Reading Tr. Co. v. Reading I. Works

137 Pa. 282 | Pa. | 1890

NO. 281.

Opinion,

Mr. Justice McCollum:

The first and controlling question to be considered in this case is whether Charles H. Hunter, who was a stockholder in a corporation known as SeyEert, McManus & Co., was its debtor at the time of his death in 1870. The master has found that he was, and the court has approved the finding. But this finding is a deduction from undisputed facts, and the appellants claim that it is not authorized by them. These facts are distinctly and fully stated in the master’s report, and need not be repeated here. They show a course of dealing between the corporation and its stockholders, by which the latter received upon the books of the former an annual credit of six per cent on the agreed value of their shares, and were charged with the amounts drawn out “ on their capital stock.” An account current containing all the items of debit and credit was kept with and annually furnished to each stockholder, and he was thus advised of the state of his account with the corporation, and, if the debits exceeded the credits, that he appeared on the books of the latter as its debtor to the amount of the excess. The account included the balance of the previous year, together with interest upon it and the sums drawn out. This interest was applied in reduction of the interest credit to which the stockholder was entitled, as appears by the entry “ bj^ balance of interest account per account current rendered.” A stockholder who, annually for eight jmars, received a statement of his account without intimating that it was incorrect in form or fact, must be considered as consenting to its accuracy. But independent of the notice afforded by the account current, Hunter must have known that he appeared on the books of the corporation as its debtor, because he was one of its directors, actively participated in the management of its affairs, and was present when the resolutions were adopted, which limited the amount that the stockholders might draw out to five per cent on their capital stock.

Previous to and for several years after the death of Hunter the corporation made large profits, but declared no dividends. These profits were “ invested in the business in various properties,” thereby increasing the capacity of the plant and the value of the stock. In 1865, on motion of Hunter, it was resolved “that the report of the assessor of income tax of the profits of last year be made in the individual names of the stockholders, and their respective amounts charged to their account when paid to the collector; ” and the reports and charges were thereafter made in accordance with this resolution. The appellants insist that this action was the equivalent of an actual division of the profits. But this claim is sufficiently answered by the fact that the profits remained in the business and were not credited in the account current, while the taxes were charged therein. We think the master was justified in finding that Hunter was indebted to the corporation in the sums drawn out by him in excess of the credit of six per cent on the agreed value of his stock.

This indebtedness was a lien on his stock by virtue of the by-laws he assisted in making. ‘ The stock was pledged for its payment: Waln v. Bank of North America, 8 S. & R. 73; Rogers v. Huntingdon Bank, 12 S. & R. 77; Grant v. Mechanics’ Bank, 15 S. & R. 140; Sewall v. Lancaster Bank, 17 S. & R. 285. When the corporation was reorganized under the name of the Reading Iron Works, with a capital stock of $500,000 divided into shares of the par value of $100 each, it was

“ Resolved, That the said five hundred thousand dollars of stock shall be issued to the stockholders of the present stock of the Reading Iron Works, in the proportion in which they now hold their stock: Provided, however, that no stockholder who is indebted to the corporation shall receive such new issue of stock until his debt is fully paid. But stockholders who will be entitled to receive such stock at par in excess of their indebtedness shall be allowed to surrender shares at par in payment of such indebtedness.

“ Resolved, That in all cases where the debt of a stockholder to the corporation remains unpaid for a period of sixty days from the date of letters-patent from the governor, the board of directors is hereby directed to apply so much of the stock at par as will extinguish the debt, and issue any balance of stock to him, his heirs, executors, or administrators.”

This action was reasonable and within the power of the corporation. It was unanimously agreed to at a meeting of the stockholders, duly convened, and its legality is not questioned by the appellants. The statute of limitations does not destroy the lien which the corporation has upon the stock. The pledge cannot be recovered without payment of the debt secured by it.

Decree affirmed, and appeal dismissed at the cost of the appellants.

no. 278.

Opinion,

Mr. Justice McCollum:

Two questions are raised by this appeal. The first is, whether the sums paid by the corporation to the widow of Charles H. Hunter constitute an indebtedness of his estate; and second, whether under the circumstances of the case a decree for the payment of money is allowable. Hunter, by his will, devised the residue of his estate, after the payment of his just debts, to his executor, in trust to devote the net income thereof to the maintenance of his wife and children for a period therein named, and as each child attained the age of twenty-five years to pay to him his proportion of two thirds of the principal, and at the death of the widow his proportion of the remaining one third of it. No authority was given to the executor to pledge any portion of the assets of the estate for a loan to be expended in their maintenance. The sums paid to the widow from 1870 to 1875 were charged in the account opened with Hunter in 1862, and the effort of the appellant is to subject the stock belonging to Hunter’s estate to a lien for them.

At the time of his death, in 1870, Hunter was indebted to the corporation, and his stock was pleged for the payment of this indebtedness. He was then entitled to an annual credit in his account of six per cent on the agreed value of his stock. These credits were entered in the account each year after his death until 1876. The account shows that the corporation actually appropriated a portion of each year’s interest credit to the payment of interest on the debt, as it had done in Hunter’s lifetime. The balance of this interest credit was applicable to the items of the debt in the order of their entry.- It is clear that the widow had no authority to bind the estate by a receipt for any portion of its assets, or in any manner to increase its indebtedness. But it is claimed that the payments were made to her by direction of the executor, who was also president of the corporation, and that they were therefore in effect payments to him as the legal representative of the estate. If it be conceded that these payments were made to the executor, it remains to inquire whether he could increase the debt for which the stock was pledged, by drawing out sums in excess of or equal to the interest credits in the account which were applicable to that debt. The annual balances in the account show that the first year after Hunter’s death the debt of his estate was reduced from $7,987.56 to $7,524.21, and that in the second and third years it was increased from $7,524.21 to $10,493.20, by charging to the estate the sums paid to the widow. If the sums so paid by the direction of the executor became a debt of the estate and a lien upon the stock, it would follow that he might devote the principal of the estate to the maintenance of the widow and children, while the will limited his expenditures in that behalf to the net income thereof, after the payment of its just debts. The interest credits were not dividends, but payments on an account in which the sums paid to the widow were improperly charged, thus apparently but not actually increasing the debt of the estate. The powers of the executor under the will were known to the corporation of which he was the chief officer. We think the learned master was right in holding that the interest credits were applicable to the debt for which the stock was pledged, and that the amounts received by the widow were not a lien on the stock, or a debt of the estate.

On the 28th of March, 1889, the corporation made an assignment for the benefit of its creditors, and at the time of the final decree its stock was worthless. The assignee was admitted to defend, and it is now claimed that a decree for money is improper, because it may affect injuriously the general creditors. It is conceded that, but for the assignment and insolvency of the corporation, the decree in this respect is unobjectionable, because it was the plain duty of the corporation, under its own resolutions, to issue the stock. But we are unable to see how these can affect the rights and liabilities of the original parties to this litigation. The assignee succeeded to the defences of the assignor and is limited to them.

Decree affirmed, and appeal dismissed at the cost of the appellant.