Hood v. McNaughton

• Decision Date: 09 June 1892
• Citation: 24 A. 497,54 N.J.L. 425
• Parties: HOOD v. MCNAUGHTON.
• Court: New Jersey Supreme Court

24 A. 497

54 N.J.L. 425

HOOD

v. MCNAUGHTON.

Supreme Court of New Jersey.

June 9, 1892.

(Syllabus by the Court.)

Action by John Hood, receiver of the Fidelity Trust & Safe Deposit Company, against John C. McNaughton, to recover installments due on stock subscriptions. Verdict for plaintiff, in the Camden county circuit court. On rule to show cause why the verdict should not be set aside. Rule discharged.

Argued February term, 1892, before the Chief Justice and Depue and Van Syckel, JJ.

D. J. Pancoast, for plaintiff.

J, B. Harned, for defendant.

VAN SYCKEL, J. The defendant was an original subscriber to the capital stock of the Fidelity Trust & Safe Deposit Company, for 10 shares of the par value of $ 100 each, on which only 10 per cent. of the subscription price has been paid. The bylaws of the said company provide that "transfers of stock shall be made only on the books of the company. That no transfer shall be made until the certificate granted to the transferrer is delivered up to the company; and the possession of a certificate of stock shall not be regarded as vesting any ownership in the same in any other than the person in whose name it is issued, as between the company and such owner, until the transfer be duly made on the books of the company as aforesaid." On the 28th day of February, 1890, and after the defendant had paid 10 per cent. on the said shares subscribed for by him, he sold the said shares, and delivered his certificate therefor to the vendee, but the shares were not transferred on the books of the company, as required by the by-laws. The said company subsequently became insolvent, and, upon proceedings duly taken in the court of chancery of this state, John Hood, the plaintiff, was appointed receiver thereof. The receiver filed his petition in the court of chancery, giving the names of the subscribers to the stock, and the amount still due to the company upon the shares subscribed for, and thereupon the chancellor, on the 27th day of October, 1890, ordered and decreed that the said subscribers be severally required to pay to the receiver the full amount due to the company for their stock, and the said receiver was authorized and directed to collect the same by suit if necessary. The defendant having refused to pay upon demand made by the receiver, this suit was instituted, and under the direction of the trial court a verdict was rendered for the plaintiff for the amount claimed by him.

Section 5 of our corporation act (Revision, p. 178) provides that, where the whole capital of a corporation shall not have been paid in, and the capital paid shall be insufficient to satisfy the claims of its creditors, each stockholder shall be bound to pay on each share held by him the sum necessary to complete such share, or such proportion of that sum as shall be required to satisfy the debts of the company. Section 70 of the same act prescribes how proceedings shall be taken to declare corporations insolvent; and section 77 provides that the receiver, when appointed, shall be a trustee for the creditors and stockholders of the company, with full power to institute suits at law or in equity to recover the assets thereof. These provisions are declaratory of the common law. By the common law the stockholders of an incorporated company are liable to pay their subscriptions, if such payment be necessary to discharge the debts of the company. A court of equity has power to compel such payment. The capital stock which has been paid in and which remains unpaid is regarded as a trust fund pledged for the payment of the debts of the corporation. Spear v. Grant, 10 Mass. 9; Nathan v. Whitlock, 9 Paige, 152; Ward v. Manufacturing Co., 16 Conn. 593; Adler V. Milwaukee Co., 13 Wis. 57.

The insistment that it was unnecessary, and therefore illegal, to require the defendant to pay the full amount unpaid on his shares in order to satisfy the debts of the company, cannot be entertained in this court. The decree of the court of chancery requires the payment of the entire amount, and the validity of that decree cannot be drawn in question in this suit,...