272 F. 558 | 6th Cir. | 1921
The De Camp Glass Casket Company, a corporation organized under the laws of Delaware for carrying on a manufacturing business, filed voluntary petition in bankruptcy pursuant to resolution therefor by its board of directors, and adjudication followed as of course. Thereupon certain of its stockholders moved to vacate the adjudication, on the ground, among' others, that the directors had no authority to file the petition therefor, and that their act was thus not that of the corporation. The referee overruled the motions to vacate. Upon review, the District Judge reversed that action and set aside the adjudication, upon the ground that the directors were without power to authorize the filing of a voluntary petition for adjudication of bankruptcy without a vote of the stockholders, and declined to consider the other grounds of the motion to vacate. This proceeding, under section 24b of the act (Comp. St. § 9603), is to review this vacating order.
1. Respondents moved to dismiss the petition to revise on the grounds, first, that the order in question is not reviewable under section 24b, but can only be reviewed on appeal under section 25 of the act (Comp. St. § 9609), as from “a judgment adjudging or refusing to adjudge the defendant a bankrupt”; and, second, that the proceeding to revise was not seasonably taken.
The motion to dismiss the petition to revise is denied.
“With tlie consent in writing and pursuant to an affirmative vote of the holders of a majority of the capital stock issued and outstanding, the directors shall have authority to dispose in any manner of the whole property of this corporation.”
We are not disposed to give great weight to this latter consideration, for the reason that a corporation is not dissolved by bankruptcy proceedings, unless the state statute so provides. As said in Du Pont v. Standard Arms Co., 9 Del. Ch. at page 320, 81 Atl. at page 1089:
“The appointment of the receiver did not dissolve the corporation, or cut short its legal existence.” Rudebeck v. Sanderson, supra, 227 Fed. at page 578, 142 C. C. A. 207.
In re Ouartz Gold Mining Co. (D. C.) 157 Fed. 243 (affirmed Van Emon v. Veal [C. C. A. 9] 158 Fed. 1022, 85 C. C. A. 547), lends support to the decision of the District Court in the instant case, but is not, to our minds, convincing. The case of In re Bates Machine Co. (D. C.) 91 Fed. 625 (cited in the Quartz Case), is opposed to the general current of authority, as is also In re Burbank Co. (D. C.) 168 Fed. 719. The case, in our opinion, turns upon the question whether the charter provision authorizing disposition of the entire property of the corporation with the consent of two-thirds in interest of the stockholders is tantamount to a prohibition of the institution of voluntary bankruptcy proceedings. This question is, of course, purely one of intention. We may lay aside-any probability that the organizers of the corporation had bankruptcy proceedings specifically in mind, and so the real inquiry is whether their intention, as disclosed by this provision, broadly embraces such action. The learned District Judge was impressed by the fact that in the majority of cases which have held that a board of directors may authorize proceedings in bankruptcy under the general authority to manage the business of tire corporation, the conclusion was rested upon the fact that, as construed by the highest. court of the state, the directors had power to authorize an assignment for the benefit qf creditors. Such was the situation in Home Powder Co. v. Geis, supra; Rudebeck v. Sanderson, supra; Dodge v. Kenwood Ice Co. (C. C. A. 8) 204 Fed. 577, 579, 123 C. C. A. 103 (reviewing In re Kenwood Ice Co. [D. C.] 189 Fed. 525); In re Foster Paint & Varnish Co. (D. C.) 210 Fed. 652; In re Russell Wheel & Foundry Co. (D. C.) 222 Fed. 569, 573.
On the other hand, there are a number of decisions asserting the authority of the corporate directors to institute proceedings in voluntary bankruptcy, and without reference to power to make assignments for the benefit of creditors. In re Hargadine-McKittrick Dry Goods Co. (D. C.) 239 Fed. 155, 158;
The decisions asserting the power of corporate directors to make assignments for the benefit of creditors as a rule, if not always, are based upon the general authority of the directors to take such action unless specially restricted.
It is the well-settled rule that, in the absence of express statutory authority, neither the directors nor a majority of the stockholders of a prosperous and going corporation, nor both together, have power to dispose of the entire property of the corporation, or even so much of it as renders the corporation unable to continue business and carry out the purpose of its formation. 7 R. C. L. § 287; 6 L. R. A. 678; 35 L. R. A. (N. S.) 397. In later years statutes authorizing such disposition (as by direct sale or consolidation, or otherwise) by the consent of less than all the stockholders of a solvent and going concern have become quite common. The charter provision here in question does not in express terms forbid any and all action on the part of the directors (such as assignment for the benefit of creditors or bankruptcy proceedings), which would or might lead to a final disposition of the entire corporate property. Indeed, it does not in express terms forbid action by the directors to dispose of the entire property of the corporation. It is only by implication that the construction adopted below can be reached.
“A board of directors ought to have the power to put the company into bankruptcy. They have care of the general business of tbe corporation. They are the persons who know whether the corporation is able to go on or not.' It might very well happen that under the articles and by-laws of the corporation it would be impossible to hold a meeting of the stockholders for months. Under these circumsl anees the bankruptcy of the corporation might be delayed so long that in many cases the purposes of the bankrupt law would pe defeated and preferences given.”6
And as further said in the same case (page 528):
“The petition is not a transfer of the property. It is not an assignment for the benefit of creditors. It simply sets the machinery of the court in motion. The thing that does transfer the property is not the petition, but the adjudication.”
For these reasons we are constrained to the opinion that the court below erred in vacating the adjudication of bankruptcy, for the one reason there and here considered. Its order is therefore reversed, and the record remanded, with directions to consider and pass upon the other grounds of the motion to vacate, and to take such further proceedings as are consistent with this opinion.
There are similar decisions by the Circuit Court of Appeals of the Eighth Circuit. Electric Co. v. Ætna Ins. Co., 206 Fed. 885, 124 C. C. A. 545; Hart-Parr Co. v. Barkley, 231 Fed. 913, 914, 146 C. C. A. 109; Armstrong v. Norris, 247 Fed. 253, 254, 159 C. C. A. 347.
The cases of Fitts v. Custer, etc., Co., supra, and Bell v. Blessing (C. C. A. 9) 225 Fed. 750, 141 C. C. A. 34, illustrate the tendency of the courts to sustain the power of corporate directors to file petition in bankruptcy. In the first-mentioned case the filing of such petition was held not an “Incum-brance of its property” within the meaning of the Colorado statutes (Rev. St. 1908, § 865, as amended by Laws 1915, p. 175) denying to the directors of a mining corporation power to incumber its mines or plant without the power ot an authorizing vote of the stockholders, in the other case an authorization to a corporation to file its voluntary petition in bankruptcy, given by its hoard of directors, a member of which practically owned all the stock, was held sufficient, notwithstanding the provision of the Civil Code of California, (section 361a) forbidding any assignment of the business, franchises, and property of a corporation unless with the consent of the stockholders thereof holding at least two-thirds of the stock.
This case was reversed by the Circuit Court of Appeals of the Eighth Circuit upon another point (244 Fed. 719, 157 C. C. A. 167), and without mentioning the proposition we have just referred to.
In this case, however, in support oí the proposition that the question of solvency was immaterial, a quotation was made from a former decision of that court (In re Moench & Sons Co., 130 Fed. 685, 66 C. C. A. 37), in which it was said that the power to make the admission in writing (constituting the fifth act of bankruptcy) “could be exercised by the same officers who have tlie power to make a general assignment, and, in the absence of statute or by-law regulating the subject, such power resides in the directors.”
In Boynton v. Roe, 114 Mich. 401, 407, 72 N. W. 257, 259, the question is thus disposed of: “The directors may make such assignment for the benefit of creditors without the assent of the stockholders. Hutchinson v. Green, 91 Mo. 367; De Camp v. Alward, 52 Ind. 473. Under our statute, the business affairs of the corporation were under tlie control of the board of directors. The board of directors liad the power to make the assignment.”
In Tripp v. Northwestern Nat. Bank, 41 Minn. 400, 403, 43 N. W. 60, 61, it was said: “It is contended that the assignment in this case was void because it was not authorized by the stockholders, but only by the board of directors, and because even tlie authority given by the directors was only to make an assignment for the equal benefit of all creditors without preferences, no more specific direction being given. The weight of authority seems to bo in favor of the proposition that the board of directors of a corporation, to which the general management of its affairs is committed without particular restriction,, may authorize a general assignment of the corporate property to be made for the benefit of creditors when tlie condition of its affairs is such as to reasonably justify such a course, as in the case of insolvency. Sargent v. Webster, 13 Met. 497; Dana v. Bank of U. S., 5 Watts & S. 223; Ardesco Oil Co. v. North Amer. Mining Co., 66 Pa. St. 375; Merrick v. Trustees, 8 Gill, 59; De Camp v. Alward, 52 Ind. 468.”
In Re Guanacevi Tunnel Co. (C. C. A. 2) 201 Fed. 316, 318, 119 C. C. A. 554, 556, it is said: “In the absence of any restriction, by statute or by the charter and by-laws, the power of tlie board to make a general assignment of the property of a corporation which is unable to meet its current obligations
In Chew v. Ellingwood, 86 Mo. at page 273, 56 Am. Rep. 429, it is said: “The right of the directors of a bank in failing circumstances to make an assignment for the benefit of creditors, where there is nothing in the charter or general laws forbidding it, we think, is clear. * * * Many of the authorities cited go to the extent of saying that under such circumstances the directors hot only have the right, but that, in justice, they ought to make an assignment so that creditors might share equally in its assets.”
In Hutchinson v. Green, 91 Mo. 367, 1 S. W. 853, in the presence of a statutory provision that “the property or business of the corporation shall be conducted and managed by directors,” it was held, as stated in the headnote (which is fully sustained by the text 91 Mo. at page 375,1 S. W. at page 855), that “it is the duty of the directors of a corporation to care for its creditors, and when it becomes embarrassed and unable to meet its obligations in the usual course of business, it is competent for the directors to make an assignment for the benefit of creditors, and this they may do, not only without the consent¡ but even against the expressed will of the stockholders.”
Quoted with approval by Judge Thompson in Foster Paint & Varnish Co. (D. C.) 210 Fed. 652, 653.