This suit was commenced October 16, 1882, by appellee as receiver of the Texas Continental Meat Company, a Texas corporation, in the District Court of Victoria County, against certain stockholders of said company, some of whom were alleged in said petition to have been original subscribers to the capital stock of said company before its organization, or before its charter was filed, as shown by the following agreement, to-wit:
"VICTORIA, TEXAS, October 17, 1882.
"We, the undersigned, agree with Captain A. F. Higgs and with each other to subscribe for and hereby subscribe the amounts set opposite our respective names to the capital stock of the Texas Continental Meat Company, a corporation to be chartered under the laws of Texas, with headquarters at Victoria. The said company is to be stocked at $500,000, and we are to receive $2 of said stock for every dollar of cash subscribed. The amount of the capital stock not subscribed for or otherwise disposed of to remain in the company as reserve. It is further agreed, that should our whole subscription not be required, we will take stock in proportion to our subscriptions."
The charter, it is alleged, was filed on the 20th day of October, 1882. That at a meeting of the stockholders held soon after the filing of said *Page 72 charter the board of directors of said company was authorized to issue for cash subscriptions shares of full paid stock of the company at the rate of $2 in stock for $1 in cash, such issue not to exceed $120,000, and said directors were to contract with Captain A. F. Higgs for the issuance to him of one-fourth of the capital stock as disposed of in the way of a bonus, and for certain rights, and to retain in the treasury of the company as a reserve the balance, to be disposed of as the growth and necessities of the company require. That by reason of the issuance of said stock two for one to each of said subscribers, each of them became liable to pay to said corporation the par value of said stock so agreed to be issued by said company to them and each of them, with interest.
The petition then shows, that after the organization of said Texas Continental Meat Company, and its actual commencement and transaction of business at Victoria, the said company made and entered into the following contract for the extension of its business at the city of Fort Worth, in Tarrant County, Texas, and for other and further subscriptions to its capital stock, which contract is in writing, executed and delivered for the consideration therein stated by the persons whose names are signed thereto, to-wit:
"FORT WORTH, TEXAS, August 4, 1883.
"We, the undersigned, agree to subscribe and hereby do subscribe the sums of money set opposite our respective signatures to the capital stock of the Texas Continental Meat Company, a corporation created by and existing under the laws of Texas, and having its domicile in Victoria, Texas. And we offer said subscriptions to said company under the following stipulations and conditions, to-wit:
"1. That said company shall erect and operate as soon as possible, in or in the immediate vicinity of Fort Worth, a slaughter house, capable of killing, storing, and shipping not less than 250 grown cattle per diem.
"2. Should one-half the sum necessary to erect, equip, and operate said house be less than the amount of our subscriptions, only such a portion of our subscriptions shall be called for as will be equal to said half; provided further, that our subscriptions, or any portion thereof, shall be subject to call at any time until April 1, 1884, and that any portion thereof not then called in by said company shall by said company and by us be considered null and void.
"3. That for our said subscriptions we shall receive certificates of stock in said company in the following proportion, to-wit, for $60 cash we shall receive $85 in stock; provided, that we shall not be entitled to any issue of stock until we have responded to each call to the amount of our respective subscriptions, and that if we shall fail to pay any installments all previous payments shall be forfeited; provided, however, that when our certificates of stock are issued our rights, duties, obligations, and privileges shall relate back to the time of the acceptance of this offer. *Page 73
"4. That immediately after the acceptance hereof by the company, the charter shall be so amended as to provide for thirteen directors, of whom six shall be immediately elected from the undersigned; but this agreement shall not operate so as to guarantee the election of parties who shall cease to own any stock, or dispose of so much as to be only nominally stockholders; that this shall have the full force and effect of a contract whenever accepted by said company, and the collections of said subscriptions may be enforced as any other debt or obligation."
And the persons who subscribed said instrument, some forty in number, were also made parties defendant, and with reference to the liability of whom the following allegations were made: "That the instrument aforesaid was delivered by said subscribers to said company at Victoria on the 25th day of August, 1883, and was then and there submitted to a meeting of the stockholders of said company, then and there assembled, for action thereon. That said stockholders' meeting, then and there acting in behalf of said company, did adopt the following resolution of acceptance of said proposition, to-wit:
"Resolved, That the proposition made to this company by J. P. Smith, H. C. Edrington, and others, of Fort Worth, Texas, under date of August 14, 1883, be and is hereby accepted, reference being had to the communication of August 25, 1883, from A. F. Higgs, Esq., and that the directors of this company be and are hereby empowered to do all things necessary to comply with the undertaking required of this company by said proposition. That the secretary of the company be directed to spread a copy of said proposition on the books of this company, and to officially transmit as the acceptance of said proposition a copy thereof, a copy of this resolution, and of said communication from A. F. Higgs, together with copies of any other proceedings of this body and of the directory as may be pertinent to the contract consummated by the acceptance of this proposition, to Fort Worth, for the examination and information of the signers of said proposition, notifying each subscriber of the acceptance of the proposition and where such copies can be seen and examined."
Plaintiff's petition alleges, that in pursuance of said contract the said Fort Worth subscribers elected their six directors, who, with an assistant secretary and treasurer, took immediate charge and management of the business of said corporation at Fort Worth, under the general direction of the whole board of directors, and that said corporation erected the slaughter house named in the contract, and proceeded to operate the same and continued to transact business at Fort Worth for sometime; and that by reason thereof, and by the execution and delivery of said contract and its acceptance as aforesaid, they and each of the subscribers to said contract became bound to pay to said company the full amount of the stock they contracted to be issued to them, to-wit, for each $60 of cash subscribed *Page 74 $85, the amount of stock they were by the contract to receive. That so far as said subscription in cash was paid by said subscribers, the stock for $85 for every $60 paid was issued to them and each of them in proportion to his payment; that they had, each and all of them, contracted for $85 of stock for each $60 paid by them and each of them, and that by reason of said contract they were bound to pay, if necessary to secure the solvency of said company, the whole par value of the stock contracted to be issued to them and each of them. Plaintiff further alleges, that none of the subscribers have paid any more than the proportion of $60 for each $85 issued or to be issued to them. It was alleged that some of them had not paid the full amount they agreed to pay.
The petition then proceeds to set out the amount for which each of said Fort Worth defendants is liable.
The petition further alleges, that other defendants sued therein did not sign either of the contracts of subscription to the stock of said company, but bought stock at a discount and became liable and bound themselves to pay the par value of the stock issued or to be issued to each of them, the balance due thereon against each of said subscribers being stated as above.
The plaintiff then proceeds to show, that he was appointed receiver of all the property of said corporation by the District Court of Victoria County on the 16th day of April, 1884, at the suit of Ayres Cannon et al., creditors of that company; that he had duly qualified; and that he brings this suit by virtue of an order of said District Court, as follows:
"In this cause the motions of Fagan Osgood, the Sterne Fertilizer and Chemical Manufacturing Company, the New Orleans National Bank, creditors of the Continental Meat Company, defendant in this cause, coming on to be heard by the court, and it appearing to the court from the report of the receiver and from the record in this cause that all the property of said defendant, the Texas Continental Meat Company, has been sold under the order of this court, and that the proceeds thereof are not sufficient to pay the debts of said defendant company as the same have been proved in this case and have been approved by the orders of this court, and that there is still a large indebtedness of said defendant company unpaid, and that said unpaid indebtedness will be lost to the creditors of said defendant company unless the stockholders of said company be compelled to pay any balance or balances which may be due from each and all of said stockholders upon subscription of stock made by them or any of them or upon the stock of said company which has been issued to them or each of them.
"Now, therefore, the motion of said creditors is granted, and F. R. Pridham, receiver in this case, hereby ordered, directed, and empowered to institute proceedings at law or in equity to enforce the payment of any balance of stock which is unpaid upon subscription of stock made by *Page 75 them or either of them or upon certificates of stock issued by said defendant company to any one or all of said stockholders, for the use and benefit of said creditors moving herein, and of all other creditors of said defendant company whose claims have been approved by this court; and that any sum or sums recovered in such legal or equitable proceedings be reported to this court in order that it may be distributed under the direction of this court among said creditors. In case any of the stock of said company has been transferred or assigned and such assignment accepted by any person or persons, it is ordered that such person or persons be included in this order and sued as stockholders. This order is made without prejudice to any legal or equitable defense which any one or the whole of said stockholders may have or make against such proceedings as may be taken against them or either of them."
Plaintiff further alleges, that in the suit 1928 he had been appointed auditor to audit the claims of creditors against said company, and that he had audited and approved claims, which were afterwards approved and allowed by the court on May 30, 1885; and the order appointing him auditor, his report as such, specifying claims allowed, and the order of the court approving and allowing them, with a list thereof, were all attached as exhibits to the petition. The claims they established aggregated $85,394.01, and that other claims amounting to $5315 were afterwards allowed by the court as valid debts against said company, which were also specified in exhibit. The whole indebtedness of said company, as allowed and approved by the court, aggregated $90,682.78; that the receiver had paid to the creditors aforesaid the sum of $10,483.92, and that there now remains due and unpaid the sum of $80,198.86, with interest, and that there is no property or assets of said company to meet said debts, but that said company is totally and hopelessly insolvent.
Plaintiff then prays for judgment of such amount against each defendant as may be sufficient to pay off the indebtedness due by said company.
The petition alleged residence of some of the defendants to be in Victoria County and of others to be in various other counties of the State.
All defendants except those residing in Victoria County excepted to the petition because it showed that they were improperly sued in that county, and showed no right of Pridham to sue in his own name as receiver. They also duly pleaded their residence in other counties and their privilege to be sued there.
General demurrers and special exceptions were taken to the petition on the following grounds:
1. Misjoinder of parties defendant, because of lack of privity or joint obligation between the different defendants.
2. Misjoinder of distinct causes of action.
3. Because recovery was sought for excess of face value of stock over the amounts paid therefor, when such excess in the issue of stock was void. *Page 76
4. Because the receiver sets up a cause of action upon which the corporation could not recover, and does not show that he is entitled to represent the rights of creditors, or set up any liability of such defendants to such creditors.
5. Because the petition fails to state facts showing liability of the company to the creditors named.
6. Because the allegations as to the allowance of claims in the receivership proceeding are not sufficient to show the establishment of the debts.
7. Because the petition fails to state the facts out of which each debt grew, with the names of the creditors and dates of accrual.
8. Because the amended petition (the same above stated) sets up a different cause of action from that originally alleged, and because the right thus asserted is barred by limitation.
The defendants sued on the Fort Worth contract further excepted specially to the petition, on the grounds that the contract made their liability to depend on conditions not alleged to have been performed, viz.:
1. The erection and operation of a slaughter house at Fort Worth.
2. That if one-half of the cost of erecting, equipping, and operating the slaughter house should be less than the amount subscribed, only such portion of that amount should be called for as would equal one-half of such cost.
3. The right of subscribers to forfeit amounts paid and refuse to take stock.
4. That the charter was to be amended so as to provide for thirteen directors, etc.
5. That the capital stock was to be $500,000 paid up, and no allegation that all had been paid or subscribed for.
The original petition was not so full as the amended petition in regard to the claims of creditors.
It charged that by their subscriptions the defendants became liable to the corporation for the par value of the stock. It did allege, however, that plaintiff sued as receiver appointed in the suit of Ayres Cannon, by virtue of the order of the District Court of Victoria County, set up the amount of debts established against the corporation, and the insolvency of the corporation, and with these differences we infer that it was the same as the amended petition. It is not in the record, but there is an agreement partially stating its contents.
Several of the defendants sued as signers of the first contract pleaded in setoff debts which they alleged the corporation owed them for money advanced to it by them while operating its business.
The Fort Worth defendants pleaded general denial, and special pleas as follows:
1. That their signatures to the contract sued on were procured by false *Page 77 representations made by the corporation through its officers as to its indebtedness and business prosperity.
2. That neither Pridham, as receiver, nor the corporation was the owner of the claim sued on, and that neither has any right or title to or interest in the claim sued on, but that it had been adjudged to Ayres Cannon.
3. That the charter of said meat company provided for a capital stock of $500,000, divided into 5000 shares, be fully paid up; that there never has been but 3000 shares of said stock subscribed for, and that the subscription books of said company have long since been closed, and that therefore the said subscription is not binding upon them.
4. That prior to the 14th day of August, 1883, the company had organized under its charter and had commenced business, and that the instrument signed by the defendants is not an original subscription of stock, but the stock referred to therein was of the residue of stock belonging to said company which had not been subscribed for or disposed of prior to said 14th day of August, 1883; and that the directors and stockholders did thus determine and agree and dispose of the same as provided in said contract; and that at the time of signing of said instruments by defendants, the stock of said company was not worth in the market more than $60 for $85 face value, and intrinsically was not worth anything; that said contract was entered into on the part of the defendants in good faith and for the benefit of the company, and that they had paid to said company an amount of money set opposite their names in contract.
5. Limitation of two and four years.
6. That by the terms of the contract sued on it was agreed that one-half the cost of building and equipping refrigerating works at Fort Worth should be paid by the meat company, and that defendants who signed the contract of August 14, 1883, should pay the other half and no more; and that it was further provided in said contract, that if one-half of the sum necessary to locate, equip, and operate said houses be less than the whole of said subscription, as shown in said contract, only such portion of said subscription should be called for as would be equal to said half; that said equipments and building in full only cost the sum of $60,000, and by reason thereof these defendants would not be liable in any event for more than one-half of said subscription, and that they have paid more than the legal amount due from them to said company.
7. That at the time they signed said contract as aforesaid, and in order to induce them to do so, the said company represented to them that it was amply able to and would furnish one-half of the money necessary to purchase, locate, and equip the houses at Fort Worth, and that the signers of said contract would only have to furnish the other one-half; that said statement was false and untrue, and was made to deceive the said defendants, and by reason of said statement and others *Page 78 hereinbefore pleaded that defendants were induced to sign their names to said contract, and that they would not have done so except for the fact that they believed in and relied on said statements as true, and did not know that they were false and untrue.
8. That the creditors named in the petition, so far as their claims accrued before defendants signed said contract, did not contract with said company or extend credit to it on the faith or credit of the defendants' subscription to said contract; and all the creditors whose claims accrued after the defendants signed said contract had full knowledge of the terms and conditions upon and by which defendants were to obtain stock in said company, and consented and acquiesced therein at and before the time such credit was extended to said company and at and before the creation of said debts.
9. That defendants after making payments as alleged elected to forfeit the amount so paid by them on the said subscription or contract of purchase, and to forfeit their right to demand and receive any of said stock of said company, and never did demand or receive from said company any of said shares of stock, and are therefore not liable any further on said contract or otherwise.
The plaintiff demurred generally to all the pleas in abatement, and filed the following special exceptions, all of which were sustained by the court:
1. To the plea setting up fraud on the part of the company and its officers in procuring subscription to said paper sued on, because fraud between the corporation and stockholders themselves can not affect the creditors of said corporation.
2. To the plea setting up illegality of the alleged issue of stock, because the defendants participated in the alleged illegal act and became members of the corporation, and are therefore estopped from denying their liability to creditors.
3. To the plea that the charter of said meat company fixed the capital stock at $500,000 fully paid, and that the full amount was never subscribed, because said stockholders were bound to the said creditors for any subscription by them made, whether the whole stock authorized by the charter of said corporation was subscribed or not.
4. To the plea of defendants setting up payment in full for the stock as subscribed for in said contract, because each defendant is bound to creditors to pay the par value of the stock contracted for.
5. To the plea setting up that the stock issued to them in excess of the amount paid to them was illegal, because acceptance of said stock binds the defendants to pay the par value thereof to creditors.
7. To the plea setting up offset and counter-claim made by the Victoria defendants on ground that it could not be allowable against creditors.
8. To the plea of limitation of two and four years respectively pleaded *Page 79 by defendants, because in an action of this character the statute of limitations, as pleaded, can not avail the defendants as a defense to plaintiff's action.
9. To the plea setting up that the company agreed to pay one-half of the cost of building and equipping refrigerator works at Fort Worth, because said plea offers no defense to the action for the use of creditors.
10. To the plea setting up that the defendants were induced by false representations made by the officers and agents of the company to sign the contract, because the same can in no way affect plaintiff's rights to recover herein.
11. To the plea alleging right to forfeit the amount paid on the subscription contract, and that defendants did not demand or receive shares from the company, because defendants, as their pleadings show, were in a position to demand the rights and benefits of shareholders.
The court overruled all exceptions to the petition except those based on the failure of plaintiff to allege the facts showing the liability of the corporation for the debts set up in the petition. The plaintiff was required to amend so as to show the name of each creditor, the amount due him, the date at which it accrued, and the date of its approval by the court; and this having been done, all exceptions to the petition were overruled. All the exceptions above stated to defendants' pleadings were sustained. There is no question arising upon the pleadings of defendants except those so set out, and it is unnecessary to state such pleadings.
The cause was tried before the judge without a jury. In the progress of the trial the plaintiff introduced G. A. Levi, who testified that he had been secretary of the meat company at Victoria and that H. C. Edrington was the secretary at Fort Worth; that he as such secretary received from Edrington a certificate or statement showing names of Fort Worth subscribers, amount subscribed, amount paid, number of certificate, number of shares and value; that this was sent for his use in issuing the stock; that Edrington wired him not to issue the stock, but send blank certificates to him (Edrington) and let him issue them. Plaintiff then offered the statement in evidence, for what purpose is not shown. It was signed "H. C. Edrington, Loc. Sec. and Treas." Defendants objected to it, because its execution was not proved; it was hearsay, ex parte, and secondary. The execution of the paper having been shown, the court admitted it in evidence, and defendants excepted.
Among the creditors for whose benefit the suit is brought are the New Orleans National Bank, the State National Bank of New Orleans, C. M. Soria, Adoue Lobit, Fagan Osgood, Osgood Gray, Texas Continental Transportation Company, and Ayres Cannon.
The defendants attempted to show notice to each of these creditors of the agreement between the corporation and the stockholders for the taking *Page 80 of stock by the latter at less than par. The court below found that none of them had notice.
A. Baldwin was president and William Palfrey cashier of the New Orleans National Bank, and I. H. Kennedy president of the State National Bank.
It was shown that in the efforts of the promoters of the meat company to sell stock to Baldwin and Kennedy individually, each of them was informed of the fact in question a month or two before the credit was extended by their banks to the company. It is not made to appear how those debts were created, or that either Baldwin or Kennedy acted for the banks in creating the debts. It was also shown that a director of Baldwin's bank was present when Baldwin received the information. Palfrey was also shown to have been informed of the nature of the subscriptions for less than par value of stock, but whether before or after the debt to his bank originated does not appear.
It was shown that Soria knew all about the terms upon which stock was issued before his claim against the company accrued, but how long before it is not shown; nor does it appear that his receiving knowledge had any connection with the extension of credit to the company, or was in such relation to it that he might be presumed to have remembered it when the debt was created.
Adoue, of the firm of Adoue Lobit, received information that stock had been sold at a discount before that firm credited the corporation. Their debt accrued in January, 1884, and the only date given when Adoue received notice was in June, 1883, in an effort to sell to him, as an individual, stock in the company.
There was evidence vaguely tending to show notice to Fagan Osgood, and Osgood of the firm of Osgood Gray, but there is a conflict of evidence, and we conclude they had no notice.
The Texas Continental Transportation Company was organized at the same time as the meat company, and the two companies were intended to and did work together. A. F. Higgs was president of the latter company and vice president of the former. D. M. Higgs, his brother, was president of the former company, and both knew all about the disposition made of the stock, and we conclude that the fair inference is that the transportation company had notice.
It was shown that Ayres and Cannon both knew of the facts in question at the time they extended credit to the company.
The court below found that none of these creditors had notice.
The first conclusion of law of the court below was that the Fort Worth contract was executory, and that upon payment of the shares contracted for or any part of them the signer making it became a stockholder, whether certificates were issued or not; and that signers who failed to pay within *Page 81 the time fixed in the instrument were never stockholders, and not liable for the debts of the corporation.
The second conclusion was that every stockholder who received shares at less than par value is liable for the difference between such value and the price paid, unless creditors had such knowledge as would charge them with express or implied assent to such sale. But for any debt created prior to such sale the subscriber was not liable.
The third conclusion held that all the stockholders were properly joined in the suit.
The fourth conclusion was that limitation had not run against creditors, and that the claims were conclusively established in the case of Ayres Cannon against the company.
The fifth conclusion held that article 585, Revised Statutes, did not affect creditors with notice of sales below par of capital stock, and that the claims were conclusively established in the case of Ayres Cannon against the meat company.
The fifth conclusion holds that the notice to Kennedy and Baldwin did not amount to notice to the banks of which they were respectively president, and was not admissible against the banks.
I. The first question for our consideration is whether the suit as brought could be maintained against all the defendants jointly in Victoria County.
Viewing it as an original proceeding, the claim of jurisdiction in that court over the persons of the defendants who resided in other counties must be justified, if at all, under some provision of our statutes regulating the venue of suits. Undoubtedly the venue of all suits, whether legal or equitable in their character, is fixed by those provisions.
The fourth subdivision of article 1198, Revised Statutes, in which is defined one of the exceptions to the general rule that defendants must be sued in the county of their residence declared by that article, provides that "where there are two or more defendants residing in different counties, suit may be brought in any county where one of the defendants resides."
Some of the defendants here resided in Victoria County, and the inquiry resolves itself into the question whether or not those defendants who had their domiciles in other counties were necessary parties to the suit as brought; for unless they were they could not, if this be regarded as an independent suit, be sued away from their homes.
Their subscriptions were several undertakings, and the rule which requires that joint obligors be sued jointly has no application. A bare action at law, either by the corporation or a creditor, to enforce the payment of a subscription of any one of them, could be brought only in the county of his residence. This suit, however, is not of that character. In its general structure and purpose it is an equitable proceeding in behalf *Page 82 of all the creditors of an insolvent corporation, after the appropriation of all its tangible assets to the debts, against subscribers to its capital stock, to have an accounting and a contribution from the defendants of such proportion of their unpaid subscriptions as might be found necessary to satisfy the debts. In this character of suit it is essential to the completeness of the remedy that the amount of the indebtedness of the corporation, the amount of unpaid stock in the aggregate, the amount due from each stockholder, and the proportion thereof necessary to discharge the debts, should be definitely and finally ascertained.
It might also become necessary that the court ascertain who among the subscribers are solvent and who insolvent, in order that the solvent ones be required, as far as their subscriptions suffice, to contribute enough to make up the deficiencies arising from insolvency of the others.
It is apparent, therefore, that in order to render certain and uniform justice to each creditor and each stockholder, they should all as far as practicable be brought into court. Accordingly we find the rule that equitable suits of this character must be brought by or for the benefit of all the creditors, and against all delinquent subscribers to the stock of the corporation who are solvent and within the jurisdiction of the court, so well established by authority that we need only to refer to some of them. Cook on Stock and Stockh., sec. 206, and note; 2 Mora. on Corp., sec. 897; Beach on Priv. Corp., sec. 700, and authorities cited.
These authorities commend themselves to our judgment as being sound and as indicating the true doctrine on the subject.
It certainly should be within the power of creditors of an insolvent corporation or their representatives pursuing the trust fund, which the law declares unpaid subscriptions to capital stock to be, to bring all the parties necessary to a full adjustment of their rights before the same court in one suit, and secure an adjudication which will settle all their rights and liabilities. The principles and practice of equity afford such a remedy, which in nowise conflicts with our statutes regulating venue, but is embraced within the scope of the fourth exception to article 1198. Authorities which maintain the right of a creditor to sue an individual stockholder to recover an unpaid subscription and apply it upon his debt do not conflict with the rule above laid down. In such suits an accounting and marshalling of assets and distribution of all the proceeds is not sought, but a single creditor seeks satisfaction for his debt out of the unpaid subscription of one stockholder. Some authorities deny his right to do so, and hold that the remedy in equity is exclusive. Others admit the right of the creditor to maintain such an action, but none of them in America, so far as we have examined, deny the right of all the creditors to join all delinquent members of the corporation in one proceeding such as that now before us. Some of them hold that the joining of all the stockholders from whom subscriptions are due is not essential; but *Page 83 others, and we think the better ones, hold that in so comprehensive a proceeding as a suit for an accounting and a determination of the pro rata part of the indebtedness which each subscriber shall pay, all must be joined, as far as known, unless they are insolvent or beyond the jurisdiction.
The appellee contends, with much reason, that the power to bring before it delinquent subscribers to the stock of the corporation was involved in the jurisdiction acquired by the District Court of Victoria County over the corporation and its assets by the original suit for the appointment of a receiver and the administration of all the assets of the corporation for the benefit of its creditors.
In view of the fact that the corporation was composed of its stockholders, and that they were, if they owed subscriptions, holders of assets which constituted in equity a trust fund for the payment of debts, and that some of them resided in Victoria County, we think the suit was properly brought there.
From this it results that the court did not err in overruling appellant's exception to the petition, nor in sustaining those of appellee to the answers asserting the privilege of defendants to be sued at their residence. It also follows that the exceptions to the petition on the ground of misjoinder of parties and causes of action were properly overruled.
II. The next contention in the assignments and briefs is, that the receiver had no right to sue in his own name. The statute in force at the time of his appointment and when this suit was brought expressly authorized receivers to sue (Revised Statutes, article 1468), and he showed in his petition that he had been ordered to sue by the court. It is true that neither statute nor order in terms directed the suit in his own name. But the suit was one which the corporation by the agreements sued on was estopped from bringing, and it is difficult to see any reason why its name should be used when the cause of action asserted never accrued to it. We understand both the order and the statute to authorize suits in the name of the receiver. Some authorities hold that unless a receiver is expressly authorized to sue in his own name, he can not, though authorized to prosecute a cause of action belonging to the party whose assets he holds, use his own name as plaintiff, but must use that of him to whom the right originally belonged. Others hold differently, and we think they are sustained by the stronger reason. High on Rec., 209, et seq. The law now in force expressly authorizes suits by a receiver in his own name. Sayles' Civ. Stats., art. 1464.
III. The point is made by exceptions to the petition that the stock alleged to have been issued to defendants in excess of the price to be paid was void under article 12, section 6, of the Constitution, which provides, "No corporation shall issue stock or bonds except for money paid, labor done, or property actually received, and all fictitious increase of stock *Page 84 or indebtedness shall be void," and that therefore no liability on their part could grow out of it.
The first clause of this provision prohibits the issuance of stock unless it has been paid for; the second renders void "all fictitious increase of stock or indebtedness."
The petition does not allege any fictitious increase of stock, but that the original stock was sold at less than par to the defendants, in violation of the rights of creditors. Stock issued and disposed of for a valid consideration is not fictitious within the provision quoted. The language is not that all stock sold for less than its face value shall be void, but that "all fictitious increase of stock shall be void." In case of Stein v. Howard, 65 California, 617, an increase and sale by a corporation of its stock below par was held not to be fictitious under a constitution having the same provision. Peoria Springfield Railway v. Thompson, 103 Illinois, 187, is another case which construes a constitutional provision very similar to our own.
We see nothing in the provision in question which changes the rule long established by courts of equity that stockholders of a corporation are liable to the creditors for the par value of the capital stock subscribed for or held by them.
IV. Several exceptions to the petition raise the question that it does not sufficiently show that the plaintiff is seeking to enforce the rights of creditors rather than those of the corporation against the defendants.
The allegations of the petition plainly show that the suit is for the benefit of the creditors and asserts a cause of action which the company could not.
We think also that the petition, as finally amended, was sufficiently specific in its allegations as to creditors. It was not necessary under the facts alleged to set out the cause of the action of the creditor against the corporation, as would be required in an original suit by the creditor, to establish it. The claims had all been established by the court in the receivership proceedings, and an allegation of that fact conclusively showed the liability of the corporation for them. This is an answer also to the claim of appellants that the claims of the creditors against the corporation were barred by limitation.
V. The original petition set up the same cause of action as that shown in the amended petition. In both the rights of creditors were asserted. The averments in the original petition were meager and defective, yet enough was stated to show the nature of the right asserted and that it was in behalf of creditors.
VI. The special exceptions of the Fort Worth defendants, that the petition showed no performance of the conditions of the subscription contract, by alleging that the slaughter house had been erected and operated, the charter amended, and capital stock all paid or subscribed, were not *Page 85 well taken; nor was the exception, that the petition did not exclude the hypothesis that the defendants had elected to forfeit the amounts paid on stock and recede from the agreement to take stock, as they claimed the right to do under the contract.
The petition did allege that the house was erected, equipped, and operated. The fact that the company was compelled by financial embarrassment to suspend the business certainly could not release stockholders from their obligations to creditors. They did not stipulate for a successful operation of the business for all time.
It was not necessary to amend the charter in order to increase the number of directors. Rev. Stats., art. 575. That was done, and the objects of that provision in the contract attained.
There was no stipulation in their contract that all of the capital stock provided for in the charter should be paid up or subscribed before liability should attach to them. They were bound for the stock they subscribed for, whether all of the remainder was ever taken or not.
The contract gave to the subscribers no right of election to forfeit their payments and recede from the agreement or refuse to pay for the whole of the stock which they bound themselves to take.
VII. The exception to the petition, that it did not allege the cost of building and equipping the slaughter house at Fort Worth, should have been sustained, because the amount of the liability of the Fort Worth subscribers depended on that fact. They did not, as we construe the contract, unconditionally agree to pay the amounts subscribed to the paper for stock at the price specified, but that they would pay those sums only in case half the cost of building, etc., should be equal to the amount subscribed. If one-half of such cost should be less than the amount subscribed, then they agreed to pay only such part of the latter amount as would be equal to half the cost.
It may be admitted that by their contract they became liable to creditors of the corporation for the full face value of such stock as they thereby subscribed for, and still the question would remain, what amount of stock did they agree to take? They had the right to attach conditions to their subscriptions (Cook on Stock and Stockholders, 83), and this was clearly one by which the amount of money they were to pay and the amount of stock they were to receive was to be or might be limited.
In setting out the contract and in failing to negative the hypothesis that half the cost of the building was less than the amount signed for, the petition left it uncertain what amount plaintiff was entitled to recover. It is true that there are general allegations that by the contract the defendants became liable for such amounts, but these were conclusions and not good against special exceptions.
VIII. From what has been said concerning the overruling of exceptions to the petition, it will follow that there was no error in sustaining *Page 86 plaintiff's exceptions to pleas of defendants presenting the same points as were involved in the exceptions.
IX. The exceptions of plaintiff to the answers of some of the Victoria defendants, pleading in setoff debts due to them from the company, were correctly sustained. Cook on Stock and Stockh., secs. 193, 227d.
The cases referred to by appellants were suits by a creditor against an individual stockholder and not a suit in equity against all, and the distinction between the two proceedings is recognized in those cases. Mathez v. Neidig, 72 N.Y. 100; Garrison v. Howe, 17 N.Y. 458; Agate v. Sands, 73 N.Y. 620.
X. There was no error in sustaining exceptions to the pleas setting up that the subscriptions of the Fort Worth defendants were obtained by fraudulent representations. Enough facts were not stated to make that a good defense against the corporation itself.
But admitting that the facts, if timely set up, would have availed against the company, they could not be of any avail in this proceeding as a defense against creditors. Cook on Stock and Stock., secs. 154-210, note 141; Knox v. Ogilvie, 22 How., 380.
XI. The ruling sustaining exceptions to the plea of the Fort Worth defendants, setting up that they bought the stock contracted for by them from the residue of stock left on hand, and paid all they agreed to pay, was not erroneous. By this written contract they plainly agreed to take so much of the capital stock of the corporation as the sum for which they bound themselves would pay for, at a rate below the par value of the shares they were to get. This was an appropriation to them, by agreement between them and the corporation, of portions of the capital stock, the trust fund out of which the creditors had the right to seek satisfaction; and while it conferred upon them the right to the stock, as between them and the company, it also bound them to make good to creditors the amount called for by the stock whenever that might become necessary to pay the debts. The form of the contract between them and the corporation is immaterial. Equity looks at its substance and effect upon the rights of creditors; and thus regarded, it was only a subscription by them to the stock at a price below its par value. This was illegal as against the creditors, whom the law will not allow to be deprived of the fund which it holds sacred for their satisfaction, by any device or contrivance of the corporation and the subscribes. Cook on Stock and Stockh., sec. 199; 1 Mora. on Corp., sec. 427; 2 Mora. on Corp., sec. 781; Upton v. Tribilcock, 91 U.S. 45; Tayl. on Corp., sec. 124.
It is claimed that article 585, Revised Statutes, which provides that the directors may dispose of the residue of the capital stock at any time remaining unpaid, in such manner as the by-laws may prescribe, authorizes such a transaction as that in question, and relieves the subscribers from the operation of the rule we have just stated. *Page 87
There is no purpose shown here to authorize the directors to release subscribers to stock from their obligations to creditors.
The directors are authorized to dispose of residue of stock in such manner as the by-laws may direct. It was not alleged that any by-law on the subject had been adopted, and for that reason the plea was defective. But a more direct and positive statutory provision than this must be shown to satisfy us of the legislative intent to authorize subscriptions to the capital stock of a corporation at less than its par value (as was this contract by its very terms) and a release of the subscribers from their liability to creditors. The charter fixed the capital stock, and the law gives it the effect that all of such stock should be paid up, if necessary to pay creditors. We can not see that, by the provisions quoted, the Legislature intended to authorize the by-laws of the corporation to change the effect of the charter, but only to regulate the disposition of the residue of stock in such manner as was consistent therewith. This disposes of the further contention of appellee that this statute put creditors upon such inquiry as would have affected them with notice of subscriptions to or sales of stock at a discount.
XII. The defendants' plea of the statute of limitations can not avail them as a defense, and they were properly struck out on exceptions. No cause of action against the subscribers ever accrued to the creditors until they had exhausted their remedy against the corporation and had all of its property applied to their claims. The subscribers could not be called on to pay, and were not subject to suit, until it was established that the amount due from them was necessary to satisfy the indebtedness. The statutes of limitation were not applicable to the case.
XIII. We think the certificate or statement of Edrington was hearsay, and that its admission in evidence was error. In the view we take of the case, however, this would not, alone, necessitate a reversal of the judgment.
Several points are made upon the failure of the court below to find upon certain issues, as requested. In view of the disposition to be made of the case it will not be necessary to notice them further than they may be involved in the discussion of other questions.
XIV. This brings us to a consideration of the points raised upon the conclusions of the court below. What we have already said sufficiently indicates our views as to the liability of the subscribers of the two contracts for the difference between the par value of the stock and the amount they agreed to pay for it. They are liable not only for the amount they agreed to pay, but for the full face value of the stock they subscribed for. In the case of the Fort Worth defendants this will depend upon the facts that may be alleged and shown as to the cost of building and equipping the slaughter house at Fort Worth, as explained above. *Page 88
The Victoria appellants claim that the court erred in fixing the liability of the Fort Worth defendants, in holding that they were to be treated as shareholders only from the time they made payments, and charged with the par value of stock only where they had made payment on their subscriptions.
We think the position of the appellants is well taken. As before seen, the contract signed by the Fort Worth defendants was a subscription for such portion of the capital stock as would be taken by the amounts they agreed to pay at the rate specified.
The error of the court in not sustaining exceptions to the petition as above pointed out would become immaterial as to the Fort Worth defendants by the judgment rendered, but this complaint of the Victoria defendants raises (as they have the right to do) the question as to the full liability under the Fort Worth contract, and that makes it necessary to go fully into that. It is not necessary that shares of stock should have been actually issued and delivered to any of the subscribers. Their subscription fixes their liability, though the issuance and acceptance of shares of stock would also fix liability for the full face value.
XV. We think that the notice given to Baldwin and Kennedy, presidents of the banks, was not sufficient to charge the banks with notice of the arrangement between the corporation and its stockholders, in the absence of evidence that they acted for the banks in extending credit to the corporation at such time and under such circumstances as to authorize the inference that the knowledge formerly acquired in their individual transactions was still present before their minds. As the evidence stood, the court did not err in holding that it was not admissible against the banks. They might be shown to have received notice through their presidents, but this evidence did not go far enough.
It may be said of the information to Adoue and Soria, that it is not so connected with the creation of their claims against the company that they should be held to have known it at that time.
Parties engaged in business can not be required to store away in their memories all the facts which they learn, so as to be able to call them up at any time in the future, to affect other transactions than that in which the knowledge was acquired. Such information has not the characteristics of notice in law, unless the transaction to be affected thereby took place under such circumstances as would lead to the reasonable conclusion that the fact reported was still remembered. Ogden v. Hearn, 24 Ill. 60.
The proof as stated in the record showed, as we conclude, that the Texas Continental Transportation Company and Ayres Cannon had notice, and the court below should have so found; and so with the transportation company.
The evidence on these points may be different on another trial, and we merely indicate our views as to the law applicable to the evidence as we find it in the record. *Page 89
We think the court below was right in holding that creditors having notice at the time their claims arose, of the arrangement between the corporation and the subscribers, could not hold the latter responsible for more than they agreed to pay; and it necessarily resulted from this ruling that those of the Victoria stockholders who were also creditors of the corporation could not demand from the subscribers the difference between what they agreed to pay and the face of the stock. They could not therefore participate in the fund that was to be contributed by stockholders to pay creditors not having such notice.
It appears, however, that some of the subscribers have never paid all they agreed to pay, and a recovery of that is sought in this case. That should when recovered constitute a fund for all of the creditors, whether with or without notice, for as to that creditors without notice have no priority over the others.
We have found it impracticable to follow in our opinion all of the assignments of error in the several briefs of the parties in their order; but we believe it will be found that what is said above disposes of all the questions raised by any of them in this appeal. The assignments of the defendant Kempner raise the same questions as are discussed in connection with the contentions of the Fort Worth defendants. His case does not differ in principle from those of other subscribers. He took stock from the corporation at less than its face value, and must be held liable to creditors for the difference between that and the amount he paid.
Because of the errors pointed out the judgment must be reversed; and inasmuch as the pleadings and evidence are not sufficient to enable us to determine the extent of the liability of the Fort Worth subscribers, it is not in our power to render a judgment here settling all the rights of the parties.
The cause will therefore be remanded for further proceedings in accordance with this opinion.
Reversed and remanded.
Justice PLEASANTS did not sit in this case. *Page 90