Opinion
No. 22759
Decided June 17, 1931.
Corporations — Unpaid stock subscriptions — Receivership — Commissions for stock sales and advancements for corporation cannot be set off — Commission due subscriber on his stock may be credited.
1. In an action by a receiver of an insolvent private corporation against a stockholder on unpaid stock subscription, the stockholder is not entitled to set off amounts due to him from the corporation under a contract for commissions for the sale of stock, nor for payments made by him on behalf of the corporation. ( Niles, Assignee, v. Olszak, 87 Ohio St. 229, distinguished.)
2. Such stockholder, employed to sell the stock of the corporation on a commission basis, is entitled in such action to a credit on his stock subscription in the amount of the commission due to him for the sale of the stock subscribed for himself, the respective rights of the corporation and of the stockholder arising out of the same transaction, the net claim of the corporation being merely the amount of the purchase price of the stock over and above such commission.
ERROR to the Court of Appeals of Summit county.
This is a proceeding in error to reverse the Court of Appeals of Summit county. The parties will be referred to here as they appeared in the court of common pleas. The facts of the case are as follows:
The plaintiff is the receiver for the Akron Prospect Company, a corporation. This is an action by the plaintiff as such receiver against the defendant, R.K. Crawford, one of the stockholders and a director of the corporation, based upon a subscription for one hundred shares of the stock of the corporation at one hundred dollars per share. The unpaid balance of the subscription, as alleged in the petition, is $5,500.
In the answer, the defendant claims a credit on said subscription of $1,500 as a fifteen per cent. commission, agreed to be paid to the defendant by the corporation for all stock sold by him.
The defendant, by way of cross-petition, sets up three causes of action: First, a claim for unpaid commission, amounting to $5,890, due him from the company for stock sold by him. Second, a claim to be reimbursed for the cost of a dinner, $60.50, given by him for the stockholders at the request of the directors. Third, a claim of $6,154.61, paid by the defendant to a bank on account of a note of the corporation, indorsed by him. This last amount was paid by the defendant after the appointment of the receiver.
The common pleas court held that the defendant was not entitled to set off any of the amounts claimed by him against his obligation under his stock subscription, and dismissed the cross-petition without prejudice to the defendant to maintain a new and separate action against the company or against the receiver. Judgment was rendered for the plaintiff for $8,516.75, with interest from October 31, 1929.
The Court of Appeals allowed the defendant a credit of $1,500, being the amount of the commission due defendant on the stock purchased by him, but refused to allow the defendant to set off any of the amounts claimed by him in his cross-petition. The Court of Appeals directed the common pleas court to render judgment against the plaintiff in favor of the defendant for the amount claimed in the defendant's second and third causes of action, and directed the court to determine the amount owing to the defendant under the allegations of his first cause of action.
The defendant brings this proceeding in error, based on the ruling of the Court of Appeals refusing to allow him to set off the amounts claimed in his cross-petition.
Messrs. Naef McIntosh, for plaintiff in error.
Messrs. Commins, Brouse, Englebeck McDowell and Messrs. Rockwell, Grant, Thomas Buckingham, for defendant in error.
This is an action by the receiver of an insolvent corporation to recover from the defendant, one of the subscribers to the stock of the corporation, the unpaid amount of his stock subscription. The question is whether the defendant, a stockholder, may set off in such action certain claims he has against the corporation.
It is well settled that the mere appointment of a receiver does not deprive a debtor of the corporation of the right of set-off. Hade, Recr., v. McVay, Allison Co., 31 Ohio St. 231; Armstrong, Recr., v. Warner, 49 Ohio St. 376, 31 N.E. 877, 17 L.R.A., 466. If a stockholder obligated to the company for unpaid stock is to be regarded as like any other debtor of the company, he is entitled to the benefit of that right.
The right of set-off when asserted as against an insolvent person or corporation always involves a preference. The person receiving the set-off is credited with the full amount of his claim, while other creditors receive only their pro rata share of the assets of the insolvent. Whether a stockholder indebted to the corporation on his stock subscription should be entitled to receive such a preference by receiving a credit upon such subscription for the full amount of his claims against the company is the question presented by this case. By the decided weight of authority, a stockholder under such circumstances is not entitled to the right of set-off.
"According to the great majority of the courts, a stockholder in a corporation is not, after the insolvency of the corporation, entitled to set off a claim held by him against the corporation against his liability for unpaid stock subscriptions." 10 Ohio Jurisprudence, Section 439.
See, also, 7 Fletcher on Corporations, page 7456, Section 4246; 1 Cook on Corporations (8th Ed.), Section 193; 7 Thompson on Corporations (3d Ed.), Section 5839 et seq.; 14 Corpus Juris, 1044; L.R.A., 1918E, 243; 7 Ruling Case Law, 411. This is upon the theory that third persons dealing with a corporation are entitled to assume that the capital stock has been or ultimately will be paid in full. The capital stock has been termed a trust fund for the creditors.
The latest and in fact the only pronouncement of this court on the subject is the case of Niles, Assignee, v. Olszak, 87 Ohio St. 229, 100 N.E. 820, L.R.A., 1918E, 238, Ann. Cas., 1913E, 1020. In that case the corporation was a savings and loan association, and the set-off claimed by the stockholder was based upon money deposited with the association. The court, in a well-considered opinion by Johnson, J., held that the stockholder was entitled to set off the deposit against his unpaid stock subscription. The court recognized the general rule and restricted its decision to the facts of the particular case. The court laid great emphasis on the statute forbidding such association from beginning business until fifty per cent. of its stock had been paid in, implying that creditors of the association were chargeable with knowledge that no more than this amount had been paid. See discussion of the Olszak case in Kiskadden v. Steinle, (C.C.A.), 203 F., 375, 381. The court further called attention to the fact that deposits are made in such associations with the intention and understanding that they shall be used to pay the depositors' stock subscriptions, and that this is common knowledge. The scope of the case is also restricted by the syllabus.
Bearing in mind the salutary rule applied in most jurisdictions, we are not inclined to extend the rule of the Olszak case beyond its particular facts. We hold that the defendant is not entitled to the set-off claimed in his cross-petition.
The Court of Appeals allowed the defendant as a credit the fifteen per cent. commission due him for the sale of his own stock, and we hold that this ruling was correct. This credit arose out of the same transaction as the claim against him. The net amount to which the corporation became entitled under his subscription was 85 per cent. of the subscription price of his stock, never the full amount. Moreover, the plaintiff below, defendant in error here, does not object to the allowance of this credit.
The judgment of the Court of Appeals will be affirmed.
Judgment affirmed.
MARSHALL, C.J., JONES, MATTHIAS, ALLEN, KINKADE and ROBINSON, JJ., concur.