the holder thereof; for I cannot imagine that the legislature ever contemplated that the corporation itself should be held "liable as a stockholderof its unissued stock. Undoubtedly, if all the stockholders of a corporation consent, the unissued stock may be sold for a non.inal consideration, or be given away to any one they may select as the object of their bounty, and the person receiving such stock could not be made liable to the corporation for the full value thereof, but such person might nevertheless be held liable by creditors of the corporation for such proportion of the value thereof as remained unpaid. I conceive it to be against public policy to permit a corporation to put its unissued stock, to an amount sufficient to control the affairs of the corporation, in the hands of a person who is in no event to incur any responsibility as a stockholder to creditors, by holding and voting the same, and thus managing and controlling the affairs of the corporation.

LIABILITY OF HOLDER OF STOCK AS COLLATERAL. — The case of Burgess 8. Seligman, 107 U. S. 20, arose out of the same transactions under con. sideration in the principal case. In the case of Grisrold v. Seligman, 72 Mo. 110, also involving the same questions, the supreme court of Missouri bad held that the defendants could not claim immunity from the creditors of the corporation, on the ground that they held the stock as collateral security, for the reason that the stock was issued directly to them by the corporation, — stock so issued standing, in the opinion of the court, in a substantially different position from stock which had been issued to a stockholder, and by him transferred to secure a loan. Upon this question the supreme court of the United States said: “The argument that the exemption from liability in cases of stock held as collateral security applies only to those who have received it from third persons who were stockholders, and who can be proceeded against as such, seems to us unsound, and contrary both to the words and the reason of the law. It takes for granted that stock cannot be received as collateral security from the corporation itself, and still belong to the corporation; and yet we know that such transactions are very common in the business of this country. The words of the statute are positive, and relate to all holders of stock for collateral security. They are as follows: ‘No person holding stock in any such company as executor, administrator, guardian, or trustee, and no person holding such stock as collateral security, shall be personally subject to any liability as stockholder of such company.' The reason of this law is derived from the gross injustice of making a person liable as the owner of stock when he only holds it in trust or by way of security, and from the inexpediency of putting a clog upon this species of property, which will have the effect of making it unavailable to the owner, or of deterring prudent and responsible men from accepting positions of trust when any such property is concerned. It seems to us that not only the law, but the reason opon which it is founded, applies to the holders of stock as collateral security, whether received from an individual or from the corporation itself. It is argued, however, that the remaining words of the law are repugnant to this view. These words are as follows: 'But the person pledging

such stock shall be considered as holding the same, and shall be liable as a stockholder accordingly; and the estates and funds in the hands of such er. ecutor, administrator, guardian, or trustee shall be liable, in like manner and to the same extent as the testator or intestate, or the ward or person interested in such fund, would have been if he had been living and competent to act, and held the stock in his own name.' The argument is, that these words imply that there must always be some person or estate to respond for the stock, or else the exemption cannot take effect. The obvious answer to this is, that this clause fixes the liability upon the pledgor as a stockholder, where there is a pledgor who can be made liable in that character. When the corpora. tion pledges its own stock as collateral security, though it cannot be proceeded against as a stockholder eo nomine, the reason is because it is primarily liable, before all stockholders, for all its debts. In such a case the clause last quoted would not strictly apply to it, but the holder of its stock as collateral security would be both within the letter and the spirit of the first clause. It is supposed that some flagrant injustice would ensue if there was not some one who could be reached as a stockholder in every case of stock pledged as collateral security; hence stock pledged by the corporation itself must be regarded as belonging to the pledgee, though no other pledgee of stock is treated in this way. Where is the justice of this? Why should the stock be necessarily considered as belonging to some one besides the corporation itself? Is any one harmed by considering the corporation as its true owner! If the stock had not been issued as collateral security, it would not have been issued at all; it would not have been in existence. Would the creditors have been any better off in such case! They are better off by the issue of the stock as collateral, because the general assets of the company have received the benefits of the moneys obtained by means of the pledge. The more closely the matter is examined, the more unreasonable it seems to deny to a pledgee of the corporation the same exemption which is ex. tended to the pledges of third persons. We think that the one equally with the other is protected by the express words and true spirit of the law."

NATURE AND EXTENT OF STOCKHOLDER'S LIABILITY: See note to Franklin Glass Co. v. Alexander, 9 Am. Dec. 96-104; note to Freeland v. McCullough, 43 Id. 694-703; and McCarthy v. Lavische, 31 Am. Rep. 83, and note.

[merged small][merged small][merged small][ocr errors][merged small]



mental infirmity does not amount to idiocy nor lunacy, from the time of the discovery of a cause of action based upon fraud, such fraud having been explained to him so that he was made to understand it, though with

some difficulty. STATUTE OF LIMITATIONS ONCE SET IN MOTION continues to run, notwith

standing undue influence exercised by the defendant over plaintiff, the

latter being weak-minded, but not an idiot nor lunatic. STATUTE OF LIMITATIONS IS PROPERLY PLEADED, when to a complaint seek.

ing relief on the ground of fraud the answer pleads that the cause of action did not accrue within six years before the commencement of the action. PLAINTIFF, Caroline C. Piper, as sole heir of her father, Frederick Piper, deceased, brought this action in February, 1881, to set aside a deed made by her father in 1859. Judgment, entered in favor of defendant at a special term of the supreme court, was affirmed at the general term, whence an appeal was prosecuted to this court.

A. M. Beardsley, for the appellant.
A. H. Prescott, for the respondent.

By Court, FINCH, J. The facts of this case are only important as they bear upon the inquiry, when the cause of action accrued, and the statute of limitations began to run. The plaintiff, as sole heir of her father, seeks to set aside a deed made by him in February, 1859, to the defendant, and a subX. ST. REP., VOL. I. -- 50


sequent settlement which confirmed it, on the ground that both were the product of fraud and undue influence. A jury to whom special issues were submitted decided the facts in favor of the plaintiff, and their conclusion was adopted by the court. We are to assume, therefore, that the deed and the settlement were fraudulent, and might have been avoided by Frederick Piper in his lifetime at any moment after they came into ex. istence. But the action is conceded to have been of a character solely cognizable in equity, and founded upon a fraud, and the statute did not begin to run until the discovery of that fraud. The trial judge found as a fact that, for a period of sixteen years before his death, Frederick Piper could have maintained an action for the same substantial relief now sought; and it is involved in that finding, and more plainly disclosed in the opinion, that during all that time he had a full knowledge of the facts constituting the fraud. While he was somewhat weak-minded, he was by no means destitute of mental capacity or understanding, and was able to know and comprehend the facts which transpired. He knew that he made the deed to Hoard, and the consideration for it. He knew, also, for he was expressly told, that the conveyance could be avoided for fraud; and after the whole matter had been explained to him, not only by his wife but by the counsel chosen to protect and enforce his rights, he gave his consent to the commencement of an action which alleged that fraud, and sought to rectify it. At that date he knew all the facts, and their wrongful and fraudulent character. The only influence then operating upon him was the perfectly proper influence of his wife and his counsel. Mr. Throop testifies that the whole situation was explained to him; that he was made to understand it, although with some difficulty and delay; and that when he did consent he answered intelligently and rationally. This witness was the first one called on behalf of the plaintiff, and was the counsel chosen to redress the existing wrong. The fraud at that moment was complete. It had been discovered, and was fully known to Piper and his advisers, --so fully that it served to found an action in his behalf as complete in its allegations of fraud and undue influence as the one before us. The statute of limitations began then to run, and of course continued to run unless stopped by some statutory provision: Code Civ. Proc., sec. 408. It may be true, and doubtless is true, that Piper did not realize as clearly and distinctly as others the force of the facts brought to his knowledge, and the

extent and scope of the wrong which had been done him. But he was neither idiot nor lunatic; he had memory, sense, and judgment; a mental capacity of low grade and a lack of independence and will, but yet sufficient ability to understand and comprehend; and that supplemented by the aid and advice of intelligent and competent friends. It is impossible not to see that at this point of time a discovery of the fraud had occurred. I do not understand that the question whether such a discovery has taken place depends upon the mental condition of the party injured, where he has legal capacity to act and to contract, nor upon his freedom from undue influence or ability to resist it. If he has ascertained the facts which constitute the fraud, and so has discovered its existence, the statute begins to run, irrespective of the degree of intelligence possessed by the injured party, and whether he has enough of courage and independence to resist a hostile influence, and assert his rights

In either event there has been discovery of the fraud; the right of action has fully accrued, and the statute begins

to run.

Soon after the action of Frederick Piper to cancel the deed had been commenced, the defendant, Hoard, seems to have regained his influence and control over him. The defendant induced him to discontinue his action, making a new arrangement, to which the wife was a party, and assuming a new liability as a consideration for the conveyance. This settlement the jury and the court found was itself fraudulent. It indicates a new exertion of undue influence to nullify and avert the grantor's effort for redress. That finding leaves the original fraud unpurged, and the right of action it gave undischarged, but I am unable to see how it could stop the running of the statute of limitations. The law provides for no such disability. We cannot add it to the statute. The new wrong might possibly give a new right of action, but could not suspend the existence of the old one. The cases cited in behalf of the plaintiff do not reach the difficulty. Most of them relate merely to the effect of laches or acquiescence as excused or disarmed by the continued presence of undue influence, and have no relation to the peremptory command of a statute: Sharp v. Leach, 31 Beav. 491; Gowland v. De Faria, 17 Ves. 25; Kerr on Fraud, 301. In one, the question arose over the adverse possession of a slave under a statute of the state; and the actual possession was held not to be adverse, because of a continued undue influence which prevented con

« ForrigeFortsett »