Court Opinion

ID: 8014554
Source: CourtListenerOpinion
Date Created: 2022-09-09 02:02:49.074096+00
Date Added: 2024-06-11T16:35:41.904937
License: Public Domain

PER CURIAM.
The above-entitled cause having been heard and considered by the Court in Banc, the opinion of Gantt, J., in Division Two is adopted as
the opinion of the court.
Robinson, C. J., Brace, Gantt, Burgess, Valliant and 'Fox, JJ., concur in toto; Marshall, J., concurs in the views expressed, but is in favor of reversing and remanding the cause for a new trial.
*505GANTT, J.
On or about the last days of February, 1887, Lucius Hubbell of the real estate firm of • "Wo'oley, Porter & Hubbell of Springfield, Missouri, for one thousand dollars cash paid, obtained an agreement from George M. Jones to convey to said Hubbell a tract of land adjoining the city of Springfield, containing about one hundred and sixty acres, for the sum of twenty-six thousand dollars, to be paid in thirty days. Before the expiration of the thirty days said Hubbell obtained the agreement of nine other parties to share said purchase with him, each to pay the sum of twenty-six hundred dollars, and together they paid the twenty-six thousand dollars, and on March 29, 1887, said Jones ■conveyed the said land to said Hubbell. It was further agreed between the ten purchasers that they would organize a business corporation to take over said land and that it should be capitalized at $100,000 and each of said ten purchasers should receive stock, in said company of the par value of $10,000.
On March 31) 1887, these same ten men signed and ■executed articles of association of the Real Estate Investment Company, reciting therein that the capital stock of $100,000 had been fully paid up and was in the hands of the persons named as the first board of ■directors and that each of the ten signers, to-wit, L. W. Hubbell, W. H. Biggs, Geo. A. O. Wooley, W. O. Gray, E. D. Pearce, T. E. Burlingame, J. S. Ambrose, B. P. Hobart, J. T. Gray and W. G. Porter, Jr., held twenty •shares of the par value of $500 each. Articles of incorporation were duly filed and a certificate of incorporation granted and in due time stock of the par value ■of $10,000 was issued to each of said parties as fully paid. The testimony of Hubbell, the promoter, and of Biggs, one of the original board, and of Ramsay, the manager, establishes beyond question that none of these stockholders ever paid anything for their stock except the $2,600 which they each paid into the fund to buy the land, which was ,at once conveyed to the corporation •on its organization by Hubbell for a recited consideration of $100,000, and which land was practically the *506only asset the company ever had outside of a switch and a few lots purchased by it later on. As soon as practicable the company caused the land to be laid off as an addition to Springfield, conforming as near as possible to the streets of the city, and filed its plat and published maps of the addition. This was accomplished in September, 1887. The lots were rated from $150 to $100 each, according to desirability.
The testimony of Hubbell and Ramsay, who were the managers at different periods, disclose the following modus operandi:
The company would sell a- lot, and if the purchaser was not able to build would advance him the money or materials for his house, and then take back notes, or real estate bonds, as one of the witnesses denominated them, secured by a first deed of trust on the whole and then the company would indorse this paper and sell it in the money market. In this manner something like 180 lots were sold in the first three or four years of the company’s existence, or up to 1891 or 1892. The money received from the sale of these notes, and sometimes the notes themselves, were distributed as dividends to the corporators or stockholders to the amount of $26,000 or near that sum, but the evidence shows that a large number of those notes were not paid by the makers or owners of the lots when due, and as Hubbell testified, “it was not the policy of the company to allow them to default, and when the purchasers of the lots failed to make payment the company stepped in and paid them so as to keep its paper good, ’ ’ and it would seem that to get the money to do this from time to time, the company would make its notes, indorsed by the directors and the banks of Springfield and St. Louis, and when due would renew again, until toward the last Hobart and Ambrose were compelled to pay them to protect their indorsements.
In some instances the company would mortgage the property to raise the money and take second mortgages, but when the panic of 1893 came, the second *507mortgages were wiped out completely by the decline in values.
Ramsay testified that when he became manager in 1891 there was from $12,000 to $18,000 of the company’s paper outstanding indorsed by Hobart and Ambrose, who were directors of the company, and in Í893 it had increased to about $34,000, which came about by paying off interest on the indebtedness, and on account of notes coming back on the company which it had indorsed, and paying the running expenses, and taking-up the old notes that had been indorsed.
In February, 1893, the company issued its notes secured by deeds of trust on unimproved lots, for $10,000, which it sold through the brokerage firm of H. M. Noell & Co., of St. Louis, $5,000 .to plaintiff George H. Shields, and $5,000 to Mrs. Breed. Default was made in the payment of these notes, the deeds of trust foreclosed by sales, and thereupon plaintiff brought suit in the Greene Circuit Court and obtained judgment for $6,055.50, the balance due him on the notes held by him. Execution issued on this judgment and real estate which had theretofore belonged to the company, but which had been sold under other deeds of trust of August 19, 1893, and plaintiff became the purchaser and the execution was credited with $158.10, the proceeds of the sale.
The five deeds of trust of August 19, 1893, had been made by the company, covering all the land it then owned, to secute certain notes which it had put up as collateral to its notes already outstanding, which had been indorsed by Hobart and Ambrose and in some instances by the other directors and stockholders. Hobart and Ambrose were ultimately compelled to pay the notes which they had indorsed, and thereupon caused these collateral deeds of trust to be foreclosed, on September 23, 1897, and Ambrose got 60 of the 140 lots covered by these deeds of trust for $2,005, and Hobart bid $1,100 on certain of the lots and directed them to be conveyed to the Crescent Iron Company, and *508for certain other lots he hid $2,819 and caused them to be deeded to Mrs. Hobart, his wife, these sums being •credited on their notes against the company, which they had paid for it.
It appears that Hobart in this way paid $17,243.10 and Ambrose $6,310. Hobart also produced another note for the company for $1,000 which he loaned the ■company. The plaintiff in his endeavor to trace the ■origin of all this indebtedness endeavored to get at the books, but the defendants did not produce them, and it ■appeared that Ramsay, the manager of the company, when he learned the plaintiff intended to levy on them and had applied for an order to produce them, called in the negro porter, Henry Reed, at the Ozark Hotel in Springfield, and turned over to him the journal, cash book, ledger, sales book and stock book, which contained all the transactions of the Real Estate Investment Company for the years up to November, 1897, saying to the negro at the time they would probably be attached and to get them out of his office, he didn’t care what he did with them; so he took them out of his office, and when ■on that day the order of the court to produce them was read to him or delivered to him, he made return that they were not in his possession.
The negro testified he put them in an elevator where the rubbish around the Ozark House was dumped and they remained there several days, when he was taken sick, and upon his return to work, they had been removed, and he did not know their whereabouts. The 'witness Ramsay boldly avowed his purpose to prevent plaintiff getting the information contained in the books, and says he wrote Hobart that day what he had done and received an acknowledgment of the letter. "With the suppression of the books came a significant lapse of all memory of their contents by those who conducted the transactions recorded in them. Ambrose was dead at the time of the trial and was represented by his administrator.
H. M. Noel testified that he lived in St. Louis; was in the bond and brokerage business, and that Hobart *509sold him the $10,000 in bonds, which witness sold to-plaintiff Shields and Mrs. Breed; that Hobart informed him at the time that the bonds were amply secured, and only forty per cent of the realty belonging to the Real Estate Investment Company was mortgaged; that the company was solvent; that part of the $10,000 was to pay a note falling due and the remainder to be paid in betterments.
Hobart was present in court and sworn as a witness, but was not offered as a witness in his own behalf to explain the origin of the debts which he paid for the company until counsel for plaintiff in his argument animadverted upon his said failure and then he was offered as a witness, but the court declined at that time to reopen the cases.
Other facts may be noted in the opinion in the case. The circuit court found for defendants Hobart and Ambrose and against the other defendants.
Cause Ño. 9411 is a suit in equity by plaintiff, as a judgment creditor of the Real Estate Investment Company, against the defendants, who were seven of the original ten subscribers to and promoters of the said corporation, to subject to plaintiff’s judgment the unpaid balance due from the defendants on their stock, on the ground that although stock was issued as paid up they had in fait paid only twenty-six per cent thereon and they were liable to plaintiff as a creditor to- the full amount thereof.
The circuit court'found as a fact that only twenty-six per cent was paid on the stock; that each of the stockholders wás liable for $7,400 for the satisfaction of the company’s debts, but found that as to Hobart and Ambrose they had paid more than they owed on their stock in paying their indorsements on the notes of the company, as set forth in the statement and answers of Hobart and Bigbee, administrator of Ambrose.
After timely motions for new trial and in arrest plaintiff appealed from the judgment of the circuit court.
*510I. The circuit court’s, finding that of the one hundred thousand dollars of capital stock of the Real Estate Investment Company subscribed, the stockholders only paid into the treasury of the company twenty-six thousand dollars, or twenty-six hundred dollars each for the $10,000 worth of stock at par value allotted to them, is supported by all the testimony in the case, and it follows that under the laws of this State the court’s further finding, that each of the defendants in the cause No. 9411 was liable to the creditors of the corporation for the unpaid balance of $7,400 on his twenty shares, followed as a necessary consequence. [Shickle v. Watts, 94 Mo. 414; Liebke v. Knapp, 79 Mo. 24; Shepard v. Drake, 61 Mo. App. 134; Van Cleve v. Berkey, 143 Mo. 109.]
But the circuit court further found that by the payment of the various notes issued by the corporation, Hobart and Ambrose had each subsequently more than paid the unpaid balance on their respective shares and credited them with these payments and rendered judgment for them against plaintiff, while giving him judgment against the other defendants, and it is this judgment of the court in favor of defendants Hobart and Ambrose’s administrator which forms the basis of this appeal.
As already stated, this is a suit in equity which is a concurrent remedy with the statutory action at law given by section 2519, Revised Statutes 1899, in force when this suit was commenced and the judgment rendered. [Shickle v. Watts, 94 Mo. 410; Van Cleve v. Berkey, 143 Mo. 109; Steam Stone Cutter Co. v. Scott, 157 Mo. 520.]
It is not necessary to enforce a stockholder’s liability for his unpaid obligation for his stock to allege or prove fraud. This was ruled in Shickle v. Watts, 94 Mo. 410, and while a different view was taken in Woolfolk v. January, 131 Mo. 620, so much of that opinion as announced that it was necessary to allege fraud was overruled and disapproved in Van Cleve v. Berkey, 143 Mo. 109, by the unanimous opinion of all the judges in *511Banc, and it must now be regarded as settled that it is not necessary to charge frand to subject the stockholder’s unpaid liability to a creditor’s judgment against the corporation.
The difficulties of the case arise from the uncertainty as to the origin of the debts which Hobart and Ambrose paid for the company.
These two defendants contented themselves with showing that in 1893 and prior thereto they had indorsed the company’s notes or real estate bonds in the aggregate to the amount of $23,350, and that to protect the several notes of the company which they had indorsed, one for $3,000, one for $1,350, one for $2,000, one for $9,000, and one for $8,000, the company made its additional notes for these several amounts to Frank B. Smith and gave five deeds of trust conveying 140 lots of ground and these notes were indorsed by Smith and together with the respective deeds of trust given to secure each, were placed by the company as collateral security with the several banks and individuals who held the notes of the company indorsed by Hobart and Ambrose, and to secure the latter on their said indorsements.
The plaintiff endeavored to trace the origin and consideration of the notes indorsed by Hobart and Ambrose and in a general way, we think, established that a large proportion of this indebtedness grew out of the way in which the corporation conducted its affairs. He established quite conclusively by Hubbell, the manager of the company from 1887 to 1891, that it was the custom of the company to sell its lots, which constituted in fact its capital, to various purchasers on credit, or largely so, and take notes and deeds of trust to secure the purchase money, and to either sell these notes and distribute the proceeds as dividends or distribute these notes with the company’s indorsement to the several stockholders as dividends. Many of these notes thus sold and divided as dividends were not paid by the makers, the purchasers of lots, when they became due, and the company to protect its credit would take up and *512pay these notes by borrowing money or using the proceeds of other lots.
How many of these defaults occurred during Hub-bell’s management does not satisfactorily appear, as his. memory was very indistinct when questioned on that subject, but they grew more and more frequent under Porter’s and Ramsay’s management in 1891, 1892 and 1893, by which time the indebtedness had grown on this account, principally to the bulk of its indebtedness, some $34,000, at the time it made the bonds for $10,000 of which the plaintiff became the owner of $5,000 in 1893. Ramsay says it was between $12,000’ and $18,000 when he took charge in 1891. Plaintiff endeavored to reach the books, but when Ramsay, the manager, learned of his purpose he called in a negro porter and turned them over to him with the sole injunction to get them out of his office, and when the order of the court was served he answered these books were not in his possession. All efforts to trace the whereabouts of these books which contained a history of all the transactions of the company proved futile and this accounts for the failure of the plaintiff to show definitely and specifically the origin of the indebtedness on which Hobart and Ambrose were indorsers and for the payment of which they claim credits on their stock and offsets against their liability to plaintiff.
During all this time Hobart was a director of the-company, and Ambrose was the president, until his death in 1897, and long after the corporation ceased to be a going concern. So that plaintiff could only show, as he did generally, that the corporators divided about $26,000 among themselves, the proceeds of the company’s lots, but a large proportion of which constituted a liability of the company on account of its guaranty of the notes, and not properly a dividend earned. The defendants Hobart and Ambrose could have preserved' the books of the company and shown the origin of every debt. After 1891 no dividends were paid. Hubbell testified the stockholders got back in dividends the amount they invested, or about $26,000; that “we sold *513notes, the bonds that we received in payment of the lots,” and in. some instances divided the bonds themselves as dividends. “Got very little money for the lots. Took notes and guaranteed their payment.”
Judge Biggs testified he received his dividend in both éash and notes, and collected the latter. :He testified that according to the original understanding the company ought not to have been compelled to issue paper or indorse paper for any purpose.
No reasonable or rational evidence appears in the record to account for so large an indebtedness as was incurred by the company upon any other theory than that disclosed by Hubbell and Judge Biggs, and that is, that the indebtedness largely, if not altogether, grew out of the indorsement and guaranty of the company of the notes and real estate bonds it took from purchasers of its lots, and their default in paying the same, and the interest accumulating thereon.
With ample opportunity to have rescued the records of the company when notified by the manager, Ramsay, that he had turned them over to an utterly irresponsible character and to have condemned his conduct in suppressing evidence to which plaintiff was entitled, Hobart so far as the evidence shows, permitted the records of the company to lie in the dump pile in the elevator of the Ozark Hotel without a request to Ramsay to secure them. ■
In those books presumptively the origin of each note which he and Ambrose indorsed for the- company and each renewal thereof, could have been traced.
Those books also were or should have been the repository of all the corporate acts of the company, and would have disclosed whether the corporation, through a lawful board, authorized the creation of said debts or the indorsement thereof by the company’s directors; in short, whether these arrangements were the individual acts of Hobart and Ambrose self-imposed or were lawful acts of the corporation.
*514That a corporation while a going concern may prefer one creditor to another, must now be accepted as the law of this State. [Foster v. Mill Co., 92 Mo. 87; Meyer v. Folding Chair Co., 130 Mo. 188; Schufeldt v. Smith, 131 Mo. 280.]
But it is also settled by our adjudications that when a corporation has reached a point where its assets are insufficient to satisfy its corporate debts, its managing officers can not lawfully pay their private debts from the assets as against the claims of existing creditors of the company, who complain. As to the latter such a transaction is prima facie fraudulent. [National Tube Works v. Machine Co., 118 Mo. 365; Hall v. Goodnight, 138 Mo. 576.] With these principles in view it is essential to a proper determination of the respective rights of the parties to this litigation to ascertain, if we can, the true character of the offset which is presented against plaintiff’s judgment.
Plaintiff’s judgment being founded upon a note executed by the president of the company as such, and having been adjudged the debt of the corporation, is not open to attack in this proceeding by the defendants who are officers and stockholders of that company, and indeed is not questioned, and he has a right to have it satisfied out of any assets belonging to said company.
On the other hand, notwithstanding defendants Ambrose and Hobart only paid $2,600 each on their subscription for their stock of the par value of $10,000 each, under the rule announced in Savings Bank v. Butchers & Drovers Bank, 130 Mo. 155, in an equitable suit by a judgment creditor of a corporation against a stockholder to subject the stockholder’s liability for the balance unpaid on his stock, the stockholder may set off a demand which he has against the corporation.
' In that case it appeared that at the suit of one stockholder the defendant stockholder had been compelled to pay the full amount of his unpaid subscription and it was held to be a full satisfaction of his liability.
*515We are thus brought to the contention of the plaintiff that the notes and bonds offered by defendants Hobart and Ambrose were not lawful claims against the corporation, but were the result of a fraudulent and unauthorized reduction and distribution of the capital stock of the company under the guise of dividends, and that the preference which they gave themselves out of assets of the company over plaintiff who was an existing creditor, is prima facie fraudulent, and the burden devolved upon them of showing that all their secured debts were fair, honest obligations of the company and justly due them, and that'they made no such showing.
In National Tube Works v. Machine Co., 118 Mo. loc. cit. 376, this court quoted with approval the statement of Morawetz on Private Corporations, vol. 2, sec. 789, that, “A corporation can not give away its property or transfer it, unless in good faith for value, if its creditors would thereby be left unsecured. ’ ’ What, then, is the nature of the debts which defendants Hobart and Ambrose propose to set off against plaintiff’s judgment and how did they originate?
As already said, a large part thereof grew out of the sale of notes held by the company and by it indorsed to raise money to distribute as dividends and in some cases by the distribution of these notes without sale as dividends, and their makers having defaulted the company borrowed money to make them good and to keep up its credit.
It was for this money thus borrowed that the defendants became indorsers and finally paid these sums for which they ask offsets. If these notes were founded upon other lawful debts of the corporation, the law cast the burden on defendants to show that fact and what part of the notes, if any, originated outside of the indorsement of the so-called dividends.
They could have protected their records from spoliation and presumably have shown how every item of the debt thus originated, and being directors and trustees of the corporation, were bound to know how its *516liabilities accrued and upon what basis they assumed to declare dividends, and why it was necessary, if they had earned sufficient profits over and above all liabilities to declare dividends, for the corporation to indorse and guarantee the paper of the purchasers of its property, but they have not done so and have contented themselves with offering in evidence notes signed by one of them, Ambrose, as president, and indorsed by the other, Hobart, who was a director, without showing that these notes were the legal obligations of the company for debts which it might properly contract. Having the power to show these notes were not, as the evidence tends to show, the result of distributing the capital Sas dividends, and failing to do so, we feel justified in starting with the assumption that this was their origin.
The statute governing business corporations like this at the time these transactions occurred, section 2773, Revised Statutes 1889, provided: “Dividends of the profits made by the corporation may be declared by the trustees or directors thereof every six months, or oftener, as the directors may elect; but no such dividends shall be made and paid to stockholders while such corporation is in an insolvent condition; and if the directors of any such corporation shall knowingly declare and pay any dividend when the corporation is insolvent, or any dividend the payment of which would render it insolvent, or which would diminish the amount of its capital stock, they shall be jointly and severally liable for all the debts of the corporation then existing, and for all that shall be thereafter contracted while they shall respectively continue in office-. Provided, that if any of the directors shall object to the declaring of such dividend, or to the payment of the same, and shall, at any time before the time fixed for the payment thereof, file a certificate of their objections, in writing, with the clerk of the corporation and with the circuit clerk of the county they shall be exempt from the said liability.”
*517Independently of this statute, which gives creditors an additional security against directors, it is a fundamental rule that dividends can be paid only out of profits or the net'increase of the capital of a corporation and can not be drawn upon the capital contributed by the shareholders for the purpose of carrying on the company’s business.
Neither the directors of a corporation, nor even the majority of the stockholders, have any authority to diminish the prescribed capital of the corporation by distributing a portion of it among the shareholders in the shape of dividends, for this would be a fraud upon creditors contracting with it on the faith of its capital stock.
Wood v. Dummer, 3 Mason 308-311, was a suit in equity brought by the unpaid creditors of a bank against the shareholders thereof upon the ground that the bank, while insolvent, had divided three-fourths of its capital stock amongst the defendants, leaving the plaintiff’s debt unpaid. Justice Story ruled that the defendants were liable to refund so much of the assets received by them' as was necessary to pay creditors, saying, “If the capital stock is a trust fund, then it may be followed by the creditors into the hands of any persons having notice of the trust attaching to it. As to the stockholders themselves, there can be no pretense to say, that both in law and in fact, they are not affected with the most ample notice.” [2 Morawetz on Corp., sec. 790; Bank v. Douglass, 1 McCrary 86.]
Dividends can only be properly declared from the profits over and above the capital stock and the debts. of the company. [Barry v. Exchange Co., 1 Sandf. Ch. 307; Williams v. Western U. Tel. Co., 93 N. Y. 162.]
.Now, the capital stock of the Real Estate Investment Company was one hundred thousand dollars, of which only twenty-six thousand dollars was paid into the treasury, though the stockholders and incorporators certified the whole amount was paid into the treasury and was in the custody of its directors. The trial court *518had no difficulty in finding that as a fact only $26,000’ was ever paid in, and that was invested in the 160 acres, of land bought from Captain Jones.
•Knowing absolutely that they never had paid up-the capital stock, but owed $74,000 of it, the evidence is absolutely conclusive' that when this company had sold (principally on credit, as Hubbell, the manager at that time, says they got “very little cash”) about 180 lots for about $300 a lot or $54,000 in all, and when it was wholly problematical what amount of money they would realize out of these sales, and the sequel shows they did not receive over half of that sum .at any time in actual cash for these lots, these directors proceeded to distribute the proceeds of these sale notes • as dividends to the amount of $26,000 and had the corporation guarantee their payment. By no system of bookkeeping could this $26,000 be said to be profits under the facts brought to light on the trial.
Not-only was it not in excess of the capital stock of $100,000 but if it had been added to the $26,000 paid in, it would only have swollen the' whole assets to $52,-000, making no deduction for the corresponding diminution of the actual capital which was all invested in the lots, of which 180 were sold to .produce the $26,000 ^in dividends.-
This action of the directors in thus diminishing the capital stock was in defiance of the law of corporations.
While a corporation may with “the consent of its stockholders on proper notice reduce its capital stock, ’ ’ it is not pretended that the capital stock of this corpora-ton was reduced after due notice as required by the statutes of this State. The result, however, was reached by the distribution of these sale notes and their proceeds which were but another form in which the capital of the corporation was invested.
It is contrary to fundamental principles- to permit shareholders to distribute the capital of a corporation among themselves. But this was exactly what was attempted by the directors and managers of this company under the guise of dividends, and that, too,- when *519each of the stockholders was "indebted to the corporation in the sum of $7,100 on their unpaid liability, and the illegality becomes more pronounced when we consider that they, did not in fact have the money but merely the promises of the purchasers to pay, and to insure the stockholders getting the money the directors indorsed these notes in the name of the corporation and thus compelling it when the purchasers defaulted to further deplete the capital by incurring debts to make good these unauthorized conversions of its capital.
It was these notes which the defendants Ambrose and Hobart signed,' and thus and in this way they assert the company became indebted to them and that they are entitled to offset that indebtedness against a judgment creditor who had no notice of their methods of business.
In our opinion a debt thus created, however equitable it might be as to the shareholders who took their share of the capital with full knowledge of the scheme, is not such a claim against the company as can be offset against a judgment creditor. To permit it would sanction the distribution of the whole capital among the directors and stockholders at the expense of the creditors who have a right to look to the capital stock and assets of the company to satisfy their claims.
While it must be conceded that the exact amount of the notes which were sold and guaranteed as dividends and which subsequently fell back on the company and were paid by it by borrowing money with the indorsement of the directors is not specifically established, this is no fault of plaintiff, as he was diligent in his endeavor to throw all the light obtainable on the transactions, but was prevented by the intentional suppression of the books, and the burden was not on him but on the defendants Hobart and the administrator of Ambrose who pleaded the set-offs of debts which they alleged they held against the company. In the creation of the five deeds of trust which swept away the great bulk of. the unincumbered lots, they had *520tlieir private interest at stake to protect their indorsements which seem to have been voluntarily made by them, and in such cases their acts are subject to the most rigorous scrutiny. [Hill v. Rich Hill Co., 119 Mo. 9, and cases cited.]
The trust relation which they bore to the corporation requires courts of equity to subject the preferences which they take to themselves to the most searching scrutiny and places upon defendants the burden of showing beyond question that they held bona fide, honest and just claims against the corporation which can be allowed as set-offs. [Schufeldt v. Smith, 131 Mo. 290.]
Prima facie they are fraudulent as against the creditors, and they are in no attitude to complain that plaintiff has not made that absolutely clear and certain which they had the opportunity and means of showing, but which they failed to show and even declined to testify. The mere production of notes executed and indorsed'by themselves falls far short of that proof which a court of equity requires to overcome the presumption of fraud. The plaintiff showed that a large part at least was tainted with an illegal conversion of the capital to which he had a right to look, and where a part is fraudulent the whole may well be presumed to be in the absence of a full explanation.
The trial court properly found that in the absence of these set-offs, Hobart and Ambrose’s estate each was indebted to the amount of $7,400 on their unpaid liability on their stock subscriptions, and while it found they had paid more than this balance, subsequently, it did not find that these payments were for honest, just, bona fide debts of the corporation, which would have sustained their preferences and constituted valid set-'offs, and as this appeal is on the equity side of the court we are not bound by the conclusion reached by the circuit court.
In our opinion it erred upon the facts proven in not rendering judgment against Hobart and the estate of Ambrose that they were liable each for the unpaid *521balance of $7,400 on their stock, and that plaintiff was •entitled to have his judgment satisfied out of said liabilities as well as against the other stockholders defendants, and the judgment is reversed with directions to so enter the decree.
All, concur.