Marshall Foundry Co. v. Killian

• Decision Date: 19 May 1888
• Citation: 6 S.E. 680,99 N.C. 501
• Parties: MARSHALL FOUNDRY CO. v. KILLIAN.
• Court: North Carolina Supreme Court

6 S.E. 680

99 N.C. 501

MARSHALL FOUNDRY CO. v. KILLIAN.

Supreme Court of North Carolina

May 19, 1888

Appeal from superior court, Catawba county; BOYKIN, Judge.

Action by the Marshall Foundry Company, by J. F. Murrill, receiver against S.E. Killian, to recover $200, alleged to be due by reason of a subscription to the capital stock of plaintiff. Judgment for defendant, and plaintiff appeals.

Parol evidence is not admissible to vary the terms of a subscription, or to show a discharge therefrom in any manner other than that required by the terms of a subscription charter, and by-laws.

L. L Witherspoon and M. L. McCorkle, for appellant.

DAVIS J.

Civil action originally commenced before a justice of the peace for Catawba county to recover the sum of $200, alleged to be due by subscription to the Marshall Foundry Company, and carried by appeal to the superior court of said county, and tried before BOYKIN, J., at January term, 1888. It was in evidence that A. W. Marshall, W. R. Self, and others, by articles of agreement under the statute, were incorporated before the clerk on the 7th day of February, 1884, under the corporate name of "The Marshall Foundry Company." It was admitted that J. F. Murrill had been duly appointed receiver to take charge of the property of the said company, and collect debts due it in a certain proceeding instituted among other purposes, to set aside a mortgage executed by said company to secure a debt due one Alexander, wherein fraud was alleged, etc. The defendant became an incorporator on the 11th day of February, 1884, in the following manner: The above-named W.R. Self, one of the original incorporators, had subscribed for 20 shares, of the value of $100 each, and had paid in cash for 14 of them. He had sold 2 of the said shares to one Miller, who had paid him in cash therefor. Miller sold the 2 shares to the defendant, Killian, who paid him the cash therefor. Upon the organization of the company, the defendant was elected its president, and issued certificates of stock to all the then subscribers, himself among the number, all of which were duly countersigned by the secretary and treasurer in the manner prescribed by the rules and regulations. The certificate of $200 issued to himself represented the $200 of the $1,400 subscription of said Self, transferred to Miller by Self, and by him to defendant, and is the debt sued on in this action. No certificate had been issued up to the date of the election of the defendant, the president of the company. Prior to the issuing of the said stock the said company was notified of his said purchase by the defendant, and it was admitted that Self had paid the subscription price of 14 shares, in which are included the 2 shares of defendant. It was in evidence that the said company had duly accepted and ratified the defendant's said purchase of said stock, and had permitted him to become a member, and enjoy the benefits thereof. The defendant had agreed to subscribe $200 to said capital stock when said company was established, and was permitted to substitute these two shares, represented by said certificate, in lieu thereof, when organization was perfected. It does not appear that defendant's subscription has been marked "Satisfied" on the books, but it does appear that the said certificate was issued as aforesaid. The plaintiff objects to the evidence showing the manner in which the defendant sought to relieve himself of liability to said plaintiff, because oral evidence could not be introduced to contradict the articles of subscription, and the stock could only be paid for in cash to the company, and because it did not appear that the company had authorized such substitution of stock, and because such would be a fraud on the creditors. Overruled, and plaintiff excepts. The subscription list and by-laws were put in evidence, and from the former it appears that the defendant subscribed for two shares, ($100 each,) and, from the latter, among other provisions, that the stock shall be paid in cash, "unless such payment be otherwise provided for by special contract with the company." There is also a requirement that "all transfers of stock shall be made upon the books of the company, duly attested by the secretary and treasurer." The plaintiff proposed to prove that the company was now greatly indebted and was insolvent. Objected to by defendant, objection sustained, and exception by plaintiff. The court instructed the jury that the plaintiff could not recover if they believed the evidence. Plaintiff excepted. Verdict and judgment for defendant. Appeal by plaintiff. Notice waived, etc.

In pursuance of the authority conferred by sections 677 et seq of the Code, A. W. Marshall, W. R. Self, and others became incorporated under the corporate name of "The Marshall Foundry Company" on the 7th day of February, 1884. This action was commenced before a justice of the peace, and the allegations of fraud, or other ground upon which the plaintiff Murrill was appointed receiver, do not distinctly appear, but it appears to have been done at the instance of a creditor, and we assume that it was done under the provision of section 668 of the Code, authorizing the appointment of receivers for the causes there stated. "By the articles of agreement" filed with the clerk, under which "letters declaring" the incorporation were issued it is stated: "The capital stock of the incorporation shall be $10,000, divided into 100 shares of $100 each;" but in fact, as appears from the subscription list, only 70 shares ($7,000) were subscribed, and in other respects the provisions of the statute seem not to have been complied with in the formation of the corporation. But of this the defendant, who became the president of the company upon its organization under the charter, can take no advantage; for the company was organized, and, by participating in the organization and acting as its president, all objection to the validity of its constitution or organization was waived, and, as to him, the provisions of the charter and by-laws of the company were binding. Cook, Stocks, §§ 181, 233. When a number of persons associate themselves together for the purpose of carrying on any business, a partnership is constitituted, by which each member becomes liable to any person who may give it credit, and the creditor has a right to be paid, if any one of the firm is able to pay; but, when a corporation is formed under the authority of the state, the capital subscribed becomes the basis of credit, and the members of the company are not individually liable for its debts, except and only to the extent that the charter or letters of incorporation may make them so. It is said in Cook, Stocks, § 199: "The capital or capital stock of a corporation is the aggregate of the par value of all the shares into which the capital is divided upon the incorporation. It is the fund or resource with which the corporation is enabled to act and transact its business, and upon the faith of which persons give credit to the corporation, and become corporate creditors. The public, in dealing with a corporation, has the right to assume that its actual capital, in money or money's worth, is equal to the capital stock which it purports to have, unless it has been impaired by business losses. The public has a right also to assume that the capital stock has been or will be fully paid up, if it be necessary, in order to meet corporate liabilities. Accordingly, the American courts go very far to protect corporate creditors; and in this country it is a well-settled doctrine that capital stock, and especially unpaid subscriptions to the capital stock, constitute a trust fund for the benefit of the creditors of the corporation." He then enumerates some of the methods by which stockholders seek to avoid their liability to corporate creditors, one of which is "by a transfer of the stock;" another is by "a cancellation or withdrawal from the...