Court Opinion

ID: 7969755
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:54:03.232046+00
Date Added: 2024-06-11T16:34:44.550113
License: Public Domain

COLLINS, J.
Action to enforce the double liability of stockholders in a corporation. Gross, the only appellant, had subscribed for 20 shares of stock, of the par value of $100 each, was the principal promoter, was the president and leading spirit of the enterprise. He paid for the shares so subscribed for, but no certificate was issued to him. The corporation became insolvent, and made an as*230signment for the benefit of its creditors. Tbe principal controversy here is as to the legal effect of a finding of fact made by tbe court below, and upon wbicb it based a conclusion of law that appellant was liable in tbe first instance to an amount not exceeding $10,000, five times tbe amount of bis subscription and shares, for wbicb sum judgment against him was ordered to be entered. With a single exception, each of tbe subscribing stockholders, defendants, was also held liable, because of the findings, in five times tbe amount of bis subscription.
This finding was, in effect, as follows: That, prior to tbe issuance of any of tbe stock certificates, it was mutually agreed between all of tbe defendants, with tbe exception before mentioned, and tbe corporation, that, for each share of stock subscribed and agreed to be taken, a certificate for five shares of tbe stock for each one paid for should be issued, and that several of tbe defendants received and accepted certificates of this character, relying upon tbe agreement, and with tbe understanding that all should receive and accept certificates representing five times tbe amount of stock subscribed and paid for. From the evidence it appeared that tbe agreement between tbe stockholders rested in parol, and, if acted upon by tbe corporation, it was at a meeting where, according to tbe minutes (tbe only evidence), it was resolved that tbe board of directors be “directed to call tbe first assessment on stock at once of twenty-five per cent., all stock to be issued fully paid upon payment of twenty per cent, of face value, to be called in four equal instalments.”
We are of the opinion that there is nothing in this language, whatever it may mean, wbicb shows that tbe corporation acted in any manner upon tbe verbal agreement said to have been entered into by and between tbe shareholders. It was also proven upon the trial that Gross, as president, signed all certificates issued in pursuance of the agreement.
It is claimed by appellant’s counsel that this agreement cannot be enforced against him, because it wTas not in writing, is within the statute of frauds,2 and that tbe acceptance of certificates by some of tbe defendants, in accordance with it, was not part performance sufficient to take it out of tbe statute. As we regard tbe *231case, it is not; necessary for us to determine whether this was an agreement within the statute, or merely a contract between the stockholders to enter into personal relations with each other. The agreement itself was forbidden by law, was nonenforcible and void. If so, no equitable rights of creditors or other stockholders could be founded upon the bare fact that it had been entered into. No equitable rights based upon it could be enforced, except, perhaps, by corporate creditors against such stockholders as had actually received and accepted certificates for what may be called “bonus” or “watered” stock, and that question is not before us on an appeal taken by Gross alone.
By G. S. 1894, § 3415, it is provided that:
“Corporations having capital stock divided into shares, unless specially authorized, shall not issue any shares for a less amount to be actually paid in on each share than the par value of the shares first issued” * * *;
And this was exactly what these defendants undertook to do when they verbally agreed to issue five for one. They attempted to perform an act prohibited by statute, and void. While the prohibition is not as directly expressed as it might be, the intent of the legislature is plain, and public policy requires that the language of the statute be given full force. If this is not done, an opportunity is afforded to stockholders in corporations to defraud the public by placing upon the market shares which they have obtained for nothing, and which represent no real capital, — nothing of actual value. The statute was enacted for the government and good conduct of the shareholders themselves, as well as for the benefit and protection of the public, on the general grounds of expediency; and it must receive a construction which will render it effective.
But it is argued that as to those defendants who have received their stock certificates relying upon the illegal agreement, Gross is estopped, and that, as those defendants have been concluded as to creditors, he cannot escape a like liability. But other stockholders are not innocent parties. They were wrongdoers, as well as Gross, and, as between wrongdoers, the doctrine of estoppel is unknown.
And it is also argued that the creditors of the corporation may invoke this doctrine. But, to permit this, we should have to allow these creditors to enforce an equity based upon an agreement for*232bidden by the statute, not acted upon by Gross, nor relied upon by them. He never took a certificate for any stock, and there was no evidence, nor was there any finding, that the creditors had any knowledge of this agreement. Certainly, they did not rely upon it when giving credit to the corporation. And even this knowledge, if they had it, would be accompanied by notice that the agreement was illegal and void, — a direct violation of the statute. We again call attention to the fact that we are not considering the rights of creditors where, in pursuance of an unlawful agreement, stock certificates have been actually issued to and accepted by shareholders.
The court below erred in its conclusion of law that, in the first instance, plaintiff was entitled to judgment against Gross in an amount not exceeding $10,000; but, as the findings of fact are full and complete as to the number of shares owned by him, a new trial is unnecessary.
It is ordered that, when the cause is remanded, the conclusion referred to be amended so that, in the first instance, judgment against Gross shall not be entered for an amount exceeding $2,000, and the order appealed from is modified to this extent.

 G. S. 1894, § 4210.