Case Name: PENNSYLVANIA TACK WORKS VS. SOWERS
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1884-02-04
Citations: 2 Walk. 416
Docket Number: No. 148
Parties: PENNSYLVANIA TACK WORKS VS. SOWERS.
Judges: 
Reporter: Reports of cases decided by the supreme court of pennsylvania which have been omitted from the regular reports
Volume: 2
Pages: 416–418

Head Matter:
PENNSYLVANIA TACK WORKS VS. SOWERS.
Where all the stockholders of a corporation fix the valuation of certain assets, .'ind receive stock of the corporation and its obligations for the same; a subsequent stockholder cannot dispute the valuation, so made, in the absence of fraud. '
Error to the Common Pleas, No. 2 of Phila. County. No. 148, July Term, 1883.
The Penna. Tack Works was a corporation, which was formed by Charles P. Weaver, William H. Sowers and J. G-. Ralston, and was located at Norristown, Penna. It was formed in July, 1873. The capital stock was $100,000, divided into a hundred shares of $1,000 each, of which 50 were issued to Weaver, 25 to Ralston, and 25 to Sowers. There had been a former partnership, and the partnership assets were put into the company at a value of $105,276.24. The stock was issued for this amount, of $100,000, and the surplus of $5,276.24 was carried on the books to the credit of Weaver, Sowers, and Ralston in the proportion of their capital. Interest was paid on this‘up to Nov. 1, 1877. Sowers had a suit with the corporation, which recovered an award against him; see 11 W. N. C., page 83, where he had tried to set up his claim for this $1,319.06, but was unsuccessful. He then commenced suit against the corporation to recover this amount with interest.' Sowers still holds part of his 25 shares, and part had been sold to other parties and transferred. Upon the trial of the case Hare, P. J., charged the jury as follows : “As I understand the evidence, the parties, Sowers, Weaver, and Ralston agreed to. form a corporation to be known as the Penna. Tack Works, with a capital of $100,000, consisting of their respective interests in land and machinery, held by them as joint owners, and that an appraisement was to be made, for the purpose of ascertaining the value of the whole and thé amount contributed by each. "The assets, as appraised, exceeded the capital stock by about $6,000 or $8,000, and it was then suggested and agreed that this excess should be entered in the books of the corporation as a loan, and carried to the credit of each of- the above named stockholders, in proportion to their several shares. The entry was so made, and balance sheets were subsequently prepared, and sent to each, showing the amount due him from the corporation. There is consequently evidence of a contract of the company to pay the above amount, and if the jury shall so find, their verdict should be for the plaintiff.” During the trial, the Court had refused to permit the defendant to say that it was an insolvent corporation. The jury rendered a verdict for the plaintiff for $1,752.59.
The defendant Co. Tack Works, then took a writ of error complaining of the charge of the Court, and the refusal of the judge to permit the defendant to say that it was insolvent.
George Junkin, Esq., for plaintiff in error
argued, that this claim was not a real debt of the corporation; it was simply’ a fictitious valuation, and the directors have no right to pay á debt, which is not real; Thompson on Stockholders, sections 11 and 15 ; Morawetz on Corporations, sections 559, 575, 577, 599, 240, 580; Messersmith vs. Bank, 15 Norris 440; Wood vs. Dummer, 3 Mason 311; Hopkin’s Appeal, 90 Pa. 69.
Charles Gilpin and Hood Gilpin, Esqs., contra;
argued, that Sowers had nothing to do with fixing the valuation at which the partnerships assets were placed in the corporation. The balance sheets and accounts stated, and are evidence of an indebtedness from the plaintiff in error to the defendant in error, unless attacked for fraud or mistake; Robinson vs. Dawson, 2 W. N. C. 185; Jones vs. Dunn, 3 W. & S. 109; Emmons vs. Stahlnecker, 11 Penna. 366; Norton vs Lehn, 13 W. N. C. 559; McClenkan vs. MacMillan, 6 Penna. 366. This is a suit of a creditor, who is also a stockholder. One individual may occupy both capacities, and the corporation can not set up its insolvency, as a defence, against a creditor, who is also a stockholder.

Opinion:
The Supreme Court affirmed the judgment of the Common Pleas on Feb. 4th, 1884, in the following opinion:
Per Curiam.
'When all the eo-partners, who were about to organize this corporation, did so; they had the right to agree on the price each should be allowed on his share of the joint property to be put in. As they constituted all the incorporators, they did not encroach on the rights of any third person. There is no evidence, nor allegation, of anything fraudulent in making the agieement, or in the organization of the corporation. Those who afterwards became stockholders cannot avoid or repudiate a previous contract honestly and fairly made. The fact that the corporation subsequently became insolvent, did not impair the validity of the contract.
Judgment affirmed.