Garden City Sand Co. v. American Refuse Crematory Co.

Mr. Presiding Justice Ball

delivered the opinion of the court.

Where the findings of the master, who saw and heard the witnesses, are approved by the chancellor,' we can not disturb the decree rendered thereon, unless we find it clearly and manifestly against the weight of the evidence. Hagemann v. Hagemann, 102 Ill. App. 481, and cases cited.

Appellant dealt with the crematory company only ivhen its indebtedness was incurred. Therefore its remedy in the first instance was against the company. When that remedy was found to be insufficient, the right to file the present bill accrued. Whether or not the defendant stockholders are liable thereunder depends upon the allegations of the bill and the proof offered in support thereof.

Appellant alleges that the purchase by Rutan of the 9,998 shares of stock of said company Avas fraudulent and wholly without consideration; and that the defendants knexv or had adequate notice of the fictitious character of such purchase, and therefore knew, or must be held to know, that the stock they received Avas not fully paid for, and consequently was subject to assessment.

The evidence shoivs that Rutan subscribed for and there was issued to him all the stock of the crematory company, except two shares. There is no direct evidence that any of his stock went back to the company. The stubs of the certificate book show that all the stock held by the defendants came to them severally from Rutan, and not from the company. The certificates of stock issued to Rutan, and Avhich through him came to the several defendants, stated that the stock was “fully paid and non-assessable.” What, if anything, the defendants severally paid Rutan for their stock does not appear in the evidence. Buying the stock, as they did, from him, whether they paid him par, or fifty per cent, or less, for the same, is immaterial, unless it affirmatively appears that they knew, or they had sufficient notice to impute to them knowledge that Rutan obtained his stock by fraud. It is not asserted that any of the defendants had any direct knowledge of the manner in which Rutan paid for his stock. It is, however, claimed that the books and records of the company showed the character of that purchase and payment, and that the defendants are bound by whatever such books contain in that regard. There is no proof that any of the defendants had actual knowledge of the entries in the books of the company, or that any of them authorized such entries or caused them to be made. Indeed, the fact that they severally bought their stock from Rutan tends to negative such a presumption. The question then arises, does the mere fact that the defendants are stockholders in the company charge them with knowledge of such entries. It will not be contended that appellant stands in a better position as to the adversary use of these entries than would the company, were it here attempting to enforce a liability on such stock as against the defendants. Rudd v. Robinson, 126 N. Y. 113.

But if the theory of appellant is to be regarded as the true one, the books, while they show that Rutan’s stock was paid for by the assignment of the patent, do not show that such patent was over-valued. So that one without knowledge of the circumstances, by the reading of that entry in such books, would not be informed, nor would he have notice of the perpetration of any fraud in that particular.

The recital in the stock certificates that the stock was “ fully paid and non-assessable,” throws upon appellant the burden of showing that the stock was taken by the appellees with knowledge that such recital was fraudulent.

“ A bona fide purchaser for value and without notice, of stock issued by a corporation as paid up, can. not be held liable on such stock in any way; either to the corporation, corporate creditors or to other persons, even though the stock was not actually paid up as represented; such a purchaser has a right to rely upon the representations of the corporation that the stock is paid up. * * * Where, however, a statement is made on the face of the certificate that it is paid-up stock, the bona fide purchaser of the certificate need not inquire further, but may rely upon that representation, and is protected thereby against liability.” Cook on Stockholders, Sec. 50.

“ A purchaser or assignee of stock which has not been fully paid, does not become liable to the corporate creditors for the unpaid balance where stock has been issued as fully paid, and he has acquired the same in good faith and without notice that it has not been fully paid.” Coleman v. Howe, 154 Ill. 458.

Appellant says that the bill alleges appellees paid nothing for their stock, and that as the answer does not deny the same, the allegation stands admitted. Even if this be true, which it is not, it can not benefit appellant until it is re-enforced by evidence showing that appellees purchased their stock from the crematory company. Upon this last point the finding of the master is adverse to appellant, and we can not say that such finding is clearly and manifestly against the weight of the evidence.

The defect in the evidence presented by appellant is its indefiniteness. It shows that ten of the defendants each paid money into the treasury of the crematory company, but there is no showing as to how much, if any, of their respective holdings of stock were treasury stock, or upon what price or terms it was sold to them, or that they severally did not pay in full for all the treasury stock which they received. Nor does it appear, except by inference and upon presumption, that the crematory company ever had any treasury stock, while there is evidence tending to support the finding of the master that the company was never the owner of any stock.

The master found, and the court below, by its decree, approved the finding, that none of the appellees, other than Rutan, knew there was any fraudulent over-valuation of the patent, and that they had no knowledge (barring Rutan) when they took their stock, that the same was not fully paid and non-assessable.

We think that such finding is justified by the evidence, and we therefore affirm the decree of the Superior Court.