Knight & Wall Co. v. Tampa Sand Lime Brick Co.

• Decision Date: 17 March 1908
• Parties: KNIGHT & WALL CO. et al. v. TAMPA SAND LIME BRICK CO. et al.
• Court: Florida Supreme Court

46 So. 285

55 Fla. 728

KNIGHT & WALL CO. et al. v. TAMPA SAND LIME BRICK CO. et al.

Florida Supreme Court

March 17, 1908

Rehearing Denied April 7, 1908.

In Banc. Appeal from Circuit Court, Hillsborough County; Joseph B. Wall, Judge.

Bill by the Knight & Wall Company and another against the Tampa Sand Lime Brick Company and others. From orders sustaining demurrers to the bill, complainants appeal. Reversed and remanded, with directions.

Syllabus by the Court

SYLLABUS

While the general rule is well established that a corporate creditor's suit to enforce payment of unpaid subscriptions to its stock can properly be brought only after a judgment at law has been obtained against the corporation and an execution returned unsatisfied for lack of corporate property upon which to levy, yet this rule has its exceptions, and one of these exceptions to the rule is that when the corporation has been adjudged a bankrupt, or is notoriously insolvent, or has been dissolved, then the creditor's remedy against the corporation need not first be exhausted.

The dissolution of a corporation, that will enable its creditors without exhausting their legal remedies against the corporation, to proceed against its stockholders to enforce the payment of their unpaid subscriptions for stock, takes place when the corporation comes into the condition of having debts and no assets, or has ceased to act and exercise its corporate functions, or has suffered acts to be done that end the object for which it was created.

The liability of stockholders, on the insolvency or dissolution of the corporation, for the full amount represented by the unpaid stock, extends to persons to whom stock has been issued gratuitously as an inducement to purchase bonds of the corporation, even though the certificates therefor may recite that such stock is fully paid up, since their acceptance and holding of the stock is, in legal effect, a subscription therefor which imports a promise to pay. An agreement between a corporation and its stockholders, by which the corporate stock is issued to them gratuitously, is void, because contrary to law, and does not relieve the parties to whom it has been so issued from liability to the corporation's creditors to pay for the same.

The rule is well settled that when a corporation is insolvent, or has been dissolved, and there exist subscriptions for stock that have not been fully paid, a court of equity will disregard the formality of a call, and will order the unpaid subscriptions to be paid to a receiver for the benefit of the corporate creditors, or such court may, in its discretion require its receiver to make and enforce a call upon the stockholders for such unpaid subscriptions.

Statutes must be so construed as to give effect to the evident legislative intent, even if the result seems contrary to rules of construction and the strict letter of the statute. Particularly does this rule apply when a construction based upon the strict letter of the statute would lead to an absurd result that defeats the evident purpose of the Legislature.

The purpose and intention of the Legislature in the enactment of section 2677, Gen. St. 1906, was to fix and impose upon stockholders in corporations a liability to its creditors upon the insolvency of the corporation, to the extent of any balance that remains unpaid upon the stock by them subscribed for or held, at its par or face value; and the latter part of said section was designed to exempt the stockholders' property from liability for any of the corporation's debts, except the debt due by the stockholders for the unpaid subscriptions to the corporation's capital stock. Section 2681 of the General Statutes of 1906 contains nothing that militates against this construction of section 2677, but should itself be construed in harmony with such construction of that section.

Forbearance to enforce a debt due by one party is a recognized consideration sufficient to support an obligation by a third party to pay such debt.

COUNSEL

Glen & Himes, for appellants.

Sparkman & Carter, P. O. Knight, and C. C. Whitaker, for appellees. On the 12th day of July, 1907, the appellants, as complainants below, filed their bill of complaint in equity in the circuit court for Hillsborough county against the above-named appellees, as defendants below, which bill, omitting its formal commencement, alleges as follows:

'(1) That your orators, prior to the filing of this bill, to wit, on the 12th day of July, A. D. 1907, have instituted their suits at law in this honorable court against the above-named defendant the Tampa Sand Lime Brick Company to recover certain large indebtedness due them by the said defendant, to wit, the sums of twenty-two hundred dollars and twelve hundred dollars, respectively, and the said suits for the collection of the said claims are now pending in the said court.

'(2) That heretofore, to wit, on July 23, A. D. 1904, certain of the defendants hereto procured from the Governor of the state of Florida a charter incorporating them and their associates as a body corporate under the name of Tampa Sand Lime Brick Company, the defendant herein, and after obtaining the said charter proceeded to organize as a corporation under that name, and thereafter, to wit, on the --- day of August, A. D. 1904, duly filed and procured to be recorded their said charter of incorporation in the office of the clerk of the circuit court of Hillsborough county, Florida, wherein was and is located the principal place of business of the said corporation, and also procured and made to be filed with the Secretary of State of the state of Florida, and the clerk of the circuit court of Hillsborough county, Florida, duplicate affidavits by the treasurer of said corporation that 10 per cent. of its capital stock had been subscribed and paid, all of which will more fully appear by reference to true copies of the said charter and of the said affidavits as the same appear of record in the office of the clerk of the circuit court of Hillsborough county, which are hereto attached, marked, respectively, 'Exhibit A' and 'Exhibit B' hereto, and hereby made by reference a part of this bill of complaint.

'(3) That the capital stock of the said Tampa Sand Lime Brick Company as fixed by the said charter amounted to the sum of fifty thousand dollars, divided into five hundred shares, of the par value of one hundred dollars each, and the various defendants hereto became subscribers to the said shares of capital stock of the said corporation in proportions unknown to your orators; but your orators aver that the said individual defendants hereto subscribed for substantially the entire five hundred shares of the said capital stock, and that certificates for the said issue of stock were issued to the said defendants in proportions unknown to your orators.

'(4) That while the said Tampa Sand Lime Brick Company caused and procured an affidavit to be filed with the clerk of the circuit court wherein it was averred that 10 per cent. of its capital stock had been actually subscribed and paid, your orator alleges it to be a fact that the said shares were allotted and issued to the said respective defendants without the said defendants or any of them paying therefor in cash or otherwise, and the said defendants, neither at the time of the issuance of the said shares to them, respectively, nor since, have paid to the said Tampa Sand Lime Brick Company any money whatever for the said shares of stock so issued to them, or paid for the said shares in any other manner whatever.

'(5) That your orators are informed and believe that the transaction between the said Tampa Sand Lime Brick Company and the said respective defendants hereto in connection with the issuance to them of the said shares of stock was as follows: After procuring the said charter certain of the said defendants were elected directors and officers of the said Tampa Sand Lime Brick Company, and they resolved and determined to issue the bonds of the said Tampa Sand Lime Brick Company to an amount equivalent to thirty thousand dollars, and to execute for the security of the said bonds a mortgage or deed of trust embracing all the property of the said corporation then in existence or thereafter to be acquired, and including its franchises, with the agreement and understanding that parties accepting the said bonds at par should receive in addition, as a bonus and without any consideration whatever, an amount of stock of the said Tampa Sand Lime Brick Company equivalent to the amount of bonds so taken by them.

'(6) And your orators allege that in pursuance of the agreement and understanding set forth in the preceding paragraph of this bill of complaint the respective individual defendants hereto agreed to accept and did accept and paid for at their par value bonds of the said Tampa Sand Lime Brick Company aggregating the sum of thirty thousand dollars in proportions unknown to your orators, and that the said respective individual defendants received as a bonus in proportion to the amount of bonds taken by each an equivalent amount in stock of the said Tampa Sand Lime Brick Company without the payment therefor of any price or consideration whatsoever, and that the said stock so issued and allotted to the said respective individual defendants is still held by them respectively; and your orators further aver that they are informed and believe that additional stock to the amount of about fifteen thousand dollars at par value was divided among certain of the defendants hereto as an additional bonus and without any consideration whatsoever.

'(7) That thereafter the said Tampa Sand Lime Brick Company became financially embarrassed, and after various defaults in the payment...