
    The National Tube Works Company, Resp’t, v. William J. Gilfillan, App’lt.
    
    
      (Court of Appeals, Second Division,
    
    
      Filed January 22, 1891.)
    
    1. Manueactubins companies—Laws 1848, chap. 40, § 10—Liability op STOCKHOLUEB POB NON-PAYMENT OP CAPITAL STOCK.
    All that the statute requires to make a stockholder liable is that a valid debt shall he 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.
    2. Same.
    The Brooklyn Marine Power Company was organized September 18, 1884, with a capital stock of $300,000, divided into 600 shares, none of which were paid for in cash, or otherwise than by the transfer of a lot of unpatented inventions by one Bliven. Two hundred shares were donated to the company, 100 shares to defendant in payment of a debt of $15,000, 10 shares to one Baxter in payment of an old debt of Bliven to him of $2,500, and 27 shares to qualify persons as trustees and to induce them to act. Reid, that 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, and that the stockholders were individually liable.
    3. Same—Object op the statute.
    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 liable for an amount equal to the stock held by them respectively.
    Appeal from a judgment of the general term of the supreme court in the first judicial department, affirming a judgment for plaintiff entered on a verdict, and also affirming an order denying a motion for a new trial.
    Action by a judgment creditor of the Brooklyn Marine Power Company, a corporation organized under chapter 40 of the Laws of 1848, against the defendant as a stockholder of said company, to recover a debt pursuant to § 10 of said act, upon the ground that the capital stock had not been paid either in cash or in property fairly worth the par value of the stock issued.
    While the answer put at issue all the allegations of the complaint, which was in the usual form in such actions, upon the trial there was no question as to the right of the plaintiff to maintain the action, provided there had been a violation of said section.
    
      Charles H. Luscomb, for app’lt; Alfred Jaretzky, for resp’t.
    
      
      Affirming 11 N. Y State Rep., 533.
    
   Vann, J.

The substantial issue in this action was whether the property procured in exchange for stock was purchased at an overvaluation, 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 overvalued 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 by 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 company itself; 100 shares, par value $50,000, for the defendant (in payment of a debt of $15,000 owing him by Bliven); ten shares, par value $5,000, for one Baxter (in payment of an old debt of Bliven to him of $2,500); twenty-seven 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 ^o induce them to become trustees? 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 “ were not only worth less than the price agreed to be ¡¡aid for them, but that 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 Brooklyn 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 by 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. 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 immaterial. 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. Laws 1848, chap. 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 liable for an amount equal to the stock held by them respectively. 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.  