National Tube Works Co. v. Gilfillan

*305 Vann, J.

The substantial issue in this action was whether the property procured in exchange for stock was purchased at an over-valuation, not through error of judgment, but in bad faith and to evade the statute.

(Douglass v. Ireland, 73 N. Y. 100, 104 .)

The trial judge instructed the jury that if they found “ that the stock issued exceeded in amount the value of the property taken in exchange for it and for which it was issued, and that the trustees deliberately and with knowledge of the real , value of the property over-valued it and paid in stock for it an amount which they knew was in excess of its actual value, they must find for the plaintiff. If the jury do not find this to be the fact, then they will find for the defendant.”

The jury found a general verdict for the plaintiff, and, as a special verdict, that the property purchased at $300,000 was really worth but $75,000.

The evidence in support of the verdict is sufficient if not overwhelming.

The company was organized September 18, 1884, with a capital stock of $300,000, divided into 600 shares of $500 each. "Within less than a year thereafter, it was hopelessly insolvent, with all its property levied upon under an execution issued on a judgment recovered by the defendant, its president and a trustee from the outset. None of the stock was paid for in cash or otherwise than by the transfer of a lot of unpatented inventions of one Bliven. Two corporations had been previously organized, with the defendant as a trustee in each, to handle these inventions, one of which seems to have been merely a corporation on paper that “ had no existence in fact to amount to anything,” while the other was “ a disastrous speculation.”

The inventions were purchased" by the corporation, whose transactions are directly involved in this action, substantially in the following manner, viz.: Bliven assigned them to the defendant, who, as trustee, transferred them to the company in consideration of the entire capital stock, to be held by him in trust as follows, to wit: 200 shares for the benefit of the *306 company itself; 100 shares, par value $50,000, for the defendant —• (in payment of a debt of $15,000 owing him by Bliven); 10 shares, par value $5,000, for one Baxter (in payment of an .old. debt of Bliven to him of $2,500); 27 shares apparently given away to qualify persons as trustees and to induce them to act; the remainder to Bliven or for his benefit.' According to the evidence, the jury made a liberal estimate of the real value of the inventions when they found that they were worth $75,000 The good faith of the trustees, including the defendant, as one of the most active in the transaction of this business, may be inferred from the foregoing facts. If they honestly considered the inventions worth $300,000, why was one-third of the avails, $100,000 in stock, donated to the company by Bliven? Why did the defendant accept of $50,000 in stock in payment of a debt of $15,000 ? Why was $5,000 given to Dexter to pay $2,500 ? Why was $13,500 in stock given to persons to induce them to become trastees ? Would $300,000 in money have been disposed of in this way? The arrangement to thus dispose of the stock was made before the purchase and became a part of it. The facts were all known to the trustees, including the defendant. They were apparently intelligent men, the defendant being a physician. Although they testified that they considered the inventions worth $300,000 or more, the surrounding circumstances permitted the jury to find, as the General Term said, that they u were.- not only worth less than the price agreed to be paid for them, but it was so understood by the defendant and the other parties to the transactions.” From these and other significant facts, not recited, it is evident that a case was presented for the consideration of the jury, and that the motions to dismiss were properly denied.

The- merits, are with the plaintiff, and when that is the case the exceptions should be overruled, unless a material and manifest error- of law has been committed.

The defendant excepted to the following instruction' to the jury made at the- request of the plaintiff, viz.: “ It is not necessary for plaintiff to prove that the trustees of the Brook *307 lyn Marine Power Company have been guilty of a fraudulent intent to entitle the plaintiff to recover.” We do not think that the exception was well taken, because the jury is presumed to comprehend and act upon the charge as a whole, and hence to have understood that the “ fraudulent intent ” referred to, meant an actual, furtive design to perpetrate a fraud, for they had already been told that “ the fraud is consummated hy the issue of stock as full-paid stock * * * which has not been fully paid * * * and it does not depend upon any fraudulent intent other than that which is evidenced by the act of knowingly issuing stock for property to an amount in excess of its value. All that is necessary to establish legal fraud * * * is proved in two facts,” etc., etc. The reference was to actual fraud as contrasted with what was termed legal fraud.

The defendant also excepted to the refusal of the court to •charge, at his request, that “ if the plaintiff sold the goods to the corporation with full knowledge of what the inventions •and improvements owned by the corporation were and relying upon the merits of the inventions, gave the corporation credit, ■defendant is entitled to judgment. ” This exception is without merit, because the knowledge of the plaintiff and the facts which induced it to sell its goods on credit were wholly immar terial. Within the limitations of the statute the stockholders are liable for “ all debts and. contracts made by such company,” irrespective of the circumstances under which they were made. (L. 1848, ch. 40, § 10 ) There is no exemption from liability because credit was imprudently given by the creditor, or because he supposed that the property of the corporation was sufficient to pay its debts. All that the statute, requires to make a stockholder liable is that a valid debt shall • be contracted under the circumstances therein mentioned and before the capital stock has been paid in, either in cash, or in property honestly regarded as a fair equivalent to cash.

The object of the statute in requiring a certificate to be filed is to inform the public so that they can transact business with the corporation upon the assurance, either that the capital ¡stock has all been paid in, or that the stockholders are severally *308 liable for an amount equal to the stock held by them respect-^ ively. If, therefore, the plaintiff when it parted with its goods knew the facts as they then existed, it knew no more than the statute contemplates that all persons, who deal with manufacturing corporations, shall know.

We have examined the other exceptions taken in behalf of the defendant, but find nothing that requires a reversal of the judgment, which should, therefore, be affirmed.

All concur.

Judgment affirmed.