
    Gates, Admr. v. The Tippecanoe Stone Co. et al.
    
      Creation of corporation — Partners incorporate — Capitalize partnership property in excess of its value — Corporation insolvent— Rights of corporation creditors — Stock liability original subscribers — Corporation law.
    
    1. Where, pursuant to an agreement among themselves, partners capitalize the partnership property at a valuation greatly in, excess of its true value ; create a corporation under the laws of this state to continue the former partnership business, fixing its capital stock at a sum equal to the inflated value placed on the partnership property ; elect themselves managing officers of the concern: transfer this property, at such inflated value, to the corporation in exchange for its entire capital stock which they cause to be issued, as fully paid up, •to each partner, or as he directed, in proportion to his interest in the partnership : and the corporation, continuing the business, afterwards becomes insolvent, the transaction will be regarded as a fraud upon the corporate creditors, although none was intended or contemplated by the parties to such transaction.
    2, In such case, each partner will be regarded as an original subscriber for so much of the stock as was thus issued to him, and credited on his subscription for the actual value, only of his interest in the partnership property transferred to the corporation in payment of such subscription. The balance left, after applying this credit, will be deemed a debt due from him to the corporation, and therefore corporate assets. '
    (Decided October 26, 1897.)
    Error to the Circuit Court of Cuyahoga county.
    This action was brought in the court of common pleas of Cuyahoga county to enforce the statutory liability of holders of stock in the Tippecanoe Stone Company, a corporation created under the laws of this state and located in Harrison county.
    The Tippecanoe Stone Company had become insolvent and on August 29, 1889, assigned its property to A. C. Dustin for the benefit of its ereditors. On September 17, 1889, the creditors of the insolvent concern, in due form of law, elected Thomas A. Latto trustee thereof, who thereupon qualified and thereby superceding the assignee, Dustin, entered upon the administration of the corporate property.
    This trustee, Thomas A. Latto, upon his own motion was made a defendant in the action, and filed a cross-petition, setting forth that the capital stock of the insolvent corporation — the Tippecanoe Stone Co. — had not been fully paid up, giving the names of the subscribers thereto, who he claimed were in default, and praying, among other things, that a master commission might be appointed in the action to ascertain the subscribers, who were, in fact, in default, and the amount each owed upon his original subscription.
    Judge Pennewell, of the Cleveland bar, was appointed referee to hear and determine the issues joined between the parties. This he did and reported his findings of fact and conclusions of law separately.
    The finding of facts made by the referee shows, that the corporation was organized under the laws of this state in March, 1887, with a capital of $75,-000.00 divided into shares of $100 each, its principal office being located at Tippecanoe, Harrison county, Ohio, and its business was quarrying and dealing in stone, etc. McLain subscribed for and there was issued to him 275 shares of its stock, aggregating $27,500.
    That prior to the organization of the corporation the quarry, with the stone saw mills, machinery, etc., was owned and operated by a partnership, known as the “John Paul & Co.,” said McLain being one-half owner thereof, William Thornburg one-fourth and Oscar Townsend one-fourth. The business was then prosperous, and the owners resolved to form a corporation arid turn the property and business over to it, at a valuation of $75,000, each partner to receive corporate stock in the same proportion that he was interested in the partnership : McLain one-half, Thornburg and Townsend each one-fourth. Accordingly articles of incorporation signed by McLain, Thornburg, Elbert B. Cornell, James Peacok and N. G. Dielheim were sent to the secretary of state in March, 1887. On the return to the incorporators by the secretary of state of a certified copy of these articles of incorporation, the concern was organized by McLain and Thornburg-, two of the partners, acting’ in person, Townsend, the other partner, acting through William B. Hanlon, E. B. Cornell, to whom McLain had just previously sold an interest in the partnership property equal at its estimated value to $10,-000 of the capital stock of the corporation, and William M. Thornburg, son of William Thornburgbefore named, to whom one share was allotted, evidently to fill up the directory. These five persons at once subscribed for the entire capital stock of the concern, proceeding to elect themselves its directors, and immediately thereafter elected'McLain, president, and William Thornburg, secretary, of the new concern.
    On the same day, pursuant to the prior agreement .of the partners, the partnership property was conveyed to the corporation,, and certificates of stock in the concern issued to the several partners, or as they directed according- to their interest in the partnership to the full amount of its capital, as fully paid up stock as follows :
    
      James H. McLain .................................................-275 shares.
    Elbert B. Cornell................................................ 100 “
    William Thornburg................................................ 187 “
    William B. Hanlon.................................................. 187 “
    William M. -Thornburg..................................... 1 share.
    Total....................................................................... 750 shares.
    This entire transaction, the referee found was conducted in good faith, and without an intent to defraud the creditors of the concern or any one else, but that the value of the property conveyed to the corporation was only one-half that placed upon it by its owners. No call was ever made by the directors for payment upon stock, nor was there any money paid thereon. The business was conducted by the corporation for about two and a half years, when it became insolvent and assigned its property for the benefit of its creditors under the insolvent laws of this state.
    
      Day, Lynch & Day and R. A. Harrison, for plaintiff in error.
    
      First — Recovery can be had only on- ground of fraud and that is not found to exist. The transaction must stand until impeached for fraud by some direct proceeding brought for the purpose.
    The contract of these parties was to convey their mining property for stock. That contract was good unless fraud existed, and it should be attacked and set aside on that ground. Instead, however, the trustee elects to credit the subscribers for the actual cash value of the property turned over, and hold them liable for the balance. This is simply making a new contract for the subscribers. Cook on Stock and Stockholders (3 Ed.) section 45; Anderson Case, L. R., 7 Ch. E.,75; 3 D. G. J. & S., 367; Coffin v. Ransdell, 110 Ind., 417; Phelan v. Hazard, 5 Dillon (U. S.), 45; Brant v. Ehlen, 59 Md., 1.
    
      Second — The next point we urge is that it is lawful to pay a stock subscription in property suitable to the company’s uses and at a price satisfactory to the company.
    
      Prima facie a stock subscription is payable in money. Let us suppose it to be so paid. Thereupon the corporation uses that money to buy from the subscribers or some one else, certain property needed to effect the object of its creation — -to carry on its business. What possible illegality is therp in shortening the transaction-and issuingthe stock directly in return for property conveyed. Foreman v. Bigelow, 4 Cliff. (U. S.), 508; Phelan v. Hazard, 5 Dill. (U. S.), 45; Steacy v. R. R. Co., 5 Dill. (U. S.), 348; Skinner v. Loan Co., 56 Hun. (N. Y.), 437. The English cases also uniformly lay down this rule.
    The most important question grows out of the referees finding that because the property conveyed equaled only one-half the par value of the stock, the subscribers must now pay in the remaining half. In other .words, that property cannot be applied on stock subscriptions in excess of-its actual cash value, although all interested parties participated; no creditor then existed, the transaction was fair and open; no fraud intended; no one deceived; and no false claim made thereafter that more capital existed than did really exist.
    We contend the referee’s conclusion of law and the judgment thereon, are unwarranted. Cook on Stock and Stockholders, 3 Ed., section 35; Coit v. Gold, etc., .Co., 119 U. S., 343; Young v. Erie Iron Co., 65 Mich., 111; Whitehill v. Jacobs, 75 Wis., 474; Hospes v. The N. W. Mfg. & Car Co., 48 Minn., 175.
    The fraud in such cases consists in the misrepresentation as to the actual amount of capital upon the faith of which persons have dealt with the corporation and give it credit. 1 Cook on Stock and Stockholders, sections 28 to 48; Subject ‘ ‘Watered’ ’ Stock and the numerous authorities therein cited, Van Cott v. Brunt, 82 N. Y., 535; Barra v. N. Y., L. E. & W. R. R. Co., 125 N. Y., 263, 273; Christianson v. Eno, 406 N. Y., 97; Commonwealth v. Railway Co., 52 Pa. St., 506, 515; Stoddard v. Foundry Co., 34 Conn., 542; Stewart v. Railway Co., 41 Fed. Rep., 736; Du Pont v. Tilden, 42 Fed. Rep., 87; 37 Kansas, 606-653; 2 Morawetz on Corporations section 830.
    There is another line of eases which treat the question somewhat differently, but reach the same result and refuse to hold subscribers and stockholders from whom the corporation has received the fair market value for shares taken by them. Clark v. Bever, 139 U. S., 97; Fogg v. Blair, 139 U. S., 118.
    It seems to us that the only reason or theory upon which future creditors would have a right to attack a transaction of this character would be because the apparent or nominal value of the capital stock is not represented by money or property of an equal amount, and that, in a certain sense, they have been misled into extending* faith and credit to the corporation.
    We call attention right here that no creditors in this action nor the representative of the creditors (Latto, Trustee, etc.) assert that credit was extended to this corporation on the supposition that it had $75,000, of property as the proceeds of the sale of its capital stock.
    We think it can safely be asserted that in not one case in a hundred, occurring in commercial transactions, is any reliance placed upon the amount of the capital stock, and, it is equally rare to find that the capital stock truly represents the company’s property which the creditors can subject to payment of their claims. Cook on Stock and Stockholders, section 16.
    From the authorities we deduce this rule that the corporation may take in payment of stock whatever is suitable for its uses, and if it takes it at a valuation that is satisfactory to it, and if the transaction is free from fraud, the stock so issued is always to be regarded as fully paid. And this is especially true of mine and quarry property (being of exceedingly fluctuating value). But, if the value of the property is merely nominal, or almost entirely fictitious, the transaction may be impeached.
    
      Thifrcl — -We contend, next, that McLain parted with his stock early in 1888; it was transferred on the books to E. B. Cornell and he was accepted by the corporation instead of McLain.
    Let us assume that McLain paid but 50 per cent, on his subscription; when his stock was'transf erred of record and his transferee was accepted by the company, the latter assumed all liability for the balance due.
    There is no privity of contract between stock subscribers and creditors; the latter must work out their rights through the corporation. If it decides to accept a transferee and release the first subscriber, the bargain is binding on all. Cook on Stock and Stockholders, section 254-5, and numerous cases there cited; Pullman v. Upton, 96 U. S., 328; Tucker v. Gillman, 121 N. Y., 189; Gilmore v. Bank, 8 Ohio, 62.
    
      Fourth — The referee having determined that McLain and Cornell were both liable in respect to the stock which McLain had transferred to Cornell, because the subscription therefor, was only half paid, further held as between them that McLain’s liability was primary and Cornell’s secondary. This finding we presume to be based on the other finding that McLain transferred the stock to Cornell “as full paid stock.” But let us interpret that finding in connection with others. “The sale of this stock by McLain to Cornell, was made for value and in good faith, and was sold by McLain and purchased by Cornell as full paid stock, paid for in the manner already stated. ’ ’
    E. B. Cornell was an original subscriber so Cornell knew how and to what extent the stock was paid for. He did not pay McLain full value, but paid value for the stock. Is it to be presumed he paid McLain on any other basis than the actual assets of the company, to-wit: the quarry property transferred to it, subject to the increase or decrease of property as a result of the first year’s business ? Not very likely.
    Were he a stranger relying,on McLain’s statement that the stock was fully paid, then his transferror should protect him.
    To say it was sold as “fully paid stock” is a mere play upon words ; Cornell knew it was paid in property and knew the value thereof.
    Let us suppose the corporation sued its stockholders for the remainder due and the court declared that in fact only 50 per cent, had been paid, and rendered judgment against both McLain and Cornell; who should pay it; McLain or Cornell?
    McLain is out and the benefit of further payment could not enure to him ; Cornell is in — is a stockholder and will have his proportionate benefit of the funds realized by the company; plainly he should pay the balance due and not his transferror.
    
      Fifth — There remains another part of the report and judgment below, equally prejudicial to plaintiff; especially so, if the judgment on stock subscription is reversed.
    It must be remembered that McLain ceased to be a stockholder of record, February 21, 1888. Many creditors plead their claims by petition and answers, others are represented in the answer of Latto, Trustee. It will be found on examination of the pleading (and the list of claims attached thereto and also several pleadings attached to the original petition in error, but not in the printed record) that these debts originated in 1889.
    
      D. A. Hollingsworth and Warner M. Bateman, for defendants in error.
    In Ohio the liability of a stockholder is regulated by section 3, article 13, of the state Constitution, and by section 3258 of the Revised Statutes.
    They provide that “each stockholder shall be liable, over and above the stock by him or her owned, and any amount unpaid thereon, to a further sum, at least equal in amount to such stock. ’ ’
    This provision is intended for the protection of creditors and is not a mere regulation to be observed by stockholders among themselves. It is the guaranty which the law holds out to all persons who deal with a corporation. Brown v. Hitchcock, 36 Ohio St., 667.
    
      Ohio courts have uniformly upheld these safeguards. Henry et al. v. Vermillion and Ashland R. R. Co. et al., 17 Ohio, 187.
    This latter case has been the keystone of Ohio decisions ever since. In Noble, Admr. v. Callendar et al., 20 Ohio St., 199, almost the identical question now raised was settled adversely to the position of counsel.
    The only express agreement shown as to value is that made among the owners of the property before the corporation was in being as to what they would allow themselves, as its managers, after it was formed.
    It is true that a corporation may bind itself in a proper case, without formal entry or order of its stockholders or directors, by the parol act or agreement of its officers.
    But in this case, that would not be binding on the corporation, for the reason that the owners of the property were its officers and could not represent the corporation, as trustees or agents, in negotiating an agreement with themselves. They cannot be on both sides of the contract.
    1. The directors of a corporation are its agents in the conduct of its business, and are trustees for the corporation, its stockholder and creditors. They are agents of the corporation in the management of its business ; and, as such, must exercise all their power for its benefit and its creditors and stockholders as cestui que trust. 3 Thompson on Corporations, section 3967.
    They occupy a fiduciary relation as trustees towards the stockholders. 3 Thompson on Corporations, 4009, 4010; 3 Thompson on Corporations, 4017; Wardell v. Railroad Co., 130 U. S., 651; Cook v. Sherman, 20 Fed. Rep., 167; Thomas v. 
      Brownsville, etc., Co., 109 U. S., 522; Aberdeen Ry. Co. v. Blackie, 1 McQueen, 461; Hoffman Steam Coal Co. v. Cumberland Coal & Iron Co., 16 Md., 450; 30 Barbour, 553; Cov. & Lex. Ry. Co. v. Bowler et al., 9 Bush., 468; Meeker v. Winthrop Iron Co., 17 Fed. Rep., 48; Bissitt v. Kentucky Riv. Nav. Co., 15 Fed. Rep., 353; Bolton Carbon Co. v. Mills, 78 Iowa, 460; Osgood v. King, 42 Iowa, 478; Rolling Stock Co. v. Railroad Co., 34 Ohio St., 460; Goodin v. White Water Canal Co., 18 Ohio St., 169.
    This rule is an assertion of a fundamental principle of honesty and good faith in the performance of trusts that has been enforced by the courts of all civilized countries, and especially by the courts of England and the United States. In every form in which a trustee or agent has sought to benefit himself by the use of his trust or his agency, the rule has been strictly applied. Dimes v. Proprietors of the Grand Junction Canal, 3 House of Lords Cases, 759; State v. Standard Oil Co., 49 Ohio St., 137; Osgood v. King, 42 Iowa, 478; Hoffman Steam Coal Co. v. Cumberland Coal & Iron Co., 16 Md., 450; Gardner v. Butler, 30 N. J. Eq., 702; Flanagan v. Great Western Ry. Co., L. R. 7 Eq., 116; Butts v. Woods, 37 N. Y., 317; Coleman v. Second Ave. Ry. Co., 38 N. Y., 201; Great Luxembourg Ry. Co. v. Magnay, 25 Beav., 586.
    The plaintiff and his associates, directors of this company, made a contract of subscription to its stock, which they are bound to pay. The corporation has taken and used théir land, for which they are entitled to recover from it what it is worth, which they must show. When the amount of their claim for the land is ascertained they may have it applied upon their indebtedness upon their stock subscription as a set-off or a payment thereon.
    2. But there is another principle now fully established as the law of this state. It is that the subscription to stock constitutes a trust fund, of which directors of the corporation are trustees for benefit of creditors of the company, that cannot be released, given away or distributed among stockholders to the.prejudice of creditors of the company. This is on the principle that as the corporation is a fiction in fact, but permitted to transact business as a person, in place of direct personal liability for its debts, there shall and must be provided a real capital as a security to those dealing with it. Taylor v. Miami Exporting Co.,5 Ohio, 162; King v. Armstrong, 50 Ohio St., 222; Scoville v. Thayer, 105 U. S., 143; Handley v. Stutz, 139 U. S., 417.
    This trust character of corporation capital and trust relationship of the board of directors to it, has been clearly stated in Rouse v. The Merchants' National Bank, 46 Ohio St., 501, et seq.; Upton v. Tribilcock, 91 U. S., 45.
    The cases are numerous in which, in every form, courts have defeated any attempt to satisfy the subscription of a stockholder for anything less than the full payment of the amount. The authorities are fully collected and discussed by Thompson in 2 Corporations, section 1511, et seq., as to the release of the contract of the subscription ; and section 1562 et seq., as to their payment. Sawyer v. Hoag, 17 Wall; Union Mutual Life Ins. Co. v. Frierstone Mfg. Co., 97 Ill., 537; 2 Morawetz on Corporations, 588, 591, and other authorities.
    '3. The plaintiff, in his brief, contends that a contract for.the.payment of the subscription.in property is a valid one, subject only to be set aside upon grounds of fraud.
    The first clause of this proposition is at variance with the two cases in 17 Ohio and 20 Ohio St., above quoted. But whether such a contract is valid or not is immaterial to this case, and foreign to the real question it presents. The owners of the property conveyed the property to the corporation; as they had the title and power to do. The corporation could receive it as property suitable for jits use. But they have no power, as we have above shown, to contract, in behalf of the corporation, with themselves; or, in other words, to bind the corporation by their own conclusion as to what they should receive for the property, or how that should be paid. They can not make a bargain of it with themselves.
   Bradbury, J.

The only question which this opinion will consider relates to the liability of James H. McLain upon his subscription to the capital stock of the Tippecanoe Stone Co. The court of common ;pleas held him liable and its holding was sustained by the circuit court. This holding rests upon a finding of fact made by a referee to whom the cause was, by order of the court of common pleas referred, with directions to hear the evidence and report his findings of fact made thereon, separate from his conclusions of law. A brief reference to so much of this finding as relates to the question now under consideration will be made.

McLain, William Thornburg and Oscar Townsend, in the year 1887, owned and were operating, as partners, a certain stone quarry, stone saw mills, etc., at Tippecanoe, Harrison county, in this state; McLain owning one-half, the two other partners each one-fourth. The fair value of partnership property was $37,500. The partners entered into an agreement among themselves to capitalize this property at an estimated value of $75,000, organizea corporation with a capital stock of $75,000, transfer the property to it at this estimated value, and in payment of the. property issue to themselves paid up corporate stock to an amount equal to this estimated value. Accordingly steps were taken to accomplish this end, which resulted in the incorporation of the Tippecanoe Stone Company, under the laws of this state with a capital of $75,000. At once, upon the completion of its organization, the partnership property was transferred to the corporation at the price previously fixed, and in exchange therefor, the entire stock of the corporation was issued to the partners,.or their assignees, as fully paid up. The business was conducted by the corporation for about two and one-half years, when it became insolvent and by force of an assignment under the in solvent laws, passed into the hands of Thomas A. Latto as trustee for the benefit of creditors, who now seek to recover of James H. McLain, as unpaid subscription upon the stock issued to the latter, the difference between the par value of that stock, and the value of the property transferred by him for its payment.

The capital stock of the corporation was $75,000, which being divided into shares of $100 each, aggregated seven hundred and fifty shares. McLain, as he owned a moiety of the partnership property, was, under the agreement to capitalize it as before mentioned, entitled to receive one moiety of the corporate stock, or three hundred and seventy-five shares; he, however, assigned the right to receive one hundred of these shares to another, so that in the division of the shares only two hundred and seventy-five of the par value of $27,-500, fell to him. The value of the partnership property being only $37,500, just one-half the sum at which it was capitalized, it follows that McLain, in payment for two hundred and seventy-five shares of stock of the par value of $27,500, transferred to the corporation property having only one-half that value, or of the actual value of $13,750 only. This entire transaction was found to have been conceived and conducted in good faith, that is without any purpose to defraud those who, by dealing with the corporation, might subsequently become its creditors, or any one else.

The Constitution of 1851, and the statutes passed since its adoption, evince great solicitude for corporate creditors. Their security has become, in a certain sense, a part of the public policy of the state. The subject was regarded sufficiently important by the convention that framed our present Constitution to merit special attention; accordingly section 3 of article 13 of that Constitution, provides that “dues from corporations shall be secured by such individual liability of the stockholders, and other means as may be prescribed by law; but in all cases, each stockholder shall be liable, over and above the stock by him or her owned, and any amount unpaid thereon, to a further sum, at least equal in amount to such stock.” Subscriptions to the stock of a corporation are prima facie payable in money. Neither the constitutional provision on the subject of corporate dues, nor the statutes of the state contemplate any other mode for their payment. Notwithstanding all this however, we do not wish to be understood to deny to corporations, created under the laws of this state, the power to exchange their stock for specific property. Many cases may be conceived where such an exchange would be for the benefit of the corporation; or even if not ultimately advantageous to the corporation yet being made between the corporation and one who dealt with it at arms length and in good faith should be deemed binding upon both parties.

The question has received the attention of many able courts, and decisions, respecting the circumstances under which a corporation may receive something else than money in payment of subscriptions to its stock have not been harmonious. In quite an early day this court held that “an agreement attempting to secure any stockholder the privilege of paying up subscriptions in store goods or otherwise, except in money, will be treated as a fraud upon other stockholders,, and payment in money enforced.” Henry et al. v. The V. & A. R. R. Co. et al., 17 Ohio, 187. If such an arrangement is a fraud upon other stockholders, it would seem to be equally so as to corporate creditors. In Noble, Admr., v. Callender et al., 20 Ohio St., 199, it was held: “A subscriber for shares of stock in a railroad company which is.not authorized by the law to receive land in payment for its stock cannot in an action against the stockholders of the company, by its creditors, set up or avail himself of the benefit of a collateral agreement between himself and the company, to the effect that the amount of his subscription was to be paid in land.” * * *

In this case the contract to pay the subscription in land was eon temporaneous with the subscription, and the subscription would not have been made, had it not been payable in this way, and yet it was not allowed to prevail.

The eases under consideration present an aspect much more favorable to creditors than either of the two cases above noticed, possessed. It is only by a fiction of law that it can be claimed that any contract whatever was made between the corporation and McLain respecting this exchange of its stock for his interest in the partnership property. The finding of fact shows that he subscribed for two hundred and seventy-five shares of the capital stock of apar value of $27,500. The obligation imposed upon him by this subscription was to pay for it in money at its par value. ■ There were but five stockholders of which he was one, he must have been a director of the corporation and the finding shows he was at the time its president. On the same day that he made his subscriptions, and it would seem contemporaneously with it, the entire number of shares he had subscribed was issued to him as fully paid up, the sole considera* tion being the transfer to the corporation of the partnership property. No negotiations of any kind appear to have been had between him and the corporation. Whatever contract was made between them resulted not from any negotiations, but from their acts. On the same day, and the inference is, at the same time, he subscribed for the stock, transferred his interest in the partnership property to the corporation, and in exchange therefor received fully paid up shares of stock to the number he had subscribed, the par value of which was just double the property he transferred to it. Doubtless the inference to be drawn from this transaction is that the corporation agreed to accept his interest in the partnership property in full payment of the shares of its stock he had subscribed and it is equally inferable from this transaction that he would not have subscribed for these shares had the subscription not been so payable. However the utmost formality would have added no sanction to such an agreement. The directors might have formally voted to buy this property at the estimated price and to issue paid up shares of its stock in payment, and entered upon their minutes a resolution to that effect. Nevertheless the courts would sweep aside these formal acts and view the transaction as it actually occurred, when it would have appeared that it was the result, not of any actual negotiations between him and representatives of the corporation but of a previous contract made by the three partners among themselves, by which the partnership property was to be estimated at double its actual value, a corporation formed, and this property transferred to it at this inflated value, and fully paid up shares of stock issued to the partners, or as they might direct, in the proportion that they were interested in the partnership property.

Although this may all have been done in the utmost good faith, and without an evil intention towards those who, by subsequently dealing with the corporation, might become corporate creditors, nevertheless the fact remains that these corpora-tors held out to the world that the concern they had created, and represented had a fully paid up capital of $75,000, whereas, in fact, its captial was one-half that sum only. They might have honestly belived that a career of prosperity lay before the enterprise which they had thus launched upon the commercial world; yet they cast upon others a considerable share of the risks that might attend it. Notwithstanding the frequency with which corporations are created with fictitious capital, persons who have occasion to deal with those organized under the laws of this stateand doing business within its borders, are not bound to anticipate this condition of its affairs, but may assume that it is what it purports to be.

This attempt by McLain and his associates to dispose of their property at a fictitious or inflated value, to a corporation of their own creation, — one designed, and brought into existence, chiefly for that purpose — should be regarded as a fraud upon the subsequent creditors of the concern, although no evil intent accompanied the transaction and the difference between the actual and the inflated value of the property so conveyed should be deemed unpaid subscription upon the stock issued in this way, whenever necessary to protect the rights of the corporate creditors. What might be the rights of a creditor who, with full knowledge of the acts of these corporators, and of the inflated value of the property transferred to the corporation, choose to extend credit to the concern we need not inquire, for that question is -not raised in the record.

Judgment affirmed.  