Brown v. Allebach

• Citation: 166 F. 488
• Decision Date: 28 December 1908
• Docket Number: 10.
• Parties: BROWN v. ALLEBACH et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

166 F. 488

BROWN v. ALLEBACH et al.

No. 10.

United States Circuit Court, E.D. Pennsylvania.

December 28, 1908

Burr Brown & Lloyd, for complainant.

Walter B. Saul, Albert E. Peterson, Morgan, Lewis & Bockius, Albert H. O'Brien, George P. Rich, Thomas Diehl, Ira J Williams, Francis Shunk Brown, Alex Simpson, Jr., R. O. Moon P. F. Rothermel, A.

S. L. Shields, George R. Jefferson, S. K. Louchheim, Frank R. Donahue, F. B. Bracken, Eugene Raymond, Walter George Smith, Wm. Rudolph Smith, Ferree, Brinton, Stockwell & Hamlin, Joseph T. Bunting, and Lincoln L. Eyre, for defendants.

HOLLAND District Judge.

This is a bill in equity against a large number of stockholders, resident in this district, seeking to collect from them an assessment of $2.50 a share, levied by Arthur K. Brown, receiver, in 1905, under the direction of the United States Circuit Court for the District of New Jersey, the court of primary jurisdiction. The American Alkali Company was a New Jersey corporation, of which the plaintiff was duly appointed receiver. The capitalization of the company, aside from the common stock, which was issued full-paid, was 120,000 shares of preferred stock, of the par value of $50 each, upon which $10 per share, or 20 per cent. of the par value thereof, was paid by the subscribers, and the certificates issued show no additional payments by the defendants. On September 12, 1901, the board of directors of the company levied a call for an additional $10 upon each share of the preferred stock, payable in four installments of $2.50 each. Certain of the holders of the preferred stock paid the first installment, but the defendants in this bill refused to pay the same, and on June 14, 1905, the plaintiff presented his petition to the United States Circuit Court for the District of New Jersey, praying the court to authorize an assessment of $2.50 a share upon the holders of the preferred stock, except those who had paid the first installment of the call made by the board of directors, and on August 31, 1905, the court made an order authorizing and instructing the plaintiff to levy such an assessment. Under this decree the assessment was made payable October 4, 1905, and subsequently, on March 5, 1906, the time for payment was extended to April 5, 1906. Against the preferred stockholders who refused to pay this assessment this bill was filed by direction of court. After the bill was filed, a number of the defendants paid the assessment. Decrees by default were entered against others, and quite a number filed their demurrers or answers to the bill. The demurrers, raising, among other questions, the jurisdiction of equity in the matter, were overruled by this court in an opinion which is reported in 156 F. 697, in the case of Brown v. Allebach et al., to which opinion we refer in answer to the same question of jurisdiction raised in the answers which were filed since the overruling of the demurrers. The bill was proceeded with according to law against all the original defendants named therein, until it resulted, as at present, that there is left for the determination of the court the question of the liability of 25 defendants, all of whom are registered as owners of the stock, and the court will not be obliged to consider any claim except those against registered owners.

The facts alleged in the plaintiff's bill are not denied by the defendants; neither, on the other hand, was there any denial with respect to the facts set forth in the various answers now before the court. That is to say, for the purposes of this case the plaintiff admits the matter set up in the answers of these 25 defendants who are contesting their liability, but claims that as a matter of law the answers are not sufficient to entitle defendants to escape liability.

The facts, as above stated, are equally applicable to the consideration of the answer of each of the defendants; but, in order that the various defenses may be understandingly considered, it will be necessary to state other facts applicable to the particular defense set up by the respective defendants. The same defenses are not made by all of the defendants; but I am satisfied, from an examination of the answers, that all the defenses made are properly and correctly summarized in the plaintiff's paper book. This summary, nine in number, will be followed and answered in the following order:

1. That the statute of limitations barred the suit. This defense is set up alone by the defendant Mr. Shepp. He claims that, as the 200 shares upon which this assessment is levied were registered in his name on the books of the company on August 26, 1899, and the decree of the court directing the receiver to collect the assessment in question was not made until more than six years thereafter, to wit, on August 31, 1905, a recovery is barred by the statute of limitations.

The law of the forum determines the time within which the action must be commenced. Wharton on Conflict of Laws, Sec. 535. Whether the law of the forum or the law which determines the substantive rights of the parties governs as to the time when the cause of action accrues, for the purposes of the running of the statute of limitations of the forum, is a question not so well settled. Wharton on Conflict of Laws, Sec. 535, holds that the law which determines the substantive rights of the parties governs as to the time when the cause of action accrues, and cites Glenn v. Liggett, 135 U.S. 533, 10 Sup.Ct. 867, 34 L.Ed. 262, in support of that proposition; but in Great Western Telegraph Co. v. Purdy, 162 U.S. 329, 16 Sup.Ct. 810, 40 L.Ed. 986, the law of the forum fixed the time when the cause of action accrues, and it was not disturbed by the Supreme Court. But the question is not of importance in the present case, for the reason that the law of New Jersey, where the contract of subscription was made and where the substantive rights of the defendants are determined, is the same on this question as in Pennsylvania where the case was tried. The Supreme Court of New Jersey has held that the statute of limitations commences to run as to unpaid subscriptions to the stock of a corporation, which has become insolvent, after a call and assessment have been made for the amounts necessary to pay creditors. McCarter v. Ketcham, 72 N.J.Law, 247, 62 A. 693. And in Pennsylvania, where the question has been discussed probably more than in any other state, the law has been recently settled, in an elaborate opinion by Chief Justice Mitchell, that where a subscription to stock is not presently payable in full, but by its terms is to be payable from time to time as called for by the company, the statute of limitations does not begin to run until a call is made, and it is not necessary that such call should be made within six years from the date of the stock subscription. Cook v. Carpenter, 212 Pa. 165, 61 A. 799, 108 Am.St.Rep. 854, 1 L.R.A. (N.S.) 900, note.

In the case at bar, after the payment of $10 per share on the preferred stock, the subscribers are not liable, both by the terms of the charter and their contract of subscription, for any balance of their subscription until an assessment or call is made on them.

This assessment, upon which these defendants are called upon to pay, was made August 31, 1905, and it was not until that date that the statute of limitations began to run in their favor. As this suit for the recovery of the assessment was instituted on the 13th day of October, 1906, it is well within the six-year limitation.

2. That the defendants have never owned the stock registered in their names, but that the certificates belonged to third persons and for different reasons had been placed in the names of the defendants. This defense was set up by defendants Fridenberg, Gaw, Haines, Louchheim, Rattay, Snyder, and McQuillen, most of whom are brokers in whose names stock belonging to their clients had been placed, either because the brokers held the stock as collateral security for loans, or because of the necessity arising out of a sale on the stock exchange.

The certificate in some of these cases was placed in the name of the defendant without his knowledge. The strongest defense on this point is that of Gaw, who knew absolutely nothing as to the stock being placed in his name. He was a broker, and his customer, as was the latter's practice, placed the stock in Gaw's name, which, when sold, was brought to Gaw, who executed a power of attorney to enable the certificate to be sold at the stock exchange. He did not repudiate the issuing of the certificate in his name, nor did he see to it that it was changed after sale.

As to the others who raise this defense, some did not know of the certificate being placed in their names until afterwards; but in all of the cases there was nothing done to repudiate the issuing of the certificate in their names, nor to have it issued in the name of another after sale. They appeared as stockholders while an indebtedness was contracted causing insolvency, and, under the circumstances, we think it clear that the law will hold the registered owner liable to creditors, notwithstanding the fact that he is not now and never was the real owner, where he sanctions the placing of a certificate in his name by executing a power of attorney to sell the same, or by any other act. There is no doubt but that Gaw, in whose name the stock had been placed, could have repudiated the transaction if he had moved at once in the matter; but, instead of manifesting any objections to the certificate being placed in his name, he executed a power of attorney to enable the certificate to be sold on the Stock Exchange at Philadelphia, and thereafter did not see to it that the stock was placed in the name of some other party than himself. This, w...