Court Opinion

ID: 4724063
Source: CourtListenerOpinion
Date Created: 2021-08-12 02:48:15.26569+00
Date Added: 2024-06-11T08:07:45.412496
License: Public Domain

Reavis, J.
(dissenting). — I am constrained to dissent from the opinion of the majority of the court, and more particularly from the process of reasoning upon which the decision is based. That property may be taken by a corporation upon its organization in payment of the capital stock subscribed by a stockholder has been announced by this court heretofore and is the rule uniformly followed here. The payment of the capital stock must be made in good faith by the stockholder. So long as there are honest differences in the estimate of the market value of the property so taken in payment for stock, the valuation made *513by the corporation and the stockholder should be a question of fact. I think the true rule is well stated by this court in Adamant Manufacturing Co. v. Wallace, 16 Wash. 614. This was the judgment of the whole court at that time, and it was there observed:
“ It must necessarily follow, for the protection of creditors who dealt with these corporations, that the stock subscribed for must be paid in cash or in property of an equivalent value. In other words, the corporation must be in the actual condition which it represents itself to be in financially. If it were allowed to hold itself out as having a capital stock of $100,000, when in reality the capital stock, which is and must be, under the theory of the law, assets in the hands of the corporation, is worth only one-half that amount, the corporation is to that extent doing business under false colors, and is obtaining credit upon the faith of an asserted estate which is purely fictitious. And where, by any arrangement between the shareholders and the corporation, the stock is issued as fully paid up, when in fact it has not been paid to the full amount of its face value, but has been paid in property of a fictitious or inflated value, a court of equity will compel a payment by the stockholder for the benefit of the creditor who has dealt with the corporation relying upon the asserted value of its assets to the full amount or face value of the stock. Such is almost the universal holding of the courts of the present day.”
The statute, §4266, 1 Bal. Code (1 Hill’s Code, §1511) declares:
“ Each and every stockholder shall be personally liable to the creditors of the company, to the amount of what remains unpaid upon his subscription of the capital stock.”
Section 4269, 1 Bal. Code (1 Hill’s Code, § 1513) provides:
“ It shall be the duty of the trustees of every company incorporated under this chapter to keep a book contain*514ing the names of all persons, alphabetically arranged, who are or shall be stockholders of the corporation, and showing the number of shares of stock held by them respectively, and the time when they became the owners of such shares, which book . . . shall be open for the inspection of stockholders and creditors of the company . . . and such book . . . shall be presumptive evidence of the fact therein stated in any action or proceeding against the company.”
Section 4265, 1 Bal. Code (1 Hill’s Code, § 1510) provides:
“ It shall not be lawful for the trustees to . divide, withdraw, or in any way pay to the stockholders, or-any of them, any part of the capital stock of the company, unless in the manner prescribed in this chapter. Provided, that this section shall not be construed to prevent a division and distribution of the capital stock of the company, which shall remain after the payment of all its debts upon the dissolution of the corporation or the expiration of its charter.”
I think it apparent that the legislature -has thus, as it might rightfully do in the formation of corporations, provided for the full payment of the capital stock of the corporation in money (but the courts have gone a step further and sanctioned a payment in money’s worth); that the capital stock, if remaining unpaid, is always a trust fund for the creditors; and it would be trite to recall the presumption that the subscribers to the capital stock are deemed solvent, and that the fund thus created is really in existence.
The case of Kroenert v. Johnston, ante, p. 96 (52 Pac. 605) decided after that of Adamant Mnfg. Co. v. Wallace, supra, was by a divided court, Judge Dunbau dissenting and the writer concurring in the result. I do not, however, think the reasoning in that case is the law, or in consonance with the better authority. I believe the rule *515expressed in Adamant Mnfg. Co. v. Wallace, supra, that, so far as creditors are concerned, subscriptions to the capital stock of the corporation must be fully paid' for in cash or in property of an equivalent value, irrespective of any understanding shareholders may have among themselves .as to the payment of stock or as to its value, is the true rule, and but a fair interpretation of the statutes of the state. It would seem vain legislation to subject stockholders to a personal liability to creditors for the full amount of their capital stock, to provide that the capital stock of a corporation should be kept intact until its dissolution, or so long as there are creditors, and to prohibit the transfer back to the corporation of stock subscribed for by a stockholder unless the capital stock is a real, tangible fund, and in the valuation of property taken in payment for capital stock it is the market value, not an imaginary speculative value that has no reality in existing markets. Thus, I do not think that property which was worth only $100,000 when purchased by a corporation, could be taken in payment of $5,000,000. This magic growth of value in a night outruns the tales of enchantment; and I am •of the opinion that the capitalization of the Coal and Iron Company in this case was originally fraudulent. I recognize, however, that creditors who purchased its bonds in good faith should be protected. I merely desire to advert to the fact that an examination of the very voluminous record on this appeal indicates that a large number of the persons who purchased bonds secured by the mortgage paid between fifty and seventy-five per cent, and some as low as twenty-five per cent, of the face value of the bonds, and a large number of them received with each bond double the amount of the bond in capital stock of the company. Thus, stock which had never been paid for was by the •corporation given to persons who purchased the bonds. *516The fund which the legislature intended and created for the benefit of all the creditors of the corporation was thus-dissipated, at least, and the purchaser of the bonds should fairly be chargeable with an observance of fair dealing, and in some instances in this case the whole of the bond and stock should be required to meet the liability on the stock before receiving the money due upon the bond. In other words, in equity and good conscience, he should not be permitted to assist some one in avoiding the liability upon the stock and yet take from the other creditors what-he had paid upon the bond.
I do not deem it necessary to express any further view upon the facts of the case as now presented to the court.