## Facts

- Wallazz B. Eaton, Sr. organized a corporation to acquire his ongoing frozen foods business.
- A permit authorized issuance of up to 4,500 shares of $10 par value stock in exchange for transfer of the business and imposed escrow and waiver conditions on 1,022 shares.
- The corporation issued 4,500 shares in Eaton’s name; 3,478 were issued outright, and 1,022 were placed in escrow in Eaton’s name, marked “escrowed” on the corporate records, and never released.
- The corporation later became insolvent and assigned assets for the benefit of creditors.
- Bing Crosby Minute Maid Corporation (BCMM) obtained a money judgment against the corporation; execution was returned unsatisfied.
- BCMM sued Eaton as a shareholder to recover the deficiency between the par value of shares issued to him and the value of the consideration received by the corporation (watered stock/unpaid par value).
- After a bench trial, the court found the value of Eaton’s consideration to the corporation was $34,780.83 and that 4,500 shares ($45,000 par value) were issued to Eaton and owned by him; it entered judgment for BCMM.
- The trial court granted Eaton a new trial based on claimed defects in findings, including the absence of findings on creditor reliance and the effect of escrowed shares.
- BCMM appealed the new-trial order, and Eaton appealed the judgment.

## Issues

1. Whether Eaton could be held liable to a corporate creditor for the deficiency between the par value of shares issued in his name and the value of his consideration, including as to shares held in escrow under a regulatory permit.
2. Whether a creditor enforcing the shareholder’s statutory liability for unpaid par value must prove reliance on the corporation’s stated capital or representation that shares were fully paid.
3. Whether the trial court properly granted a new trial based on the asserted defects in findings.

## Decision

- The Supreme Court of California affirmed the judgment for BCMM against Eaton.
- The court held Eaton was properly treated as the owner of all 4,500 shares recorded in his name, including the 1,022 escrowed shares, for purposes of shareholder liability for the unpaid portion of par value.
- The court held BCMM was not required to prove reliance to enforce the statutory liability after obtaining an unsatisfied judgment against the corporation.
- The court reversed the order granting a new trial because the purported missing findings (including reliance) were not legally required and the existing findings sufficiently supported liability.

## Legal Principles

- Par value shares generally must be issued for consideration at least equal to par; if the corporation receives less, the original recipient is liable to the corporation for the deficiency.
- After a creditor obtains a final judgment against the corporation and execution is returned unsatisfied, the creditor may proceed to reach the shareholder’s liability to the corporation for unpaid share consideration; the statute does not add a creditor reliance element.
- Shares issued and carried on the corporate books in a shareholder’s name may be treated as issued stock for purposes of enforcing the shareholder’s obligation to provide full par-value consideration, even if placed in escrow with transfer and participation restrictions.
- A new trial may not be granted for failure to make findings on matters that are immaterial as a matter of law to the statutory claim.

## Conclusion

The court reinstated and affirmed a creditor’s recovery against a shareholder for the unpaid par-value deficiency on shares issued in his name, including escrowed shares, and held that creditor reliance is not an element of the statutory remedy once judgment and unsatisfied execution against the corporation are shown.


Bing Crosby Minute Maid Corp. v. Eaton, 46 Cal. 2d 484, 297 P.2d 5 (Cal. 1956)