Butterworth v. Ross

• Decision Date: 07 April 1921
• Citation: 238 Mass. 279,130 N.E. 678
• Parties: BUTTERWORTH v. ROSS.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

238 Mass. 279

130 N.E. 678

BUTTERWORTH

v.ROSS.

Supreme Judicial Court of Massachusetts, Hampden.

April 7, 1921.

Exceptions from Superior Court, Hampden County; Franklin T. Hammond, Judge.

Action by Frank S. Butterworth, receiver, against Johannah L. Ross. Finding for plaintiff, and defendant excepts. Exceptions overruled.

Green & Bennett, of Holyoke, for plaintiff.

Avery, Gaylord & Davenport, of Holyoke, for defendant.

DE COURCY, J.

This action of contract is brought by the receiver of the Gilbert Transportation Company, a Connecticut corporation, to recover from a Massachusetts stockholder, the balance alleged to be due on the stock standing in her name on the books of the company. The facts are not in dispute. The defendant in July, 1908, purchased from an agent of the company ten shares of the preferred stock of the corporation at 95, and received five shares of the common stock as a bonus, in accordance with the terms of the company's prospectus. The corporation became financially involved, and a receiver was appointed by the District Court of the United States for the District of Connecticut in October 1909. A special master appointed by the court found that the company's indebtedness was so large that it was necessary to assess stockholders for the full amount of the unpair par value of the stock. The District Court on March 17, 1915 entered a ‘judgment and order for assessment against stockholders,’ ordering the receiver to collect by suit if necessary. The defendant was assessed $500 on the common stock, and the unpaid balance of $50 on the preferred stock.

[1][2] 1. It is clear that the decree of the Connecticut court is binding upon the defendant, except as to ‘personal defenses.’ As was said by Knowlton, J., in Howarth v. Lombard, 175 Mass. 570, 576, 577, 56 N. E. 888, 890 (49 L. R. A. 301):

‘The stockholders must be assumed to have understood the statute from the first as it has been construed by the court. They must be presumed to have agreed that on the insolvency of the corporation a receiver might be appointed by the court, and the affairs of the corporation administered, and the amount of its assets and liabilities determined, and the deficiency ascertained under the order of the court, and an assessment to meet this deficiency made ratably upon all who were then stockholders. * * * Under the statute the stockholders impliedly agreed that if their subscriptions were in part unpaid when they were needed for creditors, they would pay the balance to the corporation or its legal representative. * * * The members of such corporations, as well as the corporations themselves, are within the jurisdiction of the local court so far as is necessary for the determination of the rights and liabilities of the corporation and its members among themselves. In reference to this kind of liability such decisions and orders are binding on stockholders who are not before the court otherwise than by virtue of their membership in the corporation.’

See also Converse v. Ayer, 197 Mass. 443, 84 N. E. 98.

The Connecticut court could order the assessment without the presence of or personal service on the stockholders. Bernheimer v. Converse, 206 U. S. 516, 532, 27 Sup. Ct. 755, 51 L. Ed. 1163.Francis v. Hazlett, 192 Mass. 137, 78 N. E. 405,116 Am. St. Rep. 230.

The auditor has found that the common stock held by the defendant is part of the common stock issued to one Mark Gilbert, and then turned back by him to the corporation. The defendant accordingly contends that the stock had been fully paid for when she acquired it. Even assuming that she could thus collaterally attack the decree of the Connecticut court in Rosoff v. Gilbert Transportation Co. (D. C.) 221 Fed. 972, wherein the necessity and extent of the assessment were determined, it would not avail her in view of the facts shown by this record. It appears that there was no compliance with the statutory requirements where stock is paid for otherwise than by cash. It further appears that--

‘The options and other things of claimed cash value were never put on the books of the company and never counted into the company's assets in any way. This so-called property had no value and was not delivered to the company.’

And--

‘The Master * * * found that the books of the company showed that no property was in fact delivered to the company in payment for the common stock, and that no common stock was issued because of any property turned over to the company.’

No evidence to show the contrary was offered by the defendant. It was held in Re Monarch Corporation, 203 Fed. 664, 122 C. C. A. 60, that under the Connecticut corporation act a stockholder who has received and retained certificates representing full paid-up stock in exchange for property, which he has failed to transfer, is liable for the par value of his stock as on an unpaid cash subscription. The law in force as to stockholders' liability when the defendant became a stockholder, and since, as found by the auditor, was the Public Acts of Connecticut 1903, c. 194, which provides (section 16) that--

‘Every stockholder, whether an original subscriber or not, shall be liable for any balance due on the stock held by him. If a corporation is placed in the hands of a receiver * * * such receiver * * * shall have the powers of the board of directors in calling in installments on stock.’

See Stamford Trust Co. v. Yale & Towne Mfg. Co., 83 Conn. 43, 51, 75 Atl. 90.

2. In Rosoff v. Gilbert Transportation Co., supra, the question ‘whether any stockholder is liable to respond to the assessment because of individual defenses' was left to be determined in the suits to collect the assessments. See 221 Fed. 979. The first personal defense claimed by the defendant, and raised by requests for rulings in the Superior Court, is that of equitable estoppel. It is based on the finding of the auditor that she was deceived in the purchase of the stock by the misrepresentation of the corporation's agent, that the stock was fully paid and non-assessable. It was paid by Thomas J., in the Rosoff Case, supra, (221 Fed. 985), with citation of Connecticut authorities:

‘* * * Under the Connecticut law, while a stockholder is not liable for the debts of the corporation, he is bound to pay the par value for his stock, and any scheme to avoid doing so by agreement with the corporation is ultra vires and void.’

In New Haven Trust Co., receiver, v. Gaffney, 73 Conn. 480, 485, 47 Atl. 760, 761, where a life insurance company had issued its stock to the defendant at sixty-five per cent. of its face value, and the action was brought by a receiver to recover the balance, it was said by the court:

‘The defendant, by taking the shares in question, became, under his contract of membership, liable to pay $100 for each of them. The condition that less was to be accepted, being ultra vires, was void.’

The same principle seems to have been applied in the case of ordinary corporations since said corporation act of 1903. See Stamford Trust Co. v. Yale & Towne Mfg. Co. supra; United German Silver Co. v. Bronson, 92 Conn. 266, 102 Atl. 647. See...