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CAMDEN V. STUART, 144 U. S. 104 (1892)
U.S. Supreme Court
Camden v. Stuart, 144 U.S. 104 (1892)
Camden v. Stuart
Nos. 159, 643
Submitted January 18, 1892
Decided March 31, 1892
144 U.S. 104
The trust arising in favor of creditors by subscriptions to the stock of a corporation cannot be defeated by a simulated payment of such subscription,
nor by any device short of an actual payment in good faith, and it was not intended, by anything said in Clark v. Bever, 139 U. S. 96; Fogg v. Blair, 139 U. S. 118; or Handley v. Stutz, 139 U. S. 417, to overrule this principle or qualify it in any way, but only to draw a line beyond which the Court was unwilling to go in affixing a liability upon those who had purchased stock of the corporation or had taken it in good faith in satisfaction of their demands.
Applying this rule to the testimony and mass of figures in this case, the Court affirms the judgments of the court below against stockholders in these cases whose subscriptions for their stock in the corporation, defendant in error in No. 643, were shown to be in part unpaid.
There is always a presumption of the correctness of a master's report, and in view of the fact that no exception was taken to it by the plaintiff in error in No. 159, as required by Rule 21, the Court does not feel bound to examine into the minor details of the report in this case, and holds that that presumption overrides any effort that has been made to show an error in this particular.
While the goodwill of a business may be the subject of barter and sale, it must be something substantial and capable of pecuniary estimation, and not shadowy.
The Court stated the case as follows:
These were appeals from a decree requiring the appellant Stuart to pay the sum of $18,937.08, and appellant Camden the sum of $9,495.12, these being the amounts unpaid upon certain subscriptions made by them to the stock of the Greenbrier White Sulphur Springs Company.
The facts of the case were substantially as follows: on January 30, 1880, appellants, Stuart and Camden, and one George L. Peyton agreed to organize the Greenbrier White Sulphur Springs Company for the purchase of the White Sulphur Springs property, consisting of 7,000 acres of land in West Virginia, and an interest in 2,800 acres adjoining, in Virginia, all of which was about to be sold under a judicial decree rendered by the District Court of West Virginia. It was agreed that Stuart should purchase the property individually at a price not to exceed $310,000 (subsequently increased by agreement to $340,000), and should sell the same to the corporation, when formed, for the sum of $390,000 and the expenses of the sale ($16,000), making an increase over the purchase price of $66,000. Camden was to take one-half
interest in the corporation, with the privilege of disposing of a part of his interest to other parties, and Peyton and Stuart each one-fourth interest. Stuart bought the property at the judicial sale for $340,000, and a charter was applied for and granted; but, as the capital stock was put at $500,000, the company was not organized under this charter. The parties, however, took possession of the property and operated it as a watering place during the season of 1880 under the name of the "Greenbrier White Sulphur Springs Company." On December 3, 1880, a new corporation was formed under the same name, with a capital stock of $150,000. A certificate was filed, reciting that the incorporators had paid in on their subscriptions $50,000, and desired the privilege of increasing the said capital by sales of additional shares to $1,000,000 in all. The capital so subscribed was divided into shares of $100 each, and held as follows: by Stuart, Peyton, and Henry M. Matthews, each 375 shares; by Camden, 188 shares, and by William P. Thompson, 187 shares.
On December 29, 1880, the incorporators met at the City of Baltimore; the certificate of incorporation was accepted as the charter of the company; the five stockholders elected directors, of whom Stuart was elected president, and bylaws adopted for the government of the company. On the same day it was unanimously resolved to increase the capital stock of the company from $150,000 to $300,000, the certificates of said increase to be sold at par value for the purpose of creating an improvement fund.
Immediately after this meeting of stockholders, they met as a board of directors, and
"the stockholders were called upon to pay in their respective proportions of the $4,000 heretofore agreed to be paid, and which, when paid, will be in full of the capital stock of $150,000 provided as full paid up stock."
"the president and secretary were authorized to issue to the various stockholders certificates to the amount of $150,000 of the capital stock of this company, in proportion to their respective subscriptions, and as in full payment of the same."
The resolution adopted at the stockholders' meeting to increase the capital stock from $150,000 to $300,000 was
also adopted at this meeting. Several months afterwards, the capital stock was by another resolution increased from $300,000 to $400,000.
The springs property was turned over to the corporation by Stuart, though it was never formally conveyed to the corporation until March 17, 1882, when a deed was executed by Stuart and his wife for the expressed consideration of $390,194.44. It was expressly covenanted in this deed that a lien should be retained upon the property conveyed to secure the payment of the balance of the purchase money remaining unpaid. The corporation assumed the obligations of the co-partnership, and continued the business as though no change had been made.
During the season of 1880, the co-partnership claimed to have made $56,000 of profits, but the statement of the expert employed by the commissioner to whom the case was referred showed a net profit in that year of but $4,251.68, and this without taking into consideration a large number of outstanding notes of the company. During the season of 1881, the balance sheet of the company showed a profit of a little less than $10,000, while on December 1, 1881, there were outstanding notes of the company to the amount of $114,294.39. This sum did not include the open accounts of the company. On April 15, 1882, there were notes outstanding to the amount of $172,046.18. The season of 1882 was a failure, and early in the fall of that year, the company collapsed, owing, including the vendor's lien, $891,862.16, as reported by the commissioner.
On February 9, 1882 at a meeting of the board of directors, it was ordered that coupon bonds to the amount of $200,000 be sold at not less than fifty cents on the dollar, and also $100,000 of stock be sold at par, the two, stock and bonds, to be sold together -- that is, each purchaser of $100 worth of stock at par to take bonds to the amount of $200 at not less than fifty cents on the dollar, and that said bonds be secured by a deed of trust on all the property of the company. With the exception of a lot of not more than two acres, near the depot. It was further ordered that the president take the necessary steps to get in the legal title of the company to the real estate, and that
"the present stockholders shall have the privilege of
taking said stock and bonds in amounts proportioned to the stock now held by them, and, should any of the stockholders decline to buy, then the others shall have the right to take their shares, and only in the event that any of said stock and bonds are not taken by the present stockholders they shall be sold to outside parties."
On April 6, the stockholders met at White Sulphur Springs and confirmed this action of the board, directed the president to execute a deed of trust, to secure the bonds and interest, to William W. Gordon and Isaac H. Carrington, trustees, and also fixed upon May 1, 1882, as the date when the option to take the stock and bonds reserved to the stockholders should expire. At a further meeting of the hoard of directors on April 25, this option was further extended to May 15. At a meeting on the following day, it was further resolved that the president, at his earliest convenience, place in the hands of John P. Branch $50,000 of the coupon bonds of the company, and $25,000 of stock of the company, and that
"he deliver to W. A. Stuart a like amount of the stock and bonds of the company, to be placed or disposed of by them in accordance with resolutions heretofore adopted."
Stuart received his $50,000 of bonds and $25,000 of stock, and paid for them with $50,000 of the obligations of the company, upon which he was individually bound as endorser, and which he had purchased at fifty cents on the dollar.
This litigation began on April 10, 1883, by a bill filed by Stuart against the Sulphur Springs Company and Gordon and Carrington, trustees, to enforce a sale of the property covered by the trust deed in satisfaction both of his own claim as holder of $50,000 of the bonds secured by such deed and of such other claims and demands against the company as might be proved, in the order of their priority. He prayed for a reference to a commissioner to take an account of all the property of the company and the liens thereon, their amounts, character, and priority, the names of the stockholders, the number of shares owned by each, the par value of the same, and the amount due and unpaid by each of the stockholders. He further prayed for a report of all the unsecured
claims and demands against the company, for a sale of the property, and that the proceeds be applied to the satisfaction of the liens thereon, and for a receiver.
Subsequently, and on September 3, 1885, William Knabe & Co. intervened in this suit by petition claiming an indebtedness against the company of $518.63, and prayed to be allowed to contest the validity of the deed of trust, and have the property thereby conveyed subjected to the payment of all the debts of the company without preference, except for the debt due for the purchase money of the real estate, and that proper orders be made for the purpose of securing the rights of the creditors against the stockholders in respect to their subscriptions to the stock of the company. Petitioner also prayed that the trust deed be declared null and void and the property subjected to the payment of the debts of the company.
By consent of parties, the two cases were heard together, the deed of trust was decreed to be null and void, and the bill filed by Stuart dismissed. No appeal was taken from this order of dismissal. The court further ordered, upon the report of the special commissioner, the payment by Camden of $9,495.12, and by Stuart of $18,937.08, as of December 30, 1880, to the Sulphur Springs Company, as the unpaid subscriptions to the capital stock of such company. From this decree, both parties appealed to this Court.
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