St. Paul daily globe. [volume] (Saint Paul, Minn.) 1884-1896, 1892-01-19
Bonus Stock.

z. L. Hospes & Co. Plaintiffs. vs. North
western Manufacturing and Car Company,
S2fendant; Minnesota Thresher Manufactur
ing Company, intervenor, respondent vs.
George X. Finch ct al, appellants.
/. L. Hospes 4 Co., plaintiffs, vs. North
western Manufacturing and Car Company,
defendant: Minnesota TnreSher Manufacture
Ing Company, intervenor, respondent vs.
George r. Finch, ct a.. defendants: 81. Paul
Trust Company. executor etc.. appellant.
The equitable right of creditors of
corporation to compel the holders to pay
for bonus stock may be enforced in a
sequestratiOn proceedings under CHI. &c,
Gen. ST., upon the complaint OF any
interested creditor who has become
party to the proceeding. The sO-called
trust fund.- doctrine that the ''capital
of corporation is trust fund for the
payment of its debts" considered and
criticised. The capital of a corporation
is its own property. which it may use
and dispose OF Gf not prohibited by its
charter) the same as a natural person.
1t is not held in trust for creditors, eX-
cept in the sense that there can be no
distribution Of it among stockholders
without provision being first made for
the payment of corporate debts, and
that, as in the case of a natural person,
any disposition OF it in fraud of credit
Ors is void. And i'll this respect there
is no distinction between un-
paid capital and paid capital,
between stock subscriptions" and
any other assets of the corporation.
The right of creditors to compel the
holders of bonus stock to pay for, con-
trary to their agreement with the cor
pOratiOn, rests neither Oh an implied
contract nor upon any trust fund"
doctrine, but upon the ground of fraud.
The fraud in such cases consists in the
Misrepresentation aS to the actual
amount of capital, upon the faith of
which persons have dealt with the cor
poration and given it credit. Hence it
is only those creditors who have relied
on, or who can fairly be presumed to
have relied on, the stock representing
actual capital i'll whose favor equity
will enforce payment of such stock.
Consequently payment can never be ell
forced in favor of one who became a
creditor before the bonus" stock was
issued. 1t is not necessary that a sub
sequent" creditor should have alleged
that when he dealt with the corporation
he believed that the stock had been paid
for and that he gave credit on the
faith of it. If, in fact, the cred
itor had knowledge of the ar
rangement by which the bonus stock
was issued, that is matter of defense
to be set up by the defendant stock
holder. Where creditor asks for such
relief against stakeholder he should
show his own equities emitting him to
such relief. Hence when it appears
that he is not the original creditor but
had purchased the claims after the cor
poration had become insolvent and its
affairs had been placed in the hands of
receiver, he should state what he paid
for the claims, Or at least show that he
paid substantial consideration for
them. Equity will not grant such re-
lief for the benefit of those who have
bought up claims against an insolvent
corporation for nominal consideration
for the purpose of specializing on the
liability of stockholders. The right of
action in favor of creditors against the
holders of such bonus stock does not
accrue until the corporation becomes in
solvent. A claim OF this kind in favor
Of creditors against the estate of de-
ceased stakeholder before the assets of
the corporation are fully administered
is ''cOntingentc claim, within the mean
Ing of CHI. IS, Gen. ST. Order reversed,
Mltchell. j. GiltiIlan. G. j., took no
bart