Court Opinion

ID: 8827981
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:52:51.431551+00
Date Added: 2024-06-11T17:04:50.423839
License: Public Domain

GILBERT, Circuit Judge
(after stating the facts as above).  The appellees desired to obtain the agency to sell the lots which were laid out by the Syndicate. It was for that reason that they made their *964purchase of the lots and stock. They refused to purchase stock, but were willing to take the lots, together with the stock, on condition that they got clear title to both. The rule that the subscribed and unpaid stock of an insolvent corporation becomes a trust fund for the payment of the claims of creditors is not an inflexible one. It has its exceptions. It will not be applied in a case where the result will be inequitable. It will be relaxed where its operation would result in injustice. Clark v. Bever, 139 U. S. 113, 11 Sup. Ct. 468, 35 L. Ed. 88.
We think that the court below properly held that, as between the appellant and the appellees, the equities of the latter prevail. The appellant has reacquired title to nine-tenths of the real estate which it contracted to sell for $150,000, and it has received in addition thereto, as cash payments on the contract, $56,135.82, in which is included the $10,000 so paid by the appellees.- There can be no question under the evidence but that the stock was valueless, and that the fair value of the lots, at the time of the purchase thereof and ever since, was not more than one-half the sum which the appellees paid. That sum was paid for the reason, as all parties to the transaction knew, that under the trust agreement the trust company was forbidden to sell the lots for less than $1,000 each. The purchase was made for the purpose of contributing funds to pay the overdue installment of the purchase price of the tract. The appellant brought his suit on the theory that no payment had been made on account of the stock, and he demanded judgment in a sum equal to the par value of the stock.
It is obvious that the money so paid by the appellees was either the purchase price of the lots, or the purchase price of the stock, or it was both. If it was the purchase price of the stock, it results that thé stock was paid up, and there can be no demand on the appellees for unpaid subscription. If it was paid for the lots, and the stock was merely a bonus, then under the law of California there was no valid subscription of stock, and the subscription was void. Kellerman v. Maier, 116 Cal. 416, 48 Pac. 377.
The most that the appellant can claim is that, inasmuch as the sum so paid by the appellees for the lots and stock was twice the value of the lots, the consideration should be apportioned equally to the lots and stock, with the result that the appellant’s assignor received $5,000 for the lots and $5,000 for the stock. It is undisputed that the shares of stock were issued to the appellees as fully paid, and there remained nothing due thereon to the Syndicate. It_follows that the Syndicate, as between itself and the appellees, had no right of recourse against the latter. The appellant’s assignor at no time extended credit to the Syndicate, and consequently it extended no credit on the strength of the appellee’s subscription to the stock of the Syndicate. Such being -the case, under the settled rule of liability of stockholders as established by the Supreme Court of California, the appellees are absolved from liability to the appellant. In Rhode v. Dock-Hop Co., 184 Cal. 367, 194 Pac. 11, 12 A. L. R. 437, it was held that in such a case the stockholder is under no obligation to the corporation for unpaid subscription of stock, and that he is liable only to those creditors who have been defrauded by reason of the original transaction wherein the stock was *965issued for a fictitious consideration. See, also, Rickerson Roller-Mill Co. v. Farrell Foundry & Machine Co., 75 Fed. 554, 23 C. C. A. 302; Handley v. Stutz, 139 U. S. 417, 11 Sup. Ct. 530, 35 L. Ed. 227.
The proofs sustain the finding of the court below that there was no fraud upon the part of the appellees, or upon the part of the Syndicate, and there is nothing in the record to show that creditors of the Syndicate have been injured, or that they have suffered loss by reason of the issuance of the stock, or that the stock ever had any actual value, and there is nothing in the record to impugn the good faith of the appellees in acquiring title to the lots and stock as they did. Clark v. Bever, supra; Fogg v. Blair, 139 U. S. 118, 11 Sup. Ct. 476, 35 L. Ed. 104; Lucey Co. v. McMullen, 178 Cal. 425, 173 Pac. 1000.
The decree is affirmed.