The Pacific commercial advertiser. [volume] (Honolulu, Hawaiian Islands) 1885-1921, 1907-01-15
THE STOCK ISSUE
WAS HONEST
Defendants Win the Case of
the Honolulu Clay
Company.

d uAdhiIHouS opinion. written by
Chief Justice Frear, the Supreme Court
has affirmed the decree of Judge Rob
inson in favor of defendants in the
case entitled:
'Charles R. Hemenway, as trustee
Of the Honolulu Clay Co, Ltd, bank
rupt, VS.. Honolulu Clay Co. Ltd. F. J..
Lowrey, Frank Hustace, +. J. Amweg.
.. l.. Sorenson, J. B. Rohrer, J. R.
Bruins, G. I'll. Cooke, F. G. Atherton:
W. Gehring, F. B. Damon, NJ. L. Smith.
Ell. L. Kerr, c. T. Ellison, T. L. Lither
land, I. McCants Stewart, W. R. Castle
Jr. and A. n. Campbell. -
The trustee in bankruptcy of the Ho-
nolulu Clay Co., Ltd, with liabilities of
Slo,31.05 and no assets, brought the
suit to recover from the companv's
stockholders the amount ALLEGED to he
unpaid upon portion of the stock to
an extent sufficient to meet the liabfli-
ties of the corporation The circuit
judge held that all the stock had been
fully paid and that nothing further
could be recovered from the stockhold-
ers.
| Condensed from the opinion the facts
are these: Kerr and Smith, promoters,
and Ellison and Litherland, CLAW and
brick experts established brick works
| and after conducting the business for
a time as partners under the name
OF Honolulu Clay Co, incorporated in
May, 1910, with a capital stock of $780,
600 divided into 1000 shares of the par
value of $500 each. Seven hundred and
fifty shares were issued as fully paid
in exchange for the property and bust
ness, of which 230 were taken by each
of the promoters and las by each OF
the experts One share was given as
paid up to the attorney for legal SER
vices. The remaining shares were is
sued as assessable and were in time
fully paid up in cash. Nearly year
later, when the success of the venture
was doubtful, it was agreed that upon
the holders of assessa BILE stock paying
il the last assessment of % per cent
the promoters would then turn over
to them portion of the paid up stock
in the proportion of two shares of paid
up to five shares of assessable stock.
A year or so later the concern ceased
business and in August, 1904, the prop
erty was sold under foreclosure pro-
ceedfngs, upon which deficiency judg- |
ment was entered. Petitioner claims |
that the property received for the stock |
originally issued as paid up was worth |
only $4,000 and that the present hold /
ers Of such stock are liable for the |
balance of $4,000 to the extent neces-
sary to pay the debts of the corpora
tion
The court goes at length into the law |
of liability of corporation stockhold- |
ers. 1t finds it admitted that the prop |
erty transferred for paid up stock was
not worth more than $4,000. The IA
vorable appearances of the enterprise
for the first while are. mentioned and |
then the beginning of troubles-the |
preference of contractors for Califor-
MIA brick, a great falling off in de-
mand for the company's output, wet
weather that interfered with drying the
bricks, etc-ensued. Yet:
"One of the stockholders felt so san
guine Of success even at that late day"
(when the paid up stock distribution
had been made to assessa BILE holders)
'that he purchased $500 worth of paid
up stock in addition to the pro rata
that was to be given to him. It is
clear that both paid up and assessable
stockholders not only knew of what
the property consisted, but believed at
the time that it was worth the value
placed upon it, and, further, in view
of the tests that had been made, had
reason to believe, as a matter of bust
ness Judgment, that it was worth that.
The value of the land, say $4,000 or less,
for other purposes was no criterion of
it's value as a clay deposit The LA
bility of the stockholders depends upon
the value. as it appeared at the time,
not as it appears in the light of sub
sequent events. In our opinion this
is one of those cases in which the prop
erty turned over for paid up stock was
honestly and reasonably believed to be
worth the par value of the stock but
die not pan out to have been of that
which case the stock must be
as fully paid"
The law of the case is thus laid down
in the syllabus: Although as a rule
of an insolvent corpora
ton are liable to its creditors for the
amounts unpaid upon their stock even
though the stock has been issued as
fully paid, whether in money or prop
arty, yet if it has been SO issued in re-
turn for property which was honestly
and reasonably believed at the time
to be worth the par value of the
stock, it must be regarded as fully
paid even though the property turns }
put to be of less value"
Smith & Lewis, L. J. Warren and c.
r. Hemenway represented the petit
TONER and Castle & Wilmington, E. A. :
and Magoon & Lightfoot