Babbitt v. Read

• Decision Date: 03 November 1909
• Citation: 173 F. 712
• Parties: BABBITT v. READ et al.
• Court: U.S. District Court — Southern District of New York

173 F. 712

BABBITT v. READ et al.

United States Circuit Court, S.D. New York.

November 3, 1909

Hornblower Miller & Potter, for plaintiff.

Carter Ledyard & Milburn, for defendants Hamilton Trust Co. Metropolitan Life Ins. Co., and John R. Hegeman.

Strong & Cadwalader, for defendants Read, Seaman, and Clark.

Rushmore Bisbee & Stern, for defendant Gardiner.

WARD Circuit Judge.

The defendants object that the bill is defective, because the Central Trust Company, a corporation of the state of New York, has not been made a party, and the cause is set down on that objection only under equity rule 52.

The complainant, a citizen of Missouri, is the trustee in bankruptcy of the Randolph-macon Coal Company, a corporation of the same state, where it has been duly adjudicated a bankrupt. The bill charges that a mortgage on the company's property to secure an issue of $3,000,000 of bonds, of which $2,150,000 are outstanding, has been foreclosed, resulting in a deficiency judgment against the company of $2,149,729.45; that this judgment has been proved against the company's estate as a claim in bankruptcy; and that other claims have been proved to the amount of $247,067.33. The bill further charges that the referee in bankruptcy has found that the company's debts are $2,329,551.01 in excess of its assets; that, the trustee being advised and believing that at least $4,000,000 remain due and owing on the company's capital stock, he is therefore authorized and directed to institute proper proceedings at law or in equity against the stockholders for the purpose of enforcing their liability for any unpaid balance.

This right of the corporation to enforce the liability of stockholders for the purpose of paying its debts passed to the trustee under section 70a(6) of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 566 (U.S.Comp.St. 1901, p. 3451)), and while he is ready to enforce it no one else can. The Central Trust Company is neither a necessary nor proper party to that end. It will be noticed that the referee in bankruptcy has not found the amount due by the stockholders, or even expressly that there is any amount due. The defendants contend that such a finding is a necessary preliminary to a plenary suit against stockholders, and cite In re Remington, 153 F. 345, 82 C.C.A. 421, to that effect. All the proceedings in that case were in the bankruptcy court, and the stockholders were apparently residents and parties. This court held the proceedings there taken to be regular, and referred to Scovill v. Thayer, 105 U.S. 143, 26 L.Ed. 968. But, where plenary proceedings are necessary against stockholders, I see no reason why the bankruptcy court may not leave the question of the amount due by them to the courts in which the plenary proceedings are instituted. The authority given by the referee in bankruptcy to the trustee to collect such amount as may be owing from stockholders seems to me an authorized demand for payment within the language of Mr. Justice Woods in Scovill v. Thayer, at page 155 of 105 U.S. (26 L.Ed. 968):

'But under such circumstances, before there is any obligation upon a stockholder to pay without an assessment and call by the company, there must be some order of a court of competent jurisdiction, or at the very least some authorized demand upon him for payment.'

The stockholders would certainly have no reason to complain of such a course. Be this as it may, the stockholders have the right to set up in a plenary suit such personal defenses as are now to be considered. See Matter of Munger Vehicle Tire Co. (C.C.A.) 21 Am.Bankr.Rep. 395, 168 F. 910.

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