No. 2104 | 7th Cir. | Jun 14, 1916
(after stating the facts as above). The appellant Thomas Rhodus complains because the master disallowed his claim for moneys alleged to have been paid for preferred stock of the Central Life Securities Company. Whether any money was so paid by tlie appellant Thomas Rhodus for preferred stock was purely a matter of fact. The report of the master in this respect was con-finned by the judge, and we are convinced that the evidence justifies the conclusion that Thomas Rhodus paid nothing for the preferred stock held by him. He is therefore not entitled as a holder of said preferred s.fock to participate in the funds in the hands of the receivers.
Without inquiring in detail into the difference between the original bill and the amended bill, it is sufficient to say that the decree appointing the receivers in these proceedings, was entered upon the consent of the said Central Rife Securities Company. The .decree
“It is further ordered and decreed that this decree shall be, and it is hereby, entered without prejudice to the determination of any of the issues presented by the bill of complaint herein, as amended and supplemented and without prejudice to the claims and assertions of any .purchaser of stock as to rights existing, or that may exist, by reason of any fraud or illegality that may be hereafter found or adjudged to have existed in the organization of said corporation, or the sale of its stock; and without prejudice to the determination of the relative rights and demands of any and all persons or corporations whether as creditors or as stockholders, etc.”
The appellant contends that this reservation conclusively establishes its right to contest the sufficiency of the proof to support the allegations in the bill for the appointment of a receiver. We think otherwise. The decree appointing the receivers was upon consent of said appellant. Other grounds than fraud, recognized by the statutes of Maine as sufficient justification for the winding up of a corporation, clearly appear in complainants’ bill, and are admitted in the answer. See chapter 85, Raws of 1905. The decree appointing the receivers can be sustained without any reference to, or consideration of, the allegations of fraud and misrepresentation contained in the original bill. The reservation above quoted merely preserves the right of claimants to litigate the question of fraud so far as that question became relevant to the determination of the issue of priority of claims when final distribution was ordered. Clearly no other effect was intended, and none can be given to the reservation in this decree.-
The precise question presented is whether the holders of the common stock shall be permitted to share pro rata with the holders of the preferred stock of said company.
The holders of preferred stock predicate their claim upon a dis-affirmance of the contract by which such stock was issued. Acting upon the theory that the scheme of incorporation and the plan of the promoters was fraudulent, it is claimed that the corporate entity is not even that of a de facto corporation. The holders of preferred stock, therefore, make claim to the fund on hand which they alone produced, and ask it to be apportioned in accordance with the amount actually paid into said fund rather than on the basis of the par value of the preferred stock so held. All holders of preferred stock who
The Central Rife Securities Company was organized under chapter 47 of the Revised Statutes of Maine. Section 6 of said chapter 47 provides that:
“Three or more persons may assodate themselves together by written articles of agreement, for the purpose of forming a corporation to carry on any lawful business, * * * and excepting corporations for banking, insurance, the construction and operation of railroads or aiding in the construction thereof, and the business of savings banks, trust companies,” etc.
While section 51 of chapter 47 of the Revised Statutes of Maine provides that:
“Any corporation organized under this chapter * * * may purchase, hold, sell, assign, transfer * * * or otherwise dispose of the shares of the capital stock * * * created by any other corporation or corporations of this or any other state”
—we conclude that the appellant Central Rife Securities Company was not authorized to purchase stock in a corporation organized to conduct an insurance business, much less, as in this case, to purchase all of, or the controlling interest in, an insurance company. We conclude that section 51 of said chapter 47 authorized the purchase of stock in companies that followed any line of business authorized by said chapter 47, but did not authorize the purchase of stock in companies that transacted a business which was not permitted by said chapter 47. Franklin Co. v. L. S. Bank, 68 Me. 43" court="Me." date_filed="1877-12-18" href="https://app.midpage.ai/document/franklin-co-v-lewiston-institution-for-savings-4933262?utm_source=webapp" opinion_id="4933262">68 Me. 43-47, 28 Am. Rep. 9; 1 Cook on Corporations, § 236. While the Central Rife Securities Company was authorized to conduct various kinds of business, its chief business, as advertised and as actually conducted, was to secure control of the Republic Rife Insurance Company, and thereby indirectly engage in the life insurance business..
It affirmatively appears that the holders of the preferred stock, whose claims were allowed in this court, were not active participants in this illegal scheme. It further appears that when the true facts were disclosed they acted promptly in repudiating the scheme.
Where the illegal scheme is thus promptly repudiated by the stockholders, they may recover the moneys by them paid to the company, and if the assets are insufficient to pay them in full, they are permitted to share pro rata in the fund on hand. Pullman’s Palace Car Co. v. Central Transportation Co., 171 U.S. 138" court="SCOTUS" date_filed="1898-05-31" href="https://app.midpage.ai/document/pullmans-palace-car-co-v-central-transportation-co-94904?utm_source=webapp" opinion_id="94904">171 U. S. 138, 18 Sup. Ct. 808, 43 L. Ed. 108" court="SCOTUS" date_filed="1898-05-31" href="https://app.midpage.ai/document/pullmans-palace-car-co-v-central-transportation-co-94904?utm_source=webapp" opinion_id="94904">43 L. Ed. 108; Central Transportation Co. v. Pullman’s Palace Car Co., 139 U.S. 24" court="SCOTUS" date_filed="1891-03-02" href="https://app.midpage.ai/document/central-transportation-co-v-pullmans-palace-car-co-92993?utm_source=webapp" opinion_id="92993">139 U. S. 24, 60, 11 Sup. Ct. 478, 35 L. Ed. 55" court="SCOTUS" date_filed="1891-03-02" href="https://app.midpage.ai/document/central-transportation-co-v-pullmans-palace-car-co-92993?utm_source=webapp" opinion_id="92993">35 L. Ed. 55.
The decree is therefore affirmed.