Court Opinion

ID: 5548565
Source: CourtListenerOpinion
Date Created: 2022-01-10 21:23:32.162639+00
Date Added: 2024-06-11T08:34:59.680951
License: Public Domain

The Chancellor.
I entirely concur in the conclusion at which the vice chancellor arrived in this case, that the giving up of the note, and the transfer to Browm of the stock which had been hypothecated for its security, wras *159illegal and a fraud upon the creditors of the corporation. Whitlock, as a director of the corporation, who had from the beginning taken an active part in the transactions of the company, must be presumed to have known its situation ¡ and that neither Brown nor even the directors of the company7 had the right to make such an arrangement with him. It was in fact an arrangement to enable Whit-lock to withdraw a part of the capital stock of the company ; this note being the substitute for the money paid in, or which should have been paid in, on his stock. Such arrangement was therefore in direct violation of the provisions of the second section of the act of April, 1825, to prevent fraudulent bankruptcies by incorporated companies. (Laws of 1825, p. 448.) The vice chancellor is right also in supposing that the board of directors of the company never assented to this arrangement; even if their assent to such a fraud upon the creditors of the company, and upon the law, could have validated the transaction. And certainly could be no implied assent in such a case, which would e the effect to discharge Whitlock from his liability to creditors of the company for the amount of his stock
standing the note was given up without authority. (2 R. S. 42, § 7.) This is not a proceeding to charge the defendant as a director or stockholder of the corporation on the ground that he has, as such director or stockholder, made himself personally7 liable to the creditors ; so as to make it necessary for Webb & Co., to proceed against him under the provisions of the 43d, 44lh, and 45th sections of the article of the revised statutes relative to proceedings against corporations in equity. (2 R.. S. 464.) But it is a suit to receiver is the proper person to bring the suit, as the legal title to all the property of the company ; , by the revised statutes, with all the rights ;law to trustees or assignees of insolvent debtors. 464, ^ 42. Idem, 469, ^ 67, 68.) He is thereby authorized to sue in his own name for this which debt is still due to the corporation, notwithcollect a debt; which is still due from him to the corpo*160ration, notwithstanding the fraudulent and unauthorized agreement under which the note, which was once the evidence of such indebtedness, had been given up. It is therefore a case in which the innocent stockholders of the corporation would have an interest in the recovery of the amount of the note, even if there were other funds of the corporation sufficient to pay its debts. For where there is a loss upon the stock, such of the stockholders as have paid for their stock have a right to insist that those who have given stock notes only shall pay such notes to the receiver ; so that all may share rateably in the loss which has fallen upon the stockholders generally.
I have no doubt that the decree appealed from was right; and it must be affirmed with costs.(a)
(a) This decision was affirmed, on appeal to the court for the correction of errors, m December, 1842.