280 Pa. 263 | Pa. | 1924
Opinion by
The question involved in this case is whether the court below should have appointed receivers for the Consumers Association of America, a corporation of the State’of Delaware.
From the court’s findings and the evidence, we take the following facts: All the company’s property is located in Pennsylvania, all its business is carried on here, all its officers and directors are citizens and residents of this State, as are substantially all of its stockholders. It only had one stockholder in Delaware and he at the time of the filing of the bill had but recently moved there. The corporation was engaged in the retail grocery business in the City of Philadelphia, where all of its business was transacted and all its property located. It had established nine retail grocery stores in that city. The capital stock of the corporation is divided into two classes, Class A consisted of 100,000 shares, without par value or voting rights, which has no right of control, and Class B of 1,000 shares, without par value, but with the right to vote. Of the 1,000 shares with voting privilege, 980 shares are in the hands of trustees under a voting trust agreement to hold for twenty years, the trustees being five of the individual defendants. Ten shares of Class B stock are unissued and 10 shares are held by the directors and promoters and organizers of the corporation. Class A stock was sold first at $25 and later at $27.50 per share, except to the officers and directors who paid for it but $5 per share.
Plaintiffs are the holders of Class A stock, which they purchased under false representations made to them
Under the stock selling arrangements entered into by those controlling the company, the sellers of it received 20% of the cash paid by the purchasers which was taken out of the first 25% paid on the subscriptions.- There was no obligation on the part of those vending the stock to collect the balance due. Up to June 30, 1923, the company had received from the subscribers to its capital stock $130,469.38. The expense of selling the stock and collecting the subscriptions aggregated 59% of the total amount paid in, and organization and development expenses to 12% of the cash subscribed, making a total, of 71% of the amount received. In the entire two years of operation, the cash capital received by the corporation from persons to whom stock had been sold aggregated more than $167,000, which had been impaired to an amount exceeding $137,000. The company’s losses were growing as it continued operation. The Banking Department of the State under the provisions of the Securities Act of June 14, 1923, P. L. 809, had refused to approve the sale of the stock. As one of the baits to sell it, stockholders were allowed a 5% discount on all articles purchased by them at any of the company’s stores, except on four staple commodities. The corporation undertook to deliver merchandise to its customers, which was not done by other chain store concerns, and, as indicated by the evidence, cannot be profitably done.
The conclusion reached by the court below was, that the foreign charter of the corporation was being used as
The court determined, in view of the gross impairment of the company’s capital, and the large and increasing losses resulting from the operation of its business, and the loss which would accrue to others who might purchase the stock, that its sale to the public should be stopped and its officers and directors enjoined from further carrying on the business, and that receivers should be appointed to liquidate its assets and wind up its affairs.
The appellants contend the company is solvent, but the court below refused to so find. The allegation of solvency is based on the proposition that the unpaid stock subscriptions amounted to more than |623,000. Without their payment (and under the finding of the court they ought not to be collected for the purpose of further carrying on the business) the company is unquestionably insolvent, but whether solvent or insolvent, the court had authority to appoint receivers: Cowan v. Penna. Plate Glass Co., 184 Pa. 1; Treat v. Penna.
The question in the case is, whether, under circumstances such as those here appearing, our courts should appoint receivers for a foreign corporation. Appellant argues the proposition as though it were one of jurisdiction. The question, however, on close analysis will be seen to be not one of jurisdiction but of discretion in exercising jurisdiction. “It has been held indeed that the court has no jurisdiction to appoint a receiver [for a foreign corporation] but the better opinion is that it is a matter rather of discretion than of jurisdiction. The rule rests more on grounds of policy and expediency than on jurisdictional grounds; more on want of power to enforce a decree rather than on jurisdiction to make it. ......And if a corporation has all its property at the forum, and does all its business there, it would seem that a court of equity might well appoint a receiver to wind up its business affairs”: 23 Ruling Case Law, page 34. In Chicago Title & Trust Co. v. Newman, 187 Fed. 573, the court said: “A court of equity will not, as a general rule, administer the internal affairs of a foreign corporation. As decided by the Supreme Court of Illinois in Babcock v. Farwell, 245 Ill. 14, 33, 91 N. E. 583, the question is not strictly one of jurisdiction, but rather of discretion in the exercise of jurisdiction.”
Appellants rely entirely on the rule announced in many of our adjudications that the court will not take jurisdiction of a case involving the internal management of a foreign corporation and point to Madden v. Electric Light Co., 181 Pa. 617; McCloskey v. Snowden, 212 Pa. 249; Kinney v. Mexican Plantation Co., 233 Pa. 232; Kelly v. Thomas, 234 Pa. 419; Hogue v. American Steel Foundries, 247 Pa. 12; Thompson v. Southern Connellsville Coke Co., 269 Pa. 500, as sustaining their position. It is true that these cases are authority for the proposition for which they are cited, but the situation which confronted the courts in them was very different from
What was said in Starr v. Bankers Union of the World, 81 Neb. 377 (1908), to onr minds convincingly reasons in favor of the exercise of the power to appoint receivers under the circumstances shown in the record before us: “The defendants contend that the courts of this state cannot administer the affairs of a foreign corporation, and that the district court......had therefore no jurisdiction of the subject of the action. Where the general administration of the assets of an insolvent corporation is proceeding in the state of its creation, there are good reasons, founded on the principles of judicial comity, why the courts of another state should not appoint receivers of such of its assets as may be found in its jurisdiction; ......The power to appoint a receiver of the assets of a foreign corporation is constantly exercised: 5 Thompson on Corporations, section 6861; 3 Cook on Corporations, 5th ed., section 865. That a court should not appoint a receiver to administer the internal affairs of a foreign corporation is a very general rule, the reason for which is that the court cannot obtain control of all the property, books, records and members of the corporation so as to do full justice between all the parties interested; but the operation of this rule ceases when the reason for it no longer exists, and whatever might be the objection to appointing a receiver for the property of a foreign corporation found in this State, where such property is only part of its assets, and where the books and records and officers of such corporation are beyond the process of the court, they do not apply in this case. Here all the assets, books, and records were brought into this jurisdiction. Here the defendants assumed to exercise the power and authority of the foreign corporation. No assets, no books, no person assuming to act as its officer remained in the state of its creation. Clearly the courts of this State......would be better able to take jurisdiction of an action by its beneficiaries and members
It was stated at bar by counsel for appellees that it is not intended to attempt to collect the unpaid stock subscriptions or to obtain or convert any assets not to be found in this State. For this reason, without passing upon a receiver’s right so to do, in other similar cases, we will treat the decree as so modified as to exclude these items, and, thus modified, it is affirmed and the appeal dismissed at the cost of appellants.