Case Name: CHAMBERSBURG MANUFACTURING AND BUILDING ASSOCIATION'S APPEAL
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1874-06-04
Citations: 2 Walk. 488
Docket Number: 
Parties: CHAMBERSBURG MANUFACTURING AND BUILDING ASSOCIATION’S APPEAL.
Judges: 
Reporter: Reports of cases decided by the supreme court of pennsylvania which have been omitted from the regular reports
Volume: 2
Pages: 488–491

Head Matter:
CHAMBERSBURG MANUFACTURING AND BUILDING ASSOCIATION’S APPEAL.
Where a body of stockholders sold all the property of the corporation to two of their number for a sum payable partly in cash and partly in stock ; the Court on a proceeding by creditors, compelled all stockholders assenting thereto, to contribute towards paying the unpaid claims of creditors.
Though the purchaser would be liable for the full consideration in cash as to creditors, yet as between themselves, the stockholders who sold their stock (which was then transferred to company inpayment of the property), would be still liable to assessment after its transfer.
Appeal from Common Pleas of Franklin County. In Equity.
The Chambersburg Manufacturing and Building Association was chartered by Act of Assembly of April 28,1866. Its business not proving remunerative until finally a meeting of stockholders was held on March 17, 1869, at which it was determined to sell the real estate of the corporation, which consisted of a planing mill and a machine shop. The indebtedness was estimated at $12,000. Calvin Gilbert bid for the machine shop $6,000 in cash and $5,700 in stock to be estimated at $15 per share. Henry Shepler bid for the planing mill $6,000 in cash and $6,600 in stock to be estimated at $15 per share. They were both stockholders, and made their bids in writing, which were accepted and afterwards conveyances were made, the money paid and the stock made over as agreed upon. Neither. Gilbert nor Shepler owned the full amount of the stock which they agreed to transfer to the company at the time the bids were made, but they afterwards purchased from other stockholders and made up the amount agreed upon in that way. It turned out, however, •that the $1.2,000 was not sufficient to pay the indebtedness of the corporation and the Chambersburg Woolen Co., who had recovered a judgment for $527.96 against the manufacturing company filed a creditor’s bill against the corporation and its stockholders, for an assessment to pay the claims of it and other creditors.
The Court finally made a decree assessing each stockholder who had assented to the sale at.the rate of $7.69 per share, in the hands of the then holders, irrespective of the fact that they subsequently sold to Gilbert and Shepler, and these latter turned it in to the company.
Certain of the stockholders who had sold their stock to Gilbert and Shepler then appealed to the Supreme Court complaining of the action of the Court in assessing their stock after they had sold the same in good faith.
Messrs. L. S. Clarke and Kennedy & Stewart for appellants,
argued that Shepler and Gilbert should be assessed upon the full amount of stock they turned in, having received the company’s property at a low cheap price.
Messrs. F. Stumraugh and J. M. McDowell Sharpe, Esqs., for the Chambersburg Woolen Co, Appellee,
cited; Wood vs. Dum mer, 3 Mason 308; Cooper vs. Frederick, 9 Ala. 742; Dudley vs. Price, 10 B. Mon. 84; Bank of Natchez vs. Chambers, 8 Smede & M. 49; State vs. La Grange and Memphis Railroad Co., 4 Humph 488; Bank of St Mary’s vs. St. John’s, 25 Ala. 566; Johnson vs. Trustees, 2 Cal. 319; Scott vs. Eagle Fire Co., 7 Paige 198; Briggs vs. Penniman, 8 Cowen 387; Society of Practical Knowledge vs. Abbott, 2 Beav. 559; Slee vs. Bloom, 19 Johnson 474. Fowler vs. Robinson, 31 Maine 189; Germantown Pass. Ry. vs. Fitler, 60 Pa. 125; Mann vs. Pentz, 2 Sand. 257; West Chester and Phila. R. R. Co. vs. Thomas, 2 Phila. 344; Washington Beneficial Soc. vs. Bacher, 20 Pa. 429; Henry vs. Vermillion & Ashland R. R. Co., 17 Ohio 187.

Opinion:
The Supreme Court affirmed the decree of the Common Pleas on June 4, 1874, in the following opinion:
Per Curiam.
No principle is better settled than that the capital stock of a corporation is a.trust fund for the payment of its debts. In the case of insolvency no stockholder shall be permitted to withdraw any part of its assets until all its debts are paid. What cannot be done directly, a Court of equity will not suffer to be done indirectly. It is an undisputed fact that the corporation defendants were insolvent, unable to pay its debts, and at a meeting of the stockholders, on March 17, 1869, it was agreed to sell the real estate of the corporation in separate parcels to Calvin Gilbert and Henry Shepler, two of the stockholders who were present; Gilbert to pay $6,000 in cash and $5,700 in shares of stock, at the rate of $15 per share, and Shepler to pay $6,000 in cash and $6,600 in shares at the same rate. There was no intention to-defraud the creditors by this arrangement, but it was made under the mistaken belief that the cash payment would enable the corporation to pay all its debts. Gilbert and Shepler, not having a sufficient amount of stock to meet their engagement, procured transfers of the shares of other stockholders. Most of them were present at the meeting, and knowledge of the arrangement by the others is not denied. It is not and cannot be denied, that as to Gilbert and Shepler this arrangement was void as against the creditors. They were bound in equity for the whole amount in cash. ; but it seems to us equally clear that the other stockholders who participated in the benefits of the arrangement are also bound to answer to the creditors for the amounts which they respectively received on their shares. This is the principle upon which the decree below was made.
Decree affirmed and appeal dismissed at the costs of the appellant.