See, Receiver, v. Heppenheimer.

69 Eq.

and did not represent in any sense the interests of the corporation to be formed, and of the persons who were to become the real proprietors of it, but did actually represent throughout the feelings and interest of the three promoters, that their action in that behalf must be absolutely void so far as it authorized the issuing to Stein of any of the capital stock of the company beyond the real value of the property which he proposed to convey and a reasonable compensation to the promoters for their services as such.

The law is perfectly clear that the promoters cannot help themselves in the way these gentlemen attempted to do in this

case.

But, say the defendants, "we are not sued here for profits we have made in this promotion, for we have made none. We are perfectly willing to disgorge and turn back the stock which we received and which has proved valueless." "The cases," they further argue, "which are cited against us, such as Woodbury Heights Land Co. v. Loudenslager and the Plaquemines Fruit Co. v. Buck, and the numerous cases therein cited, were suits to recover for profits received, and therefore do not apply."

But that argument evades the real question before us, which is whether the defendants have received from this company certificates of stock for which they have not paid.

Samuel Untermeyer concedes that he paid nothing for a large quantity issued to him, and the other defendants admit that their stock was received as a bonus with bonds paid for stock. They all concede that Stein paid nothing except some cash which he derived from the sale of bonds and the conveyance of the property in question, and the sole reliance of the defendants. is on the value of the property conveyed. If that property was consciously overvalued in such a manner as to amount to a fraud on the statute, the defendants admit that the transaction will not stand, and it will follow that the certificates of stock issued in question were received without paying anything for them, and it will also follow that the capital, to wit, $4,000,000, has not all been paid in, and then follows the other provision of the statute, viz., that if the "amount actually paid is found to be insufficient to satisfy the claims of the creditors," each

3 Robbins.

See, Receiver, v. Heppenheimer.

stockholder holding stock for which he has not paid "shall be bound to pay on each share held by him the sum necessary to complete the amount of such share or such proportion of that sum as shall be necessary to satisfy the debts of the company.” It seems to me that this statute is a simple expression of the rule of the common law that the unpaid subscriptions to the capital stock of a corporation form an asset for the payment of the debts thereof, and, as we shall see further on, in equity, at least, one who receives stock as full paid, without paying for it, occupies the position of a subscriber to stock who has not paid his subscription.

It may be argued that each mill owner was apprised, by the option which he signed, that the corporation was to be capitalized at $1,000,000 in stock, subject to $1,000,000 in bonds secured by a mortgage, precisely as it was, and hence that there was no fraud practiced upon the mill owners in their capacity as future stockholders in the company. But granting that each mill owner assented to the formation of such a corporation, and to take stock therein for two-thirds of the value of his mill, yet such assent by no means warranted the issue of stock, without the actual payment of cash for it, to an extent beyond what was necessary to pay for the mills to be actually purchased, and to pay for the reasonable cost of the consolidation to be effected thereby. It cannot be construed into a license to Mr. Stein and his associates to divide among themselves as full paid all the stock mentioned in the options without giving compensation therefor. In other words, the natural and business-like construction to be put upon the affair was that any stock not needed for the purposes just mentioned should lie in the treasury, to use the language indulged in to describe such stock, and to be issued only for cash or other property.

I might rest the case here, but complainant contends that it does not stop here, and that Stein and his associates failed to complete and carry out the contract entered into by him in that he did not convey, at his own expense, to the company all the property which, by his proposition accepted by the resolution of December 14th, 1892, he agreed to convey.

I shall now consider that part of the case, and in that connec

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69 Eq.

tion some of the details of the proof that Stein was acting for himself and his two associates, Beard and Untermeyer.

[Discussion of evidence omitted by direction of the vice-chancellor.]

But, grant that Mr. Untermeyer's position was what he claims it to have been, I am unable to see how it affects the question of his liability in this case. If he was not a joint partner in the enterprise and not, strictly speaking, therefore bound as an individual under the authorities, to inform the directors of the cost of the thirty-nine mills, he was still the counsel of Messrs. Stein and Beard and devised the scheme from beginning to end, and supervised its conduct, and was therefore thoroughly familiar with all its details, and accepted divers issues of capital stock for himself and members of his firm as bonus with bonds, with a full knowledge of the whole affair and without paying one cent for them. Hence, the question just discussed becomes a purely academic one, turning in part upon the meaning, in this connection, of the mere colloquial word "promoter."

The controlling question, which must not and cannot be obscured by the ingenious and refined reasoning about questions which do not, after all, throw any light upon it, is, did he and his friends accept from the company certificates for shares of stock for which they have not paid? And, after all, the question is not, as before observed, whether Untermeyer, Beard and Stein were promoters in the sense as would render them liable for any profit that any of them made, as whether they are liable under the statute to pay to the creditors of the company the amount of the stock issued to them and not paid for.

It should be noticed here that the liability of the defendants is not diminished by the fact that no one of them made an actual subscription to the stock which he received. That formality is of no materiality unless the action be brought at law by the company based upon an express contract. In equity, and as against creditors, the acceptance of the stock, without paying for it, places the acceptor in the position of a subscriber. This was expressly decided in Richardson v. Green, 133 U. S. 30 (at pp. 43 and 45) et seq., and this holding was expressly approved by the supreme court of the United States in Clark v. Beaver,

3 Robbins.

See, Receiver, v. Heppenheimer.

139 U. S. 96 (at pp. 112 and 113). In Handley v. Stutz, 139 U. S. 417 (at p. 426), decided at the same term as Clark v. Beaver, supra, we have this language, uttered by Mr. Justice Brown, which is apt to the present point, and to another point set up by the defendants to be dealt with further on:

"With regard to the first class, namely, the original stockholders, who voted for this increase of eight hundred shares, and then distributed among themselves three hundred of those shares, without the shadow of right or consideration, it is difficult to see why they should not be called upon to respond for their value. The only claim made upon their behalf is that they never agreed to contribute or pay for the same; that the stock was expressly declared to be 'fully paid' and 'free from all claims or demands upon the part of the company'; that there was no evidence that the creditors of the company knew of or relied upon this increase in their dealings with the company, and that they had a right to return and surrender the same, which they offered to do. There is no reason to suppose that these stockholders did not act in good faith and in the belief that they were entitled to this stock. The fact that they did not subscribe for it or agree to take it until the receipt of the certificates, is immaterial, as the acceptance of the certificates is sufficient evidence of an agreement to pay their par value." (Citing authorities.)

"It has been the settled doctrine of this court that the capital stock of an insolvent corporation is a trust fund for the payment of its debts; that the law implies a promise by the original subscribers of stock who did not pay for it in money or other property to pay for the same when called upon by creditors, and that a contract between themselves and the corporation, that the stock shall be treated as fully paid and non-assessable, or otherwise limiting their liability therefor, is void as against creditors." Another point made by defendants is that this court has no jurisdiction to enforce this claim, and, incidentally, that the several judgment creditors have not recovered any judgments in this state and had executions returned "nulla bona."

With regard to this last point, it has no foundation in our

See, Receiver, v. Heppenheimer.

69 Eq.

statute, nor in what may be called the common law applicable to the present case.

The jurisdiction and power of the court seem to me to have been determined by the court of errors and appeals in this very cause. Since, upon a comparison of the original bill, there under review, and the amended bill, under which we are now proceeding, I find no such difference in the frame and prayers of the two bills as affects this question.

But the entire line of authorities is clear upon this subject. No question has ever been raised but that the receiver of an insolvent corporation in this state has always, by his appointment, been vested instanter with all the rights and property of the corporation, and that he is in truth and fact receiver both for the stockholders and creditors, and in a great majority of cases practically of the creditors only.

It has always been the practice of this court-first, to ascertain the whole amount of the unpaid debts; second, in case of unpaid stock subscriptions or stock issued without payment, to determine the names of such stockholders and the amount due from each; and third, to make an assessment against those stockholders, which, in case an action at law is brought, based upon that assessment, is conclusive against the stockholders.

The authorities on that question are numerous.

Their examination shows that the only question is whether the final remedy for the collection of the assessment is in law or in equity.

In Hood v. McNaughton, 54 N. J. Law (25 Vr.) 425, an assessment had been made by the chancellor upon the stockholders, and his authority to do so was recognized by the supreme court and enforced in an action at law.

In Barkalow v. Totten, 53 N. J. Eq. (8 Dick.) 573, ViceChancellor Emery held that in the case before him, after this court had made an order directing the receiver to collect ordinary unpaid subscriptions of capital stock, the remedy was at law, based on the order of the chancellor, and not in equity.

Whether that decision applies to the present case, the circumstances of which are quite different, I shall consider in a

moment.