Kroenert v. Johnston

• Decision Date: 11 March 1898
• Citation: 19 Wash. 96,52 P. 605
• Parties: KROENERT v. JOHNSTON ET AL.
• Court: Washington Supreme Court

52 P. 605

19 Wash. 96

KROENERT v. JOHNSTON ET AL.

Supreme Court of Washington

March 11, 1898

Appeal from superior court, Chehalis county; Charles W. Hodgdon Judge.

Action by Andrew J. Kroenert against B. F. Johnston and others. Judgment for plaintiff. Defendants appeal. Reversed.

Dunbar J., dissenting.

Austin E. Griffiths, for appellants.

J. C. Cross, for respondent.

SCOTT C.J.

The defendants were stockholders in the Aberdeen Shingle Company a corporation, organized for manufacturing purposes. The plaintiff is the owner of a judgment against the corporation obtained upon a number of assigned claims. Its property had been exhausted by levies of executions upon prior judgments, and he brought this action, seeking to enforce a liability against the stockholders, on the ground that the stock held by them had not been paid for, or had not been paid for up to the amount of its par value. The corporation was organized by Johnston, Marc Sherwood, Shoemaker, Hayes, and M. R. Sherwood, with a capital stock of $10,000. The records relating to its organization and business were not kept in a systematic manner, nor the proceedings fully shown in its minutes. The record of the trial proceedings is also confused and complicated, whereby we have been put to some difficulty in ascertaining the real contentions of the parties, and, if the statement given should not be technically correct, it is due to that; but from the briefs and the evidence we think we have presented the substantial matters in controversy. It seems that the only real parties in interest in the corporation at the time of its organization were Johnston and Marc Sherwood, and that the entire shares of its capital stock were turned over to them in equal amounts, and paid for in money and property. A short time after the organization Johnston transferred some of his shares of stock to Hayes, Shoemaker, and M. R. Sherwood. We take this, first, from repsondent's brief, wherein he alludes to Johnston's deposition as showing it, without indicating the part of the record where it may be seen. This deposition was not referred to in the index, and we have found it by turning over, page by page, a large part of the voluminous record. We call attention to this matter, in order to prevent similar occurrences, as far as possible, in the future. We have in some instances imposed a punishment upon appellants for such neglect by striking statements, but as there was an attempt to index the record in this case, which appears to be correct in the main, we have passed it in this instance. It seems the capital stock was paid for as follows: In money, $5,500; a boat, of the value of $500; and real estate, of the alleged value of $4,000. While the cash payment was originally disputed, respondent (plaintiff) seems to have abandoned that contention, and the real controversy is narrowed down to a question of the value of the real estate at the time it was transferred to the corporation; the respondent contending that its real value was less than half the amount for which it was taken, and the court found accordingly. While the evidence was conflicting, we cannot say it preponderates in favor of the defendants, and the finding as to the fact must stand. No service was had upon Marc Sherwood and Shoemaker, but the cause was prosecuted against the other defendants, and they have appealed from judgments against them severally.

The various decisions regarding corporate liability and the liability of stockholders are so conflicting, and so controlled by different statutory regulations, as to make an examination of them, to determine their weight as authority upon the questions here presented, an exceedingly difficult one. Recourse must first be had to our statutes. Section 4262, 1 Ballinger's Code, prescribes a liability upon the part of stockholders in a corporation like this for the amounts subscribed by them. This relates to their contractual liability, and, if there has been no subscription, there is no contract to pay the corporation or its creditors anything in cases where the shares of stock were originally issued as paid up. This action is practically brought as, or has resolved itself into, one to enforce a contractual liability. The fraud claimed bears more especially upon Johnston than upon the other defendants. The basis of it is that, by subscribing for $5,000 of the stock, he contracted to pay that amount to the corporation. The alleged fraud consisted in turning in the real estate for a greater sum than its actual value. The only charge of fraud that could obtain against the other defendants was in permitting this real estate to be accepted, or in agreeing to accept it, for the price stated. As we understand the facts, there was no real subscribing by them for any part of the capital stock. In obtaining it from Johnston, they assumed no part of his contractual liabilities to the corporation or to the creditors under our statutes. As against them, the action can only be maintained on the ground of an actual intentional fraud upon subsequent creditors of the corporation, and there was no proof of any such; and we think the same result follows as to Johnston under the proofs. There was no showing that the corporation was formed with the design to issue any paper or obligations to third parties, or put any such afloat upon the market, or to incur any indebtedness at all. This was found necessary in the later prosecution of its business.

We will first consider the case as to Johnston; for, if there was no fraud, actual or in law, on his part, there was clearly none as to the other appellants. We start with the proposition that in all private corporations formed for pecuniary profit, with the exception of corporations formed for mining purposes, an original subscription for the capital stock is required under the law, and that the parties subscribing become thereby obligated to pay the amounts subscribed; but, in the absence of fraud, the manner and kind of payment may be agreed upon among the incorporators, although there is no statute expressly providing, as does section 4280, 1 Ballinger's Code, that in the case of corporations formed for the working and developing of mining claims, etc., the capital stock may be represented entirely by the mining claims conveyed to the corporation; and, that there need be no subscribing, nor any statute expressly authorizing a payment in property, it is yet conceded, and is undoubtedly the settled law here, as to corporations like the one here in question, that property may nevertheless be turned in as a payment of the amount subscribed; but it is contended that the rule is different as to such corporations, in that the property must then have a present actual value equal to the sum for which it is turned over in payment, and not a prospective or agreed one merely. There was no actual intended fraud here proved against any one of the incorporators or stockholders. If the judgment of the lower court can be sustained, it can only be upon the ground of a mere overvaluation of this real estate when it was turned in. As to Johnston it presents a double aspect, viz. that he contracted to pay a certain amount by his subscription, and that he actually paid less than that amount, in consequence of the real estate's being worth less than the sum for which it was accepted. As against the other appellants, they not having subscribed for any shares of stock, there was no contractual liability whatever (2 Thomp. Corp. § 1577); and, it not being shown that any actual fraud was intended, there was no foundation for any judgment against them at all.

There was some testimony by the plaintiff that, before he commenced buying the company's paper, he had a talk with one of the Sherwoods, who told him the stock was fully paid up, and that the real estate had been donated to the corporation, etc. But the corporation was not liable for any such representations even if intentionally false; conceding there might be a liability, as against the corporation, for misrepresentations of its officers and agents in dealing with a third party, whereby the corporation should fraudulently obtain his property, for which the corporate property might be seized, and its unpaid stock subscriptions collected. No such case is presented here. There might also be an individual liability established against the stockholder for a fraudulent misrepresentation respecting the corporation in some instances, but his liability there would not be controlled nor affected by his stock subscription. It would be entirely independent of it. But that is not this case. Without setting forth the testimony, the most favorable view proved for the plaintiff is that there was an overvaluation of the real estate turned in as a partial payment, but that this was offered,...