Morrison v. Savage

Alvey, J., delivered the opinion of the Court. The appellants are receivers- of the Franklin Land and Loan Company of Baltimore City, and they brought this ¹⁴³ action against the appellee to recover a balance due on a subscription to the stock of the corporation. The appellee pleaded his discharge under the Bankrupt Law of the United States, to which plea the appellants demurred. The Court overruled the demurrer, and entered judgment for the appellee.

The sole question presented is, whether the discharge in bankruptcy operated as a discharge of the appellee from liability for the amount due on the subscription of stock for which suit is brought. It is contended by the appellants that the unpaid subscription to stock of a corporation is a trust fund in the hands of the stockholder for the benefit of the creditors of the corporation, and that, consequently, the stockholder owes the debt in a fiduciary character, and therefore he is not relieved from liability by his discharge in bankruptcy. Section 5111 of the Rev. Stats. U. S. provides that “ No debt created by the fraud or embezzlement of the bankrupt, or by his defalcation as a public officer, or white acting in any fiduciary character, shall be discharged by proceedings in bankruptcy.” The terms of the section would seem to indicate quite plainly that no such case as that of a simple indebtedness on subscription to stock in a corporation could have been contemplated by the framers of .the law.

But the matter is entirely clear, upon settled principles and well recognized distinctions. It is certainly true that the capital stock of an ordinary business corporation is a trust fund for the protection and benefit of its creditors, or those who deal with it and give credit on the faith of its capital stock. And it is equally true, that neither the stockholders, nor their agents the directors, can rightfully withhold any portion of the stock from the reach of the creditors having lawful claims against the corporation. And this trust fund consists not ¹⁴⁴ only of the amount or percentage of the subscriptions to the stock actually paid in, but of all that may be due and owing, or that may be called in, either by the directors of through the agency of a Court of Justice.

This is common and familiar doctrine, and is well and fully stated in the cases growing out of the failure of the Great Western Insurance Company, decided by the Supreme Court, and reported as the cases of Upton vs. Tubilcock, 91 U. S., 45 ; Sanger vs. Upton, Id., 56; and Webster vs. Upton, Id., 65. But while such is the case in regard to the corporation, and the assets that make up its capital stock, it by no means follows that the subscribers to the stock are to be regarded as fiduciaries, any more than any other debtor into whose hands the assets, constituting part of the capital stock of the corporation, may happen to be found. So far as they may owe the corporation on the subscription for stock they are debtors of the corporation, and their obligation is a legal one, for the enforcement of which the ordinary remedies afforded by the law may be invoked, and the Statute of Limitations will become a bar to a recovery thereon, as upon other legal liabilities. Turnpike Co. vs. Barnes, 6 H. & J., 57 ; Hall vs. U. S. Ins.

Co., 5 Gill, 484. There is nothing of a fiduciary relation or character created by the subscription, more than exists in the ordinary relation of debtor and creditor; and certainly none that brings it within the meaning of the statute. There are cases, doubtless, when the creditors of the corporation may proceed