Jackson v. Traer

• Decision Date: 09 October 1884
• Citation: 20 N.W. 764,64 Iowa 469
• Parties: JACKSON v. TRAER AND OTHERS.
• Court: Iowa Supreme Court

64 Iowa 469

20 N.W. 764

JACKSON

v.TRAER AND OTHERS.

Supreme Court of Iowa.

Filed October 9, 1884.

Appeal from Linn circuit court.

ROTHROCK, C. J., and SEEVERS, J., dissenting.P. Henry Smith & Son and S. L. Glasgow, for plaintiff.

Hubbard, Clarke & Dawley, for appellees.

ADAMS, J.

This case is now before us upon a rehearing.¹ It was submitted originally with the case of Louisa County National Bank against the same defendants. Both plaintiffs and defendants in the two actions appealed. The judgments were affirmed upon the plaintiffs' appeals, and reversed upon the defendants'. The plaintiff Jackson filed a petition for a rehearing, and a rehearing was granted. The questions presented upon the rehearing pertain to the correctness of the decision of this court upon the defendants' appeal. The action is brought under sections 1082 and 1084 of the Code. The plaintiff is a judgment creditor of the Burlington, Cedar Rapids & Minnesota Railway Company. The object of the action is to obtain an execution against stockholders of the company. It was brought originally against George Greene, as well as against the defendant Traer. Since then George Greene has died, and the defendant William Greene has been appointed administrator of his estate. The action was brought upon the theory that Traer and George Greene were, at the time of the commencement of the action, stockholders in the debtor company, and that 80 per cent. of their stock remained unpaid. The defendants, for answer, filed a general denial, and pleaded that the plaintiff's judgment has been paid. The court below held that Traer and George Greene were at the commencement of the action stockholders, and that 80 per cent. of their stock remained unpaid, and rendered judgment for the plaintiff for such balance as it found due after applying a certain payment. This court held, when the case was before us upon the first hearing, that the stock should be treated as full paid, the writer hereof dissenting. The principal question discussed upon the rehearing pertains to the correctness of the ruling that the stock should be treated as full paid. But, as we have reached a conclusion different from that reached by the majority upon the first hearing, it becomes necessary to consider some other questions.

1. Were Traer and George Greene owners of the stock in question at the time of the commencement of this action? We think that they were. It is not denied that they were such owners at one time. But the defendants contend that the evidence shows that they sold and transferred their stock to one Blair. The evidence shows clearly enough a transfer, but we think it also shows a retransfer to Traer and Greene. One Brocksmith, formerly auditor of the railroad company, was called as a witness. He testified in these words: “I was auditor, February 10, 1875, and I remember distinctly that John I. Blair received stock so as to have a majority, to give him a controlling power over the property, so far as stock would give it, or else he would not accept the presidency. Judge Greene invited him to be president. Greene, Traer, and others, of construction company, held stock issued to them till February 10, 1875, when it formed part of several thousand shares given in trust to John I. Blair, and Blair held it until sometime after the reorganization of the railway company, when it reverted again into the hands of the original owners. So far as George Greene is concerned, it was reissued to him June 14, 1877, in certificate No. 2,116, and to Traer, in certificate No. 2,177, dated June 18, 1877.” The action was commenced in May, 1878. The stock referred to by the witness Brocksmith appears to be the stock now in controversy, and his testimony is sufficient to support the finding of the court below.

2. Upon the question as to whether the plaintiff's judgment had been paid, we have to say that we think that the finding of the court below was as favorable to the defendants as they could properly ask. The evidence shows that the property of the debtor railway company was sold at a foreclosure sale, and purchased by the Burlington, Cedar Rapids & Northern Railway Company; that the defendants intervened in the foreclosure action, and claimed a lien upon the property; and the purchasing company, in order to obtain a release of the plaintiff's claim of a lien upon the property, issued to him 50 shares of its own stock; it being expressly provided that the release should not affect the plaintiff's claim against the debtor company. The court below found that the receipt of the 50 shares of stock by the plaintiff operated as a payment to the extent of the par value of the stock, and rendered judgment only for the balance. This, we think, is all that the defendants could properly claim. There is no pretense that the stock was worth more than par. It is, to be sure, contended that the plaintiff was fully secured by its lien, and that by releasing the same it released the defendants, or estopped itself from proceeding against them. But we think that it is not shown that the plaintiff had a lien by which it was fully secured. Besides, the defendants did not plead the release. Whether a creditor of a corporation can proceed, under the statute cited, against stockholders, regardless of any security which the creditor may hold, or may have held, is a question discussed by counsel, but which, as we view the case, it is not necessary to determine.

3. We come now to consider whether it is true, as the plaintiff alleges, that Traer and George Greene paid only 20 cents on a dollar for the stock issued to them in the debtor company, and if so, whether the balance, to-wit, 80 per cent., can be treated as unpaid, and as constituting a trust fund to be resorted to by corporate creditors in the absence of other corporate property. The fact appears to be that prior to the time the plaintiff's claim accrued against the railway company the company had already become indebted to a certain construction company, in which Traer and George Greene were large stockholders. This indebtedness it is shown amounted to $70,000, and was more, as we infer, than the company could easily discharge by a cash payment. But what the circumstances of the company were is not important to inquire, because the question as to whether it was rich or poor is wholly foreign to the legal question presented for our determination. Whatever were the circumstances of the debtor railway company, it offered to issue to the construction company stock of the par value of $350,000 in discharge of the $70,000 of indebtedness. This offer was accepted, and the stock was issued accordingly; and, having been issued, it was distributed at once among the stockholders, in proportion to their respective interests as stockholders in the claim of $70,000; and Traer received 140 shares, and George Greene 910 shares. The resolution under which the stock was issued is in these words: “Resolved, that, in the adjustment and liquidation of claims against the company, the treasurer be authorized to use the stock of the company, provided not less than twenty per cent. of the par value can be realized for the purpose.” Certificates of stock appear to have been issued to Traer and George Greene in the ordinary way. What, if anything, they showed, or what, if anything, the books of the company showed, in regard to the payment for the stock, does not appear. The company seems to have proceeded upon the theory that stock which had never been issued had a substantial existence as an asset of the company, as stock would have which had been issued and paid for and afterwards acquired by the company. But this was in fact a new issue, and, being such, the books should have shown 20 per cent. paid, and only that, whatever might have been the understanding as to whether the remaining 80 per cent. should be called for or not. Possibly, the books do show the transaction as it was, but it is not important as to whether they do or not. The question is as to whether the defendants can be sustained upon any theory of the transaction which they have propounded.

Precisely what their theory is, it is not easy to state, because it does not seem to be very well defined. Sometimes they seem to rely upon the rule, recognized in some cases, that where a subscriber to stock pays for it in property at an overestimated, but honestly estimated, value, a court will not go behind the transaction. We are not asked in words to say that the defendants and the railway company might have honestly estimated 20 cents to be worth 100 cents; but, unless we could say that, it is manifest that the principle enunciated has no application. We think it safe to say that there was never any pretense, honest or dishonest, that this stock was really fully paid. There might have been an understanding that dividends should be made upon it to the same amount as upon other stock which was fully paid, and also an understanding that the remaining 80 per cent. should not be called for. We think that this was the understanding in fact. We do not suppose that it was expressed in so many words. The parties seem to have misconceived the nature of unissued stock. But if the defendants can escape liability, it must be because there was virtually an agreement that the remaining 80 per cent. should not be called for. The question then arises as to whether stockholders can be allowed to set up such an agreement to enable themselves to escape the liability which the statute contemplates. In our opinion they cannot. The theory of the statute is that the amount of stock issued constitutes the basis of the company's credit. It is not absolutely necessary that more than a small per cent. should be paid upon the issued stock. It is not desirable that it should be paid for faster than the actual needs of the company require. The balance constitutes a reserved fund, to be called in at stated times and in successive...