Assumpsit by an assignee in bankruptcy of an insurance company
against the holder of shares of its stock to enforce the collection
of the balance due thereon, the same not having been paid pursuant
to the order of the court sitting in bankruptcy. Plea,
non
assumpsit.
Held:
1. That the plea admits the existence of the corporation, and
that the state alone can raise the question whether the corporate
stock had been properly increased.
2. That the transferee of stock, who caused the transfer to be
made to himself on the books of the corporation, although he holds
it as collateral security for a debt of his transferror, is liable
for such balance to such assignee.
This was assumpsit by Clark W. Upton, assignee in bankruptcy of
the Great Western Insurance Company, against Albert B. Pullman, a
stockholder in said company, to recover the balance remaining
unpaid upon his stock.
The capital stock of the company was originally $100,000, and it
was, Aug. 22, 1870, by the alleged consent and action of the
stockholders, increased to $5,000,000. The company sustained heavy
losses by the fire at Chicago, on the 8th and 9th of October, 1871,
and it was duly adjudicated a bankrupt Feb. 6, 1872, and Upton was
appointed its assignee. The court in which the proceedings in
bankruptcy were pending ordered, July 7, 1872, that the entire
amount unpaid on the capital stock of the company be paid to the
assignee on or before the 15th of August then next ensuing, and
that, in default of payment, the assignee proceed to collect the
same. Conformably to the directions of the court, notice of this
order was given to the stockholders.
One Myers owned twenty-five shares of the stock, of $100 each,
whereon twenty percent had been paid, and, being indebted to
Pullman, assigned them to him, in the summer of 1871, as collateral
security. Pullman, on the 7th of the following October, caused them
to be transferred to him on the books of the company, and he then
surrendered the old certificate and took a new one for the same
number of shares.
On the trial, Upton offered, and the court admitted in evidence,
certain papers, to the admission of which Pullman objected on
Page 96 U. S. 329
the ground that each of them was immaterial. The court having
admitted said order directing the payment of the balance due upon
the stock, Pullman offered to prove that a less assessment would
have sufficed to cover the losses of the company. To the rejection
of said offer and to the overruling his objection to each paper so
admitted he in due time excepted. Judgment having been rendered
against him by the district court, which was affirmed in the
circuit court, he sued out this writ, and assigns for error the
rulings of the district court, upon his objection to the offered
evidence, as follows:
The district court erred in admitting in evidence (1) the
pamphlet copy of the charter of said company; (2) the certified
copy of the proceedings for increase of the capital stock of said
company; (3) the certified copy of the amended charter of said
company, and the certified copy of the report of said company,
dated December, 1870, and the license of said company to do
business, and the auditor's report of the examination of the
affairs of said company; (4) the order of said district court in
bankruptcy making an assessment on the stock of said company; (5)
the notice to Pullman of said assessment.
MR. JUSTICE STRONG delivered the opinion of the Court.
The evidence to which the defendant below objected and to the
admission of which he took exception was quite unimportant. Its
object was to prove the existence of the corporation and the
increase of the corporate stock. But the existence of the
corporation was admitted by the defendant's plea of
non
assumpsit, and whether the corporate stock had been properly
increased was a question the state only could raise. It is well
settled that in a suit by a corporation, a plea of the general
issue admits the competency of the plaintiff to sue as such.
The Society for the
Propagation of the Gospel v. The Town of Pawlet, 4
Pet. 480. The first three assignments of error may therefore be
dismissed without further consideration.
That the fourth and fifth assignments are without merit plainly
appears in the report of
Sanger v. Upton, 91 U. S.
56, where a similar order and notice to the stockholders
was held
Page 96 U. S. 330
not merely sufficient, but conclusive as to the right of the
assignee to bring suit to enforce the payment of unpaid balances
due for the corporate stock.
The only question remaining is whether an assignee of corporate
stock who has caused it to be transferred to himself on the books
of the company and holds it as collateral security for a debt due
from his assignor is liable for unpaid balances thereon to the
company, or to the creditors of the company, after it has become
bankrupt.
That the original holders and the transferees of the stock are
thus liable we held in
Upton v. Trebilcock, 91 U. S.
45,
Sanger v. Upton, 91 U. S.
56, and
Webster v. Upton, 91 U. S.
65, and the reasons that controlled our judgment in
those cases are of equal force in the present. The creditors of the
bankrupt company are entitled to the whole capital of the bankrupt,
as a fund for the payment of the debts due them. This they cannot
have if the transferee of the shares is not responsible for
whatever remains unpaid upon his shares, for by the transfer on the
books of the corporation, the former owner is discharged. It makes
no difference that the legal owner -- that is, the one in whose
name the stock stands on the books of the corporation -- is in fact
only, as between himself and his debtor, a holder for security of
the debt, or even that he has no beneficial interest therein. This
was ruled in
The Newry &c. Railway Co. v. Moss, 14
Beav. 64. In that case it was said that only those persons who
appear to be shareholders on the register of the company are liable
to pay calls. In
Re Phoenix Life Insurance Co., Hoare's
Case, 2 John. & H. 229, it appeared that certain shares
had been settled upon Hoare and others as trustees in a marriage
settlement. The trustees had no beneficial interest, but they were
registered as shareholders, and the word "trustees" added in the
margin of the register, and they receipted for dividends as
trustees. It was held by Vice-Chancellor Wood that they were liable
as contributories to the full extent, and not merely to the extent
of the trust estate. It was said, "A person who is a shareholder is
absolutely liable, although he may be bound to apply the proceeds
of the shares upon a trust." In
The Empire City Bank, 8
Abb. (N.Y.) Pr. 192, reported also in 18 N.Y. 200, the Court of
Appeals held persons responsible as
Page 96 U. S. 331
stockholders in respect to the stock standing in their names on
the books of the bank, though they held the stock only by way of
hypothecation as collateral security for money loaned, and they
were held liable for an amount equal to their stock for the
unsatisfied debts of the bank. In
Adderly v. Storm, 6 Hill
(N.Y.) 624, it appeared that one Bush, in 1837, being indebted to
the defendants, transferred to them, on the books of a company,
certain shares of stock and delivered to them the usual
certificates. On receiving the certificates, the defendants gave
Bush a receipt, stating they had received the stock, which they
were to dispose of at any time for $200 per share, applying the
proceeds to the payment of the notes which Bush owed them, or, if
not sold when the notes should be paid, to return the scrip to
Bush, or account for it. The last of the notes was paid in
September, 1838, and the defendants returned the scrip to Bush,
giving also a power of attorney for the transfer of the stock. The
retransfer was not made, however, until March 2, 1840, and the
defendants were held liable, as stockholders, for a debt of the
company contracted in January, 1840, and this, it was said, would
be the law though the plaintiff may not have known at the time he
trusted the company that the defendants could be reached. So, in
Holyoke Bank v. Burnham, 11 Cush. (Mass.) 183, it was
decided that a transfer of stock on the books of the bank, intended
merely to be held so collateral security, makes the holder liable
for the bank debts. It was said the creditor is to be considered
the absolute owner, and that his arrangement with his debtor cannot
change the character of the ownership. And in
Wheelock v.
Kost, 77 Ill. 296, the doctrine was asserted that when shares
of stock in a banking corporation have been hypothecated and placed
in the hands of the transferee, he will be subjected to all the
liabilities of ordinary owners, for the reason that the property is
in his name, and the legal ownership appears to be in him.
These decisions are sufficient to vindicate the judgment of the
court below. The case of the plaintiff in error is a hard one, but
he cannot be relieved consistently with due observance of well
established law.
Judgment affirmed.
