1. The doctrine announced in
Upton v. Tribilcock,
supra, that the original holders of the stock of a corporation
are liable for the unpaid balances at the suit of its assignee in
bankruptcy, without any express promise to pay, reaffirmed.
2. The transferee of stock is liable for calls made after he has
been accepted by the company as a stockholder and his name
registered on the stock books as a corporator, and being thus
liable, there is an implied promise that he will pay calls made
upon such stock while he continues its owner.
3. A purchase of stock is of itself authority to the vendor to
make a legal transfer thereof to the vendee on the books of the
company.
The facts are stated in the opinion of the Court.
MR. JUSTICE STRONG delivered the opinion of the Court.
The Great Western Insurance Company, of which the plaintiff
below is the assignee in bankruptcy, was incorporated under the
laws of Illinois in 1857, with general power to insure all kinds of
property against both fire and marine losses. Subsequently to its
organization, its capital was increased to more than $1,000,000,
and it was authorized by law further to increase its capital to
$5,000,000. It does not appear, however, from the record that of
the stock subscribed more than about $222,000 was ever paid in -- a
sum equal to nearly twenty percent of the par value -- leaving over
$965,000 of subscribed capital unpaid. In this condition, the
company went into bankruptcy in 1872, owing a very large sum, equal
to if not greater than its entire subscribed capital, and Clark W.
Upton, the plaintiff, became the assignee. The district court then
directed a call to be made for the eighty percent remaining unpaid
of the capital stock. A call was accordingly made and, payments
having been neglected, the assignee brought this suit against the
defendant, averring that he was the holder of one hundred shares,
of the par value of one hundred dollars each, and, as such,
responsible for the
Page 91 U. S. 66
eighty percent unpaid. On the trial, evidence was given tending
to show that one Hale was the owner of a large amount of the stock
of the company, for which he held the company's certificates, and
that he had, through his brother, sold one hundred shares to the
defendant, on which twenty percent had been paid. The books of the
company had been destroyed in the great fire in Chicago in 1871,
but there was evidence tending to show that the defendant's name
was on the stock ledger, and that the defendant transferred, or
caused the stock bought from Hale to be transferred to himself on
the books of the company. The district judge submitted to the jury
to find whether the defendant actually thus became a stockholder,
recognized as such on the books of the company, instructing them
that if he did, he was liable for the eighty percent unpaid as if
he had been an original subscriber. A verdict and judgment having
been recovered by the plaintiff, the case was removed by writ of
error to the circuit court, where the judgment was affirmed, and
the judgment of affirmance we are now called upon to review.
The leading assignment of error here is that the court below
erroneously ruled that an assignee of stock, or of a certificate of
stock, in an insurance company is liable for future calls or
assessments without an agreement or promise to pay. This, however,
is not a fair statement of what the court did rule. The court
instructed the jury, in effect, that the transferee of stock on the
books of an insurance company, on which only twenty percent of its
nominal value has been paid, is liable for calls for the unpaid
portion made during his ownership without proof of any express
promise by him to pay such calls. This instruction, we think, was
entirely correct. The capital stock of an insurance company, like
that of any other business corporation, is a trust fund for the
protection of its creditors or those who deal with it. Neither the
stockholders nor their agents the directors can rightfully withhold
any portion of the stock from the reach of those who have lawful
claims against the company. And the stock thus held in trust is the
whole stock, not merely that percentage of it which has been called
in and paid. This has been decided so often that it has become a
familiar doctrine. But what is it worth if there is
Page 91 U. S. 67
no legal liability resting on the stockholders to pay the unpaid
portion of their shares unless they have expressly promised to pay
it? Stockholders become such in several ways -- either by original
subscription or by assignment of prior holders or by direct
purchase from the company. An express promise is almost unknown
except in the case of an original subscription, and oftener than
otherwise it is not made in that. The subscriber merely agrees to
take stock. He does not expressly promise to pay for it.
Practically, then, unless the ownership of such stock carries with
it the legal duty of paying all legitimate calls made during the
continuance of the ownership, the fund held in trust for creditors
is only that portion of each share which was paid prior to the
organization of the company -- in many cases, not more than five
percent, in the present only twenty. Then the company commences
business and incurs obligations, representing all the while to
those who deal with it that its capital is the amount of stock
taken, when in truth the fund which is held in trust for creditors
is only that part of the stock which has been actually paid in.
This cannot be. If it is, very many corporations make fraudulent
representations daily to those who give them credit. The Great
Western Insurance Company reported to the auditor of public
accounts, as required by law, that the amount of its capital stock
outstanding (par value of shares $100 each) was $1,188,000, that
the amount of paid-up capital stock was $222,831.42, and that the
amount of subscribed capital for which the subscribers or holders
were liable was $965,168.58. This report was made on the 10th of
January, 1871. Thus those who effected insurances with the company
were assured that over one million of dollars were held as a trust
fund to secure the company's payment of their policies. But if the
subscribers and holders of the shares are not liable for the more
than eighty percent unpaid, the representation was untrue. Persons
assured have less than one-fifth the security that was promised
them. This is not what the statutes authorizing the incorporation
of the company contemplated. The stock was required to be not less
than a given amount, though the company was authorized to commence
business when five percent of that amount was paid in. Why fix a
minimum amount of stock if all of it was not
Page 91 U. S. 68
intended to be a security for those who obtained insurance?
There is no conceivable reason for such a requirement unless it be
either to provide for the creditors a capital sufficient for their
security or to secure the stockholders themselves against the
consequences of an inadequate capital. The plain object of the
statute, therefore, would be defeated if there is no liability of
the stockholder to pay the full prescribed amount of each share of
his stock. With this plain object of the legislature in view, it
must be assumed, after the verdict of the jury, the defendant
voluntarily became a stockholder. Either he must have designed to
defeat the legislative intent or he must have consented to carry it
out. The former is not to be presumed, and if the latter was the
fact, coming as he did into privity with the company, there is a
necessary implication that he undertook to complete the payment of
all that was unpaid of the shares he held whenever it should be
demanded. To constitute a promise binding in law, no form of words
is necessary. An implied promise is proved by circumstantial
evidence -- by proof of circumstances that show the party intended
to assume an obligation. A party may assume an obligation by
putting himself into a position which requires the performance of
duties.
What we have said thus far is applicable to the case of an
original subscriber to the stock, and equally to a transferee of
the stock who has become such by transfer on the books of the
company. There are, it is true, decisions of highly respectable
courts to be found in which it was held that even a subscriber to
the capital stock of an incorporated company is not personally
liable for calls unless he has expressly promised to pay them or
unless the Act of incorporation or some statute declares that he
shall pay them. Such was the decision of a supreme court of New
York in
Fort Edward & Fort Miller Plank Road Company v.
Payne, 17 Barb. 567. A similar ruling was made in
Kennebec
& Portland Railroad Company v. Kendall, 31 Me. 470. A like
ruling has also been made in Massachusetts. In most if not all of
these cases, it appeared that the law authorizing the incorporation
of the companies had provided a remedy for nonpayment of calls or
assessments of the unpaid portions of the stock taken. The company
was authorized to
Page 91 U. S. 69
declare forfeited or to sell the stock for default of the
stockholder, and, the law having given such a remedy, it was held
to be exclusive of any other. Yet in them all it was conceded, that
if the statute had declared the calls or assessments should be
paid, an action of assumpsit might be maintained against the
original stockholder on a promise to pay, implied only from the
legislative intent. Surely the legislative intent that the full
value of the stock authorized and required to be subscribed -- in
other words, the entire capital -- shall be in fact paid in when
required -- that it shall be real, and not merely nominal -- is
plain enough when the authority to exist as a corporation and to do
business is given on condition that the capital subscribed shall
not be less than a specified sum. A requisition that the subscribed
stock shall not be less than one million of dollars would be idle
if the subscribers need pay only a first installment on their
subscriptions -- for example, five percent. Manifestly that would
not be what the law intended, and if its intent was that the whole
capital might be called in, it is difficult to see why a
subscriber, knowing that intent and voluntarily becoming a
subscriber, does not impliedly engage to pay in full for his shares
when payment is required. It is, however, unnecessary to discuss
this question further, for it is settled by the judgment of this
Court. In
Upton v. Tribilcock, supra, 91
U. S. 45, we ruled that the original holders of the
stock are liable for the unpaid balances at the suit of the
assignee in bankruptcy, and that without any express promise to
pay. The bankrupt corporation in that case was the same as in
this.
But if the law implies a promise by the original holders or
subscribers to pay the full par value when it may be called, it
follows that an assignee of the stock, when he has come into
privity with the company by having stock transferred to him on the
company's books, is equally liable. The same reasons exist for
implying a promise by him as exist for raising up a promise by his
assignor. And such is the law as laid down by the text writers
generally, and by many decisions of the courts.
Bond v.
Susquehanna Bridge, 6 Har. & J. 128;
Hall v. United
States Insurance Company, 5 Gill 484;
Railroad Company v.
Boorman, 12 Conn. 530;
Haddersfield Canal Company v.
Buckley, 7 T. M. 36. There are a very few cases, it
Page 91 U. S. 70
must be admitted, in which it has been held that the purchaser
of stock, partially paid, is not liable for calls made after his
purchase. Those to which we have been referred are
Canal
Company v. Sansom, 1 Binn. 70, where the question seems hardly
to have been considered, the claim upon the transferee having been
abandoned, and
Palmer v. Ridge Mining Company, 34 Penn.St.
288, which is rested upon
Sansom's Case, and upon the fact
that by the charter the company was authorized to forfeit the stock
for nonpayment of calls. We are also referred to
Seymour v.
Sturgess, 26 N.Y. 134, the circumstances of which were very
peculiar. In neither of these cases was it brought to the attention
of the court that the stock was a trust fund held for the
protection of creditors in the first instance, a fund no part of
which either the company or its stockholders was at liberty to
withhold. They do not, we think, assert the doctrine which is
generally accepted. In Angell and Ames on Corporations, sec. 534,
it is said:
"When an original subscriber to the stock of an incorporated
company, who is so bound to pay the installments on his
subscription from time to time as they are called in by the
company, transfers his stock to another person, such other person
is substituted not only to the rights, but to the obligations, of
the original subscriber, and he is bound to pay up the installments
called for after the transfer to him. The liability to pay the
installments is shifted from the outgoing to the incoming
shareholder. A privity is created between the two by the assignment
of the one and the acceptance of the other, and also between them
and the corporation, for it would be absurd to say upon general
reasoning that if the original subscribers have the power of
assigning their shares, they should, after disposing of them, be
liable to the burdens which are thrown upon the owners of the
stock."
So in Redfield on Railways 53, it is said the cases agree that
whenever the name of the vendee of shares is transferred to the
register of shareholders, the vendor is exonerated, and the vendee
becomes liable for calls. We think, therefore, the transferee of
stock in an incorporated company is liable for calls made after he
has been accepted by the company as a stockholder, and his name has
been registered on the stock books as a corporator, and, being thus
liable, there is an implied promise that he will pay calls made
while he continues the owner.
Page 91 U. S. 71
All the cases agree that creditors of a corporation may compel
payment of the stock subscribed so far as it is necessary for the
satisfaction of the debts due by the company. This results from the
fact that the whole subscribed capital is a trust fund for the
payment of creditors when the company becomes insolvent. From this
it is a legitimate deduction that the stock cannot be released --
that is, that the liabilities of the stockholders cannot be
discharged by the company to the injury of creditors without
payment. The fact, therefore, that in this case the certificate of
stock taken by the defendant below was marked "nonassessable" is of
no importance. The suit is brought by the assignee in bankruptcy,
who represents creditors, and as against him the company had no
right to release the holders of the stock from the payment of the
eighty percent unpaid.
The second assignment of error and the third are in substance
that the court should not have admitted in evidence the order of
the district court directing a call by the assignee of the unpaid
balance of the stock, and should not have ruled that the call made
under the order was effective to make the liability of the
defendant complete. That these assignments cannot be sustained was
decided in
Sanger v. Upton, supra, p.
91
U. S. 56 -- a case before us at this term. Nothing more
need be said in reference to them.
The last assignment of anything that can be assigned for error
is that the court charged the jury as follows:
"The only question is was the defendant a stockholder of the
company? If the testimony satisfies you that the defendant
purchased of Hale one hundred shares of this stock and that it was
transferred in the books of the company either by Webster, the
defendant, or by Hale, who sold the stock, or by the direction of
either of them, then the defendant is liable the same as if he had
subscribed for the stock."
The objection urged against this is that a transfer on the books
directed by Hale after the purchase by Webster could not affect the
latter's liability. But if Webster became the purchaser, it was his
vendor's duty to make the transfer to him where only a legal
transfer could be made -- namely on the books of the company -- and
the purchase was in itself authority to the vendor to make the
transfer.
Page 91 U. S. 72
Still further, it was Webster's duty to have the legal transfer
made to relieve the vendor from liability to future calls. A court
of equity will compel a transferee of stock to record the transfer,
and to pay all calls after the transfer. 3 De G. & Sm.Ch. 310.
If so, it is clear that the vendor may himself request the transfer
to be made and that, when it is made at his request, the buyer
becomes responsible for subsequent calls. This, however, does not
interfere with the right of one who appears to be a stockholder on
the books of a company to show that his name appears on the books
without right and without his authority.
The judgment of the circuit court is affirmed.