Efird v. Piedmont Land Improvement & Investment Co.

1. Corporation — Insolvency—Nulla Bona — Equity.—When the insolvency of corporation is shown by nulla bona return, the Court of Equity will take control for purpose of winding up its affairs, and enforce unpaid subscription on capital stock. 2. Ibid. — Stockholder.—The Transferee of stock of a corporation, all requirements of transfer having been complied with, in absence of fraud and collusion, is alone liable for any balance due by his transferer on original subscription to capital stock. 3. Ibid. — Counter-Claim—Set Off. — A Stockholder of an insolvent corporation cannot set off claims held by him against the corporation against his unpaid subscription to capital stock. Nettles v. Marco, 33 S. C., 47, distinguished from this. 4. Pleadings — Judgment—Corporation—Stockholder.—In an action by creditors against an insolvent corporation and stockholders to collect balance due on stock, judgment may be given for balance due on subscription against one subscriber, whose name was left out of list of original subscribers in complaint, but who was found to be such by master and Circuit Judge, and who had been made a party as transferee

Before Townsend, J., Richland, June, 1898. Creditor’s bill by C. M. Efird and H. A. Lorick, as executors of Geo. W. Lorick, against Piedmont Land Improvement and Investment Co., and the original subscribers to the capital stock and transferees. The master’s report, omitting formal parts, is as follows : This is an action brought by the plaintiffs, as executors of the estate of G. W. Lorick, deceased, for the purpose of having the stockholders of the Piedmont Land Improvement and Investment Company pay into the hands’ of a receiver to be appointed by the Court, the thirty per’ cent, dividend due by them as subscription to the capital stock of said corporation, which was duly chartered under and by the laws of this State, for the purpose of meeting the liabilities of said corporation to the plaintiffs, as executors, and others who might establish their demands before the Court. To this complaint the resident stockholders file their answers, none admitting their liability, while others set up counter-claims, and some denying any liability whatever. All of which will clearly appear by their answers filed in this case. The absent and non-resident stockholders, B. B. Ford, Chas. C. Wilson, Chas. Ellis, jr., and Walter M. Gorham, were duly served by publication, none of whom answered, except Chas. Ellis, jr., who filed an answer during the reference, in which he set up a counter-claim, which will be hereafter more clearly set forth. * * * At the hearing of said case, attorneys for several of the defendants filed their stated grounds of demurrer to the complaint, in that it did not state facts sufficient to constitute a cause of action. After a careful consideration of the grounds upon which they are based, I consider them untenable, in view of the allegations of the complaint, and, therefore, hold the complaint sufficient, and overrule the said motion. My findings of fact are as follows : i. That the defendant corporation was duly incorporated, under the general incorporation law of 1886, by a charter from the secretary of State. 2. That books of subscription to the capital stock of said corporation.were regularly opened in the city of Columbia, on the 19th day of March, 1888, and that the amounts subscribed by the persons indicated in paragraph 3 of- the complaint are correct. 3. That the subscribers and stockholders of said corporation met and organized the same by the adoption of a constitution and by-laws and the election of a president, directors and all other necessary officers, in the city of Columbia, on the 20th day of March, 1888. 4. That the subscription to the capital stock was made upon the condition that twenty per cent, should be paid in at once, and that the directors should call for the balance in such instalments as would be necessary. 5. That the directors of said corporation from time to time levied assessments upon the stockholders until seventy per cent, thereof had been levied and paid in. 6. That on the 30th day of December, 1892, the board of directors of said corporation issued a call for the remaining thirty per cent, due upon said subscription, a portion of which was paid in by several subscribers, but upon failure of others to pay, the amount so paid in was returned to them, and that the directors have failed and neglected to collect the same. 7. On the 19th day of May, 1888, the defendant corporation executed its bond to the said Geo. W. Lorick, obligating itself to pay to him the sum of $4,786.25 on or before the 19th May, 1889, with interest from date, and a like sum on or before the 19th day of May, 1890, with interest from date, and a like sum on or before the 19th day of May, 1891, with interest from date, and to secure payment of the same executed and delivered a mortgage on a tract of land in Lexington County. 8. In May, 1892, said G. W. Lorick brought an action in foreclosure against the defendant corporation in Lexington County, for the sum of $8,772.59, and costs, upon which he obtained a judgment at the September Court for said county, on the 24th day of. September, 1892. 9. That in November, 1893, G. W. Lorick died, and the plaintiffs in this action duly qualified as his executors a short time thereafter, and are such now. xo. That the lands covered by the said mortgage were duly sold under said order of foreclosure, and the proceeds credited upon said mortgage and the report of sales confirmed on the 29th September, 1894, which order embraced permission to the plaintiffs, as executors, to enter up judgment against the defendant corporation for the balance, the sum of $3,804.94. 11. That the said judgment was duly entered up on the 26th January, 1895, execution duly lodged, and the sheriff of Lexington returned the same “nulla bona” May 15th, 1895. 12. I find that B. B. Ford originally subscribed five shares to the capital stock of said corporation, paid in $350, after-wards surrendered his certificate of stock, which was can-celled by the corporation on the day of , and a new certificate of stock was issued to F. FI. Hyatt on the day of , who surrendered his certificate on the 28th day of May, 1894, and which was cancelled by the said corporation, and a certificate issued to W. J. May on the 28th of May, 1894, who now holds the same. 13. That R. S. DesPortes originally subscribed for twenty shares of the capital stock of said corporation. On the 2d day of May, 1889, he surrendered his certificate for the said twenty shares, which was cancelled by the said corporation, and upon the same day a certificate was issued to R. S. DesPortes for fifteen shares and to W. H. Lyles a certificate for five shares, which was sold to him by R. S. DesPortes, and said Lyles now holds the same. That on the 20th day of June, 1889, R. S. DesPortes surrendered his certificate for fifteen shares to said corporation, which was cancelled by said corporation, and a certificate for ten shares was issued to R. S. DesPortes and five shares to John T. Sloan, jr., sold to him by R. S. DesPortes, and said Sloan now holds the same. That on September , 1890, R. S. DesPortes, through T. J. Gibson, a broker, sold to C. J. Iredell his ten shares of stock, which stock was surrendered to the company and can-celled, and ten shares were issued to C. J. Iredell on October 3, 1890. 14. That Godfrey Leaphart subscribed five shares to the capital stock of said company; that his executors sold the same at public auction in the city of Columbia, on the 4th day of-December, 1893, to John T. Sloan, jr., to whom the same was, on that day, transferred, and who is now the owner and holder of the same, but which has never been transferred on the books of the said company to- said Sloan. 15. That Dr. Á. N. Talley originally subscribed ten shares to the capital stock of said corporation, and on October 3, 1890, he surrendered the same, which was cancelled by the corporation, and a certificate for ten shares issued to C. J. Iredell. 16. That W. G. Childs originally subscribed for six shares, and on October 17, 1890, he surrendered his certificate for the said six shares, which was cancelled by the corporation, and a certificate for six shares was issued to Martin Stork. 17. That W. A. Clark originally subscribed for six shares of the capital stock, and on July 27, 1892, he surrendered his certificate for six shares, which was cancelled by the said corporation, and a certificate issued for six shares to G. W. Lester. 18. Certificates for all other stock subscribed, as set forth in paragraph 3 of the complaint, were duly issued to the subscribers thereof, who are now the owners and holders thereof, except that E. W. Screven subscribed for ten shares, which subscription was assumed by James Woodrow, and to whom the stock was issued for ten shares, who now holds the same. 19. The following claims have been offered in evidence and proven before me as existing valid claims against said defendant corporation: * * * 20. That the defendant corporation is insolvent, and that there are no funds out of which the debts of the said corporation can be paid except the balance of the thirty per cent, due by the stockholders upon their original subscription to the capital stock of said corporation. 21. The sale of the certificates of stock by B. B. Ford, R. S. DesPortes, A. N. Talle}'’, W. G. Childs, and W. A. Clark were made in the mode prescribed by the by-laws of the company under the authority of its charter, was bona üde and in the usual course of business trade and not collusive, and the transferers retain no interest whatever in the stock then transferred by them. My conclusions of law are: ist. That B. B. Ford, R. S. DesPortes, Dr. A. N. Talley, W. G. Childs, and W. A. Clark are not due the corporation or the creditors anything further upon their original subscription, and I recommend that the complaint be dismissed as to them, with costs. 2d. That F. H. Plyatt, the purchaser of the Ford stock, having transferred his stock to W. J. May after the call by the directors for thirty per cent, still due, and notice to him thereof, he is liable for the thirty per cent. 3d. That the certificate held by the executor of Godfrey Leaphart was sold to John T. Sloan, jr., after the call was made by the directors and notice to them thereof, and his estate is, therefore, liable for the thirty per cent. This said stock was never transferred to said Sloan on said books. 4th. That Martin Stork, who bought the stock of W. G. Childs before the call of the directors, and also G. W. Lester, who before said call bought the stock of W. A. Clark, and W. H. Lyles, and John T. Sloan, jr., both of whom bought each five shares of R. S. DesPortes before the call, and Mrs. Emma J. Anderson, who* bought the R. M. Anderson stock before the call, are liable for the thirty per cent. 5th. That the following original subscribers are liable for the thirty per cent.’ upon the amounts of their subscription: * * * The following purchasers of stock are liable for the thirty per cent, upon their stock: * * * 6th. The defendants, Geo. S. Mower, J. H. Counts, M. A. Carlisle, John T. Sloan, jr., James Woodrow, Thos. T. Moore, H. C. Moseley, W. A. Moseley, J. M. Wheeler, W. H. Lyles, and Chas. Ellis, jr., set up in their answer various claims against the defendant corporation in which they are stockholders, and they ask that they be allowed as counter-claims against any amount that may be found due by them to said corporation or creditors thereof. After a careful consideration of the law in reference thereto, I have concluded, and so find, that these creditor stockholders are not entitled to set up these demands held by them as a counterclaim against any liability due by them to the said corporation or its creditor, and find that they are merely creditors of the corporation, and that they must pay in full the thirty per cent, due upon their subscription, and must then set up their claims against the corporation as any ordinary creditor. I, therefore, recommend that a receiver be appointed to , collect the balance due upon the stock, as hereinbefore indicated, of such of the stockholders as are not parties to this action, and to do and perform such acts as he may by this Court be directed, and that judgment herein be given against the defendant stockholders who have been held liable for the amounts as hereinbefore indicated, and that they be required to pay the same to the master for distribution; and that the master be instructed to call in, in the usual way, all of the creditors of the said corporation, and that he hear and determine all questions as to- the priority of the claims established before him. From Circuit decree modifying master’s 'report as indicated in the opinion, the defendants, M. A. Carlisle, Geo. S. Mower, executors of R. S. DesPortes, H. C. Moseley, W. A. Moseley, Charles Ellis, jr., John H. Counts, James Woodrow, Thos. T. Moore, John S. Hughson, executors Dr. A. N. Talley, W. G. Childs, W. A. Clark, John T. Sloan, J. M. Wheeler, and Piedmont Land Improvement and Investment Co., appeal. cite: Stockholder is liable to corporation, and that only, on his subscription: 6 Rich. Eq., 234. Under allegation charging defendant as transferee,he cannot be held liable as original subscriber: 41 S. C., 331. Stockholder may set off claims held by him against the corporation against its claims upon him: 24 N. E. R., 13; 45 Mo., 109; 60 Ga., 174; 40 Fed. R., 413; 43 N. W. R., 290; 121 N. Y., 107; 24 „ Pac. R., 1111; 90 N. Y., 353. refers to authorities of Id. W. Shand by permission. also refers to authorities of Messrs. Shand and Muller. cites: Stockholders not liable for instalments called in on stock after transfer in good faith, but transferee is liable: 16 S. C, 529: 7 T. R„ 36; 91 U. S., 45, 56, 65; 96 U. S., 328; 49 N. Y., 216; 54 Penn. St., 227. cite: Stockholder should be permitted to set off claims against his liability: 6 Rich. Eq., 227; 3 Mason, 308; 33 S. C.,-47; 72 N. Y., 106; 21 S. C., 346; 25 S. C., 82; 73 N. Y., 620; 90 N. Y., 253. cite: Does complaint state a cause of action: 22 S. C, 292. Nulla bona return shows insolvency: 22 S. C., 321; 53 S. C., 364. Stockholder cannot set off liabilty on stock by claim against corporation: 43 S. C, 480; 27 S. C., 340.