, 1874-01-07
rudoe Druulmond's Decision Sus.
timed by the Supreme
Court.
nsn;tal Stock 8 Trust Fund for the
" General Creditors Of a Cor
poration.
1pdeb;edress fer Unpaid Shares Cannot Ds
Offset by Debts Dne The Stock.
holder by the Company.
tttempts to Change.a Stock Debt to a
Loan Invalid as Agains!
Creditors.

EHpHiuAo W - oANSn A%0s " {
Loan Invalid as Agains!
Creditors.
ne Decisions Of the Circuit Court Con
cerning the Germania Also
Sustained.
y, ,ba United States Supreme Court in the case
II uoss, Assignee Of the Lumherman's In.
t.+auoe Company against c. B. Sawyer, declar-
i7e he law in regard to set-on Of unpaid stock
hid bv q company, against debts due stock
h,|aer from that company. The decision sus.
,s;ns the opinion Of Judge Drunmond, the Cir
rua,Judge Of this Circuit, and, being final set
tleraeus Of this hitherto doubtful and important
ouestiou, will be OF great interest We gave d
f.tacspbic summary OF the opinion Immediately
"a IL daliyely, about three weeks ago:
chstlss B. Sawyer, Appellant, Appeal from the Cir
V, cult Court OF the
rcHoas Assignee Of the Lu1n- United S:atea for
lxuar Iasuruuce Company, the Northern Dis
.lnrkrupt trict Of Iidnois,
r.sn:ad ~ j.cser. plainun in In error to tne Cir
Ertor, cui: Court Ut the
Y. Uu1ted States for
v{s.n voctc, Assignee Of the the Northern Dis
Ger1uania 1asuf4uce Compa- 1Ei,t Of ILL.,
~, bankrupt ! nof+.
U.1 L. Me, TT, Appellant Appeal from the Cir
=, cut Court Of the
Ell.n Tocte, Assignee Of the United States for
Cef11.uia lhsur-n-s colnpa- the Northern Dis~
~ bankrupt. ttct Of Illinois.
/ C.ptal stock or sharcs-eepeci.lly the unpaid
snkqlIriou-constitute trust fdn1 for the belleut
6! ,ut general CREATORS Of q corporation.
z Tus trust c4unot be defeated W simulated pay
rtus Of tbs stoct subscription, nor 1y kny deTice
mat e N actual payment in good faith.
IN .rrang- -nasu! by which the stock Is nominauy
tad End the money Immediately taken back u iu1n
trs So koider deslce to change the debt from
Z s:ok lett to Loan, aud is not valid payment as
s.rEt creditors u the corporation, Though 1t may be
ROD u bt,wteu the company and the stu1khosder.
L. Rec, 2G uf Tie Bankrupt act w&s not tnienued to
se,ge tie doctrine Of scS-od Beyond what tie Iriu-
1ps u lsgd or e9ui;aLla set-ou previously au'nor~
s stakeholder indebted to an inso1veut corpora-
tao tus tupad OF a,ainst this trust
fead fer creditors debt due him hy tue corporation.
1ue faad arising for surh unratd shares must be
t7ually ctv,ded ununa I'll the creditors.
e. T1a relations Of Eorkho1deT to the corporation,
Ind to the public Wuo deal with ths LATTER are sl1th As
to reqalte coed faith and fair dealing III every tsans
tscion utween him aud the corporation, Of which he
h patt owEc- and eontruer, which may in1uFious!y
t1et The 1lGbta ct trsltois or Of the general public.
ind sac utu, viii be E.ade Into Ill transactions
II tts IL .e1est editors.
Ccurt.
Tne Lumberuan's Insurance Company, Of Chicago,
Eks most Of tEe o.hcr local insurance companies Of
h1t city, found to bo iusoyens after tie uisas
irons asa CT October, 187l, and in June, 1874 petit
Eon was letl, uudes whicn it was declared hankrupt
Ind the a,ltl.ee appointed Assignee. the appellant
Ess sto<kholarr III the Con tany to the extent OF
tt:5 shares o1 sioJ cach. Among tile enecss Of the
COMPANY which came 10 the hands Ct the Assignee
III nvte Of arll,aut for s. 50. aid when payment
demanded Il Alu he produced aud otlexed TO set
If against this demand tie cerlthca'e Of adjusted
tss given hy the Company to one Hayes for s5.oN,
A1S. ,7A,11j.
certificate g.:eu to Hayes aid purchAE.d by .pp=i
hut 1t s. per CENT Of il par the u-y,
s,nely, Jun. IS 1872 afte7 the insolvency Of tie
n bankruptcy had been commenced. Cpou As re-
4sl Of tie Assignee TO consent to this seo, the a
eant esa The psteens bill in the District Court to
nforce the seto, IN waich hs alleged, among other
noEs that the note givrn ~ him to the Insurance
Company WEE fer money loaned
Tae Abetgnee, in his answer, denies that tEe note
ras fr uouey loanea and that 1t WIS, in fact
y. balance due hy APPELLANT for his stock suhscrip
aon which Ind never oeen paid, and insists that such
axuce constitutes trust fund fur the Leuedt Of I'LL
%ed-to1s CT the insc!T.ut corpo-aiol wui:h cannot
:: made the subject of so:-ou against ordinary
1eN due by the Company II one CT its creditors.
Liter the general replication, the submitted
the Ds rict Cour1 on an agreed statement Of facs.
Tie District Court decsted against tie complainant
hon waith he appeaed to tie Circuit Courl, which
Affirmed the decree below and from that de.r-e it is
brought By apte1l TO this Court.
The first and most important question to be decided
whether the Mda ateua>as II the appellant to In
G.is Rui:, rea1y IT, I'd lo.u Of money by the
eomlany o hiir, CT IS rs+reseutng his unpaid stock
TIE charter under which the Company was Or
talzed authorized IL to commence b1siness upon
psa stock OF oooo with $4,000 paid IL, and the
remainder secured oy notes with mortgages on real
ht.ta Ct Otherwise The transaction W whirh up
peian lfofesses to have paid up his stock Bubscr-
a1a Il, shortly, this 81 gave to the Company his
;ses5 1e= he !4 amount OF bis subscription. namely
l0o. He took the check of the Company for 81 ,.5u
acg The amount Of his subscription, 1es the Il er
Lit required Of each stokhode1 10 be paid in cash.
r'd hs gave hB note for the amount Of the hitter
:1eck, With good collateral security for its payment
k7tA interest III per cent per annum. Appellant and
ee Company, its officers, agreed to call this atter
Tent IN sal Of hls stock, AMI on the books Of the
somran:, and In al othcr respects Is between
themselves, it was treated as payment Of
sss subscription and loan Of money. It ia
h4zcst in Chicago Tas greater thnn per cent, md
= Il not ktated US fact whether these checks we're
r actually p.id or received by either party in the
1Ans1cton- 1t must, therefore, be treated IS an
7sc1oeu between the corporation BY its officers, On
ae cue pr: and the appel Ant, as subscriber to the
tocf IT tie Cotcay the other part, tn convert the
as. which the ia:.tr owed to tlr Company Tor Ills
Hok into debt for the ioun Of mouey, thereby ex-
a499u1hlng the stock delt.
Undoubtedly this tr4ns .ct:on If nothing unfajr waa
blended aws one which the p.1tios could do e:iectuaiy
u - tey aluue we1c concerned Two pr1s.se per-
oas could tuus change the Nature Of the
os to the other il it WIS found to he mutually con-
aeat u do SO. And In any controversy which might
1oe4a grow cut Of l1- mai between the insurance
saap&ny aud the liant not lTeparet TO say
Wy the Company, Is corporate body, could deny
e1 taa stock was p4id in full
and u Ibis couEit. ration Of the main arguments
which kppeaut eceks to reverse the decree Stands.
etu'nea that the Assignee III bankruptcy Is the rep
1seaaare aone Ct the corporation, ald c*u nssert 10
a-at witch Ii could not have aSserted- Tno weak
*es q the argument Is In this assumption The As
scss tue representative Of the creditors as well as
y bankrupt He is appointed BY the creditors. The
sa'e is full OF authority to HIM to sue Tor and r.
otef Properly rights, nud credits, where tue bank.
als eorid have sustained the acton, and to set
sas IS void transactions By which the bankrupt him.
III Eoud be bou.sd- All this, Of COURSE is III the tu-
e;St 6f the cred tors Of the bankrupt
~ he creditors Of th1 insoiyeut corporation any
s-t 70 ook into aud Essa the transaction by waitu
tea:nt clairs to have paid his stock subscription?
-aopgh 1t he doctrine Of modern date, We think It
wv ven established that tue capital stock Of corno-
1T Especially its unTaid sutscr1 tons is tru=t
va lot tho benefit Of the general creditors Of the
~lSsaton- Aud when We consider the rapid derel
ftasrt q corr oratous iustrumeutalities OF ahe
Mshesdal Vt and business world In the last few years.
- NE corresponding necessity Of adapting legal
xSe:els to tue new and varying e1igenctes Of this
taes 1t is no sold objection to such principle that
o5dtrn Cor the OCCASION for it could not sooner
ere 1rizlo
Principle il IN: asserted III two recent cases IN
cosrt namely U.:s..3-- c;Snih l6 Wallace, 800,