American Alkali Co. v. Campbell

• Decision Date: 06 February 1902
• Docket Number: 66.
• Parties: AMERICAN ALKALI CO. v. CAMPBELL.
• Court: U.S. District Court — Eastern District of Pennsylvania

113 F. 398

AMERICAN ALKALI CO. v. CAMPBELL.

No. 66.

United States Circuit Court, E.D. Pennsylvania.

February 6, 1902

[Copyrighted Material Omitted]

Burr Brown & Lloyd, for plaintiff.

F. B Bracken, for defendant.

DALLAS Circuit Judge.

This is an action upon a call made by the board of directors of the plaintiff corporation on the holders of its preferred stock of record on September 16, 1901. It has been heard upon plaintiff's rule sec. reg. for judgment for want of a sufficient affidavit of defense. The plaintiff's statement of claim alleges that on September 16, 1901, the defendant was the holder of 5,100 shares of the said preferred stock, which were duly registered, and stood in his name upon the books of the company; and it avers that by reason thereof, and by force and virtue of the call, notice, and demand set forth, the defendant became, and then was, liable to pay the plaintiff the sum of $12,750 on November 11, 1901; being $2.50 per share due upon that date under the terms of said call as modified by resolution of September 25, 1901. The affidavit of defense first filed, which is somewhat voluminous, need not be here set forth at length, nor even summarized; for defendant's counsel has clearly defined the questions intended to be raised by it, and, as the counsel for plaintiff has conceded that those questions are adequately presented for decision, the attention of the court may well be confined to their consideration.

The defendant, as the registered owner of preferred stock of the corporation plaintiff when the call sued on was made, was liable thereon, though he had made no express promise to pay. Webster v. Upton, 91 U.S. 66, 23 L.Ed. 384. The duty which before call pertains to such ownership is inchoate and indefinite, but, upon call made and notified, the owner, by reason of that pre-existing duty, becomes charged with a definitive debt,-- a sum fixed and certain, which he is absolutely bound to liquidate. The learned counsel of the defendant has urged upon my attention the case of Braddock v. Railroad Co., 45 N.J. Law, 363, where it is said that 'a call is nothing more than an official declaration that the sums subscribed are to be paid'; but by this, I think, is meant-- what is obviously true-- that a call cannot be creative of the pre-existing duty to which I have referred, and which in Webster v. Upton, supra, is defined as 'the legal duty of paying all legitimate calls made during the continuance of the ownership.' It does not mean that one who is a stockholder-- not by subscription, but by assignment-- becomes, by reason of his legal duty to pay all calls when and as made, an actual debtor of the company from and at the time he acquires his shares, even though no call whatever be in fact made during the continuance of his ownership. To my mind, such a proposition would appear to be manifestly unsound, and careful reading of the entire opinion of the New Jersey court has satisfied me that it had no thought of affirming it. The general rule that the indebtedness which is established by a call is that of the persons who at that time are recognized on the company's register as the owners of its stock is not rendered inapplicable to the present case, either by any peculiarity of this particular call, or by reason of the fact that, after the call had been made, the defendant's shares were transferred on the books of the corporation to a purchaser to whom he had previously sold them. The statement of claim alleges the call in accordance with what seems to me to be its clear legal effect,-- as being 'a call for $10 per share on the holders of the preferred stock of the plaintiff company of record on September 16, 1901'; and, inasmuch as the defendant was then of record as such holder, I see no reason to doubt that he was bound by it. He was not, it is true, required to pay, except in installments to mature at later dates, but his position as a debtor was then finally fixed. Was it shifted to the transferee by the transfer which subsequently, but before any part of the sum called became payable, was made on the books of the company? I think not. Whatever right, if any, the transferror might have as against the transferee, the responsibility of the former to the corporation itself was one arising out of a duty imposed by the law; and therefore, even if it be assumed that the company's assent to the transfer was given with intent to discharge him, and by one having full authority to do so on its behalf, yet it may well be doubted whether such assent could in any case have the effect of releasing a particular stockholder from the common obligation of each of them to contribute to make good the subscribed capital, for the benefit of the general body of stockholders as well as of the corporation's creditors, if any. Burke v. Smith, 16 Wall. 394, 21 L.Ed. 361. But there is nothing to warrant the supposition that, in permitting the transfer in this instance, it was intended to discharge the defendant from his then positively incurred indebtedness. The existence of such intent is certainly not a necessary inference from the conduct of the company, and it cannot be implied upon mere conjecture, however plausible. In Hood v. McNaughton, 54 N.J.Law, 428, 24 A. 497, 'a distinction is drawn between one who holds his stock by transfer and the original subscriber. The former may, in the absence of any fraudulent purpose, discharge himself from liability for unpaid installments by due transfer of his shares, while the latter cannot obtain immunity in that way.' But the installments which are here referred to are not installments payable on a call previously made, but the uncalled installments of the balance due on the original subscription, which a stockholder by assignment is under the legal duty of paying if called for 'during the continuance of his ownership.' The correctness of this understanding is plainly shown by the employment of the same word ('installment') a few lines below in the opinion, where it is said that the subscription constitutes 'a contract between the subscriber and the company, by which the subscriber engages to pay the remaining installment (i.e., the balance due on his subscription) on demand by the corporation.' It is this duty of paying 'the remaining installment' on demand which devolves upon a stockholder by transfer, and, as that duty attaches to any call made during the continuance of his ownership, his consequent liability becomes fixed when a call is made, and, when so fixed, cannot be discharged by any subsequent disposition which he may make of his shares, even if accompanied or followed by transfer. Whether the corporation's auxiliary right to forfeit and sell these shares was lost or waived by its acquiescence in the change made in their ownership is unimportant; for neither the obligation to pay, nor the personality of the obligor, would be affected or altered by the obligee's relinquishment of one of the means provided for securing the debt and facilitating its collection. The...