Chamberlain v. Piercy

• Decision Date: 07 November 1914
• Docket Number: 11723.
• Citation: 82 Wash. 157,143 P. 977
• Court: Washington Supreme Court
• Parties: CHAMBERLAIN v. PIERCY et ux.

143 P. 977

82 Wash. 157

CHAMBERLAIN v. PIERCY et ux.

No. 11723.

Supreme Court of Washington

November 7, 1914

Department 1. Appeal from Superior Court, Pierce County; C. M Easterday, Judge.

Action by C.J. Chamberlain, trustee in bankruptcy for the Redondo Clay Company, against H. O. Piercy and wife. From a judgment for plaintiff, defendants appeal. Reversed and remanded, with directions.

Ballinger Battle, Hulbert & Shorts, of Seattle, for appellants.

Boyle Brockway & Boyle, of Tacoma, for respondent.

MAIN J.

This action is prosecuted by the trustee in bankruptcy for the purpose of recovering unpaid subscriptions to the capital stock of a corporation. The cause was tried to the court sitting without a jury, and resulted in a judgment for the plaintiff in the sum of $5,900, and interest. From this judgment the defendants prosecute the appeal.

The cause was originally instituted on May 17, 1910, by the Redondo Clay Company, a corporation. On November 29, 1910 upon the petition of one M. A. Dillon, trustee, and two other creditors, the corporation was adjudged a bankrupt. Thereafter one Clyde Chamberlain was appointed trustee in bankruptcy. After Chamberlain had been appointed trustee, he petitioned the superior court to be substituted as a party plaintiff in this action, which had previously been instituted by the corporation. An order was entered making the substitution. Thereupon an amended and supplemental complaint was filed. The amended and supplemental complaint, aside from the formal parts, alleged, in substance, as follows: That the Redondo Clay Company was a corporation organized and existing under the laws of the state of Washington; that the corporation was organized for mercantile, manufacturing, and commercial business, with a capital stock of $100,000 divided into 1,000 shares of the par value of $100 per share, all of which stock had been subscribed for. That on December 31, 1908, the defendant H. O. Piercy duly subscribed in writing for 120 shares of the capital stock of the company (setting out the contract, which shows that all of the stock had been subscribed for). That after the stock had all been subscribed for, as shown by the original subscription contract, additional subscriptions were accepted by officers of the company to the total number of 305 shares. That on December 25, 1909, at a meeting of the board of trustees, it was determined by unanimous vote that the number of shares held by the original subscribers should be proportionately reduced and the stock issued to the persons subscribing for the 305 additional shares. By this arrangement the original subscription of Piercy was reduced to 59 shares. On January 25, 1910, at a meeting of the board of trustees, a resolution was passed making a call for the unpaid stock subscriptions and providing that all subscribers not paying on or before the 25th day of February, 1910, should from and after that date be considered delinquent. That notice of this call was duly given to the stockholders, including Piercy. That subsequent to the commencement of this action, and subsequent to the overruling of the demurrer to the original complaint, the Redondo Clay Company, a corporation, was duly and regularly adjudged a bankrupt in the district court of the United States for the Western District of Washington. That C.J. Chamberlain was duly and regularly appointed as trustee in bankruptcy. That after the adjudication of bankruptcy, by an order of the federal court the trustee was authorized to intervene in this action and be substituted as a party plaintiff. That the claim of the Redondo Clay Company against the defendants, forming the basis of this action, was listed as one in the assets of the bankrupt corporation in the bankruptcy proceeding. That pursuant to the order of the district court the trustee intervened in this action, and was substituted as a party plaintiff herein. That there is due and owing from the defendants upon the stock subscription the sum of $6,900, with interest thereon from February 25, 1910.

To this amended and supplemental complaint a demurrer was interposed, and by the court overruled. Thereupon an answer was filed. This answer admitted certain allegations of the amended and supplemental complaint and denied others, and contained three separate affirmative defenses. In the first affirmative defense it was alleged that the defendants were largely interested in a corporation which owned large tracts of land at Redondo beach, in Pierce county, and assisted in the organization of the Redondo Clay Company in order to secure a manufacturing institution to be located at that point which would assist in building up the locality and thereby increase the value of the property of the company in which the defendants were interested; that when the stock subscription was made, it was agreed between the promoters of the company and Piercy that the latter should subscribe for 120 shares of the capital stock in order that the stock might all be subscribed for, and that no stock should be issued to him, but that he should secure subscriptions from his friends for this stock, which he thereafter did; that the stock originally subscribed for by Piercy was issued to these other persons who became purchasers. In the second affirmative defense it is alleged: That on March 1, 1910, the trustees closed down the brick plant. At that time there was due the company from A. L. Fisher, the president of the company, and other persons, more than $30,000 upon their respective stock subscriptions. That in addition thereto the corporation was the owner of about $67,000 worth of property. That when the plant was closed down on the 1st of March, 1910, it was directed that no salaries should be paid to the officers and employés after that time. That thereafter Fisher and the other officers and directors of the corporation conspired together to wreck the company by throwing it into bankruptcy, and in furtherance of this conspiracy, while they had the bankruptcy proceedings under contemplation, they met as directors of the corporation and voted themselves large back salaries. In the third affirmative defense it is alleged that about 20 persons are indebted to the corporation upon their stock subscriptions, amounting to approximately $30,000, and that each and all of these subscribers are solvent and financially responsible; that no action has been commenced or is pending by the corporation or the trustee in bankruptcy against any of these stock subscribers. It is further alleged that the bankruptcy proceedings were controlled and dominated by A. L. Fisher and his associates, and that this action was originally instituted and is now prosecuted through the collusion of the trustees of the company, and is an attempt to compel the defendants to pay the fraudulent claims of the officers of the company. To these affirmative defenses a motion to strike was directed. The court declined to strike from the affirmative defenses the allegations which described the circumstances under which Piercy subscribed for the stock, and that the stock subscribed for by him had subsequently been sold to other parties. Generally speaking, the other allegations in the affirmative defenses were stricken. The answer was recast to conform to the ruling of the court. A reply was filed to the affirmative matter in the answer as amended. Upon the issues thus framed the cause went to trial, and resulted in a judgment as above indicated.

The first question is whether the amended and supplemental complaint stated a cause of action. It should be noted that this amended and supplemental complaint makes no allegation (a) As to the value of the assets of the company; (b) that the defendants had notice or an opportunity to be heard at any time or place upon the validity of the claims against the insolvent company; and (c) that the court at any time after notice to the stockholders had determined what proportion of each stockholder's subscription remaining unpaid...