Wilson Cotton Mills v. C.C. Randleman Cotton Mills

• Decision Date: 27 December 1894
• Citation: 20 S.E. 770,115 N.C. 475
• Parties: WILSON COTTON MILLS et al. v. C. C. RANDLEMAN COTTON MILLS et al.
• Court: North Carolina Supreme Court

20 S.E. 770

115 N.C. 475

WILSON COTTON MILLS et al. v. C. C. RANDLEMAN COTTON MILLS et al.

Supreme Court of North Carolina

December 27, 1894

Appeal from superior court, Randolph county; Battle, Judge.

Action by the Wilson Cotton Mills and others against the C. C Randleman Cotton Mills and others. From the judgment, both plaintiffs and defendants appeal. Modified.

The commissions of the receiver of an insolvent are to be included in expenses, and not classed as a debt.

B. F Long, for plaintiffs.

J. H Dillard, L. M. Scott, and J. N. Wilson, for defendants.

MacRAE J.

There is abundant authority, both in reason and decisions, for the proposition stated by the late Chief Justice Merrimon in Clayton v. Ore Knob Co., 109 N.C. 385, 14 S.E. 36 "Very certainly, the capital stock, paid or unpaid, of the defendant, constitutes a trust fund for the benefit of its creditors; and, whatever may be the rights of the stockholders as among themselves, the creditors have the right to have such fund collected and applied to the discharge of their debts. If the capital stock has not been paid for, it is the plain duty of the court to require it to be collected, or so much thereof as may be necessary to pay its unpaid debts." Note: For the meaning of this expression, "trust fund," we refer to Merchants' Nat. Bank v. Newton Cotton Mills (decided at this term) 20 S.E. 765.

The findings of fact by the referee, affirmed and amended by his honor, show that the corporation defendant was formed under the general law,--section 677 of the Code, as amended by Act 1885, c. 19 (other amendments are not material to our investigation). By this law, the articles of agreement filed with the clerk, and upon which letters of incorporation are to be issued, are to contain (1) the corporation named; (2) the business proposed; (3) the place where it is proposed to be carried on; (4) the length of time desired; (5) the names of persons who have subscribed; (6) the amount of the capital, the number of shares, and amount of each. It will be observed that in the last requirement it is not provided, as it is in similar acts of other states, that the number of shares taken by each subscriber or stockholder should be set out, although in practice it is generally done; and it would have been better had the statute required it. The incorporators in defendant corporation seem to have complied strictly with the statute in their articles of agreement upon which the letters were issued. It is made to appear, however, as a fact, that, although the capital stock was stated in the articles to be $50,000, the property turned over by C. C. Randleman in payment of his subscription of $49,700 to the capital stock was a cotton mill and its products, worth at a fair valuation $22,447.57, and that he did not intend to pay in the balance to make up his subscription otherwise than by the application of dividends or profits which he expected to realize from the enterprise, or so much thereof as he might conveniently apply to the payment of said difference, and that he was insolvent and unable to pay it otherwise. It is also found that the other corporators participated in the formation of the company, in the conduct of its business, and the dealings with creditors, well knowing the said facts, and that the alleged or represented capital did not in fact exist, and that no part had been or would be paid in, except the sum of $22,447.57. It appears that a stock book was kept by the company, which seems to have been mislaid, so that it could not be produced before the referee. In said stock book, C. C. Randleman subscribed for 497 shares; T. C. Worth, J. H. Ferree, and L. H. Weaver, for one share each. When operations were begun, under the letters of incorporation, Randleman was insolvent. We suppose by this it is meant that he was unable to pay the balance of his subscription. Weaver was also insolvent, and Worth and Ferree were solvent and possessed of large means. The corporation was rated high by Dun and Bradstreet. The venture was a failure. Large debts were contracted, and the concern failed within a year.

It is contended by counsel for plaintiffs in this creditors' bill that the conclusion of law reached by the referee should have been sustained, and the court should have declared "that the subscription of Randleman over and above the amount he paid by transferring property to the company was not actual and bona fide, and that Randleman, together with his associates, having obtained the charter, organized the company and conducted its business, and, having dealt with outside parties, the plaintiff and other creditors who have proved their claims in the case, upon the basis of an actual and bona fide subscribed capital of $50,000, and upon the representation that the actual capital of the company in money or money's worth was equal to the capital stock which it purported to have, there being no evidence that said capital has been impaired by any business losses, the said Randleman, Ferree, Weaver, and Worth are jointly and severally liable to the said creditors of the corporation for the difference between the amount paid in by Randleman and his full subscription, to wit, the sum of $27,252.43, or for so much of said amount as may be necessary to pay the costs and expenses of the suit, and all the just liabilities of the corporation, allowed by the referee or the court, after applying the assets of the corporation to the payment of the same, including, as part of the assets, the amounts due by said Weaver, Worth, and Ferree on their individual unpaid subscriptions." There is no doubt of the liability of Randleman for the amount of his unpaid subscription, or so much thereof as may be necessary to pay the debts and costs and expenses of this action. But are the other stockholders liable on their individual unpaid subscription for the same amount? The books of the company showed the amount subscribed by each corporator to be as stated above; and while their liability for all of their said subscription, which is still unpaid, is beyond question, it is equally clear to our minds that upon their contracts they cannot be held for a larger sum than was subscribed by them. It is not the articles of agreement filed with the clerk which bind the liability of each subscriber under our statute. It is true that if, in said articles, it had been stated that each subscriber had taken a certain number of shares, this notice would have bound them in their dealings, for the agreement could contain this stipulation as well as the subscription on the stock book; but the statute did not require it, and parties dealing with the corporation were not required to go to the articles to ascertain the liability of each corporator. We may say that we consider it a defect in the law not to require the corporators to state the number and value of shares taken by each corporator. But we cannot make law; we must take it and interpret it as it is written. The statute, then, only requiring the number of shares and the amount of each to be set out in the articles, we cannot hold any corporator liable for the whole amount of the capital stock because, upon the articles filed, it did not appear how many shares were taken by each corporator. The law requires the stockholders to name their capital and publish it to the world, and they did it; but it does not, though it ought to, require it to be stated how those shares are apportioned among the stockholders. There is a record commonly kept by corporations called a "stock book," and to this book persons interested, before dealing with said company, may have access, to enable them to ascertain by whom the said shares are held. If access to this book or information on the subject shall be withheld, there is no law to compel persons to deal with the corporation. It nowhere appears that any false statements were made in reference to the ownership of the stock. Its distribution did not appear, and was not required to appear, in the articles of agreement. It was therefore necessary for their protection that persons proposing to deal with said corporation should inform themselves upon this point. The liability of the corporators to the amount of their subscription was established. The prospectus or published notice of incorporation failed to inform the public as to the number of shares held by each corporator, and consequently as to the liability of each for unpaid subscription. Persons proposing to deal with said corporation must inform themselves about it. There is no evidence or finding that such information was ever with held. It would seem, therefore, that the parties dealing with the corporation were not exercising great care in the management of their business in failing to make due examination before making contracts with the corporation.

The fallacy in plaintiffs' argument is that the "agreement and charter" failed to set out the distribution of shares, and therefore that all subscribers are bound as if stockholders to the whole number of shares and that the apportionment of shares as appeared on the stock book was in derogation of the original agreement. The cases cited do not bear out plaintiffs' contention. In Curran v. Arkansas, 15 How. 304, cited also in 10 Myers' Fed. Dec. §§ 1316, 1323, the state was the sole stockholder in a bank, and laws passed vesting the property of the bank in the state were in impairment of the contract between the bill holder and the bank, and were unconstitutional. Sawyer v. Hoag, 17 Wall. 610, was where one had subscribed for a certain number of shares, and paid by check the full amount of his subscription, and had immediately borrowed 85 per cent. of the sum paid in. The court held that this 85 per cent. was still unpaid...