Court Opinion

ID: 5552278
Source: CourtListenerOpinion
Date Created: 2022-01-11 00:34:21.816797+00
Date Added: 2024-06-11T08:35:11.306483
License: Public Domain

By the Court.

Benning, J.
delivering the opinion.
Is there any equity in this bill ? If there is, it must consist in one or more of three things, of which the first is the re-payment of the ten per cent, assessment.
It appears that before the company was incorporated, it converted its land into a stock valued at $20,000, and divided this stock into two hundred shares of $100 each, and that it levied and collected an assessment of ten dollars a share on each stockholder, which it expended on its property; and that it repaid this assessment to the stockholders by an issue and sale of twenty additional shares of stock.
All this, it appears, was done before the company accepted the charter; that is, before it became a corporation.
This being so, the $2,000 for which the additional twenty-shares sold, never got to belong to the corporation — never became a part of the capital of the corporation. That sum belonged to the company as the company stood unincorporated. And when it was applied to the payment of the assessment, it was well applied; for it was applied to the payment of a debt or debts which the company justly owed — the assessment constituting a debt or debts against the company in favor of the stockholders assessed.
And the creation of twenty additional shares of stock did not at all affect the quantity or value of the capital of the company. It merely diminished the value of each share in that capital. But this was a matter for stockholders, not for creditors.
[1.] By this operation then, nothing was abstracted from the capital of the corporation; and therefore, nothing was done by the operation of which the creditors of the corporation could *546complain, for all the right they could have against the corporation, was the right to have the whole capital or property of the corporation applied to the payment of their debts. And that right they had, notwithstanding this operation of the unincorporated company.
There is, then, ho equity in this one of the three things.
The second of the three things is the misrepresentation, that the foundry and other machinery were in actual operation,made to the Legislature in the application for the charter.
But this misrepresentation, if made, was not made by the ■ stockholders in the corporation — those parties who are the defendants to this bill; but by the unincorporated company. If, therefore, the misrepresentation raises a liability in favor of the creditors against any persons, it is against that company as it stood unincorporated. But it is not that company that is sought to be made liable by this bill. It is the stockholders' in the corporation that the bill pursues. (1 Kelly, 523.)
The last of the three things is the indebtedness of the company at the time of their application for a charter, and the failure to disclose that indebtedness to the Legislature!
There is no allegation in the bill, that this indebtedness of the unincorporated company was paid off by the corporation— no allegation that the corporation diverted any of the corporate property to the payment of this indebtedness, which was not its own. On the contrary, the allegations in the bill seem to seek to make the impression, either that this indebtedness has never been paid off by any one, or if by any one, by the company before it was incorporated, and after its application for incorporation.
This being so, how have these creditors been injured by this indebtedness? If it still exists, it exists against the individuals composing the company, as it stood unincorporated; and so, can never come in competition with the debts of these creditors, which are debts against the corporation. If the indebtedness no longer exists, having been paid off by the company before it was incorporated, then that with which it was paid off never-belonged to the corporation; and so, was never what the cred*547itors of the corporation had a right to look to for their payment.
[3.] Again: If the non-disclosure to the Legislature of this indebtedness constituted a fraud on these creditors, by whom was it that the fraud was committed ? By those failing to make the disclosure. And they were the members of the com.pany as it stood unincorporated — not the stockholders of the corporation — stockholders, some of whom were different per•sons from those constituting the unincorporated company.
If, then, this non-disclosure was’a fraud, the bill should have been against the parties to the fraud, instead of being as it is, against those who, in tho character in which they are sued, Viz :. that of stockholders, were no parties to the fraud.
In this respect, this ground is like the one just considered.
There being no equity, then, in any of these- three things, none is in the bill; and therefore, the demurrer should not Lave been over-ruled, as it was by the Court below, but should .have been sustained. .
For the defendants in error was cited the New Theatre case •in the first of Strobhart’s Reports.
There are other reasons which, as it appears to me, show a -total want of equity in this bill. -But these I need not state.