Allen v. Rhodes

• Decision Date: 05 February 1916
• Docket Number: 4193.
• Citation: 230 F. 321
• Parties: ALLEN et al. v. RHODES.
• Court: U.S. Court of Appeals — Eighth Circuit

230 F. 321

ALLEN et al. v. RHODES.

No. 4193.

United States Court of Appeals, Eighth Circuit.

February 5, 1916

The appellee, as the successory receiver of the Omaha, Decatur &amp Northern Railway Company, a corporation organized under the laws of the state of Nebraska, brought this suit against the appellants to recover unpaid assessments on their subscriptions to the capital stock of the railway company. The facts are practically undisputed, the case having been submitted on an agreed statement of facts, and are as follows:

On January 20, 1903, ten persons signed and acknowledged articles of incorporation, under the laws of the state of Nebraska, of the Omaha, Decatur & Northern Railway Company and filed the same with the secretary of state, as required by the laws of that state, on January 21, 1903. The purpose of the corporation was to construct an electric railroad through certain counties in the state of Nebraska.

On February 24, 1903, the stock books were opened and subscriptions made for 1,106 shares of the stock. Among these subscriptions was one made by F.

W Bement for 980 shares, of the par value of $98,000, each share being of the face value of $100. The other shares were subscribed by the defendants, who were appellants in the court below. The subscription by F. W. Bement, it is claimed, was not in good faith, as he had no means and did not intend to pay for the same, but was to receive them for his services as the promoter of the enterprise. These services were to be that he was to finance the company, sell the stock, place the bonds, and secure the money to build the railroad. For this he was to receive the 980 shares of stock as fully paid up.

A meeting of the stockholders was held on April 16, 1903, when directors were elected. On April 25th, the board of directors thus elected, held a meeting, at which by-laws for the company were adopted and officers elected. At that meeting an assessment of 10 per cent. payable at once was made, and paid by some of the defendants, but not paid by others, nor Bement. Directors' and stockholders' meetings were held after the organization a number of times, the last on November 26, 1907, after which date it does not appear any further meetings were held.

The full amount of the stock was never subscribed during the time the corporation was in existence. At a meeting of the directors held on August 24, 1903, the board made an assessment of 15 per cent. On January 5, 1905, the board made another call of 80 per cent., declaring that 20 per cent. had heretofore been called, although the record showed that 25 per cent. had been called, so that an assessment of 75 per cent. would make the stock entirely paid up, when paid; but neither of these two assessments were paid by any of the stockholders.

Contracts were entered into by the board of directors with different parties for services to be performed, among them with Clifford C. Peirce and Lester F. Wakefield, the latter being employed as chief engineer of the company. Afterwards Peirce and Wakefield instituted suit against the railway company in the Circuit Court of the United States for the District of Nebraska, for money due them for their services, and on March 31, 1908, they secured judgment against the railway company for $3,000, interest, and costs; an execution was issued thereon, and returned unsatisfied on the 10th day of July, 1908, whereupon they filed a creditors' bill in the Circuit Court of the United States for the District of Nebraska, for themselves, and all other creditors of the railway company, praying for the appointment of a receiver, to collect the assets and apply them to the payment of their judgment and the claims of such other creditors, as make themselves parties to the action.

At a hearing Lester R. Slonecker was, on the 4th day of July, 1908, appointed receiver of the railway company, and he resigning on December 21, 1908, the plaintiff, Rhodes, was appointed as successory receiver, and qualified as such. Later an order was entered by the court in that case, requiring the creditors to present and file their claims with the receiver, and that they be referred to a special master, who was to pass upon them. On the 29th day of September, 1909, the special master filed a report, in which he reported the allowance of claims of eight creditors, amounting to a total of $5,600.72, with interest thereon; that the only assets which came to the hands of the receiver were the unpaid assessments on the subscriptions to the capital stock. This report was by the court approved and thereupon, by authority of the court, this bill was filed against the defendants to collect the amount due from them respectively on their subscriptions.

Answers were filed by the defendants, but the only serious defense made was that, as the full amount of the capital stock of $1,000,000 was never subscribed, except a small amount, viz., $12,600, the subscription of Bement being fraudulent, with no intention of being paid, that the corporation never had a legal existence and therefore they are not liable.

Upon final hearing a decree was rendered by the court against the defendants, 69 in number, for the amounts respectively due from each of them on their subscriptions. The decree further provided: 'Complainant have execution against each of the above-named defendants individually, against whom judgment is rendered, for his proportionate share of the corporate debts, complainant's claim, interest, costs, receiver's and counsel's fees, in the total sum of $9,490, to November 15, 1913, and in the event that complainant is unable to collect from each of the aforesaid individual defendants upon the said execution, his proportionate share of the said complainants' claim, corporate indebtedness, he shall so report the same to this court, and the court will thereupon order additional executions to be issued against each of the said defendants, from time to time, and his proportionate share of the said corporate indebtedness, costs, interest and fees, so remaining unpaid until the full amount of complainants' claim and the corporate debt, with interest and costs, are fully paid: Provided, that no execution for an amount in excess of the amount hereinbefore adjudged to be due from each of the defendants shall be ordered.'

From this decree this appeal was prosecuted by 43 of the 69 defendants against whom judgment had been rendered by the decree.

H. C. Brome and Clinton Brome, both of Omaha, Neb., for appellants.

Edward M. Martin, of Omaha, Neb., for appellee.

Before SANBORN and SMITH, Circuit Judges, and TRIEBER, District Judge.

TRIEBER District Judge (after stating the facts as above).

Assuming that the agreement with Bement made his subscription fraudulent and void, the question to be determined upon this appeal is whether, owing to the fact that only $12,600 of the capital stock of the railway company, which was to be $1,000,000, was subscribed in good faith, the corporation had such existence as to make those who did subscribe liable to creditors of the company for the unpaid portions of their subscriptions.

The authorities are conflicting whether subscriptions made to a corporation, when the full amount of the capital stock has not been subscribed, or, if subscribed, some of the subscriptions are not in good faith, are collectible by the corporation, when the statutes of the state, under which the corporation was formed, are silent on the subject and the articles of incorporation do not contain such a provision. Neither the statutes of Nebraska nor the articles of incorporation make it a condition precedent that they are to become effective only when the full amount of the capital stock is subscribed in good faith. But assuming, without deciding, that, until the entire capital stock is subscribed in good faith, the subscribers cannot be held liable to the corporation for the payment of assessment calls on their subscriptions, the question is whether that rule applies to an action by a receiver appointed on behalf of judgment creditors of the corporation.

The appellants James R. Anderson, H. V. Byram, C. E. Barlow, Geo. M. Byram, G. H. Busse, P. B. Gordon, Richard Lewis, and James P. Latta were directors and attended meetings as such. The following appellants attended and participated in stockholders' meetings of the corporation: I. N. Holman, J. R. J. Mitten, H. G. Byram, C. E. Barlow, James McAllister, Charles Phipps, George Byram, Eugene L. Byram, G. H. Busse, J. E. Butts, P. B. Gordon, William B. Gregg, Richard Lewis, and Thos. Ashley. The following appellants paid the first assessment, and thereby recognized the existence of the corporation: James R. Anderson, J. E. Henry, J. R. J. Mitten, W. B. Watson, J. M. Conneally, Chloe R. Canfield, Eugene L. Byram, L. H. Deman, A. K. Sears, and Nels P. Larson. These appellants are clearly estopped, and as to them the decree must be affirmed, regardless of what conclusion we may reach as to the liability of the other appellants. 7 Ruling Case Law, p. 235; Planters', etc., Packet Co. v. Webb, 144 Ala. 666, 39 So. 562; Lincoln Park Chapter v. Swatek, 204 Ill. 228, 68 N.E. 429.

The record shows that, although but a small part of the capital stock of the corporation was subscribed, the subscribers organized the corporation by electing directors and other officers, entered into contracts, held directors' and stockholders' meetings for nearly five years, the first meeting being held on February 24, 1903, and the last on December 26, 1907, and that some of the subscribing defendants paid the first call of 10 per cent. These acts certainly make it a de facto corporation, if not de jure, and being a de facto corporation the subscribers to the stock are liable to creditors of the...