Peter v. The Union Manufacturing Co. et al.

self from the corporation as to future creditors and future liability, is there no way that he can do so, unless he can find some one willing to buy his stock as an investment and pay for it, who is solvent and who buys for the purpose of becoming an active member of the corporation? Cannot a stockholder give his stock away to any one who is willing to take it? As he cannot transfer it back to the corporation which cannot deal in its own stock, except where it is compelled to take it for debt and the like, is the rule of Brown V. Hitchcock to be So construed as to bind the stockholder forever, nolens volens, so that once a stockholder, forever a stockholder is to be the rule, no matter how earnest or honest he may be in the desire to get out and free himself from future obligations, which he may have no other power of preventing, except the right to vote his stock at an annual meeting for directors.

The liability of stockholders is of many kinds, depending upon the particular laws of the locality :

(a.) The liability for calls on the stock up to the par or agreed value is, of itself, the most common and under which the great majority of the cases are decided. Valid assignments or transfers of stock in many cases will exempt the transferrer, either to the company or creditors, even in this class:

(b.) A joint and several liability as partners is provided by the laws of some states and countries and a joint and several liability as guarantors in others; a limited and an unlimited several liability by still others; the limited several liability being the law of Ohio. Section 197 Thompson Liability of Stockholders.

We assert that these stockholders and creditors cannot now be heard to say, that as between them

Peter v. The Union Manufacturing Co. et al.

and Peter, this transfer was void or voidable. Even under the English law as applied to joint stock companies, which are nothing but numerous partnerships, each member being liable in solido for the debts of the concern, the other shareholders may, as between themselves, consent to a withdrawal of a member and if after knowledge of such withdrawal, or circumstances which ought to charge them with knowledge, they stand by and do not complain, they should be taken as having acquiesced in it, Spackman v. Evans, L. R. 3 H. L., 171; Evans v. Smallcombe, L. R. 3 H. L., 249; Houldsworth v. Evans, L. R. 3 H. L. 263; Dixons case L. R. 5 Ch., 79, Sedgwick Constitutional and Statute Law, 111; Tone v. Columbus 39, Ohio St., 281; State Ex rel v. Mitchell, 31 Ohio St., 592.

The creditor may waive, either by express contract, or by conduct, either the constitutional or the statutory provisions made for his protection or benefit, Thompson's Commentaries on Corporations, Volume 3, Section 3008, page 2163; Robinson v. Bidwell, 22 California 379; French v. Teschemaker 24 California 518; Basshor v. Forbes 36, Maryland 154; Ohio Insurance Co., v. Merchants etc. Co., 11 Humph (Tenn.) S. C., 53, Am. Dec. 742.

In England, the rule has been adopted by nearly a harmonious line of decisions, that a transfer, if real and substantial and without reservation, will be upheld as against future calls and the claims of creditors, pre-existing, although made with the intention of escaping liability, De Pass Case 4 Delg. & J. 544; Ex parte Costello 2 De G. F. & J. 302; Ex parte Jessop 27 L. J. Ch. 757, Harrisons case L. R. 6 Ch., 286; Colquhon v. Courtenay, 43 L. J. Ch. 338; S. C. 29 L. T. N. S. 877; Chynoweths case 15 Ch. Div. 13; Westons case L. R. 4 Ch. 20;

Peter v. The Union Manufacturing Co. et al.

Ex parte Bugg 2 Dr. & Sm. 452.

Batties case 39

L. J. Ch., 391-18 W. R. 620; Slaters case 35 Beav. 391-35 L. J. Ch. 304; Kings case L. 6 Ch. 196; In re Taurine Co. 25 Ch. Div. 118.-and other cases cited in 23 American and English Encyclopedia of Law-pages 880 and 881.

See also cases cited by Thompson Liability of Stockholders: Masters case L. R. 7 Ch. 292; Hakims case L. R. 7 Ch. 296-Note, Bishops case L. R. 7 Ch.-Note, Williams case 1 Ch. Div. 576.

A conveyance to be fraudulent as to future creditors, must be the result of active fraud, an intent to commit a fraud on parties with whom he intends to deal, and the conveyance found to be in secret trust for the grantor, the perpetrator of the fraud. The act of grantor and grantee. That is the rule, where the creditor seeks to reach the property conveyed. Evans v. Lewie, 30 Ohio St., 11

The fact, that it was a gift or without consideration, is not enough and not material, even if it left the grantor insolvent, it is not enough. There must be an active intent to defraud future creditors. Hinkle v. Salem, etc., 39 Ohio St., 547.

There has been a great deal said in the former arguments of this case about the property, assets and capital stock of a corporation being a trust fund for the benefit of its creditors. This court has decided that "the property and assets of a corporation åre a trust fund for the payment of its debts, especially in case of its insolvency." Rouse Trustee v. The Merchants' National Bank of Cincinnati, 46 Ohio St., 503.

Unsubscribed capital stock is not an asset of any kind. No one owes anything on it to either the corporation or its creditors. It is not in esse; if

Peter v. The Union Manufacturing Co. et al.

it was, it would pass under a mortgage, or could be attached or sold on execution. It is the contract of somebody to take it that becomes of value, and that contract becomes an asset of the corporation. When subscribed in the regular subscription book, it is a contract in writing, Gaffv. Flesher, 33 Ohio St., 112, and actions on it are barred in fifteen years. Gibson v. Columbia etc. Company, 18 Ohio St., 397; Warner v. Collender, 17 Ohio St., 198.

If we adopt as correct the rule, that the corpor ate property is a trust fund, and that the directors are trustees and the shareholders and creditors the cestuis qui trust, to its full extent, the result would necessarily be, that it was this contract to take the shares at a certain price that came into the trust, and that the contract can only be enforced by either the trustee or cestuis qui trust according to its terms. See Sturgis v. Stetson 1 Bissell, 249; First National Bank v. Gustin Mining Co., 42 Minn., 327; Hospes v. Northwestern Manufacturing & Car Co., 48 Minn., 174; Dayton, etc., Railroad v. Hatch, 1 Disney, 84.

For cases discussing the rights of creditors and the trust fund doctrine, see, in addition to above: Christenson v. Eno, 106 New York 97; Van Cott v. Bount, 82 New York, 535; Hollins v. Briarfield Coal & Iron Co., 150, U. S., 371; Brown v. Grand Rapids P. F. Co., 58 Federal Reporter 290, and the cases hereafter cited.

The attempt to apply this doctrine to this case must be unavailing. No "trust fund" doctrine can convert a contract to pay a given price into a contract to pay a greater price where the contract is in good faith and legal.

With this finding, the fact that these bonds and stocks were taken by stockholders and directors is

Peter v. The Union Manufacturing Co. et al.

immaterial. Sims v. Street Railroad, 37 Ohio St., 556; Twin Lick Oil Company v. Marbury, 91 U. S., 587; Dupont v. Railway Company, 18 Federal Reporter, 469; Harts v. Brown, 77 Illinois, 226. Syllabus 1 and 2, 230; Brown v. G. R. Furni ture Company, 58 Federal Reporter, 290-2; Montreal v. Hotts Salt & L. Company, 90, Michigan 345; The directors had the right to sell the stock. Sims v. Street Railroad Company, 37 Ohio St., 565; The corporation had the power to pledge its stock as collateral security for advances. Guest v. Worcester R. Company, L. R., 4 C. P., 9; Ashworth v. Bristol & R. Company, 15 L. T., (U. S.) 561; Union Savings Association v. Selyman, 92 Missouri 635; S. C. 1 American State Report, 776. Burgen v. Selman, 107 United States, 20.

The creditors thus holding it as collateral might have sold it as pledges and with consent of the corporation, pledgor became its purchaser. The corporation may sell its unsubscribed capital stock for less than par. Where the contract is in good faith, the purchaser is under no obligation to pay more than he agrees to pay, First National Bank v. Gustin, etc., 42 Minnesota, 327; Clark v. Beaver, 139 U. S. 104; Fogg v. Blair 139 U. S. 118; Hadley v. Stutz, 139 U. S. 417; Hospes v. Northwestern Mfg. & Car Company, 48 Minn. 174; Smith v. Prior 58 Minn. 247, 251; Republic Life Insurance Company v. Swigett 135 Ill. 150; Stein v. Howard, 65 California, 616; Calaman v. Windsor, 78 Iowa 193; Dayton, etc., Railway v. Hatch 1 Disney 84; Hollis v. Briarfield C. & I. Company, 150 U. S. 371; Harrison v. Arkansas Valley Railroad 4 McCrary, 264; Van Cott v. Brunt 82, New York 535.