Kelley v. Fletcher

• Court: Supreme Court of Tennessee
• Writing for the Court: CALDWELL, J.
• Citation: 28 S.W. 1099,94 Tenn. 1
• Parties: KELLEY et al. v. FLETCHER et al.
• Decision Date: 30 October 1894

28 S.W. 1099

94 Tenn. 1

KELLEY et al. v. FLETCHER et al.

Supreme Court of Tennessee.

October 30, 1894

Appeal from chancery court, Knox county; Henry R. Gibson Chancellor.

Bill by Kelley Bros. against J. M. Fletcher and others to compel payment of stock subscription. From a decree dismissing the complaint, complainants appeal. Affirmed.

Taylor & Pipper, for appellants.

Green & Shields, C. T. Cates, Jr., J. W. Caldwell, Welcker & Gaut, A G. Howe, and Lucky & Sanford, for appellees.

CALDWELL J.

The Hercules Marble Company was chartered under the laws of West Virginia, and had its principal business office at Knoxville Tenn. In February, 1891, T. W. Keller and other creditors and shareholders filed their bill against said corporation and others, alleging its insolvency, and seeking to have its affairs settled and wound up under the decrees of the chancery court at Knoxville. In due time a receiver was appointed and placed in the possession of the assets of the company. Thereafter, on the 8th day of August, 1891, J. J. and J. M. Kelley, composing the firm of Kelley Bros., by permission expressly granted in that cause, filed the present bill in behalf of themselves and other creditors against numerous holders of stock of said company. This bill was filed in aid of that one, and its purpose was to compel the present stockholders to contribute pro rata an aggregate sum sufficient in amount to satisfy such balance of the liabilities of the corporation as might remain unpaid after the exhaustion of the assets in the hands of the receiver. The material substance of the particular allegations upon which this relief was sought, briefly stated, is that not more than 10 per cent. of the stock subscription of the Hercules Marble Company was ever in fact paid, though the certificates of stock appear upon their faces to be fully paid up and nonassessable; and that the present holders knew, or should have known, that they were not fully paid up from the fact that they respectively acquired their stock at merely nominal prices. Two of the defendants almost conceded the right of the complainants to the relief sought, while the others (who are numerous) vigorously resisted the bill. Some of these resisting averred that the subscription to stock was in fact paid in full, as indicated on the face of the certificates, and these joined others in further averring that they purchased their respective certificates upon the open market at the market price, and in the full belief that they were in fact what they purported to be.

It was developed in the proof that the Hercules Marble Company was chartered on the 13th day of April, 1888, with a subscribed capital stock of $50,000 only, but with the express privilege of increasing the same to $100,000; that in pursuance of that privilege, on the 22d day of May, 1888, the capital stock was fixed at $100,000, the number of shares being 10,000, at the par value of $10 each. It was further developed that 9,950 of said shares, of the value of $99,950, were by directors regularly issued to T. L. Lambie in consideration of his assignment to the corporation of certain leases of stone and marble lands; and that certificates for the whole $100,000 of stock were by direction issued with the recitation upon their faces that they were full paid and nonassessable. It appeared also in the proof that after issuance of the stock Lambie transferred to the company different blocks of his stock, amounting in the aggregate to about $55,000, and that thereafter the corporation sold the same for its own benefit, part at the rate of 12 1/2 cents and part at the rate of 25 cents on the dollar; and that much of the stock retained by Lambie, and much of that transferred by him to the corporation and by it sold, is now owned by the defendants in this case. Proof was also introduced tending to show that the leases assigned by Lambie to the corporation in payment of his subscription to stock were in fact of but little value. On motion of the defendants, all the latter proof was rejected, because not responsive to any issue presented in the pleadings. The case was then heard upon the pleadings and the remaining proof, and the chancellor, being of opinion that complainants were entitled to no relief, dismissed their bill. From that decree they have appealed to this court, and assigned errors.

No exception was taken in the court below to the action of the court with respect to the rejected evidence, as must have been done to make such evidence a part of the record in this court (Perry v. Pearson, 1 Humph. 431; Spurlock v. Fulks, 1 Swan, 291; Aymett v. Butler, 6 Lea, 453; Steele v. Frierson, 85 Tenn. 438, 3 S.W. 649; Anderson v. Railroad, 91 Tenn. 54, 17 S.W. 803), and no objection is here made to that action. It is well settled that the capital stock of a corporation is a trust fund for the payment of corporate debts; and that stock subscribers are liable to creditors of the company for unpaid subscriptions so far as the same may be necessary for the payment of corporate debts. This is believed to be the universal rule in America, though not so in England. Cook, Stocks & S. § 199; Wetherbee v. Baker, 35 N. J. Eq. 501; Sawyer v. Hoag, 17 Wall. 611; Mor. Priv. Corp. § 780; 1 Beach, Priv. Corp. §§ 113-116; Thomp. Liab. Stockh. § 10; Ohio Life Ins. & T. Co. v. Merchants' Ins. & T. Co., 11 Humph. 31; Sanger v. Uptons, 91 U.S. 60; Tayl. Priv. Corp. §§ 701-704; Spel. Priv. Corp. § 784. It is quite as well settled that the subscriber may pay and satisfy his stock subscription either in money or in such property as the corporation may need and agree to take in good faith and at a fair valuation; and if the property is taken at a fair valuation and in good faith, the payment is as effectual and as valid as though made in cash to the same amount. Cook, Stocks & S. §§ 18, 20, 423; 1 Mor. Priv. Corp. § 425; Albitztigui v. Mining Co., 92 Tenn. 605, 22 S.W. 739; Coit v. Amalgamating Co., 119 U.S. 343, 7 S.Ct. 231; Coffin v. Ransdell, 110 Ind. 417, 11 N.E. 20; Thomp. Liab. Stockh. § 134; Tayl. Priv. Corp. § 545; 2 Spel. Priv. Corp. § 292; Wetherbee v. Baker, 35 N. J. Eq. 501.

In the case before us, it is simply shown that the property assigned by Lambie and received by the Hercules Marble Company in payment of his stock subscription was such as the corporation needed in the operation of its business, and consequently such as it had the legal right to purchase. About this there can be no dispute, upon this record, and beyond this there is no proof before this court with respect to the value of that property.

The controlling question raised by the assignment of error, and reply thereto, is one of pleadings and practice. For complainants, it is contended that the burden was upon the defendants to show, by proof independent of the fact of assignment by Lambie and acceptance by the corporation, that the property assigned by him to the corporation was reasonably worth the par value of his stock; while, on the other hand, the contention for the defendants is that it was incumbent upon the complainants first to allege, and then to prove, that the property so assigned was not reasonably worth so much. The contention of the defendants, both as to the matter of pleading and as to the burden of proof, is well sustained upon principle and upon authority. It is a fundamental maxim in chancery pleading and practice that the complainant must give the defendant notice of the case to be made against him, by alleging in the bill the facts intended to be proved, and that proof of facts not so alleged will be rejected because not responsive to the issue. Story, Eq. Pl.§§ 27, 28, 257; Daniell, Ch. Pl. & Pr. *pp. 327, 852; Beach, Mod. Eq. Proc. §§ 89, 95, 99; Merriman v. Lacefield, 4 Heisk. 217; Austin v. Ramsey, 3 Tenn. Ch. 121.

It having been lawful for Lambie to sell, and for the corporation to buy, such property as he assigned in payment of his stock, and they having exchanged one for the other, we can see no good reason why their contract in that behalf should not be binding upon all parties concerned or affected thereby, so long as it remains unimpeached. Nothing appearing to the contrary, the law presumes the contract to have been made in good faith, and the property of Lambie to have been sold and bought at a fair valuation; and when the defendants established the fact of the contract and its terms, without more, they thereby made a prima facie case of valid payment by Lambie. The parties having been competent, under the laws, to contract with each other with respect to the matter before them, they are presumed to have done what they had a legal right to do, rather than to have done what they had no legal right to do.

As to the burden of proof, Mr. Daniell says: "In general, it may be taken for granted that whenever a prima facie right is proved, or admitted by the pleadings, the onus probandi is always upon the person calling such rights in question. *** Indeed in all cases where the presumption of law is in favor of a party, it will be incumbent on the other party to disprove it, though in so doing he may have to prove a negative." Daniell, Ch....