Court Opinion

ID: 9830627
Source: CourtListenerOpinion
Date Created: 2023-09-01 20:20:12.000065+00
Date Added: 2024-06-11T07:43:24.970009
License: Public Domain

On Motion for Rehearing.
[15] Special charge No. 5, given at the instance of appellee, in effect told the jury that if they should find from the evidence that appellants subscribed for certain respective shares of the capital stock of the Rich Dry Goods Company, and that such capital stock was not fully paid for by them, and they should further find that appellants caused the books of said company to show that such capital stock was fully paid, and represented to Hallenbeck that it was fully paid, then they were charged that they should find a verdict in favor of appellee against appellants for the amount unpaid on their subscription to said capital stock. Appellants assailed this charge, and we sustained the assignment, holding that the giving of this charge was error. An elaborate motion for rehearing has been filed by appellee complaining of our holding in this respect; but, after a careful consideration of same, we are still of the opinion (though for a different reason than that assigned in the original opinion) that said charge was error, and should not have been given. Supplementing what was said in our original opinion, we wish to add that this charge did not negative the idea that Hallenbeck, notwithstanding such representations, may have known that said stock was not paid up. If he knew that it was not fully paid up, then the general rule of law is that he became liable for such unpaid balance, and this fact would ordinarily relieve the appellants from liability thereon. The general doctrine stated in our original opinion, and sustained by many of the cases, to the effect that a bona fide sale of stock to another will relieve the transfer-ror, is based on the assumption that the transferee knew at the time of the purchase that the stock was not fully paid for, and therefore is presumed to have assumed the payment of such unpaid balance, and is based on the idea of novation; but no reference, however, was made to this phase of the case in our original opinion. There can be no novation in the absence of such knowledge and assent thereto. See Am. & E. Ency. Law (2d Ed.) vol. 21, p. 666. But where the purchaser has no knowledge that the stock is unpaid, and buys upon the belief that the stock is fully paid up, he cannot be held for the unpaid balance thereon. In discussing this question, the court, in the case of Eastern Nat. Bank v. American Brick & Tile Co., 69 N. J. Eq. at page 334, 60 Atl. 57, says:
“The liability of transferees for assessments on account of unpaid stock has been the subject of much consideration by the courts of this country, resulting in radical differences of opinion ; but in my judgment the weight of authority and sound reason support the view that a bona fide transferee of stock, the certificate for which recites that it is fully paid, is not liable to make good the contract of the original subscriber if the transferee has no knowledge that the subscriber has not paid in full, nor notice of any fact from which knowledge may be inferred, or which requires him to inquire as to the truth of such statement. The right to hold a stockholder for an unpaid subscription, in the interest of creditors, rests upon the doctrine that the capital stock is a trust fund for the payment of the obligations of the company, and that the subscription creates a debt due to the corporation upon which a creditor may rely and which the company cannot remit to his injury. The contract between the corporation and the subscriber is.that for the stock issued he will make full payment, and any attempt to avoid this, by waiver or other device, will, not excuse the subscriber to the injury of the creditor, but there is no equitable reason why the creditor should be allowed to shift the right' he holds against the contractor to a bona fide transferee without knowledge of the infirmity, and to imply that he has assumed a contract of which he has no knowledge and which he would not have made had he been informed regarding it”
See, also, French v. Harding, 235 Pa. 79, 83 Atl. 586, Ann. Cas. 1914B, 744, where it is held, as shown by the syllabus, that a bona fide purchaser for value and without notice of the stock issued by a corporation as paid up cannot be held liable on such stock in any way, either to the corporation, corporate creditors, or any other person, even though the stock was not actually paid up as represented.
*192In Cook on Corporations, yol. 1, § 257, it is said:
“The question whether the purchaser of stock is bound to take notice that the stock he purchases is not fully paid for is a serious and complicated one. The better opinion, and the one most in accord with the usages and demands of trade, is that, where one buys stock in open market in good faith and without notice that the subscription price thereof has not been paid up, such a purchaser cannot be held liable to pay the unpaid balance of subscription.”
See, also, Davies v. Ball, 64 Wash. 292, 116 Pac. 833, and note to that case on page 754 of Ann. Cas. 1914B, where the same doctrine is announced. See, also, West Nashville Planing Mill Co. v. Nat. Savings Bank, 86 Tenn. 252, 6 S. W. 340, 6 Am. St. Rep. 835.
[16] In addition to his other contentions, •counsel for appellee insists that this court erred in not holding that the original stockholders were liable on the ground that they had the stock issued as fully paid up when it was not in fact so paid, basing this insistence upon article 12, § 6, of our state Constitution, which provides that no corporation shall issue stock or bonds except for money paid, labor done, or property actually received, and all fictitious increase of stock or indebtedness shall be void. We have reached the conclusion that this contention on the part of appellee is well taken. This provision of the Constitution puts the original stockholders in the attitude of guarantors, making them responsible to creditors for the unpaid balance due thereon; and this is true, we think, regardless of whether or not they may have transferred said stock to another who had notice that the same was not fully paid up; and, in view of another trial, we think the jury should be so charged. In this connection, see Harris’ Const, art. 12, § 6, and authorities there cited; Van Cleve v. Berkey, 143 Mo. 109, 44 S. W. 743, 42 L. R. A. 593; Camden v. Stuart, 144 U. S. 105, 12 Sup. Ct. 585, 36 L. Ed. 363; O’Bear, Nestor Glass Co. v. Anti-Explo Co., 101 Tex. 431, 108 S. W. 967, 109 S. W. 931, 16 L. R. A. (N. S.) 520, 130 Am. St. Rep. 865.
After fully considering same, our opinion is that the motion for rehearing should be overruled, and it is accordingly so ordered.
Motion overruled.