Rider v. Morrison

Robinson, J., delivered the opinion of the Court. The appellant was the holder of ten shares of stock in the Franklin Land and Loan Company of the par value of $400 per share, upon which the weekly dues paid by him, and the dividends to which he was entitled, amounted to •$1715.30. He was also the holder of shares in the Chesapeake Mutual Land and Building Association, upon which he had paid $1238.70. On the 20th of July, 1874, the Franklin Company ■passed a resolution directing the sale of certain property •belonging to the Company, and authorizing the purchaser ⁴⁴² to pay two-thirds of the purchase-money in the stock of the Company.

On the same day the Chesapeake Association passed a resolution to the like eifect. On the 5th of August following, the two companies offered at public sale one hundred and eight pieces of property on the following terms: One-third cash, one-third in six months and one-third in twelve months, or one-third cash, and the balance payable in stock of the Chesapeake Mutual Land and Building Association, or the Franklin Land and Loan Company at par, or at one hundred cents on the dollar, of the amount paid in. •If these terms are to be construed as meaning that the purchaser had the option of paying two-thirds of the purchase money in the stock of either or both companies, it is plain that such terms were not authorized by the resolutions of the 20th of July. By these resolutions the purchaser had the option of paying two-thirds of the purchase money of property belonging to the Franklin Company in the stock of that Company, but not the option of paying in. the stock of the Chesapeake Association—And so with the payment of purchase money for property belonging to the Chesapeake Association. - At the above sale the appellant bought a lot of ground belonging' to the Chesapeake Association for $3675, and, in the payment of the purchase money, he was allowed by the company $1238.70, being the entire amount paid by him on account of his subscription to the stock of that company, and also the sum of $1211.30 of the $1715.30-paid by him on the shares of the.Franklin Company. The balance of the $1715.30 he transferred to the wife of Solomon Rider.

The property was conveyed to him by the Chesapeake Association, and thereupon the following entry was made by the secretary of the Franklin Company on the books of said Company: ⁴⁴³ “ Moses Eider, Dr. “To the Chesapeake M. Land & Building Asso. “Eider stock, cancelled hy purchase of Chesapeake property................................................$1211.30.” This entry was made hy the secretary in pursuance of what he understood to be the meaning of the resolution passed by the directors in reference to the sale of the property. The appellant having thus paid but $1715.30 on account of his ten shares of stock in the Franklin Company, this suit is brought by the appellees, duly appointed receivers of said Company, to recover the unpaid instalments due thereon, and the appellant relies on the entry of cancellation of his stock hy the secretary of the Company, and upon the transfer to Mrs. Eider,-and the settlement with the Chesapeake Association as a defence to the action. In respect of the cancellation of the stock by the secretary, it is clear that no such action hy him could in any manner release the appellant from liability, if any existed, for the unpaid instalments due on his stock. And this too, whether such entry was made hy the secretary with or without the direction of the board of directors.

It was not within the power of the secretary or the board of directors to release the appellant from the payment of his subscription to the stock of the company. The unpaid subscription to the capital stock of a corporation constitutes a trust fund to be held by the corporation for the benefit of creditors and shareholders, and directors have no power to release a subscriber to the prejudice of such creditors or to the injury of other stockholders. In Burke vs. Smith, 16 Wallace, 395, the Supreme Court say: “ It has been settled by very numerous decisions, that the directors of a company are incompetent to release an original subscriber to its capital stock, or to make any ⁴⁴⁴ arrangement with, him by which the company, its creditors, or the State shall lose any of the benefit of his subscription.” And in the case of the Bedford Railroad Company vs. Bowser, 48 Penna., 37, the Court say: l< It is an abuse of their trust, wholly unauthorized, and at war with the design of the charter, to single out some of the stock subscribers and release them from their liability. No such authority in them has ever been recognized.” Alford vs. Miller, 32 Conn., 543 ; Jones vs. Terre Haute & Richmond R. R. Co., 57 N. 7., 196.

Something was said in the argument about the transfer of the balance of the paid up stock to Mrs. Soloman Rider, and as to the power of a subscriber to transfer his stock and thus escape all further liability on account of the same. Whatever may be the English doctrine on this subject, it is well settled in this country that the transfer of shares of stock in a failing corporation, to a man of straw, and made for the purpose of escaping liability as a shareholder, is void as to the creditors