Converse v. Gardner Governor Co.

• Court: U.S. Court of Appeals — Seventh Circuit
• Citation: Converse v. Gardner Governor Co., 174 F. 30 (7th Cir. 1909)
• Decision Date: 05 October 1909
• Docket Number: 1,545.
• Parties: CONVERSE v. GARDNER GOVERNOR CO.

174 F. 30

CONVERSE v. GARDNER GOVERNOR CO.

No. 1,545.

United States Court of Appeals, Seventh Circuit.

October 5, 1909

The plaintiff in error, as receiver of the Minnesota Thresher Manufacturing Company, a Minnesota corporation (hereinafter called the Thresher Company), brought this action in the court below against the defendant in error, an Illinois corporation, to enforce an alleged stockholder's liability under the Constitution and statutes of Minnesota. The declaration is in two counts, the first upon an assessment of 36 per cent. and the second upon an assessment of 64 per cent. levied against 94 shares of the capital stock of the Thresher Company, alleged to be owned by the Gardner Governor Company. The Circuit Court sustained a demurrer to the declaration, and, the plaintiff in error declining to plead further, judgment was entered for the defendant. The errors assigned question the ruling on demurrer. The facts averred in the declaration are in substance as follows:

For some time prior to May, 1884, the Gardner Governor Company was 'engaged in business in the state of Illinois as a corporation; that in the course of its regular business it extended credit for goods, wares, and merchandise manufactured and sold by it to the Northwestern Manufacturing & Car Company ' (hereinafter called the Northwestern Company)8 a Minnesota corporation engaged in manufacturing. The Northwestern Company became insolvent, and a receiver was appointed for it by the district court of Washington county Minn. Pursuant to notice and order of that court the Gardner Governor Company proved its claim to the amount of $4,706.39 which was duly allowed. While the property of the Northwestern Company was still in the hands of said receiver the creditors of that company, including the Gardner Governor Company, 'for the sole purpose of enabling the said creditors to save the debts held by them, respectively against said Northwestern Company, and for no other reason or purpose,' prepared and agreed to a plan of reorganization of the business of the Northwestern Company, consisting of the incorporation of a new corporation, the issuance of preferred stock to the several creditors in exchange for, and to the par amount of, their respective claims, and the purchase by such new corporation of the property and assets of the Northwestern Company at judicial sale.

Pursuant to said plan of reorganization the Thresher Company was incorporated on November 26, 1884, under the laws of Minnesota; the objects for which said corporation was formed being "the purchase of the capital stock, evidences of indebtedness issued by, and the assets of the Northwestern Manufacturing & Car Company, a corporation existing under the laws of Minnesota, or any portion of said capital stock, evidences of indebtedness, or assets, and the manufacture and sale of steam engines, and all kinds of farm implements, machinery of all kinds, and the manufacture and sale of all articles, implements, and machinery of which wood and iron, or either of them, form the principal component parts, and the manufacture of materials therein used." The capital stock of the Thresher Company provided by the articles of incorporation was the sum of $7,000,000, of which $4,000,000, or 80,000 shares of $50 each, were preferred stock, and $3,000,000, or 60,000 shares of $50 each, were common stock; that there were issued and outstanding 27,967 shares of preferred stock and 42,594 shares of common stock, which issued and outstanding shares of preferred and common stock were duly subscribed and paid for in full with the understanding and agreement by and between the stockholders that said Thresher Company was to commence business as soon as it could acquire the property and plant of the Northwestern Company. It is further averred that 'there never was any understanding or agreement of any sort or nature between the defendant and the other stockholders, or any of them, or between the defendant and the Thresher Company, that the commencement of business by said Thresher Company should be postponed until such time as all of the stock of said Thresher Company should be subscribed for, and there was no understanding or agreement of any kind had or entered into by and between the defendant and the other stockholders, or any of them, or between the defendant and the Thresher Company, that all of the stock of said Thresher Company should at any time be subscribed for.'

The Gardner Governor Company assigned its claim, pursuant to the plan of reorganization, to the Thresher Company, and received in exchange 94 shares of the preferred stock and $6.39 of the scrip of said Thresher Company; and every share of the preferred stock of said Thresher Company at any time outstanding was issued to such creditors of the Northwestern Company in exchange for their respective claims, and not otherwise. The Thresher Company purchased the plant and property of the Northwestern Company at judicial sale, and carried on the classes of business authorized by its articles until some time in 1901, when the plaintiff in error, Theodore B. Converse, was by decree of the district court of Washington County, Minn., upon a creditors' bill, duly appointed receiver of all the property, assets, rights, and interests of the Thresher Company, with the usual powers of such receiver, and the power to sue for, collect, recover, compromise, or settle any and all stockholders' liability that may exist under the Constitution and laws of Minnesota, or otherwise.

In the receivership of the Thresher Company claims to the amount of $443,752.17 were allowed, and, the corporate assets being insufficient to pay the same, the Minnesota court, acting under the provisions of chapter 272, p. 315, Gen. Laws Minn. 1899, and sections 3184 and 3188, Rev. Laws Minn. 1905, ordered the assessments of 36 per cent. and 64 per cent. upon all holders and owners of the capital stock of the Thresher Company. Notice and certified copies of the orders, and demand for payment were duly made upon the defendant in error as required by the Minnesota statute, and upon failure to pay the assessments this action was commenced.

R. H. McAnulty, for plaintiff in error.

John E. Nall, for defendant in error.

Before GROSSCUP and

BAKER Circuit Judges, and ANDERSON, District...