Court Opinion

ID: 6250955
Source: CourtListenerOpinion
Date Created: 2022-02-17 21:14:49.145042+00
Date Added: 2024-06-11T08:59:25.094520
License: Public Domain

Opinion by
Mr. Justice Stewabt,
We may concede that a corporation, once it has been formed and is actually being operated, may accept in payment of an original and unconditioned stock certificate its fair equivalent in property or services. Indeed, so much was expressly decided by this court in Shannon v. Stevenson, 173 Pa. 419, where it was said: “There is no inherent incapacity of a corporation to purchase property or labor and pay for it by stock instead of money. If the corporation here had paid the defendant $1,000, in cash, to leave his former position and undertake his presidency, on condition that he invest the money in its stock, there could be no question of the validity of the transaction, and yet it would in substance have been exactly the same.” This was said in a case where, as here, the action was by the receiver of an insolvent corporatioti to recover an unpaid original subscription, and the defense set up was that the corporation had accepted payment in service rendered. Other authorities equally explicit on the point could readily be cited. The defense here relied on, as to the first subscription of seventy-five shares, was not that the original subscription was a conditional one as to the terms of payment, but that the defendant had turned over to the corporation, after it had been organized, an automobile for which he had paid $2,800, and on which, for the purpose of illustrating and demonstrating the usefulness *596and adaptability of certain appliances in connection with motor cars for the manufacture of which the corporation was formed, he had expended a sum of money, which, added to the original cost of the automobile, made a sum equal to his first subscription for seventy-five shares. As to the ten additional shares he subsequently subscribed for after the incorporation, he claimed that he had paid for these by a cash payment of $250, and by a contra account of the Standard Automobile Company against ■the corporation, whose stock he had subscribed for, which, after being credited to the corporation was charged against the defendant on the books of the Standard Automobile Company, amounting to about $700. The defendant is credited on the books of the corporation with the payment of these ten shares. The two subscriptions evidently stand with respect to payment on different footing; the claim as to the seventy-five shares is that it was paid for in property; as to the ten shares, that these were paid for in cash or its equivalent in credit. The answer to the bill contains no averment that the certificate for the seventy-five shares subscribed was issued to the defendant in payment for the property turned over by him, or that the value of the property so turned over was the equivalent of the stock; or that there was any understanding or agreement between himself and the corporation that the property was to be received in payment. For all that appears in the answer, what was set up by way of defense was merely a set-off of indebtedness due the defendant from the corporation for the property he had turned over. Its insufficiency is quite apparent, nevertheless, the taking of testimony was entered upon. What the evidence disclosed can only be gathered from the chancellor’s finding. These not having been excepted to, it was agreed between counsel that the evidence might be omitted from the paper-book, and the case be heard on the findings. It is quite enough to know that none of the findings supplement the defendant’s answer with respect to the serious omissions aboye referred to, On the contrary, we have *597definite and distinct findings that the issuing of the certificate for the seventy-five shares in defendant’s name was not pursuant to any corporate action; that there was no evidence that the directors of the corporation ever passed judgment on the value of the property defendant claims to have turned over in payment, or what the actual value of the property was. There is the further finding that the property was of little utility. Since the case rests on the findings of the court, what of itself is sufficient to defeat the defendant’s attempt to escape liability on the ground set up, without going further, is the fact that there is no finding that the payment for the stock in prop- j erty was ever the subject of contract or agreement be-1 tween the defendant and the corporation. Except as' there was such contract defendant stands with respect to the property he turned over in the same situation as any other creditor of the concern. The fact that there is no finding of a contract is an equivalent in this proceeding of a finding that there was no contract. In all such cases where an original subscriber to stock claims to have paid a subscription in something else than money, the burden is on him to show a contract with the corporation permitting it, and the further burden is on him of showing that the transaction was fair and that the property turned over in payment had been valued by those representing the corporation in good faith. None of these things here appear, and it follows that defendant’s liability for his subscription to seventy-five shares remains, and that he was properly charged therewith.
We are of the opinion that the court overlooked a clear distinction between the original subscription for seventy-five shares and the later one for ten shares, made after the corporation was a going concern. This latter subscription was made after the corporation had been organized for fully seven months. „ There is nothing in the specific findings which distinguishes these subscriptions, but in the discussion of the facts by the chancellor the distinction clearly appears, from the following extract: “The ten *598shares were subscribed for after the incorporation, and he claims that these were in part paid by a contra account of the Standard Automobile Company against the corporation, which the automobile company, after crediting the corporation, charged the same against him personally, •amounting to between $600 and $700. He claims that he paid some cash but was unable to give any very definite amount, but it approximates $250 and he should be allowed a credit for that amount. The books of the corporation credit him with the payment of the ten shares.” It would have been much more satisfactory had there been specific finding with respect to what is here set out, but from the chancellor’s discussion we take the facts as stated in the above, extract as having been satisfactorily established; that the corporation now represented by the receiver was indebted to another corporation between $600 and $700; that this indebtedness the defendant individually assumed and the plaintiff company was discharged from liability on account thereof; that the difference between the credit and the amount of the stock subscription the defendant paid in cash, and that the books of the plaintiff company show payment in full of this particular subscription. If it occurred in this way, how was it other than a cash payment? It was not property that was turned over. It would have been substantially the same had the indebtedness of the plaintiff company been owed directly to the defendant and the stock subscription had been paid by giving the credit. There is no suggestion of fraud in connection with this transaction. So far as appears it was strictly bona fide, and it sufficiently appears from the books of the company that the transaction was closed on this basis. We are of opinion that it was a mistake to treat the subscription for the ten shares as unpaid.
The cross bill filed by the defendant was properly dismissed. What was asked for was not affirmative relief, but a decree determining how much was due and owing from the insolvent company to the defendant on an open account, in the event the finding on the plaintiff’s bill *599was adverse to the defendant. With respect to that indebtedness, if there be any, defendant stands towards the corporation in no better position than any other creditor. The decree should be so far modified as to exempt the defendant from liability for the ten shares of stock above referred to, thereby reducing the amount for which the defendant is liable from $8,500 to $7,500. And as so modified the decree is affirmed, and the appeal is dismissed, the costs on the appeal to be paid by appellee.