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the valuation was mistaken and excessive, discovered afterwards,

cents per share. Of this Justice Ostrander said:

"It will not do to say that the entire capital stock of such an association can be made fully paid and non-assessable by the mere observance of a form, * * * * the plan in fact being to sell the stock, for the association, for cash, for a fraction of its par value, "in order to supply cash capital for the said company and to enable it to carry on its operations.''

(c) Moore v. Universal Elevator Co., 122 Mich. 48-54. This was a bill in chancery to determine the priority of certain liens. The case grew out of the same organization described in McBryan v. Universal Elevator Co., 130 Mich. 111. The enabling act did not require a property statement in the articles of association. Chief Justice Grant stated the rule of law applicable to the valuation of property under such circumstances, as follows:

"It is a universal rule that when corporators transfer property to a corporation, for which they receive stock, they must act in good faith, and put in the property at its fair worth. Creditors have the right to rely upon the good faith of the stockholders, and to assume that they have contributed, to the stock subscribed, in money or money's worth, or are liable therefor. This liability cannot be evaded by the issuance of fully-paid stock when it is not, or by putting in property grossly in excess of its real value.

(d) McBryan v. Universal Elevator Co., 130 Mich. 111. This was a bill in chancery by the receiver of the Universal Elevator Co., brought against the company and certain of its stockholders to enforce liability for unpaid subscriptions. Complainant appealed from a decree dismissing the bill. The decree was affirmed on the ground that the judgment relied upon by the creditors at whose instance the receiver was appointed, was void.

In disposing of the case the court took occasion to discuss the liability of the subscribers. It appeared that property to the amount of $63,250 had been transferred to the corporation in payment of subscriptions for a like amount. Νο discretion had been exercised in arriving at this valuation. The enabling act did not require insertion of a property statement in the articles of association. The property consisted of, "Elevator patents, $27,000; business of the Otto GasEngine Co., $10,000; factory and property, $15,500; business incidental with mechanical engineering, $10,750." The patents valued at $27,000 were of little value. The right to manufacture under them, anywhere in the world, had been previously disposed of to others for $200. The Otto Gas-Engine Co. business valued at $10,000 was a mere agency, revocable at the pleasure of the principal, and of no real value. The factory and property valued at $15,500 represented land that had not been deeded to the company and bonus subscriptions that had not been paid. The incidental business valued at $10,750 was intangible and valueless. (See also Moore v. Universal Elevator Co., 122 Mich. 48-54). Within four months after filing the articles based upon these valuations, the company filed a statement showing its sole assets to be: Cash paid in, $17,000; 5 patents, $46,250." The $10,750 of stock issued for "business incidental with mechanical engineering" was afterwards surrendered to the company and cancelled. Moore, Stanton & Brotherton, the sole responsible incorporators, had passed no judgment upon the value of the property, but had signed the articles of association as mere "dummies," and upon assurance that they coul escape liability by transferring their stock. They transferred their stock accordingly. In passing upon the question of their liability,

gives rise to no liability upon stock issued as fully paid in exchange for such property.

(c) The fact that a schedule of the property taken, stating items and valuations, is recorded together with the articles of association, pursuant to statutory requirement, tends to relax

Justice Grant made the following statement: "In cases where the incorporators passed no judgment upon the value of the assets turned in as capital stock instead of money, the only course left open to the courts, when called upon to determine whether the stock has been fully paid, is to ascertain the actual value of the property which was turned in as capital stock, and hold that the stock is only paid to the extent of the value of the property so found."

Again, "Can original incorporators make a false statement as to the amount of capital stock actually paid in, and escape liability for such false representations, immediately after executing the articles of association, by transferring their stock to other parties? The wrong was done by the orig:nal incorporators in making a false statement as to the amount of stock actually paid in. The public, and creditors dealing with the corporation, had the right to rely upon it as true. It would be unjust to visit the sins of the original incorporators upon subsequent stockholders who purchased in good faith. It would be a disgrace to the law if creditors, dealing with the corporation in reliance upon these statements, which they examine in the public offices, where they are on file, had no remedy. Justice and good morals require that they who make such false statements, whether they make them intentionally or, as in this case, recklessly, should respond to damages therefor. The law does not permit them to evade this liability by a transfer of their stock."

79. The following cases sustain this statement of the text:

(a) Graves v. Brooks, 117 Mich. 424. This was a bill in equity brought by a receiver to compel payment of subscriptions. Decree for complainant was reversed. Patents later found to be worth about $20,000 had been conveyed to the corporation at a valuation of $100,000. Careful investigation had preceded the making of this valuation, and it represented an honest exercise of discretion. The company was unsuccessful and subsequent events demonstrated that the valuation was a mistaken one. Chief Justice Grant stated the law of the case in the following language. "The case, in all its essential features, is similar to Young v. Erie Iron Co., 65 Mich. 111, where the subject is fully discussed in an opinion by Mr. Justice Morse, concurred in by the entire court. It was there held that, in order to render stock, issued as fully paid and non-assessable, assessable, it is necessary to establish either an intentional fraud in fact, or such reckless conduct in fixing the value of the property conveyed, without regard to its actual value, that an intent to defraud may be inferred. The creditors in that case were remediless. No case of fraud or recklessness having been established, it follows that the contract of the parties must control.”

(b) Young v. Erie Iron Co., 65 Mich. 111. This was a bill for a receiver and to compel payment of subscriptions. The defendant company had been organized with a capital stock of $500,000, of which $422,000 had been paid up by transfer to the company of a mining lease. In consideration of this transfer, stock had been issued to certain of the defendants as fully paid. A decree levying an assess

the rule that payment must be made "in money or money's worth'80. But the making and recording of such a schedule does not as to creditors, dispense with the requrement that fair discretion shall be exercised in fixing the valuation of property transferred to the corporation in payment of subscriptions. If it appears that arbitrary overvaluation, gross in character, has occurred, the court will place a valuation upon the property, and will hold the subscribers liable for the deficiency found to have existed between the true value of the property and the par value of the shares fictitiously paid ups1.

(d) As between the corporation and a creditor, who, as a stockholder, has participated in making the overvaluation, the fact of overvaluation can not be successfully urged. He is estopped 82.

ment upon this stock to meet the debts of the company was sought, on the ground that the lease had been overvalued. The project had proven unsuccessful. The court concluded that, as a matter of fact, the valuation placed upon the lease had been made with honest intent and with the exercise of reasonable care and discretion. Under these circumstances the court held, that the stock which had been issued for the lease was fully paid and nonassessable. Justice Morse said "It must be considered as well settled that corporators cannot agree among themselves that property worth only $80,000 shall be treated as worth $422,000, and count, at that sum, as so much capital stock paid in, and then proceed to mark their shares as fully paid up and non-assessable upon such false basis, as such action would be clearly a fraud upon the creditors. But it is equally well settled that such corporators are not responsible for an honest error of judgment, or a mistake in placing a valuation upon property appropriated or used as capital by a manufacturing or mining company. Nor can the fact that a jury or court finds property, of the nature of this leasehold, necessarily fluctuating and speculative in value, worthless now, and but of little ac

tual value at the time of its appropriation as capital, be controling in deciding whether or not such appropriation was fraudulent as against the creditors of the corporation. Such finding will be presumptive evidence of fraud, but if it be shown that those forming the company honestly believed it to be worth the amount specified in the articles, and that their mistake was one of judgment only, their action cannot be considered fraudulent either in fact or in law. The law imposes no penalty of this kind upon a stockholder or trustee of a company for a mistake or erroneous judgment in the honest and faithful discharge of his duties."

80. Moore v. Universal Elevator Co., 122 Mich. 48-54.

81. Wood v. Sloman, 150 Mich. 177.

82. Ten Eyck v. Pontiac, Oxford & Port Austin R. R. Co., 114 Mich. 494. A creditor's bill was brought by complainant to recover upon the judgment affirmed in Ten Eyck v. Railroad Co., 74 Mich. 226, amounting to upward of $30,000. It appeared that stock in the defendant railroad company to the amount of $1,500,000 had been subscribed and issued upon payment of $2,500, contributed in equal portions by eight persons, one

of

(e) As between the corporation and a stockholder to whom stock, purporting to be fully paid, has been issued for property taken at an overvaluation, the fact of overvaluation can not be successfully raised, in the absence of fraud83.

(f) Incorporators can not escape their subscription liability, as to creditors, by transferring the shares subscribed84.

(g) Bona fide transferees of stock, upon its face unequivocally fully paid and non-assessable are not liable, either to the corporation or to creditors, even though the stock was originally issued at a discount, or as a gift, or for property taken at a fraudulent overvaluation85.

$41. Schedule of Property.

Where the statute requires, or permits, inclusion in the associative articles of a statement of the property transferred to the corporation in payment of subscriptions, such property should be therein described with sufficient particularity to enable its identification, and its independent valuation, by third parties87. While the fact that this has been done will not afford a full defense against an established charge of gross and arbitrary overvaluations, it is an act of good faith, prima facie showing the exercise of discretion, and for this reason, and because it affords some protection to creditors, it will be viewed with favor by the courts. In other jurisdictions the sufficiency of the description employed has been repeatedly made the pivotal point in the decision of cases9. While no Michigan decision has been ruled by this consideration, its importance has been recognized by our Supreme Court9o.

whom was Junius Ten Eyck, the complainant. The stock had been issued as fully paid, and complainant had received one-eighth of the issue. Under these circumstances it was held that complainant was estopped to deny that the shares were fully paid, and that, as to him, no assessment upon the subscriptions would be decreed.

83. Peninsular Savings Bank v. Black Flag Stove Polish Co., 105 Mich. 535.

84. McBryan v. Universal Elevator Co., 130 Mich. 111.

85. Young v. Erie Iron Co., 65 Mich., 111. In this case it was held that bona fide traneferees of stock, purporting upon its face to

be fully paid and non-assessable,
acquire such shares free from any
liability to further assessments to
pay the debts of the corporation.
86.

C. L. 1897, Chap. 160; Act
232 Public Acts 1903, Sec. 2.
87. Wood v. Sloman, 150 Mich.
177.

88. Wood v. Sloman, (Id.).

89. Vanhorne v. Corcoran, 127 Pa. 255, 4 L. R. A. 386, quoting Maloney v. Bruce, 94 Pa. 249; Rehfuss v. Moore, 134, Pa. 462, 7 L. R. A. 663; Sheble v. Strong, 128 Pa.

315.

90. Wood v. Sloman, 150 Mich. 177; McBryan v. Universal Elevator Co., 130 Mich. 111-121.

$42. Office for Transaction of Business.

The corporation's business office is in theory, and may be in fact, wholly different from the company's "place of operation"91. The business office is the corporation's home-its place of residence. It is required to be stated in the articles for the purpose, among other things, of making the place where process may be served both patent and certain. It has been held in Michigan, that an unauthorized removal of the principal office from the place designated in the articles is a violation of the charter", but such removal may be authorized by an amendment of the articles95.

The corporation is estopped from denying that its business office is at the place stated in the articles of association". The State, or a municipality may, for purposes of taxation, ignore the residence so claimed by the corporation, and assess the corporate property at the place where the corporation actually resides. In the absence of statutory inhibition, there is no reason why a corporation may not have its place of operation in one or more counties, and its business office in a different county9s, or even outside the State99. Unless restricted by charter, a Michigan corporation may have both its office and its sole place of operation outside the State.

91. People v. Saginaw Circuit Judge, 23 Mich. 491-493.

92. Van Etten v. Eaton, 19 Mich. 186-191; People v. Saginaw Circuit Judge, 23 Mich. 491.

93. C. L. 1897, Sec. 10468.

94.

Underwood v. Waldron, 12 Mich. 73; People V. Oakland County Bank, 1 Doug. (Mich.) 282; Attorney General v. Oakland County Bank, Walk. Chan. (Mich.) 90; People V. Saginaw Circuit

Judge, 23 Mich. 491. In the case last cited, Chief Justice Campbell stated that: "The distinction between the office for the transaction of its business, and the places where more or less of its dealing may be carried on, has been recognized in several instances in our own laws and decisions elsewhere, and the rule has been somewhat rigidly enforced, that the corporation's residence can not be shifted

without permission, and is essential."

95. Act 317 Public Acts 1905, p. 494, C. L. 1897, Sec. 8533.

96. Detroit Transportation Co. v. Board of Assessors, 91 Mich. 382.

97. A corporation having its actual office in Detroit but its nominal office in Hamtramck was held properly taxable in Detroit. Detroit Transportation Co. V. Board of Assessors, 91 Mich. 382. 98. Van Etten V. Eaton, 19

Mich. 191.

99. C. L. 1897, Sec. 8567, provides that corporations having their principal office outside the State shall keep a list of stockholders and a transfer book at their office, if any, within this State. Failure so to do works forfeiture of the charter. Mining companies of the Northern Peninsula are excepted.

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