LOTUS N. SOUTHWORTH, as Trustee of the REMINGTON AUTOMOBILE AND MOTOR COMPANY, Bankrupt, Respondent,
ANDREW D. MORGAN, Appellant.
APPEAL by the defendant, Andrew D. Morgan, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Oneida on the 20th day of July, 1910, upon the decision of the court rendered after a trial at the Oneida Special Term.
Howard C. Wiggins and Andrew D. Morgan, for the appellant.
L. N. Southworth and George E. Dennison, for the respondent.
The action is to recover the balance unpaid on two shares of capital stock held by the defendant in the Remington Automobile and Motor Company. Said corporation was organized in pursuance of the laws of the State of New Jersey, with an authorized capital stock of 2,500 shares of the par value of $100 each. In the fall of 1900 the defendant entered into an agreement whereby he agreed to take two shares of such stock, and the certificate therefor was duly delivered to him on the 20th of September, 1900, he paying therefor $50, and no other sum has since been paid.
The defendant resides at Ilion, in this State. The officers of the
corporation were endeavoring to locate its plant, and were interesting the citizens of Ilion in order that the business might be conducted in that village. With this purpose in view, on the 11th day of September, 1900, the following resolution was passed by the directors of said company: ' Resolved, that for the purpose of securing a local interest in the Remington Automobile & Motor Company on the part of the citizens of Ilion, that 200 shares of the stock be issued to be sold at $25.00 per share, and that the proceeds of such sale be placed in the treasury to be used for regular expenses.'
In pursuance of this resolution the shares of the capital stock of the par value of $100 each were offered for sale to residents of Ilion at $25 per share; and ninety-two shares were sold at that price, and the defendant purchased relying upon this resolution. A subscription was also started contemporaneously with the selling of this stock by which the citizens were to subscribe a certain sum as a bonus to induce the location of the plant of said company in said village. Apparently the officers of the company were looking up other places which they deemed suitable for the location of their plant, and finally in the spring of 1901 it was located in the city of Utica.
On the sixth of November the directors passed a resolution rescinding the resolution previously quoted for the issuance of 200 shares of stock, and providing that 'no further issue of such block of stock be made, except that which has already been subscribed for.' The business proved to be a failure, and on the 13th of December, 1902, the corporation was adjudged a bankrupt, and shortly thereafter the plaintiff was duly appointed the trustee of said company by the United States District Court. The assets were insufficient to pay the claims of the creditors, and an application was made by the trustee to said court for leave to demand and, if necessary, to sue the defendant and many other named holders of certificates of stock who had taken them in reliance upon the resolution quoted, and also upon the expectation that said corporation was to locate its plant in the village of Ilion, to recover the sum of seventy-five dollars upon each certificate. Notice of this application was served upon the said shareholders, including the defendant, who appeared and contested such application. The application was granted by
the United States District Court, and upon appeal to the United States Circuit Court the order was affirmed. (153 F. 345.) The court remitted the order to the District Court to be amended by permitting any stockholder to present 'any individual defense which he might have to such action,' and the order was so amended.
This action was subsequently brought and a recovery had against the defendant for the $150 unpaid upon the stock which he owned. Several objections are urged to the validity of this judgment, and I have found the case quite an intricate one. Before taking up these objections, a few general observations may be pertinent.
It seems clear that the oral agreement was specific between the officers of the corporation and the defendant that his liability for the capital stock was to be limited to the fifty dollars which he paid therefor. This contract was valid between the corporation itself and the defendant and no recovery could be had by it to collect the balance up to the par value. The agreement between the corporation and the individual subscribers for stock whereby the latter are permitted to take the stock gratuitously, or pay less than the par value, is not invalid as against public policy or for any other reason as between the parties to it, but a different rule obtains where the rights of creditors intervene. They have a right to assume that the capital stock of the company has been fully paid in and that it is part of the assets of the corporation, and the authorities seem to hold, without variation to any ...