Enright v. Heckscher

• Decision Date: 27 February 1917
• Docket Number: 143.
• Citation: 240 F. 863
• Parties: ENRIGHT v. HECKSCHER.
• Court: U.S. Court of Appeals — Second Circuit

240 F. 863

ENRIGHT v. HECKSCHER.

No. 143.

United States Court of Appeals, Second Circuit.

February 27, 1917

[Copyrighted Material Omitted]

Nelson S. Spencer and Elbridge L. Adams, both of New York City, for plaintiff.

Parks McKinstry & Taft, of New York City (Justice Sheffield, of New York City, of counsel), for defendant.

Before COXE, WARD, and ROGERS, Circuit Judges.

ROGERS Circuit Judge (after stating the facts as above).

This action is brought bye the trustee in bankruptcy of the Syndicate to recover $250,000 upon an assessment made by the bankruptcy court upon unpaid stock of the bankrupt held by the defendant, and which it is claimed was acquired by him with knowledge that it was not full-paid.

On December 29, 1911, the trustee in bankruptcy of the Syndicate instituted proceedings in the bankruptcy court of the district of New Jersey, to assess any stock of the bankrupt corporation which had been issued for less than its par value. An order to show cause why the trustee should not be directed to levy such an assessment was served upon the defendant by mail. He appeared specially and objected to the jurisdiction of the court. The referee considered the objection well taken and dismissed the petition, but his action was reversed in the District Court. In re Newfoundland Syndicate (D.C.) 196 F. 443 (1912). Thereupon the defendant appealed, and the United States Circuit Court of Appeals for the Third Circuit affirmed the court below. 201 F. 917, 120 C.C.A. 255 (1913). The referee was directed to determine whether an assessment was necessary and if found to be necessary to determine the rate thereof, and to levy the same upon whatever stock may appear prima facie to be subject to assessment.

Thereupon the referee in bankruptcy in the district of New Jersey on April 12, 1915, determined that the debts of the bankrupt amounted to $1,096,027.89 and the assets (not counting liabilities on unpaid stock) amounted to $2,500, and that it was necessary to assess the unpaid stock, and directed as follows:

'That an assessment be and the same hereby is made and levied upon 5,000 shares of the capital stock of the Newfoundland Syndicate issued to J. M. Ceballos & Co., on the 8th of November, 1905, and upon 5,000 shares of the capital stock of the Newfoundland issued to August Heckscher on the 9th of November, 1905, at the rate of 50 per cent. of the par value thereof, of $100 a share, together with interest thereon from November 1905.'

The trustee made a call upon Heckscher for the payment of the assessment of $250,000, with interest from November 8, 1905, and, the same not having been paid, brought this action to recover the amount of the assessment.

It appears that the Syndicate was originally organized with an authorized capital stock of $300,000. By an amendment of its charter, in July, 1905, this was increased to $2,000,000. At some time in October, 1905, it found itself in need of additional capital. An attempt was made to interest the banking firm of J. M. Ceballos & Co. in the matter, and interviews with its officers were had. On October 26, 1905, Ceballos & Co. sent to the Syndicate a letter which reads as follows:

'Confirming our several interviews with the officers of your company, we hereby ratify our agreement to take over $1,000,000 of the full-paid and nonassessable capital stock of your company, to provide for which an increase of $1,000,000 in the capital stock is to be duly authorized by the stockholders, that is to say, from $2,000,000, its present amount, to $3,000,000, and to pay for said $1,000,000 stock the sum of $500,000, we in addition to receive a banker's commission of $100,000 stock of the Newfoundland Syndicate.'

The same day this letter was written the directors of the Syndicate met, and the letter was read and its terms accepted. It was voted to call the necessary meeting of the board of directors and the stockholders to authorize the increase of the capital stock as proposed. The meeting was held at the office of the company in Jersey City on November 2, 1905, and the necessary vote was had. A certificate amending the certificate of incorporation and increasing the stock from $2,000,000 to $3,000,000 was executed and filed at Trenton, in the office of the secretary of state of New Jersey. The increase in the capital stock having been authorized, the directors voted to issue it, and also to purchase certain mineral licenses and locations from George P. Mumford, one of their number, which they valued at $1,000,000 and which they agreed to pay for in the new stock, which was to be issued to Mumford as full-paid and nonassessable. This having been agreed upon, Mumford offered to turn back the stock into the treasury and, his offer having been accepted, this was done. Thereupon the directors sold the $1,000,000 of stock to Ceballos & Co., as full-paid and nonassessable stock, for $500,000; and Ceballos & Co. at once turned over to defendant Heckscher one-half of the stock for $250,000, and the claim is that, as Heckscher only paid $250,000 for stock of the par value of $500,000, he is liable to the trustee in bankruptcy of the Syndicate for the balance of $250,000 due on the stock. The case was submitted to a jury, which returned a verdict in favor of the trustee for the sum of $105,000. A new trial was denied and judgment has been entered for the plaintiff. Both parties have taken out writs of error to review the proceedings.

The defendant has raised the objection that the action has been brought in the wrong district. The complaint alleges that defendant resides in the Southern district of New York. On June 17, 1915, the defendant by his attorneys entered a general appearance and obtained a general extension of time to plead, on a condition inserted in a written stipulation that the date of issue was to be as of June 24, 1915. On September 13, 1915, an order was issued to show cause why the defendant should not have leave to withdraw the general notice of appearance and substitute a special appearance for the purpose of moving to set aside the service of the summons and complaint, on the ground that the defendant is not a resident of the Southern district of New York and that the action is not brought in the district of which either the plaintiff or defendant is a resident; the latter claiming to be a resident of the Eastern district of New York. On September 16, 1915, the District Judge denied the motion to set aside the service, and his action in this respect has been assigned for error. The right to be sued in a special district is a personal privilege, which may be waived, and is waived by a general appearance and by procuring extensions of time to plead, with the agreement that the issue should be of a day certain. It is very evident that the plaintiff consented thereby to accept the jurisdiction of the District Court for the Southern District of New York. See In re Moore, 209 U.S. 490, 28 Sup.Ct.

706, 52 L.Ed. 904, 14 Ann.Cas. 1164; Interior Construction & Improvement Co. v. Gibney, 160 U.S. 217, 16 Sup.Ct. 272, 40 L.Ed. 401. We may add, however, that it is not clear to us that defendant was sued in the wrong district, as it appears that he has maintained a residence for the past ten years at 576 Fifth avenue, New York City, and that the Syndicate's stock ledger so gives his residence, and that notices of assessment have been sent to him there.

The action of the bankruptcy court is conclusive, so far as the necessity of an assessment against any unpaid stock that may exist is concerned, and also as to the rate of the assessment. In this case the amount of stock assessed, if the whole amount of the assessment were to be collected, would not be sufficient to pay in full the unsecured creditors of the Syndicate. Beyond these facts the defendant was not concluded by the action of the bankruptcy court. He was entitled, in the action brought by the trustee in bankruptcy to collect this assessment, to show that the stock upon which he has been assessed was not assessable because it was fully paid up when he acquired it, or if it were not that that fact was not known to him when he purchased it, or any other defense which he may have upon the merits.

The Corporation Act of New Jersey (Revision of 1896) applicable to the transactions now under consideration, provides in section 21 that where the whole capital stock has not been paid in and the capital paid shall be insufficient to satisfy its debts and obligations, each stockholder shall be bound to pay on each share held by him the sum necessary to complete the amount of such share as fixed by the charter of the corporation or such proportion of that sum as shall be required to satisfy such debt or obligation.

It is also provided in section 48 that nothing but money shall be considered as payment of any part of the capital stock of any corporation organized under the act except in the case of the purchase of property.

And section 49 of the act reads as follows:

'Any corporation formed under this act may purchase mines, manufactories or other property necessary for its business, or the stock of any company or companies owning, mining, manufacturing or producing materials, or other property necessary for its business, and issue stock to the amount of the value thereof in payment therefor, and the stock so issued shall be full-paid stock and not liable to any further call, neither shall the holder thereof be liable for any further payment under any of the provisions of this act; and in the absence of actual fraud in the transaction, the judgment of the directors as to the value of the property purchased shall be conclusive; and in all statements and reports of the corporation to be published or filed this stock shall not

...