Case ID: ohio-app_32/html/0399-01.html
Source: Caselaw Access Project
Author: {"author": "Vickery, P. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Bracken et al., Receivers, v. Stuart.
    (Decided May 27, 1929.)
    
      Mr. Francis J. Cook, for plaintiffs in error.
    
      Messrs. Eyre S Eyre, for defendant in error.
   Vickery, P. J.

This action came into this court on a petition in error to the municipal court of the city of Cleveland. In the court below, Bracken and Dudley, as receivers of the Depositors’ Mortgage Company, brought an action to recover upon an unpaid subscription made by the defendant below, Williara R. Stuart, to the capital stock of the said Depositors’ Mortgage Company.

It seems that when the mortgage company was a going concern, • after it had been duly organized, Stuart subscribed for 16 shares of cumulative preferred stock of a par value of $100 each, and paid, I believe, the sum of $300 upon the stock, when he ceased to make any further payments. Subsequently the Depositors’ Mortgage Company went into the hands of a receiver, having become insolvent, and Bracken and Dudley were appointed receivers by the court, with authority to bring suits to collect the assets of the corporation. In the course of the administration of their duties, the receivers brought this action against Stuart to recover for the unpaid subscription, alleging the incorporation of the company, the opening of the books, the filing of the certificate, the subscription of various stockholders, and particularly this subscription for stock by Stuart, and, I believe, attached to the statement of claim copies of the subscription. Subsequently an amended statement of claim was filed, to which copies of these certificates were not attached, but allegations were made which would show the subscription and the validity of it, but plaintiffs did not allege in their petition that the corporation was insolvent, and that it would take all of the money of the unpaid subscriptions, together with other assets of the company, to pay the debts of the concern, or words to that effect.

To this statement of claim a general demurrer was filed, thereby claiming that the statement of claim in not making these allegations as to the necessity for the collection of this money for the purpose of paying these debts, and that without it there would not be sufficient to pay the debts, did not state a cause of action. The court sustained this demurrer, and, the plaintiffs not desiring to plead further, judgment was rendered against them, and they prosecute error to this court.

The question before this court is: Did the petition state a cause of action against the defendant below, defendant in error here? We think it did. We do not think it is necessary to allege insolvency — only so far as to show that the receivers had the right to maintain the suit — nor do we think it necessary to set forth the financial standing of the corporation. For when plaintiffs allege that the company was a corporation authorized to issue stock under the laws of Ohio, that the stock had been subscribed for by the defendant, and that there was a sum remaining due and unpaid on said subscription, we think that plaintiffs have stated a complete cause of action, and it devolves upon the defendant to show a defense by answer or other means, a reason why he should not be called upon to pay this, and such reason must be something other than the insolvency of the corporation.

He might answer that the subscription to the stock was obtained through false representations, or that the subscriber was non compos, or a minor and could not make a contract, but this would be a matter of defense and would not have to be negatived in the petition. In other words, if a person subscribes for stock in a corporation, he creates an obligation which can be enforced against him either by the corporation itself or by the duly appointed and qualified receiver of the corporation. If that were not the law, it would be manifestly unjust to those persons who had lived up to their obligations and paid into the corporate funds of the company the money due for the shares for which they had subscribed. I say it would be unjust to those who paid their subscriptions voluntarily, if, after a corporation became insolvent, other men who subscribed, perhaps at the same time, could, by refusing to comply with their obligation, be released entirely from responsibility. This right to recover does not depend upon the question whether or not it is necessary for this stock to be collected for the payment of the debts of the corporation. If there are no debts of the corporation, the stock; holders that paid in, when the property realized from their stock subscriptions had been exhausted, which, if exhausted, would pay all the debts of the corporation, would still be entitled to have the recalcitrant stockholders forced to pay in their share, so that if there was any fund left it could be distributed pro rata amongst all the stockholders, including the recalcitrant stockholders.

The receivers have the legal right, nay, it is their duty under the law, to recover the unpaid subscriptions to the stock of a corporation, whether insolvent or solvent, whether it is necessary to have the money to pay the creditors of the company, or whether it is not; and it is not a condition precedent before recovery that it be shown that the corporation is insolvent, and that there is not enough money without the funds sought to be obtained by suits for the unpaid subscriptions. Hence it follows that it is not necessary to make these allegations in the petition, and therefore, in our judgment, the statement of claim, or petition, states a good cause of action.

We have been cited to two cases, neither of which sustains the contention of the defendant in error. One was decided by Judge Barber of the common pleas court of this county in 1879, in the case of White, Receiver, v. Ingersoll et al., 2 Cleve. Law Rep., 362, 4 Dec. Rep., 549. This case was a suit to collect, not the unpaid subscription of stockholders, but a sum in addition thereto, that is, the stockholder’s liability, which the law authorized at that time. Now that was an added security for the creditors. It did not belong to the corporation. It was an added fund for the protection of the creditors of the corporation, and could only be collected upon the insolvency and inability of the corporation to pay its debts. Consequently it was necessary, before the action could be maintained, to allege in the petition the insolvency and the inability of the receiver of the corporation to pay all the debts due from the corporation from the funds that would be realized from the assets of the corporation. One will find many, many cases in Ohio and elsewhere on this proposition, but I doubt if one will find one anywhere where the corporation itself, or the receiver of the corporation, could not recover upon an unpaid stock subscription.

The nest case which has been cited to us is the case of Yoder v. Tubman, 19 C. C. (N. S.), 225, 32 C. D., 438. This was a decision by Judge Marvin, who was formerly on the circuit court of this district, and later on the Court of Appeals of this district, and it is not a case in point; for in that case a suit was brought by the receiver upon a subscription for preferred stock, and the petition contained allegations that the corporation was insolvent, and owed money, and that there was not enough money or property of the corporation, without the collection of the subscriptions- for the preferred stock, to pay the debts of the corporation. The circuit court in that case held that inasmuch as the petition contained the allegations of insolvency, plaintiff could recover upon the subscription for the preferred stock, and therefore, it is argued, that the court in that case held that such an averment was a necessary averment in the petition. We do not think that that follows, because the opinion of the court in that case shows otherwise, and we think that without those allegations in that petition it would have been good; and when it was argued that this was to recover the unpaid subscriptions for the stock, that there might be enough property in the corporation to pay the debts and it would not be necessary, Judge Marvin simply responded that those allegations were in the petition, but nowhere held that the petition would be demurrable if they were not contained in the petition.

From the reasoning that we apply to this sort of case we do not think it makes a bit of difference whether the corporation is insolvent or whether it is not insolvent, whether it has money enough to pay its debts or whether it has not. Stuart entered into a contract which he has not complied with; and the receivers of the corporation can recover upon it without showing that it is necessary to collect it in order to pay the debts of the corporation, for, as already stated, to collect it would only tend to put the stockholders upon a parity, and if there is any distribution of the assets of the corporation among the stockholders upon its final dissolution, after its debts are paid, tbe stockholders who subscribed and reneged would be in the same position as the stockholders who subscribed and paid up.

We think the court was clearly wrong in sustaining this demurrer, and the judgment of the court will therefore be reversed, and the cause remanded to the trial court with instructions to overrule the demurrer.

Judgment reversed and cause remanded.

Sullivan and Levine, JJ., concur.