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Unpaid Stock Subscriptions
U.S. Supreme
Ogilvie v. Knox Ins. Co., 63 U.S. 380, (1860). Creditors of an insolvent insurance
company sued stockholders of the company who had paid only 10% of their
stock subscription. The U.S. Supreme Court rejected all the defenses raised by
the stockholders for payment of their notes: the purported fraud by the
company was unfounded because insufficient facts were presented; the
stockholders did not attempt to correct the purported misrepresentation even
after it was brought to their attention until after the insolvency of the company;
and the stockholders could not plead that the creditors could have also pursued
others for satisfaction of the amount due the creditors.
Upton v. Tribilcock, 91 U.S. 45 (1875). The U.S. Supreme court held that the
obligation of subscriber to the stock of an insolvent Illinois insurer could not be
avoided on the grounds of fraudulent misrepresentations and the limitation of
liability found in the stock subscription agreement. The court found that the
contract limiting liability to only 20% of the purchase price to be void as to the
creditors of the insolvent insurer. Similarly, the representations of an agent of
the company that the remaining 80% was "non‐assessable" was immaterial and
further was a misstatement of law which the subscriber could not rely on.
Alabama
Indiana
McDonnell v. Alabama Gold Life Ins. Co., 85 Ala. 401, 5 So. 120 (1888). In an action where
policyholders of an insolvent insurer attempted to subject the stockholders to
personal liability equal to the amount of their stock and such other stock which
was in force at the time of the company was organized, the court held that
liability of the stockholders was not merely statutory but was also contractual
and that the contract of subscription by each stockholder formed a part of the
security of the creditors of the corporation when debts were contracted.
Therefore, the stockholders were held personally liable.
Marion Trust Co. v. Bennett, 169 Ind. 346, 82 N.E. 782 (1907). The receiver of an
insolvent insurer sought to collect on certain stock subscriptions. Because it
was found that the insurer was created under a special act 65 years earlier,
which was superseded by a general act of 1873, it resulted in conferring upon
the insolvent insurer a capacity to increase its capital stock that was
unconstitutional. The receiver can stand in no higher plane than the corporation
itself even though the receiver represents the interests of all creditors and thus,
the unauthorized stock subscriptions cannot be enforced. Further, the principle
of estoppel is not applicable to estop stock subscriptions that are void.
Kentucky Levassor v. Metropolitan Fire Ins. Co.'s Receiver, 188 Ky. 23, 220 S.W. 752 (1920).
The court held that stockholders were liable for unpaid subscriptions to an
insolvent insurer even if the subscription contracts were entered into before the
insurer received a certificate of authority to do insurance business. The
subscribers were liable for the subscription price, even though above par. The
stockholder also does not have a defense of fraud unless the stock was
acquired so close to the time of insolvency that the stockholder did not have a
reasonable time to investigate the company's affairs.
Lock v. Stout, 173 Ky. 304, 191 S.W. 90 (1917). The court held that the receiver of
an insolvent stock insurance company may bring one suit in the county of the
receivership proceeding to collect unpaid capital stock subscriptions from
stockholders of the company, rather than pursuing independent actions in the
county of residence of each stockholder.
Minnesota Dwinnell v. Minneapolis Fire & Marine Mutual Ins. Co., 90 Minn. 383, 97 N.W. 110
(1903). The receivers of an insolvent mutual insurance company brought suit to