Opinion
May 7, 1913.
Joseph C. White, for the appellant.
Thomas H. Larkins, for the respondent.
Plaintiff brings this action, as receiver, to recover the value of ten shares of capital stock of the Canadaway Fertilizer Company, issued to the defendant. Upon a trial a verdict was directed for the respondent.
Without reviewing the evidence in detail it may be fairly said that the proof given in this action justifies the conclusion that this stock was issued to appellant, without other payment therefor, than services performed in launching the corporation and arranging for the commencement of the business enterprise.
Appellant was one of seven directors and the first certificates of stock were seven in number for ten shares each, one to each of these directors. About four months after these certificates bear date the board of directors, by resolution, voted the issuance of these certificates, reciting that they were issued in payment for services rendered, but it appears that, as above stated, any services rendered were purely promotion services.
It is provided by section 55 of the Stock Corporation Law (Consol. Laws, chap. 59; Laws of 1909, chap. 61) that no corporation shall issue either stock or bonds, except for money, labor done or property actually received for the use and lawful purposes of such corporation, and by section 56 of the same law it is provided that every holder of capital stock not fully paid, in any stock corporation, shall be personally liable to its creditors, to an amount equal to the amount unpaid on the stock held by him, for debts of the corporation contracted while such stock was held by him.
It will thus be seen that the statute is so worded as to preclude the payment for promotion services, because it, in express terms, provides that stock shall not be issued, except for money paid to, or work done for, or property actually received by the corporation and the courts have so construed it. ( Herbert v. Duryea, 34 App. Div. 478; affd., 164 N.Y. 596; Stevens v. Episcopal Church History Co., 140 App. Div. 570.)
The question of appellant's liability must turn then upon the effect of a transfer of stock to him while acting as a director of the corporation, without any payment therefor by him. Had Lang not been a director, very likely it could not be held that by accepting the gratuitous transfer he obligated himself to pay therefor. But being a director, he was charged by law with the trust to preserve and protect the assets of the corporation for the benefit of creditors and stockholders. The issuance of stock by the directors was both a representation and covenant that its par value had been passed to the corporation and stood as an asset for the protection of creditors in their dealings with the corporation. The power to issue the stock was vested in the directors, but they had that power only to the extent of issuing it for permitted lawful purposes. They were not only not permitted but were prohibited by law from issuing it for promotion services, and when they did so issue it, and to themselves, there was, as a matter of law, a resulting conversion of the assets of the corporation to that extent. Upon receipt of the certificate in question, Mr. Lang became vested with the portion of the assets of the company represented thereby and for which he paid nothing. This was clearly a conversion, and gave to the receiver the option of bringing an action for the tort, or of waiving the tort, and relying upon the implied contract underlying the same. The appellant contends that he cannot be made liable as a purchaser of the stock in controversy upon any theory other than that there was an express promise to pay for the same. In support of that contention, he relies upon a line of judicial authority expressed in Christensen v. Eno ( 106 N.Y. 97) and Southworth v. Morgan (205 id. 293).
The doctrine of liability expressed in those cases is clearly distinguishable from the rule of liability fixed in the Herbert and Stevens cases, cited above, and fixed by the sections of the Stock Corporation Law to which attention has been drawn. In the line of cases relied upon by the appellant it is to be observed that the stock was passed to persons outside of the corporation, and it was, under those circumstances, quite properly held that liability to pay must rest upon a promise. That situation does not pertain here. In the present case the directors, by their own official acts, passed to themselves $7,000 of the stock of the corporation which they were elected to administer for the benefit of creditors and stockholders of the corporation. Lang took this stock without paying for it and now defends on the ground that he did not promise to pay and hence creditors are remediless. The directors were trustees of an express trust. When they omitted to promise to pay for the property of the corporation which they took the law spoke for them and made the promise.
As before said, under the circumstances existing the receiver for the benefit of creditors could sue for a conversion or waive the tort and sue to recover the par value of the stock. The statute fixed the extent of liability in a case of this description when it provided that every holder of stock should be personally liable to its creditors to an amount equal to the amount of stock held by him for debts of the corporation contracted by the corporation while such stock was held by him. Even without such statutory provision there was evidence in the case justifying the trial court in directing a verdict for the par value of the stock. It appears that stock was sold to subscribers at par shortly after the issuance of the certificate in controversy. This furnishes evidence of the value of this stock.
It follows that the judgment and order appealed from should be affirmed, with costs.
All concurred, KRUSE, J., in result only, except FOOTE, J., who dissented.
Judgment and order affirmed, with costs.