IN
:am
SOUTH MOUNTAIN CONSOLIDATED MINING
co.
403
It follows, then, as a· necessary consequence, that the tra.nsaction between the Hazzards (the guara.ntors) and the plaintiff (the bank) cannot be upheld under the commercial law, so as to deprive the defendants of the defence pleaded in this suit. The "transfer and guaranty of collection,j oper': ate as an a18ignment only of the note. As sueh it .is undoubtedly good, but it carries with it no greater or higher obligation. At common law, choses in action were not assignable. Not so now, however. Now they may be assigned so as to enable an assignee to sue thereon in his own name, but the right of defence is still maintained, and any defence that. could have been made in a suit between the original parties to the transaction can still be made in a suit brought -by an assignee. For these reasons I most hold that the defendants had the right to defend against the note for want of· consideration, and that the verdlct of the jury is right and proper and must not be disturbed, even if the errors complained of were actually committed by the court· .See Trust 00. v. Nat. Bank, 101 U. S. 68; Lamourieu:r; v. Hewitt, {) Wend. 307; Miller v. Gaston, 2 Hill, 188. .
In
re SOUTH MOUNTAIN CONSOLIDA.TED MINING Co.,
Bankrupt.
(District Court, D. California.
January 10, 1881.)
former owners of the mining property as had been previously agreed' upon, and reserved the remainder for working capital and future sale; but no subscription paper, memora.ndum of association, deed of settlement, or other document creating, ei expressly or impliedly, any her ex eontractu obligation to take and pay fox. at their nominal par valu.e. any shares of the stock, was sig':ltd by any of the shareholders. Held,_ that such incurred no liability em ccmtract'U, either express or implied. to pay in, either for the prOBecution of the enterprise or the payment of the debts of the complUlY. the nominal par value of their shares.
--
FEDERAL REPORTER. 2. SAME-ASSESSSMENT OF' STOCK-SALE OF' SHARES.
Held, fU'1'ther, that unless ,such stockholders had subscribed for stock, or were the successors of, such subscribers, assessments levied them could only be enforced by the sale of their shares.
3.
DELINQUENT STOCK-PERSONAL LIABILITY OB' SHAREHOLDER OB' CIV. PROC. OF CAL. § 349.
CODE
Section 349 of the Code of Civil Procedure of the state of California, relating to the sale of delinquent stock, provides that "on the day specified for declaring the stock delinquent, or at any time subsequent thereto and before the sale of the delinquent stock, the board of di·· rectors may elect to waive further proceedings under this chapter for the collection of delinquent assessments, or any part or portion thereof, and may elect to proceed by action to recover tke amount of the assessment, and the costs and expenses already incurred, 01' any part or portion thereof." Held, that this section did not create any personal liability for assessments, unless from the terms of the stockholder's subscription such liability was incurred. 4. STOCKHOLDER-LIMITATION OF P:ERSONAL LIABILITY PROC. OF CAL. § CoDE OB' CIV.
322. By sectiou322 of the Code of Civil Procedure of the state of California, as amended March 15, 1876, the individual'liability of a stockholder of a corporation is limited to such proportion of its debts and liabilities as the amount of stock or shares owned by him bears to the whole stock of the corporation; and, on payment of h,is propprtionof any debt due from the corporation, incurred while he was' a stockholder, he is relieved from any further personal liability for such debt. Held, that the remedy of a creditor against a stockholder personally is limited by this section of the Code, and cannot be extended beyond the limits therein prescribed.
}.Application for leave of on shareholders of stock of So mining corporation. James A. Waymire, for cred\tors. McAllister If Bergin, for William Willis. HOFFMAN, D.]. At the request of counsel! indicate the grounds for the denial of the application heretofore made to order an assessment to be levied on the shareholders of the above corporation. The assessment is asked for with the object of collecting the Sl\me by suits in personam against delinquent shareholders. The question whether they are personally liable must, therefore, fiFst l>e determined. I do not question the power of the court to compel contribution of unpaid subscriptions to the capital stock of an insolvent corporation for the purpose of paying its debts. Upton v. Tribil-
IN BE SOUTH MOUNTAiN CO'NSOLIDAl'ED MINING CO.
405
cock, 91U: S. 48; Sanger v. Upton,ld. 60; Chubb v. Upton, 95 U. S. 665; Pullman v. Upton, 96 U. S. 328; .Turnbull v. Payson, 95 U. S. 420; Bank v. Case, 99U. S. 528; Hatch v. Dana, 101 U. S. 205. Nor do I deny that a promise to pay
for shares of stock wHlbe implied from the fact of subscribing for them. Spear v. Crawford, 14 Wend. 20; H. «N. H. R. Co. v. Kennedy, 12 Conn. 499; Fry v. L. « B. S. R. Co. 2 Metc. (Ky.) 314; Klein v. A. «S. R. Co. 13 Ill. 514; Banet v. A. «S. R. Co. ld. 504. And the acceptance and holding of a certificate of stock will have the same effect. Upton Tribilcock, 91 U. S. 48; Sanger v. Upton, ld. 60. Nor is it neces· sory to create a liability as stockholder that a certificate shall have been ililsued. Chaffin v. Oummings, 37 Me. 76; Chase v. Merrimack Bank, 19 Pick 564; Silver v. Magruder, 32Md: 393; Burr v. Wilcox, 22 N. Y. 551; Chester Gla.ss Co. v. Dewey, 16 Mass. 94. Payment of assessments will estop an unregistered transferee of shares' from denying his liability as a shareholder. Serving as director, or voting at stock.! holders' meetings, will'have the same effect. Frost. v. Walker;' 60 Me. 468; M. «T.R.Co. v. Harris, 36 Miss. 17; Gaff v. P. « S. R. Co. 81 Pa. 'St. 489; Hays v. P. ;;t S. R. Co. 38 Pii.' St. 81; Harrison v. iIe"athorn, 6 Man. & Gr. 81. The acceptance of an assignment of a certificate ill blank wHl· fix the liability as stockholder. Upton v. Burnham, 3 Biss. 524. If a subscription be obtained by fraud, it must diated. Upton v. Tribilcock, 91 U. S. 45'; Chubb v. Upton, '95 U. S. 667. Nor will ignorance of the law relieve the stock. holder. Upton v. Tribilcock, 91 U. S. 45. Nor can poration release the stockholder from his liability, so far as creditors are concerned;· nor can it accept any other mode of payment than money, unless full value be given. Sanger v. Upton, 91 U. S. 60; Troy, T. « R. Co. v. McChesney, 21 Wend. 296; Lake Onto R. Co. v. Mason, 16 N. Y. 459. The fact that the company may forfeit and sell the shares of a delinquent stockholder does Mt impair the rights of a creditor against him. Ang. & Ames on Corp. §§ 549-50; Thompson on Liab. of Stockh. § 193, and cases cited. All these positions, which the counsel for petitioners have
!lOO maintained in their able .and elaborate brief, I concede. These apply to all cases where an obligation has been created or incurred on the part of the stock· holder to pay to the corpora,tiona certain sum, being the par value of the capital stock subscribed for or transferred to him. The liability thus created grows out of contract, express or implied, and the creditors of the corporation may avail themselves of it, as of any other chose in action or equitable assets of the corporation, on well-settled and familiar principles. . . But the question in this case is: Does the acceptance of stock in a mining corporation, as they are usually formed in this state, create any obligation, either by contract or under the law, to pay to the corporation or to its creditors the nominal par value of the stock so accepted? The mode in which mining companies are formed in this state is familiar to us all. The owners of the property, or ·persolls expecting to become such, by complying with a few simple formalities, form themselves, with such others as they may take into the association, into a corporation, to which the property is conveyed. The amount of the capital stock, which is required to be stated in the certificate of incorpora,tion, is usually fixed at a purely arbitrary sum, and divided into as many shares as convenience or caprice may dictate. It neither bears, nor is intended nor supposed by the public to bear, the slightest. relation to the real value of the property-a value nearly always conjectural, and very often imaginary. It has recently become the practice to divide the capital stock into 100,000 sp.ares of the value of $100 each, making $10,000,000 in all;. a sum which, it is apparent, can .have no reference to any e.;;timate of the real or intrinsic value of what is :usually a mere hole in the ground, to afford favorable indications. A striking proof of this is afforded in the present case. Among the first acts of the corporation was to place (in effect) 5,000 shares of their stock on the market at the price of one dollar per share. The organization having been effected and the property conveyed to the company, the stock is issued to the former owners, to the .amount which may have been pre-
IN BE SOUTH MOUNTAIN OONSOLIDATED MINING CO.
407
violisly agreed upon. The remainder is ing capital, or disposed of in the market for such prices as the value and prospects of the enterprise m:liy justify. The purchaser is, of course, carefUl to know into how many shares the stock is divided, but he is wholly regardless of the nominal and purely arbitrary p'ar value attributed to the shares. No sUbscription paper, memorandum of association, deed of settlement,or other document, creating either expressly or impliedly any ex contractu obligation to take and pay tor, at their nominal par value, any· shares of stock, is signed by any of the shlltreholders.. This general account of the mode of organizing mining companies in this state describes,'with sufficient accuracy, what was done in the case as bar.· The requirements of the statutes of this state with regard to mining corporations were strictlyoomplied with. I am hIe to perceive how any ex contractu obligation on thepattof the shareholders to take and pay for their stock was ci"eated. It may be confidently affirmed :that in no case of thiEldeaul'iption has such an obligation or liability to be created. It has on all hands. been supposed that the resource.s of liuch corporations were to be derived from the sale of reserved stock, or by levying:nsBessments, with the power of selling delinquent stock. Creaitors are protected by the personal liability of each.shareholder for his pro rata ahate of· the indebtedness of the corporation. It was urged on the part of the stockholders that the shn.ros held by them are to be treated as fully paid-up stock. ldo not concur in this suggestion. It might have some plausibil. ity in cases where aU the stock has been distributed among the owners of the mine in proportion to Bsts; but where stock has been reserved, and subsequently sold at perhaps one-hundredth part of its nominal par "Yalue, it call in no sense be called or treated as fully paid-up stock. But, even in the case of shares distributed among the mine owners, the view suggested seems to me inadmissible. It is a pure fiction; The mine owneredo not, in faot/agr.ee to taketnestock and pay for it ,atHs nominal ment to be made by conveying; the mining ground at &.
108
FEDERAL REPORTER.
tion extravagantly in excess of its real value. If they had really contracted any obligation to take and pay for the stock, they could not acquit themselves of it by such a device. ,Sanger v. Upton, 91 U. S. 60; 'Proy T. cf; ll. Co. v.McChesney, l:!1 Wend. 296; Lake Onto B. CO. V. Mason, 16 N. Y. 459; Wilson V. United Ins. Co. 14 John. 228; Goshen cf; M. Turnpk. CO. V. Hurtin, 9 John. 217. To call the stock fully paid up is to admit the obligation to take and pay for it, and to suppose that obligation to have been fulfilled in a mode the law will not permit. In m}' view no such obligation ex cpntractu was at any time created. If the liability to pay the nominal par value of the stock for the benefit of creditors exists, it must arise from the positive provisions of the statutes, and not from the contracts of the parties. This question I will now proceed to examine. The statutory provision by which this liability is supposed to be created is found in the 349th section of the Code of Civil Procedure. The previous sections of the article of the, Code contaiIl' detailed and minute provisions regulating the levying of assessments; then to the sale of delinquent stock. Section 349 provides that "on the day specified for declaring the stock delinquent, or at any time subsequent thereto and before the sale of the delinquent stock, the board ofdirectors may elect to waive further proceedings unGer this chapter, for the collection of delinquent assessments, or any j}art or portion thereof, and may elect to proceed by action to recover the amount oj the assessment and the costs and expenses alrea,dy incurred, or any part or portion thereoj."
It is this last Clause which is supposed to create a legal liability on the part of of the stockholders to pay assessments up to the par value of the stock, when necessary to satisfy the indebtedness of the corporation. But to this view there are grave, and, in my judgment, insuperable objections. 1. The statute does not, in terms, declare or create the liability. It merely authorizes the directors "to elect to proceed by, action to recover the amount of the assessments." Its language would be satisfied by restricting its operation to
IN RE SOUTH MOUNTAIN OONSOLIDATED MINING 00.
409
those cases where such an action can be maintained; that is, to those cases where stock has been subscribed for, and an obligation assumed to take and pay for it. In the. oase of railroad, telegraph, and wagon-road assooiations, the articles of incorporation are required to state that at least 10 per cent. of the oapital stook subsoribed has been paid in,' and no such corporation can be organized until subscriptions to its capital stook have been obtained in a specified amountfor each mile of the contemplated work, and 10 per cent. of this amount must be paid in before the articles are filed. Seotions 291, 292, 293, 294. By section 290, the artioles of inoorporation must set fortb -"First, - - -; sixth, the amount of the oapital stook and the number of shares into which it is divided; seventh, if there is capital stock, the amount aotually subscribed, and by whom." These provisions are retained in the latest amendments to the Code, 1880. The only meaning loan attach to them is that the legislature contemplated two classes of corporations, in both of which the amount of the so-called capital stock, and the number of shares into which it is divided, are required to be stated; but in only one of these classes the stook was supposed to be subscribed for, and an obligation inourred to take and pay for it. This latter class includes, as we have seen, railroad, wagon-road, and telegraph companies, and banking, insurance, and other associations based on capital paid in or agreed to be paid in. It is to this olass that the clause giving the directors the right to elect "to proceed by action to recover by action the amount of the assessment" must, in my judgment, be deemed to refer. 2. The argument of the learned counsel for the creditors admitted that the liability contended for was limited to an amount equal to the par value of the stock held by the stockholders, and that it could only be enforced for the benefit of {lreditors. But if the construction of section 349, contended for, be sound, I fail to perceive on what grounds this limitation or restriction can be imposed.
410
. FEDERAL·REPORTER.
Section 331 authorizes the directors of corporations to levy and collect assessments upon the capital stock for the purpose of paying expenses, c01!-ducting business, or paying debts. The statute nowhere limits the aggregate of assessments that may. be levied to the par value of the capital stock, and it bas boon held by the. United Sta.tes circuit court for this district that an assessment may be levied upon the full-paid shares of a subscriber to stock in a bank, and his shares sold out if the assessment is not paid. · Section 34·9 confers, as we have seen, the right to proceed by action to recover any delinquent. assessment; and if this power be not restricted, as 1 hlLvesuggested, to cases wherein the stockholder has, by express or implied contract, agreed to pay, it will extend to all eases of assessments levied to meet expellBes or conduct, business, as well as to pay debts, and may be exercised against a stockholder who has paid his subin full, or who has already been assessed up to the J:».U' value of his stock. Thisresulti startling and absurd as it is, seems to be the necessary consequence of the construction of section 349 contended for. 3. It will not be disputed that the ordinary rule which requires such a construction to be given to the provisions of a· statute as will make them consistent and harmonious should be applied to the provisions of our Code with regard to corporations. By section 322, as amended March 15,1876, the individual liability of a stockholder of a corporation is limited to such proportion of its debts and liabilities as the amount of stock or shares owned by him bears to the whole stock of the corporation; and, on payment of his proportion of any debt due from the corporation, incurred while he was a stockholder, he is relieved from any further personal liability for such debt. I am unable to reconcile these provisions with a construe' tion of section 349 whieh would give it the effect and operation contended for. The court is asked to order an assessment to be levied, in order that the assignee in bankruptcy, representing the cred-
IN BE SOUTH MOUNTAIN OONBOLIDATED MINING 00.
411
'itors, may collect by suit from the delinquent stockholders an amount sufficient to pa:Y'the debts of this corporation up to the limit of the par va:lue of the shares held by them. The section just referred to limits his petsonalliabil:'J for the corporate debts incurred 'while he is stockholder t6 such proportion of those debts as the number of shares owned by him bears to the whole numbers of shares of the capital stock. But, if he is personally liable on the assessment to be levied, he may be obliged, if he is the only solvent stockholder, to pay the whole amount of the indebtedness of the corporation, provided it does not exceed the fanciful and exaggerated par value mentioned in the articles. If, as in the case at bar, the whole, number of shares is 100,000; at $100 each, the stockholder who owns 1,000 shares is liable for one one-hundredth part of the debts. Lf the aggregate indebtedness is $100.000, he acquits himself of all personal liability by the payment of $1,000. ,But if he is liable to the amount of the par value of his stock, he ,may be compelled to pay $100,000. Will it be contended that a 'stockholder:who has paid his full proportion of the debts incurred he was a stockholder would still remain personally liable to pay any assessment that may be levied, and that such. a payment, which the statute declares shall relieve him from any further personalliability for such debts, and shall be a good defence in an action brought by a shall be unavailable in an action brought by an assignee in bankruptcy in he half of creditors to collect an assessment levied for the payment of debts? It seems to me that such a p1sition is' wholly untenable. I conclude, therefore: J?irst. That the stockholders of mining corporations,organized as the corporation in this case was formed, incurred no liability ex contractu, either express or implied, to pay in, either' for the prosecution of the enterprise or the payment of debt.s of the company, the nomi. nal par value of their shares. Second. That unless they have subscribed for stock, or are the successors of subscribers,
412
assessments levied on them can only be enforced by the sale of their shares. Third. That section 349 does not create, and any personal liability for assesswas not intended to ments, unless from the terms oftha stockholders' subscripFourth. That the remedy tion such liability was of the creditor against the stockholder personally is limited and defined by section 322 of the Code, and his liability cannot be extended beyond the lipritstherein prescribed.
UNITED STATES
v.
POOLE.
(District Court,D. Maine. December, 1880.) L FRAUDULENT CoNVEYANCE-SUBSEQUENT
LEVy-ALIAS
EXECU'rIOl'l'-
REv.
ST. OF MAINE,
c. 76; §f 17, 18.
The Revised Statutes of the state of Maine (c. 76, §f 17, 18) provide that" a creditor who has received seizin of a levy not recorded, cannot waive it-unless the estate was not the property of the deutor, or not liable to seizure on execution, or cannot be held by the levy, when it may be considered void, and he may resort to any other remedy for the satisfaction of his judgment," and that," when the execution has been recorded, and the estate levied on does not pass by the levy for causes named in the preceding section, the creditor may sue out of the office of the clerk issuing the execution a writ of scire facias, requiring the debtor to show cause why an alias execution should not be issued on the same judgment; and if the debtor, after being duly summoned, does not show sufficient cause, the levy may be set aside, and an alias execution issued for the amount then due on the judgment, unless during its pendency the debtor tenders in court a deed of release of the land levied on, and makes it appear that the land, at the time of the levy, was, and still is, his property, and pays the expenses of the levy, and the taxable costs of suit, and the jUdgment shall be satisfied for the.amount of the levy." Held, under these statuory provisions, that an execution debtor could not set up a conveyance, made prior to a levy, as fraudulent and void, in order to prevent such levy from being set aside and an ahas execution issued. 2. SAME-RELEASE SUBSEQUENT TO
LEVY.
Held, furth8r, that a subsequent release from the grantee to the grantor of such fraudulent conveyance did not enure to the support of the levy previously made. Freeman v. Thayer, 29 Me. 375.