Peninsular Savings Bank of Detroit v. Black Flag Stove Polish Co.

• Decision Date: 28 May 1895
• Citation: 105 Mich. 535,63 N.W. 514
• Court: Michigan Supreme Court
• Parties: PENINSULAR SAV. BANK OF DETROIT v. BLACK FLAG STOVE POLISH CO. ET AL.

63 N.W. 514

105 Mich. 535

PENINSULAR SAV. BANK OF DETROIT v. BLACK FLAG STOVE POLISH CO. ET AL.

Supreme Court of Michigan

May 28, 1895

Appeal from circuit court, Wayne county, in chancery; Robert E Frazer, Judge.

Suit by the Peninsular Savings Bank of Detroit against the Black Flag Stove Polish Company, a corporation, and James C. Hathaway and others. Decree for defendants. Complainant appeals. Reversed. Brennan Donnelly & Van De Mark, for appellant.

F. A Baker, for appellee Campau.

GRANT J. (after stating the facts).

It is conceded that services rendered to a corporation in good faith constitute a good consideration for the purchase of stock. Liebke v. Knapp, 79 Mo. 22, and Van Cott v. Van Brunt, 82 N.Y. 535, are illustrations of the rule. Such services, however, must be reasonably commensurate with the par value of the stock subscribed. The corporation was organized under Act No. 232, Pub. Acts 1885. The articles stated that the stock was actually paid in. This was not in fact true. There is no evidence that Mr. Campau entertained any intent to defraud subsequent creditors of the corporation. Undoubtedly he honestly believed that he had the legal right to make this arrangement without incurring any liability. It is the established rule that the capital stock of a corporation constitutes a trust fund for the benefit of its creditors. Sawyer v. Hoag, 17 Wall. 610; Fogg v. Blair, 139 U.S. 118, 11 S.Ct. 476; Howe v. Agricultural Works, 46 Ill.App. 85; McDaniel v Harvey, 51 Mo.App. 198; Farnsworth v. Robbins, 36 Minn. 369, 31 N.W. 349; Thayer v. Mining Co., 40 Ill.App. 344; Carbon Co. v. Mills, 78 Iowa, 460, 43 N.W. 290; Wetherbee v. Baker, 35 N. J. Eq. 501; Spel. Priv. Corp. �� 792, 810. It is unnecessary to multiply authorities. The law permits individuals to limit their liability for the debts of corporations to the par value of the stock to which they subscribe. Creditors have a right to deal with and rely upon this capital stock as one of its assets, and to demand that it shall be fully paid to meet its liabilities. The policy of the law, therefore, requires the utmost good faith on the part of stockholders in the payment of their stock. Any attempt to evade this liability either by issuing stock as fully paid when it is not, or by putting in property at a value grossly in excess of its real value, or by gift, or by services, or by an agreement to render services, grossly incommensurate with their value, is void as to the public and creditors. This rule is also thoroughly established by the authorities. In Sawyer v. Hoag the stockholder gave his check for $5,000, the full amount of his subscription, taking back a check from the company for $4,250, which was the amount of his subscription, less 15 per cent., required to be paid in cash. For this he gave his note, and it was treated as a loan by the...