The herald., 1898-11-12
though native of Missouri and life-lon
LIABILITY OF STOCKHOLDERS
Judge Clark Renders an Opinion of
Special Interest

i opinion in the case of T. N. Townsend vs. j
! o. Wheeler ct al, in which suit was broug gh
by a judgment creditor of a corporation
against certain alleged stockholders therein
to have applied to the payment OF his judg
ment the alleged unpaid portion of thei
subscriptions to the capital stock, or such
part thereof as may be sufficient to satisfy
the same. Judge Clark says:
"It is, of course, conceded that nnpai
subscriptions to the capital stock of a cSrpor
alton constitute part OF its assets upo
which its creditors have an equitable lie
that will in proper cases be enforced. 1t
conceded, too, that if the corporation, acting
in good faith and within the scope of it,
powers, sewers and terminates the relation
existing between it and its shareholders by
forfeiture of the latter's stock, neither il
nor it's creditors can thereafter proceed
against such stockholder for any unpaid in
stallment. His contract of subscription
then cancelled and he ceases to be a stock
holder and the unpaid installment ceases
be corporation asset.
"Here, as to the defendants who made
answer, it is stipulated that they were the
owners of certain shares of the capital stock
of the judgment debtor corporation, the
Iorphyry Paving company, upon the sub
cent of the par value thereof; that May 20
1897, said corporation levied an assessment
OF 81 per share, being the per cent of the
subscription price remaining unpaid; that
on the 22d of June, 1897, all OF defendants
shares were declared delinquent, and on Oc-
tober 30, 1907, all shares not redeemed and
fully paid up were sold.
''On the part of plaintiff the claim is made
that these proceedings were nugatory and
void, his contention being that the corpora
ton was at the time insolvent, and to permit
forfeiture of the stock would be to diminish
the assets of the corporation and thereby
to work fraud upon its creditors. Upon
the other hand, defendants claim the evil
dence to be insufficient; their contention
being tn at the rule is that to invalidate such
sale and forfeiture and render it void as
gainst the corporation creditors there must
be proof of ACTUAL fraud and collusion be-
tween the company and the stockholders.
I do not, however, think the rule
confined, or that the authorities cited so
state it, but only that collusive forfeiture
is void.
Doubtless a transfer of stock in the ordi
nary course of business though made to one
who is insolvent, is valid as against the COM
panys creditors. So, too, as corporation
has ordinarily the right to direct and MANAGE
its own affairs, it may, though in straiten.
ed and failing circumstances and unable to
pay its dbts as they accrue. collect or at
tempt to collect the unpaid portions OF the
subscriptions to its capital stock by sale or
otherwise Fraud is possibly an essential t
the rule, but not proof of actual fraud o
collusion and intent. Both rea-
son and authority would seem to support
the rule that if the corporation is hopelessly
insolvent a forfeiture would be
void as against creditors without proof of
colluson, or that it was for the purpose and
with the intent to release the shareholders
and defeat the creditors. A forfeiture under
such conditions would be constructiv
fraud and void.
Here the difficulty in the way of plain
tiffs recovery is that his proof fails to bring
the case within the rule as thus stated He
doubtless was handicapped by being COM
PEELED to rely upon the testimony of ad-
verse witnesses, but this testimony is the
only evidence before the court with respec
to the financial condition of the corporation
and upon it the judgment of the court must
be based.
Briefly, it shows that in December, 1896 |
the corporation owned a plant that had cost
about $4,000 and which was estimated to
he worth from 500, 900 to $50, 900; that it also
owned street assessment liens of the value
of about $4,000; hypothecated for about the
same amount; that its totol Indebtedness
was from 500. 900 to S2l 900. There is no evil
dence of change in these conditions be
tween December, 1896, and May, 1897, the
date when the assessment in question wa
levied. There is evidence that the plant
mentioned was sold under execution, but the
date of sale is not made to appear. 1t is also
in evidence that had said assessment Of 81
per share been paid the amount realized
would have been sufficient to pay in full
that portion of the debt of the corporation
then due and payable.
Upon the facts so stated the court cannot
hold the action of the corporation in at
tempting to collect the unpaid installments
due on subscriptions to its capital stock an
improper action. . . While the evi
dence may show the corporation to have
been in somewhat straitened circum
stances it clearly does not show it to have
been so hopeesslv insolvent and involved as
to Justify the court in finding its action in
the matter Of the assessment and sale to he
a constructive fraud and the find
ing here, as abo.e stated, will be that the
sale and forfeiture in question was not in
fraud of plaintiffs rights The validity of
plaintiffs Judgment and writ of execution
need not be considered
CATTLE STEALING CASES