Appeal of Fred

• Decision Date: 07 January 1889
• Docket Number: 187
• Citation: 123 Pa. 303,16 A. 840
• Parties: APPEAL OF FRED. v. JOHN AIKENS. ANDRIESSEN, ET AL. FRED. ANDRIESSEN ET AL.
• Court: Pennsylvania Supreme Court

16 A. 840

123 Pa. 303

APPEAL OF FRED. ANDRIESSEN, ET AL. FRED. ANDRIESSEN ET AL. v. JOHN AIKENS.

No. 187

Supreme Court of Pennsylvania

January 7, 1889

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

Argued October 29, 1888

FROM THE DECREE OF THE COURT OF COMMON PLEAS NO. 2 OF ALLEGHENY COUNTY, IN EQUITY.

No. 187 October Term 1888, Sup. Ct.; court below, No. 339 January Term 1881, C.P. No. 2 in Equity.

On December 30, 1880, Fred. Andriessen and about fifty-two others filed a bill in equity against John Aikens, and about one hundred and eighty others, divided as defendants in the bill into two classes: (1) those who were the shareholders of a copartnership, the Allegheny Trust Company, at the time the plaintiffs purchased interests therein, and (2), those who purchased like interests therein at the same time or subsequently; the purpose of the bill being, generally, to have the copartnership, which had become insolvent, declared void ab initio so far as the plaintiffs were concerned, and to compel the defendants of the first class to repay to the plaintiffs respectively their contributions to the capital, the moneys they had on deposit at the time of its failure, and the moneys they had been required to contribute, after the failure, to pay its debts; the ground of relief being fraudulent acts and representations on the part of the defendants of the first class, by reason of which the plaintiffs had been induced to become shareholders.

Demurrers on the part of certain of the defendants having been overruled, pleas and answers were then filed, and the cause having been put at issue, on September 17, 1881, it was referred to Mr. S. A. McClung, as examiner and master, whose report, filed on June 12, 1888, was as follows: ^[*]

The Allegheny Trust Company was a banking partnership organized about 1859, for the purpose of doing a general banking business in the city of Allegheny. Its organization was after the manner of a corporation, i.e., the interests of the several partners were spoken of as stock, and each year a board of directors was elected by the partners, or stockholders, as they were called, and this board managed the affairs of the bank. The bank continued to do business until early in January, 1875, when it failed and was found to be largely insolvent. The bill in this case was filed in December, 1880, by about fifty of the purchasers of the new stock against all the old stockholders (as those who owned stock prior to the issue of 1871 were called), and also including as defendants, in a class by themselves, such new stockholders as declined to join as plaintiffs. The first class of defendants numbered about one hundred, and the second class about eighty.

The bill sets forth: (1 and 2) That the trust company organized in 1861 with a capital stock of $60,000, divided into 300 shares of $200 each; (3) that on or about November 23, 1871, the then stockholders, the defendants of the first class, increased the capital stock of the bank to $250,000, divided into 2500 shares of $100 each, of which said shares four shares were credited to each and every of the defendants of the first class in lieu of each and every share then held by them respectively, and the balance of the shares, 1300, were put upon the market and offered for sale; (4) that prior to said increase, large dividends had been paid, and about the time of the increase the first named defendants alleged to plaintiffs and others that the partnership was solvent, had accumulated a large surplus, every share was worth in fact $400, and that said bank was doing a large and profitable business, and the increase was necessary to accommodate its business; (5) that plaintiffs, relying upon said allegations and representations, did, about November 23, 1871, subscribe and pay for interests or shares in said copartnership, which interests are specified in said paragraph; (6) that, in fact, at the time of the increase the copartnership was insolvent, the increase was unnecessary, there was no surplus, and said increase "was a scheme devised by said defendants (the old stockholders), or their agents, for the sole purpose of replenishing the depleted coffers of the said copartnership; all of which said defendants knew or ought to have known;" (7) that the copartnership did business until January 7, 1875, when it suspended payment; (8) that the plaintiffs, in addition to the amounts paid for their stock, have been compelled to pay large sums on account of the debts of the bank; (9) that up to the time of the suspension, the plaintiffs confided in and relied upon the representations of the defendants, and had no reason to suspect and did not, until the suspension, suspect that the affairs of the bank were in other than a prosperous condition.

The prayers of the bill are: (1) That the copartnership be declared void, ab initio, so far as plaintiffs are concerned; (2) that an account be taken of all moneys contributed by plaintiffs; also between plaintiffs and defendants; (3) that the defendants of the first class be decreed to repay to plaintiffs, respectively, all moneys contributed and paid by plaintiffs; (4) that said defendants be decreed to indemnify plaintiffs; (5) that defendants pay the costs; and (6) for general relief.

To this bill the defendants demurred, alleging multifariousness; misjoinder of parties; the failure to allege that the fraudulent misrepresentations were known to be untrue; the statute of limitations; laches of the plaintiffs in filing their bill; and that each of the plaintiffs has a full and complete remedy at law. This demurrer was, after argument, overruled, and the defendants then filed a plea and answer.

The plea averred that the declarations alleged, if any were made, were made at different times and to the plaintiffs severally; that the subscriptions and payments of money were separate and individual acts; that defendants did not join in making any of the representations specified in the bill; that the copartnership was dissolved on or about January 7, 1875; that no business has been carried on since that date; and that there is no part of the capital stock, or any property whatsoever in said partnership remaining, etc.

The answer admits the formation of the company as alleged, and also that the capital stock was originally $60,000, divided into 300 shares of $200 each. It alleges that the re-organization was had, practically, as alleged, in November, 1871, but avers that the transaction was in good faith; that there was, at that time, an existing surplus over the capital stock; that the allotment of shares of stock to the old stockholders was but a fair equivalent for what they then held; and that it was honestly believed by all connected with the bank that its business and surroundings justified and required the increase of stock. It denies the averments of the fourth paragraph. It avers that the subscriptions specified in the fifth paragraph of the bill were several, distinct and individual acts. It denies the truth of the averments of the sixth paragraph, to the effect that, at the time of the reorganization, the copartnership was insolvent and the increase of stock fraudulent. It admits the suspension on January 7, 1875; and, whilst denying the averments of paragraphs eight and nine, alleges that some of the plaintiffs and some of the defendants voluntarily contributed moneys towards the payment of the liabilities of the firm. The answer concludes by setting up the statute of limitations, and averring that, even if the plaintiffs at one time had a case, they have, by gross negligence and laches, lost all right to appeal to equity for relief.

The bill contains a prayer for an account and a prayer for general relief; but the master does not understand that the plaintiffs ask for an account, save of the moneys which would be payable in case the contracts by which they became copartners are declared void ab initio, as between them and the other partners. Certainly it was in this line alone that the case was developed before the master.

* * *

From the admissions in the answers, and the testimony, the master finds the facts to be as follows:

About the year 1859, the Allegheny Trust Company was organized as a banking copartnership in the manner stated in the introduction to this report. From that time until the year 1871, it did a large and apparently profitable business -- from 1865 until and including January, 1872, declaring each January and July a dividend of eight per cent. In the year 1871, the stock of the bank was considered worth from $400 to $425 per share, and stock was sold at the latter figure. In November, 1871, the directors of the bank called a meeting of the stockholders and proposed an increase of the capital stock of the bank, and (as plaintiffs call it), a watering of the old stock, substantially as stated in the third paragraph of the bill; and this was accordingly authorized.

The books of the bank and the statements made under the supervision of the directors and officers showed a surplus fund of upwards of $30,000; but, unquestionably, that which immediately determined the amount which should be credited to the old stockholders was the selling price of the stock at that time.

The books of the bank had been very carelessly kept, and whilst, in November, 1871, they showed a surplus of over $30,000, they should have shown that the capital stock was then impaired to at least the amount of $20,000, and this amount of impairment was actually greater, by a considerable amount, by reason of bills receivable, etc., manifestly worthless, which were still carried as collectible. This impairment, however, was not so great as to make the stock worthless.

The stockholders believed that the books and...