Fuller v. Rock

• Decision Date: 16 March 1932
• Docket Number: 23077,23005
• Citation: 125 Ohio St. 36,180 N.E. 367
• Parties: Fuller, Trustee, v. Rock.
• Court: Ohio Supreme Court

180 N.E. 367

125 Ohio St. 36

Fuller, Trustee, v. Rock.

Nos. 23005 , 23077

Supreme Court of Ohio

March 16, 1932

Limitation of actions - Federal bankruptcy act superior to state laws when - Action by bankruptcy trustee to collect stock subscriptions.

In an action in a state court by a trustee in bankruptcy, to collect amounts due upon contracts for the purchase of the capital stock of the bankrupt corporation, the Federal Bankruptcy Act is superior to state laws as to the period of limitation within which such actions may be maintained provided the action was not barred by the state law at the time of filing the petition in bankruptcy.

These are actions to reverse the Court of Appeals of Cuyahoga county. The two cases, to wit, Fuller, Trustee, v. Rock, No 23008, and Fuller, Trustee, v. Hoffman, No. 23077, were presented together, and will be so considered, involving, as they do, much the same questions.

We are advised that on December 21, 1927, a creditor of the Forest City Steamship Company, to wit, the Felt & Tarrant Manufacturing Company, recovered a judgment in the municipal court of Cleveland for $385.22 against the steamship company and thereafter brought suit in the court of common pleas, seeking to collect such claim.

On July 10, 1928, a receiver was appointed in that action. On December 3d following, the appointment of the receiver being an act of bankruptcy, the steamship company was declared a bankrupt, and the plaintiff in error, Hubert Fuller, was duly appointed trustee of the Forest City Steamship Company, under the Bankruptcy Act.

On October 10, 1930, in the court of common pleas, Hubert Fuller, having been appointed trustee in bankruptcy of the steamship company, took a judgment against Herman Rock, defendant in error, on a cognovit promissory note, given by Rock to the company for a subscription to thirty-two shares of its capital stock. The note was dated July 23,1923, and matured on January 25, 1924. There were two payments upon this note, of $160 each, made, respectively, October 13 and October 17, 1923. The note was secured by the thirty-two shares of the company's stock. This judgment was set aside, and Rock permitted to file an an- swer. The defendant Rock, who was president of the company, made no claim that the note was paid, but defended upon the ground of the statute of limitations.

Consideration of certain statutory provisions is essential to a determination of this controversy. These sections are:

Section 8623-27: "When no provision as to time of payment is made in the contract of subscription or purchase, shares shall be paid for on the call of the board of directors.

"If a receiver with power to collect debts due the corporation or a trustee in bankruptcy of the corporation has been appointed, all amounts unpaid on any subscription or purchase contract shall be paid at such times and in such installments as such receiver or trustee in bankruptcy or the court may direct, subject, however, to the provisions of the contract."

Section 8623-28:" No creditor of a corporation shall have any claim or right of action against a shareholder as such, other than to reach and apply the debt, if any, of the shareholder to the corporation arising out of his contract of subscription or purchase.

"No action shall be brought by or on behalf of any creditor to reach and apply any such debt until after (a) final judgment shall have been rendered against the corporation in favor of such creditor; or (b) the corporation shall have been adjudged bankrupt; or (c) it shall have made a general assignment for the benefit of creditors; or (d) a receiver shall have been appointed with power to collect debts due to it; or (e) it shall have been dissolved; nor more than one year after the happening of any one of such events.

"If by its terms the amounts payable under a contract of subscription or purchase shall not have become due at the time of the happening of one of such events, action may be brought within one year after payment becomes due."

On July 9, 1929, the one-year statute of limitations, provided for in Section 8623-28, General Code, expired, the same having been started by the appointment of the receiver on July 10,1928. As above stated, judgment was taken on the Rock cognovit note, which judgment was later vacated and the defense of the statute of limitations, provided in Section 8623-28, interposed by Rock. A jury was waived and trial to the court was had, resulting in a judgment in favor of the defendant Rock.

In the Hoffman case, Fuller, trustee of the Forest City Steamship Company, bankrupt, brought an action to recover judgment against the defendant B. J. Hoffman for an amount due on his steamship company stock subscription, made in writing and signed on April 22, 1923. No part of the subscription has been paid; no provision as to time of payment was made by the board of directors of the bankrupt company. On December 6, 1930, pursuant to an order made by the referee in bankruptcy, Hubert Fuller, trustee, made a call and demanded payment of 100 per cent. of the amount of each subscription remaining unpaid, and on December 17, 1930, he brought this suit to recover judgment for the amount thereof. The defendant pleaded the statute of limitations, as provided in Section 8623-28, General Code.

In the Hoffman case a jury was likewise waived, trial was had to the court, and the defense of the statute of limitations as to Hoffman sustained.

Both of these judgments were affirmed by the Court of Appeals, and error is prosecuted here to reverse such judgments.

Mr. Dorr E. Warner, for plaintiff in error.

Messrs. Treadway & Marlatt and Mr. Ben. H. Davis, for defendant in error Rock.

Mr. Otto J. Zimmer and Mr. George O. Keeley, for defendant in error Hoffman.

DAY, J.

A question common to both the Rock and the Hoffman cases is whether the two-year statute of limitations of the Bankruptcy Act or the state statute of limitations of one year, as provided in Section 8623-28, General Code, is applicable.

Chapter 3, Section 11d, of the Bankruptcy Act of 1898 (30 Stats. at L., 549), Title 11, Section 29 (d), U. S. Code, provides Suits shall not be brought by or against a trustee of a bankrupt estate subsequent to two years after the estate has been closed."

That Congress had power to enact such a law is found in Article I, Section 8, clause 4, of the United States Constitution, wherein power is given to establish * * * uniform laws on the subject of bankruptcies throughout the United States."

That laws enacted pursuant to such power are the supreme law of the land, and that they control the constitutions and laws of the several states, and cannot be controlled by them, is well established. Second Employers' Liability Cases, 223 U.S. 1, 53, 32 S.Ct. 169, 56 L.Ed. 327,38 L.R.A. (N. S.), 44. Of course, where Congress has not acted, the several states might pass laws fixing the statutes of limitation; but, Congress having acted, such enactments, in so far as they cover the same field, become supreme.

This principle finds support in Mitchell v. Clark, 110 U.S. 633, which at page 643, 4 S. Ct., 170, 175, 28 L.Ed. 279, quotes the following from Clark v. Dick, 1 Dill., 8, Fed. Cas. No. 2818:

"Nor is the objection sound that in such cases the action, if tried in the State courts, will be subject to the laws of limitations prescribed by the States, while in the federal courts a different rule would prevail. For the act of Congress by its terms applies to all cases of the character described in the statute, and we see no reason to limit its application to the federal courts. If Congress has a right to legislate on this subject, it has the right to make that legislation the law of all courts into which such a case may come, and we think they have done this in the statute under consideration."

The court, in Mitchell v. Clark, further say: "That a similar statute in regard to suits by or against an assignee in bankruptcy governs the State courts, see Jenkins v. The Bank, 106 U.S. 571 [2 S.Ct. 1, 27 L.Ed. 304], and Jenkins v. Lowenthal, 110 U.S. 222 [3 S.Ct. 638, 28 L.Ed. 129]."

In Rock v. Dennett, 155 Mass. 500, 30 N.E. , 171, 172, the court said, as to the objection that the federal statute could not control actions in the state courts: "But the act of Congress regulating the limitation of real or personal actions by or against assignees in bankruptcy, enacted under the power given by the Constitution of the United States to establish uniform laws on the subject of bankruptcy throughout the United States, is the supreme law of the land, and is thus the law of Massachusetts."

An adjudication in bankruptcy is an assertion of jurisdiction over the bankrupt's estate and over all rights in his property, whether by statute or common law, with a view to the determination of the status of the bankrupt and a settlement and distribution of his estate for the benefit of his creditors.

It is suggested that there is a distinction between an action brought under Section 8623-28, General Code, by a creditor, or on his behalf, to subject the debt of the shareholder to the corporation to the payment of his claim, and an action by the corporation or its trustee, if it be a bankrupt, against the shareholder on the contract between the subscriber for stock and the corporation.

In the event of a breach of an ordinary subscription contract, the same kind of right of action accrues to the corporation as would follow the breach of a contract to pay money between parties on any other contract. The right to enforce such a breach is not de- pendent upon statute, but exists at common law. The cause of action is contractual in nature, and not statutory. Therefore the limitation period is not a qualification...