293 F. 857 | 6th Cir. | 1923
The Louisville Trust Company, as trustee for certain individuals, had purchased at bankruptcy sale the plant and assets of the Louisville Steel & Iron Company, the substantial consideration being the cancellation of a bond issue of $200,-000. On April 20, 1920, the trust company, as such trustee, gave respondents Tietjen and J. Walter Bell an option for the purchase of this plant and personal property, to be conveyed to a corporation to be • organized by the optionees, and having an authorized issue of $150,-000 of preferred stock and 3,000 shares of no par value common stock, of which the trust company, as such trustee, was to receive as payment for such plant and personalty $50,000 preferred and 750 shares of no ■ par value common stock, plus $100,000 of an issue of $15^,000 of mortgage bonds to be placed on the property by the new corporation, op-tionees agreeing to put not less than $50,000 of working capital into the treasury of the new corporation, to be used for necessary repairs, alterations, and operation. This option was accepted on or about May 4, 1920. Pursuant to this arrangement, the present bankrupt, the Kentucky Iron & Steel Company, was organized under the laws of Delaware, with authority to issue preferred and no par value common stock in the agreed amounts above stated; the three incorporators, of whom Tietjen was one, subscribing each for 5 shares of such common stock. On the same day the incorporators, acting by proxy, elected-five directors, of Whom Tietjen was one, and on the same day, at Wilmington, D'el., by the affirmative vote of all present, "adopted a resolution reciting the option and its acceptance; also an offer by the optionees to sell and assign the option and all rights thereunder to the new corporation, in consideration of the issue to the optionees of 2,250 shares of no par value common stock, and authorizing the board of 'directors to purchase the option at the price stated and to issue such stock in payment; also to carry out the option according to its terms, and purchase the plant and assets in question,' and give a mortgage thereon to secure the bonds before referred to; and to issue in payment for the plant and assets the preferred stock and no par value common stock and mortgage bonds in amounts provided in the option.
On June 1, 1920, at its first meeting (at Louisville), the board of directors (Tietjen not voting) adopted a resolution accepting the offer of the optionees to sell the option, approving the terms thereof, and authorizing the president and secretary to accept and carry it out, to make and deliver all necessary agreements for the purchase of the property, and specifically authorizing and directing those officers to issue to the optionees certificates for the no par value common stock, and to the order of the Louisville Trust Company, trustee, certificates for the no par value common stock and the full-paid and nonassessable preferred stock, and the mortgage bonds in the same amounts as were
Meanwhile, J. Walter Bell had advanced $50,000 to the new company for the purposes stated in the option agreement, and had taken as security therefor the remaining $50,000 of mortgage bonds, which he claims to have sold to his wife, the respondent Phyllis W. Bell. J. Walter Bell also claims to have advanced to the bankrupt a further sum of $65,153.22, the claim wherefor he assigned to the respondent Ira L. McCord. At bankruptcy sale the trust company bid in the entire of the bankrupt’s property, paying into court the stipulated value of the free assets, so leaving available for distribution to general or unsecured creditors (amounting to approximately $220,000, including the deficiency mortgage claim of the trust company) not more than $7,-000, after payment of wage claims, expenses of administration, and other priorities. Thereupon this proceeding was instituted by the trustee in bankruptcy for the recovery from the trust company, trustee, as for unpaid stock, of $50,000 on account of the preferred and $75,-000 on account of the no par value common stock, and from Tietjen and J. Walter Bell, jointly and severally, for common stock liability, $225,000. Payment upon the claims of Ira L. McCord and Mias. Bell was sought to be stayed pending the hearing of the main issues. After hearing upon the merits, the referee denied and dismissed the petition for assessment of stockholders’ liability as to both preferred and no par value stock. Upon review the District Court affirmed the referee’s order. The trustee in bankruptcy seeks review of the action of the District Court both by appeal and by revision under section 24b of the Bankruptcy Act (Comp. St. § 9608).
1. The Method of Remew. — The result of the case will be the ■ same, whether review is had by appeal or on petition to revise. We are disposed to regard the latter method as proper. It is the method under which review was had by this court in Re Associated Oil Company (C. C. A.) 289 Fed. 693, and in Re Pipe Line Oil Company, 289 Fed. 698.
2. The liability of the stockholders of this Delaware corporation for alleged unpaid subscriptions depenus upon the law of tha,t state.
The question of the trust company’s liability on account of the preferred stock presents little difficulty. Section 14 of the General Corporation Law of Delaware provides that subscriptions to or purchases of the capital stock of any corporation organized under any law of that state may be paid for wholly or partly by cash, by labor done, By personal property, or by real property or leases thereof, and provides that:
“The stock so issued shall be declared and taken to be full paid stock and not liable to any further call, nor shall the holder thereof be liable for any further payments under the provisions of” its charter, “and in the absence of actual fraud in the transaction, the judgment of the directors, as to the value of such labor, property, real estate or leases, shall be conclusive.” Bev. Code Del. 1915, § 1928.
Section 20 (Rev. Code Del. 1915, '§ 1934) declares that in case of corporate insolvency, and when the whole capital stock shall not have been paid in, each stockholder shall be bound to pay on each share held by him the sum necessary to complete the amount of the par value of such share as fixed by the company’s charter or certificate of incorporation, or such proportion of the same as shall be required to satisfy the debts of the company.
3. The preferred stock in question was issued in part payment of the purchase price of the real estate and other assets, for the use of the new corporation. Jt was declared to be fully paid. The incorporators unanimously declared the property necessary for the business of the corporation, that its fair value was more than $150,000, and in express terms authorized the board of directors to carry out the option according to its terms, and purchase the property, to issue the common and preferred stock as provided therein in payment, to execute the mortgage in question, and to deliver to the trust company, trustee, the certificates for the two classes of stock and for the bonds in the amount previously provided for. The referee found that this valuation was “reached by real investigation and examination by a majority of the board,” that there was “no fraud in fixing it at that figure,” and that “under the conditions existing at the time it wa§ not unreasonable.” We accept these conclusions of the referee, which we think amply supported by the record.
The testimony, considered as a whole, including an appraisal made by an appraisal company of apparent standing, justifies the conclusion that the purchase was made when there was a large demand for iron and steel products, and that the failure was due to a marked decline in the market from the time the new company began to operate until the time it went into bankruptcy.
The only contention of the trustee in bankruptcy which we think requires notice, as applicable to the trust company’s asserted liability on account of the preferred stock, is that the action of the stockholders and directors was a nullity, for the reason that the majority of both
4. The Common Stock. — Section 20 of the Delaware statute, already referred to in part, further declares that in the case of stock without par value, this liability (for unpaid portion of part-paid stock) shall be limited to the unpaid balance of the consideration for which the stock was issued by the corporation. As to the 750 shares of no par value common stock issued to the trust company, trustee, the referee thought that no consideration therefor was fixed by the board of directors; that stock was simply “thrown in” with the securities which had an ascertainable value, and therefore the 750 shares issued to the trust company, trustee, were void.
As to the shares issued to Bell and Tietjen, the directors expressly “adjudged and declared that said option is worth 2,250 shares of common stock of this company, without nominal or par value.” The referee thought that a consideration was thus found by the board in the value of the option taken over by the bankrupt, saying that, “while the option finally proved to be worthless, so did the common stock.” We find it unnecessary to consider whether the referee correctly treated the 750 .shares as void,
In ultimate legal effect, the promoters and incorporators determined
We are cited to no authority, nor have we found any, supporting the right to the recovery asserted by the trustee in bankruptcy. On the contrary, the generally, if not universally, accepted theory of the purpose of such statutes is that they are intended to do away with both the “trust fund” and “holding out” doctrines. We refer in the margin to three valuable and interesting articles in the American Bar Association Journal upon the subject of no par value stock.
“The whole theory of stock without par value is ‘let the buyer beware’ and ‘let the creditor beware.’ ”
Granting that the courts should compel the payment of the consideration for which the no par value stock was issued by the corporation, it would seem, not only that the consideration contemplated by the corporation and its promoters has been paid, but also that the no par value stock had no tangible value.
We have found it unnecessary to consider all of the interesting suggestions and arguments presented.
The decree of the District Court is affirmed.
Cf. Yeiser v. U. S. Board & Paper Co. (C. C. A. 6) 107 Fed. 340, 46 C. C. A. 567, 52 L. R. A. 724; Davis v. Das Ovas Co., 227 U. S. 80, 33 Sup. Ct. 107, 57 L. Ed. 426; Amer. Shipbuilding Co. v. Commonwealth S. S. Co. (C. C. A. 6) 215 Fed. 206. 131 C. C. A. 596; Enright v. Heckscher (C. C. A. 2) 240 Fed. 863, 153 C. C. A. 549.
Cf. Old Dominion Copper Co. v. Lewisohn, 210 U. S. 206, 28 Sup. Ct. 634, 52 L. Ed. 1025; Anderson v. Avey (C. C. A. 9) 272 Fed. 664; 7 Ruling Case Law, tit. “Corporations,” § 53, p. 74.
Cf. Anderson v. Mining Syndicate, 26 S. D. 558, 128 N. W. 1016; Walton v. Standard Co., 43 S. D. 576, 181 N. W. 96; Northwest Mfg. Co. v. French, 44 S. D. 195, 183 N. W. 117; cited in the opinion of this court in Re Associated Oil Co., supra, 289 Fed. at page 697.
By Wm. W. Cook, October, 1921; by Messrs. Hollen and Tuthill, November, 1921; by Henry E. Colton, December, 1921.