## Facts

- Columbia Straw Paper Company, a New Jersey corporation formed in 1892, became insolvent in May 1895.
- A receiver sued certain stockholders to collect alleged unpaid portions of their stock subscriptions to satisfy corporate debts.
- The company issued stock to defendants as “fully paid” in exchange for mills and plants used in manufacturing straw paper.
- The consideration was valued largely by capitalizing expected future profits and including goodwill rather than by present, concrete asset value.
- The receiver alleged the property was grossly and consciously overvalued, leaving a substantial deficiency between par value and actual value, despite the corporation’s treatment of the shares as fully paid.
- After demurrer practice and amended pleadings, the case proceeded on bill, answer, and proofs, involving substantial claimed liability (over \$200,000).

## Issues

1. Whether stock issued as “fully paid” in exchange for property is subject to unpaid-subscription liability when the property was deliberately and substantially overvalued.
2. Whether valuing consideration primarily by speculative elements (goodwill and prospective profits) constitutes a fraud on statutes requiring real paid-in capital.
3. Whether creditors, acting through a receiver after insolvency, may compel stockholders to pay the deficiency despite the corporation’s books and asserted good faith.

## Decision

- The court entered a decree for the receiver and held the defendants liable for the unpaid portions of their stock subscriptions to the extent necessary to satisfy creditor claims.
- It found the property accepted for the stock was consciously overvalued and that the transaction operated as a fraud on the corporate capital statute and on creditors.
- The court rejected the contention that reliance on goodwill and anticipated profits could lawfully supply the “property” value needed to treat the shares as fully paid.

## Legal Principles

- Corporate capital stock must represent actual value paid in, whether in cash or permissible property, because it functions as a fund on which creditors are entitled to rely.
- Stock is not fully paid when the purported property consideration is knowingly inflated through valuation methods that do not reflect present, lawful property value.
- Goodwill and capitalization of prospective profits, standing alone as valuation components, do not satisfy statutory requirements for property accepted as payment for stock when used to create an artificial paid-in capital figure.
- Conscious overvaluation in organizing or capitalizing a corporation may be treated as a fraud on the statute, rendering stockholders liable for the resulting unpaid-subscription deficiency.
- Upon insolvency, a receiver may enforce unpaid stock liability for the benefit of creditors, measured by the difference between par value and the real value of what was contributed.

## Conclusion

The court held stockholders responsible for unpaid subscription amounts where “fully paid” shares were issued for knowingly overvalued assets, treating the shortfall as enforceable capital for creditors after insolvency and rejecting speculative valuation methods as statutory compliance.


See v. Heppenheimer, 61 A. 843 (N.J. Ch. 1905)