellants:

Fraud will never be imputed when the circumstances and facts upon which it is predicated may consist with honesty and purity of purpose. (Bump, Fraudulent Conveyances [3d ed.] 603; Clemens v. Brillhart, 17 Neb. 337.)

Where subscriptions for stock are paid in property, a creditor of the corporation who alleges fraud in the transaction must not only prove that there was an overvaluation of the property but must prove also that such overvaluation was intentional. (Douglas v. Ireland, 73 N.Y. 100; Schenck v. Andrews, 57 N.Y. 133; Boynton v. Andrews, 63 N.Y. 93; Lake Superior Iron Co. v. Drexel, 90 N.Y. 87; Brant v. Ehlen, 59 Md. 1; New Haven Horse Nail Co. v. Linden Spring Co., 142 Mass. 349; Coffin v. Ransdell, 11 N.E. [Ind.], 20; Phelan v. Hazard, 5 Dill. [U. S. C. C.], 45; Crawford v. Rohrer, 59 Md. 599; Young v. Erie Iron Co., 31 N.W. [Mich.], 814; Coit v. North Carolina Gold Co., 14 F. 12.)

Where the capital subscribed is settled for by a transfer to the corporation of personal property belonging to the subscribers at an honest valuation fairly made and agreed upon between them, they cannot be held individually liable to creditors because the value of the property, estimated in the light of subsequent events, will not equal the amount at which it was received. (Coit v. North Carolina Gold Co., 119 U.S. 343; Peck v. Coalfield Coal Co., 11 Brad. [Ill.], 88; Carr v. Le Fevre, 27 Pa. 413; Liebeke v. Knapp, 79 Mo. 22.)

The books of the company were open to the creditor. He could and should have examined them. The articles were of record providing that shares should be issued as fully paid up. These articles were posted in the office of the company. The books showed the true state of affairs--just how the property was bought and paid for. The creditor made no inquiry and is estopped by his negligence. (Peck v. Coalfield Coal Co., 11 Brad. [Ill.], 88; Buchanan v. Litchfield, 102 U.S. 218.)

H. W. Pennock, C. A. Fowler, and Cavanagh, Thomas & McGilton, contra:

The capital stock of a corporation is a trust fund for the benefit of creditors, which may not be wasted or squandered by the corporation, and which may be sequestered in equity by creditors when the corporation has become insolvent. (Fothergill's Case, L. R., 8 Ch. App. [Eng.], 270; Wood v. Dummer, 3 Mason [U. S. C. C.], 308; Sawyer v. Hoag, 17 Wall. [U. S.], 610; Osgood v. King, 42 Iowa 478; Upton v. Tribilcock, 91 U.S. 47; Sanger v. Upton, 91 U.S. 60; Crawford v. Rohrer, 59 Md. 599; Weatherbee v. Baker, 35 N.J.Eq. 501; Elyton Land Co. v. Birmingham Warehouse & Elevator Co., 92 Ala. 407.)

Subscriptions to capital stock may be regarded as debts due to the corporation always worth the par value of the stock. If the officers of the company have compromised with subscribers by any colorable transactions, so that the stock has not been fairly paid for, creditors may step in and enforce full payment therefor against all parties holding such stock with knowledge of the facts. (Upton v. Tribilcock, 91 U.S. 47; Sanger v. Upton, 91 U.S. 60; Gogebic Investment Co. v. Iron Chief Mining Co., 47 N.W. [Wis.], 726.)

A gross and obvious overvaluation is sufficient of itself to establish fraud as against creditors, unless the transaction can be fully and fairly explained upon a reasonable business basis. (Douglas v. Ireland, 73 N.Y. 100; National Tube Works Co. v. Gilfillan, 124 N.Y. 302; North-western Mutual Life Ins. Co. v. Cotton Exchange Real Estate Co., 46 F. 22; Boulton Carbon Co. v. Mills, 78 Iowa 460; Bailey v. Pittsburgh & Connellsville Coal & Coke Co., 69 Pa. 334.)

The following cases were also referred to in the argument of counsel for appellee: Thayer v. El Plomo Mining Co., 40 Ill.App. 345; Gogebic Investment Co. v. Iron Chief Mining Co., 78 Wis. 427; Carter v. Union Printing Co., 54 Ark. 576; Terry v. Little, 101 U.S. 216; Farmers Bank v. Gallaher, 43 Mo. App., 483; Shickle v. Watts, 94 Mo. 410; Jackson v. Traer, 64 Iowa 469; Scoville v. Thayer, 105 U.S. 143; Union Ins. Co. v. Frear Stone Mfg. Co., 97 Ill. 537; Alling v. Wensell, 133 Ill. 264.

HARRISON, J. RAGAN, C., dissenting.

OPINION

The opinion contains a statement of the case.

HARRISON, J.

December 26, 1891, this action was instituted by the creditors of the Dawson Town & Gas Company, a corporation formed under the laws of this state, against the corporation and the appellants, stockholders therein, to recover the amounts of judgments in favor of such creditors. The original party plaintiff was the Gilkie & Anson Company, the Crane Company becoming a party plaintiff by intervention. In the original petition the organization and existence as a corporation, of the defendant and also the plaintiff company, was averred the object and purpose for which the defendant company was organized, its place of business, and the sale to it by plaintiff of a quantity of lumber, and that judgment was obtained for the debt thus created, execution issued and returned no property found. The insolvency of the defendant company was also alleged, and it was further stated "That the authorized capital stock of said defendant corporation is $ 300,000; that the said defendant refuses to allow the plaintiff to examine its books, and the plaintiff cannot learn and has no means of finding out the exact amount of stock actually issued, or the amount of the unpaid portion of the subscriptions; but plaintiff alleges, upon information and belief, that defendants Norman A. Kuhn, Charles D. Woodworth, Arthur H. Cooley, and J. T. Hoile each own a large amount of said stock, the full par value of which has never been paid into said corporation, and that the amount remaining unpaid of the stock so owned and held by each of the said defendants is sufficient to pay the claim of the plaintiff in full. Plaintiff alleges further that the said corporation defendant was created in the month of September, 1889, and alleges, upon information and belief, that since its creation it has failed and neglected to give any annual notice, signed by its president and a majority of its board of directors, of the amount of all its existing debts in any newspaper printed in the county or any of the counties in which its business has been transacted, as is provided and required by the statutes of the state of Nebraska." These allegations, except in relation to the creation of the corporation, were denied in answer filed for the defendant company and the stockholders, and it was further averred that full payment of the par value of the stock owned by the stockholders, had been made. The Crane Company was allowed to intervene and become a party plaintiff. Its petition stated no new facts, but referred to, and made a part of it, the material allegations of plaintiff's amended petition. The plaintiff company was, on application, allowed to file an amended petition, in which it included other and further parties as stockholders and defendants, and after pleading substantially as in the original petition, the creation of the corporation, its purpose and powers, the indebtedness to plaintiff, the judgment, etc., the insolvency of the defendant company, and the failure to publish the annual notice required by law, further alleged: "That the authorized capital stock of said defendant corporation is $ 300,000; that said stock was issued to each of the defendants Cooley and Hoile to the amount and of the par value of $ 120,000, and that as payment therefor defendants fraudulently turned into said corporation certain real estate at a false and fictitious valuation of $ 205,000 and nothing else whatever, and that said real estate was worth no more than $ 10,000, of all of which defendants Cooley, Kuhn, and Woodworth at the time had knowledge, and that there now remains unpaid on said stock the sum of $ 230,000; that defendant Cooley is now the owner of said stock issued to him of the par value of $ 53,500, and that there remains unpaid thereon, and said Cooley is individually liable to the creditors of said corporation by reason thereof, in the sum of $ 51,270.80; that defendant Charles D. Woodworth is now the owner and holder of said stock issued to said Cooley, by assignment from him, of the par value of $ 35,000, and that there remains unpaid thereon, and said Woodworth is individually liable to the creditors of said corporation by reason thereof, in the sum of $ 33,451.66; that defendant Thomas H. Platter is now the holder and owner of said stock issued to said Cooley, by assignment from him, of the par value of $ 4,000, and that there remains unpaid thereon, and said Platter is individually liable to the creditors of said corporation by reason thereof, in the sum of $ 3,833.33; that defendant Norman A. Kuhn is now the owner and holder of said stock issued to defendant Hoile, by assignment from him, of the par value of $ 35,000, and that there remains unpaid thereon, and said Kuhn is individually liable to the creditors of said corporation by reason thereof, in the sum of $ 33,541.66; that defendant Alexander G. Charlton is now the owner and holder of said stock issued to said Hoile, by assignment from him, of the par value of $ 12,500, and that there is unpaid thereon, and said defendant Charlton is individually liable to the creditors of said corporation by reason thereof, in the sum of $ 11,979.16; that defendant J. R. Pearson is now the owner of said stock issued to said Hoile, by assignment from him, of the par value of $...