American Tube-Works v. Boston Mach. Co.

• Court: Supreme Judicial Court of Massachusetts
• Writing for the Court: C. Allen, J.
• Citation: American Tube-Works v. Boston Mach. Co., 139 Mass. 5, 29 N.E. 63 (Mass. 1885)
• Decision Date: 27 February 1885
• Parties: American Tube Works v. Boston Machine Company[1]

139 Mass. 5

29 N.E. 63

American Tube Works v. Boston Machine Company^[1]

Supreme Judicial Court of Massachusetts

February 27, 1885

Argued November 12, 1884 [Syllabus Material]

Action by the American Tube-Works against the Boston Machine Company. Trial to the court. Judgment for plaintiff.

The defendant, a corporation established under the general law issued a notice, dated December 23d, for a meeting on the 30th, "to consider whether the corporation will issue $100,000 of preferred stock." At the meeting held on the 30th December, by a vote of three-fourths of the general stockholders, special stock to that amount was voted to be issued, subject to redemption at par after July, 1, 1885, on which a fixed half-yearly dividend of 31/2 per cent. was to be paid, and authorized the president and treasurer to issue the certificates, and to fix the date after which the stock was redeemable. No assessment was ever voted, nor any subscription ever made, nor any time fixed for their payment. The defendant, being indebted to the plaintiff for $12,800 issued to plaintiff certificates for 40 shares, to the amount of $20,000, and received their evidences of indebtedness and the balance in money in return. The certificates showed that the plaintiff owned the specified shares "in the special stock of the B.M. Company, subject to the by-laws, the same being transferable by assignment in the books of the corporation upon a surrender of the certificates. Said special stock is redeemable at par after the 1st July, 1885 and is entitled to a fixed half-yearly dividend of three and one-half per cent." The plaintiff credited the amount to defendant's debt, and opened a special stock account with it. On July 1st in 1881, and for two succeeding years, the defendant paid to plaintiff dividends. The evidence showed that plaintiff during this time knew that the whole amount of stock had not been subscribed for or taken. The records showed that on June 8, 1882, there was a special meeting of defendant's stockholders, called to consider the question whether two-fifths of its capital issue pursuant to Pub.St. c. 106, § 42. The meeting was adjourned to the next day, and, more than three-fourths of the stockholders being present, it was voted that special stock issue to the amount of two-fifths of its capital in shares of $500 each at par value, subject to redemption at par on and after July 1, 1885, on which a semi-annual dividend of 31/2 per cent. is payable, and authorized the president and treasurer to issue the certificates, expressing therein the amount of dividend, and the time when the stock was redeemable. It also prescribed that certificates issued under the former vote of December 30, 1880, might be exchanged for these. The reports of defendant's treasurer showed that only $51,500 of the special stock was ever taken. At a special meeting of defendant's stockholders on February 24, 1883, it was voted that special stock be issued in shares of $500 each at par value, subject to redemption at par on and after July 1, 1885, on which a semi-annual dividend of 31/2 per cent. shall be paid to an amount making the entire special stock equal $130,000, and the president and treasurer were authorized to issue certificates expressing therein the amount of dividend, and the time when the stock should be redeemable; and further providing that any stock not taken by stockholders after notice under Pub.St. c. 106, § 37, may be disposed of by the directors as they may determine, but at not less than par value. Defendant paid plaintiff a dividend January 1, 1883, and on March 2, 1883, the defendant failed. On a vote taken March 28, 1883, in the absence of the treasurer, the assistant treasurer being present, but not voting, defendant's stockholders authorized its president to file a petition of insolvency. No attempt was made by plaintiff to rescind or avoid the effect of the issue of stock until April 28, 1883, when it notified the defendant in writing of its disavowal and rescinding of the certificates of stock, and demanded the return of the considerations given for it, offering to return to defendant the shares of stock. Defendant was adjudged insolvent, and plaintiff's claim was disallowed.

Suffolk.

Appeal from a decree of the judge of insolvency, disallowing the plaintiff's claim against the estate of the defendant corporation. Trial in the Superior Court, without a jury, before Bacon, J., who found for the plaintiff, and reported the case for the determination of this court, in substance as follows:

Both parties are manufacturing corporations, established under the general law. In December, 1880, the defendant owed the plaintiff, for borrowed money, $ 12,800, the debt bearing interest at the rate of seven per cent. On December 30, 1880, the defendant corporation, by a vote of three fourths of its general stockholders, voted to issue special stock to the amount of $ 100,000, to be subject to redemption at par after July 1, 1885, on which a fixed half-yearly dividend of three and one half per cent was to be paid, and authorized the president and treasurer to issue certificates for said stock, in which should be expressed the amount of dividend to be paid, and the date after which the stock was redeemable. The notice, dated December 23, of said meeting of December 30, was for a meeting "to consider whether the corporation will issue $ 100,000 of preferred stock." No subscription was ever made to this special stock, nor any assessment ever voted or made thereon, nor time fixed at which it should be paid in.

On January 21, 1881, the plaintiff surrendered to the defendant the evidences of its indebtedness of $ 12,800, and paid to it $ 7200 in money, and received from it two certificates, one for twenty-six shares, the other for fourteen shares, each certifying that the plaintiff was the proprietor of the number of shares specified "in the special stock of the Boston Machine Company, subject to the by-laws, the same being transferable by assignment in the books of the corporation upon a surrender of this certificate. Said special stock is redeemable at par after the first day of July, 1885, and is entitled to a fixed half-yearly dividend of three and one half per centum."

The plaintiff entered its debt against the defendant upon its books as paid, and opened an account of special stock in the Boston Machine Company, to which it charged the stock at $ 20,000, and in which it subsequently credited the dividends received upon the stock as interest upon special stock. When the plaintiff took these certificates, there was nothing said as to whether the full amount of $ 100,000 special stock had been taken or subscribed. The plaintiff's treasurer, who took and paid for the certificates, testified that when he did so he supposed that the whole amount of the special stock had been taken or subscribed for, but that shortly after he ascertained it had not been, and that he supposed it would not be binding on the plaintiff unless it was so taken.

On July 1, 1881, the plaintiff took its dividend of three and one half per cent upon its $ 20,000 of special stock. On January 1, 1882, it took a similar dividend, and on July 1, 1882, it took another similar dividend, knowing at each of these times that the whole amount of the special stock had not been subscribed for or taken.

A special meeting of the stockholders of the defendant company was called for June 8, 1882, "to consider the question whether the corporation will issue special stock to the amount of two fifths of its actual capital, pursuant to the provisions of section 42 of chapter 106 of the Public Statutes of this Commonwealth." The record showed that this meeting was adjourned to June 9, and that at this adjourned meeting, there being present more than three fourths of the general stockholders, it was voted "that special stock of this corporation be issued to the amount of two fifths of the actual capital, in shares of the par value of five hundred dollars each, which shall be subject to redemption by the corporation at par on and after the first day of July, A. D. 1885, and on which a semiannual dividend of three and one half per cent shall be paid." The vote also authorized the president and treasurer to issue certificates for said stock, in which should be expressed the amount of dividend to be paid, and the time when the stock was redeemable; and provided that certificates issued under the former vote of the corporation of December 30, 1880, might be exchanged for certificates issued under this vote, if the holders so desired. On July 12, 1882, at the suggestion of the defendant, the plaintiff surrendered the certificates received by it on January 21, 1881, and received from the defendant a certificate for forty shares, similar in form to the certificates surrendered.

Only $ 51,500 of said special stock was ever taken or paid in, and this fact appeared by the reports of the treasurer of the defendant corporation at its annual meetings. It was therein called "preferred stock," and the only other stock mentioned was the capital stock.

A special meeting of the stockholders of the defendant corporation was called on February 24, 1883, to consider and vote upon the following matters: "1. Whether the company will call in the balance not already called in of the special stock voted to be issued by the company. 2. Whether the company will increase its capital stock by the issue of a further amount of special stock, and to what amount." The record of this meeting stated the names of the stockholders present, and that the following votes were passed: "Voted, that the matter contemplated by the first article of the call be laid on the table. Voted, that special stock of the corporation be issued in shares of the...