Payson v. Stoever

DILLON, Circuit Judge. The questions arising in this cause have been presented by counsel with a degree of thoroughness, research, and logical force rarely witnessed, and as an early determination of the cause is desirable, the court proceeds to announce its conclusions without waiting to find time to elaborate at any considerable length the grounds upon which its judgment rests. 1.The plaintiff, as the assignee in bankruptcy of the Republic Insurance Company, represents as against its stockholders the rights both of the bankrupt company and its creditors. The company being in bankruptcy, all the claims of its creditors must be established in the bankruptcy court, and its assets collected and distributed under the superintendence of that court. Whether under its charter the company, if it had not been thrown into bankruptcy, could collect from the stockholders the full amount of their unpaid stock, or could only collect so much as might be necessary to pay “losses” proper as distinguished from “liabilities,” it is not necessary to determine, for clearly the unpaid stock is liable to creditors for all debts and legal liabilities, and the assignee represents the creditors as well as the company. However -it might have been before, creditors cannot, since the supervention of bankruptcy, bring bills in equity or other actions in their own names directly against the stockholders-to enforce their liability with respect to their unpaid stock. The liability on the part of the stockholders-is one which is imposed for the benefit of creditors, and creditors must now secure the benefit of it through the assignee. And in. respect to the assignee and so far as may be necessary to pay the binding debts and legal liabilities of the company, the principles sanctioned by the supreme court of the United States in the case of Ogilvie v. Knox Insurance Co., 22 How. [63 U. S.] 380, 3S7, apply here. “Stockholders,” says Mr. Justice Grier, in that case, “who have not paid in the whole amount of stock subscribed and owned by them, stand m the relation of debtors to-the corporation for the several amounts due' by each of them. * * * The stock subscribed and owned by the several stockholders or partners constitutes the capital or fund publicly pledged to all who deal with them." 2. The assignee can only collect so much of the unpaid stock as may be necessary to satisfy debts provable in bankruptcy against the-company, and the necessary costs and expenses of administration; and it follows that the necessity for the sixty per cent, assessment made by or under the direction of the bankruptcy court is not collaterally inquire - ble into in every or any action brought to enforce payment of such assessment. Such questions must be decided in that court. If more is assessed and collected than is necessary to-pay claims against the estate, any stockholder may apply to that court for his proportion of the surplus. Upton v. Hansbrough [Case No. 16,801]. 3. It is our opinion that the original charter of the company contemplated that any increase of the capital stock beyond $1,000,000-should be assented to by the stockholders as distinguished from the directors. It being-admitted that the shares of stock owned by the defendant were no part of the $1.000,000-first issued, but were part of the stock issued by it in excess of the $1,000,000, and prior to the amended charter of March 25, 1809, this stock would not be legal, and no action could be maintained to recover the price of it unless the stock has become legal stock by matters subsequently occurring, or unless the defendant, under the facts proved, is estopped' to set up this objection. The legislature authorized a capital of $5.-000,000, but required the assent of the stockholders to any increase beyond one million. The amount issued at no time had reached the $5,000.000. No mode of procuring the assent of the-stockholders to the increase of stock is prescribed by the charter. It is conceded that in a meeting of the stockholders of the original millipn of stock duly convened, a majority might determine upon such increase and bind the minority. On January 0th, 1S6S, the-directors resolved upon an increase of the capital stock to five millions of dollars. On [29] November 6th, 1868, the defendant subscribed for his stock. On the 13th of January, 1869, there was a regular annual meeting of the stockholders, to which a report was made, showing that 83,746,100 of stock had up to that time been issued, and $3,116,000 of stock was voted at that meeting for directors. The evidence shows that over $800,000, or in round numbers, four-fifths of the first million .of stockholders were present, in person or by proxy, and voted at this meeting for directors. No objection then, or ever, was made to the increase of stock, and the old stockholders and the new voted indiscriminately, and the proceeds of all sales of stock were treated and invested by the directors as capital until the company ceased to do business. Two dividends were made in 1869, and one in 1870, upon all the stock, which in each of those years exceeded four millions of dollars. The defendant, in February, 1870, received two of these dividends. On the 25th of March. 1869, the charter was amended authorizing, inter alia, the directors to increase the stock. After this, as well as before, the directors repeatedly and always recognized the validity of all the stock which had been issued. The defendant, it may be admitted, had no personal knowledge of any increase of capital stock, or of the passage of the amended charter, until after this suit was brought, although the agent who acted for him in his absence in respect to his stock had such knowledge. The only ground of defence here is that the stock issued in excess of the $1,000,000 is void, because the holders of this first million of stock did not assent to the increase. From the proofs in the case, we find that at lease four-fifths of the original million of stockholders did know of and assent as early as January, 1869, to this increase of stock, and are of opinion that the requisite assent of the stockholders can be shown by their conduct and acquiescence, and need not necessarily be established by any formal vote or resolution. Inasmuch as during part of 1868, and all of 1869,1870, and 1871, down to the great fire in Chicago, the company did business and declared dividends, on the basis of having nearly $5,000,000 stock out, a fact not disguised or concealed, but proclaimed to the world, the defendant, as a holder of a stock certificate, which he still retains, and receiving dividends, which he also retains, will not be permitted by the principles of law, in order to escape a liability imposed for the benefit of creditors, to deny at this late day that he is a stockholder in the company. Particularly ought this to be so in view of the amendment of the charter by the legislature giving the directors the power to increase the stock, and their subsequent action ratifying what they had previously done. The original charter contemplating that stock might be issued to the extent of $5,-000,000, and that amount never having been quite reached, the amendment of the charter was not of such a radical character as to discharge a nonassenting stockholder from his liability as respects his unpaid stock. This view has been recently taken by the United States circuit court for Indiana in the case of Payson v. Withers [Case No. 10.864]. In the conclusion of Judge Drummond in that case on this point we coneur. Judgment for the plaintiff.