Great Western Mining Manufacturing Company v. Charles Harris
| Decision Date | 29 May 1905 |
| Docket Number | No. 217,217 |
| Citation | 25 S.Ct. 770,49 L.Ed. 1163,198 U.S. 561 |
| Parties | GREAT WESTERN MINING & MANUFACTURING COMPANY, by L. C. Black, its Receiver, Petitioner , v. CHARLES A. HARRIS et al. , Executors of D. B. Harris, Deceased |
| Court | U.S. Supreme Court |
This case was begun by bill in equity, filed in the circuit court of the United States for the district of Vermont, in the name of the Great Western Mining & Manufacturing Company, a Kentucky corporation, by L. C. Black, its receiver, against B. D. Harris, a citizen of the state of Vermont. It is averred that the corporation was duly organized under the laws of the state of Kentucky. In substance the bill sets forth: That the Great Western Mining & Manufacturing Company was organized by the Kentucky legislature on January 19, 1856, for the purpose of owning and operating mining property, and selling coal. On or about February 10, 1859, it became the owner of coal properties to the value of about $40,000, situated in Lawrence county, Kentucky. The capital stock of said company was $200,000, divided into 2,000 shares of $100 each. That previous to November 10, 1887, the capital stock of the company was owned as follows:
B.D. Harris, the defendant herein
600 shares, par value..... $60,000 00
G. D. Harris, 600 shares, par
value...................... 60,000 00
John Carlisle, 440 shares, par
value...................... 44,000 00
George W. Carlisle, 300 shares
par value.................. 30,000 00
James C. Holden, 4 shares, par
value......................... 400 00
Loren Hinsdale, 4 shares, par
value......................... 400 00
George S. Richardson, 52 shares
par value................... 5,200 00
On November 10, 1887, the stockholders increased the capital stock in the sum of $50,000, the same being distributed among the stockholders as follows:
To B. D. Harris, 150 shares, par
value..................... $15,000 00
To G. D. Harris, 150 shares, par
value...................... 15,000 00
To John Carlisle, 110 shares
par value.................. 11,000 00
To George W. Carlisle, 75 shares,
par value................... 7,500 00
To George S. Richardson, 13
shares, par value........... 1,300 00
To James C. Holden, 1 share,
par value..................... 100 00
To Loring Hinsdale, 1 share,
par value..................... 100 00
[The record she is that this increase was in fact made on January 11, 1888, in pursuance of a meeting authorized to be called at that date in the meeting of November 10, 1887, and certificates issued January 14, 1888.]
On April 22, 1889, a further increase of capital stock was had by adding 1,000 shares of $100 each, which was distributed as follows:
To B. D. Harris, 300 shares, par
value..................... $30,000 00
To G. D. Harris, 300 shares, par
value...................... 30,000 00
To John Carlisle, 220 shares,
par value.................. 22,000 00
To George W. Carlisle, 150
shares, par value.......... 15,000 00
To George S. Richardson, 26
shares, par value........... 2,600 00
To James C. Holden, 2 shares,
par value..................... 200 00
To Loring Hinsdale, 2 shares,
par value..................... 200 00
The complainant avers that at the time the increases of capital stock were made and carried out, the stockholders had formed a plan of issuing bonds and selling the same, and that the issues and distribution of said stock were made for the purpose of defrauding said company, and obtaining, without consideration, the aforesaid shares of capital stock, and for the purpose of selling the same to the company in connection with the said loan, and defrauding the company out of a part thereof. That said issues of capital stock were made by the shareholders and board of directors, of whom the defendant was one, ostensibly in consideration of alleged betterments of said mining property, which betterments, it was pretended, were made and paid for out of the net earnings of the company, which, it was represented, had increased the value of the property belonging to the stockholders. Complainant alleges that no such betterments had been made, and if made they were paid for out of money borrowed upon the credit of the company, for which an indebtedness then existed and still exists. That in fact there had been no net earnings which had been put into betterments by the company, and that the issue of said stock was without consideration, illegal and void, and a breach of duty upon the part of the stockholders and the directors of the corporation to its creditors. That said stock so issued still remains outstanding in the names of the parties to whom it was issued, or their assignees. That on May 13, 1889, the directors of the company, of whom the defendant Harris was one, and who were also stockholders in the company, for the purpose of defrauding said company, and abstracting the assets of the company for their own use and benefit, the corporation then being insolvent, without means to pay its floating indebtedness, which then amounted to $100,000, or more, agreed that they would obtain a loan of $300,000 for said company, said loan to be evidenced by bonds to the number of 300, in the denomination of $1,000 each, to be secured by mortgage upon the property of the company. That the issues of stock had been made upon the consideration that certain betterments had been added to the property, and had been paid for out of the profits of the operation thereof, which profits would otherwise belong to the stockholders, when in truth and fact the said company was largely insolvent, and had a mortgage debt of about $60,000 upon it, and a floating debt of $100,000 or more. In fact, said company had not made any net profits whatever, and said betterments had not been made at all; or, if made, had been paid for out of the earnings of the company, and no consideration than that herein stated was ever paid by the stockholders for the stock issued to them. That it was for the purpose of carrying out the scheme of abstracting from the company money arising from the sale of the bonds, and for that purpose only, that said stock was issued to the defendant Harris and others. That said bonds were sold at a price of 85 cents on the dollar, including a bonus of 50 per cent of the par value of said bonds in the stock of the company; that is, a purchaser of a $1,000 bond was entitled to have with said bond $500 of the capital stock of the company. That in pursuance of the combination aforesaid the said directors and stockholders furnishing said bonus stock were paid for the same from the proceeds of the sale of the bonds. The stock was furnished as follows, in pursuance of the said arrangement:
By B. D. Harris, 450 shares, par
value..................... $45,000 00
G. D. Harris, 450 shares, par
value...................... 45,000 00
John Carlisle, 336 shares, par
value...................... 33,600 00
George W. Carlisle, 225 shares,
par value.................. 22,500 00
George S. Richardson, 39 shares,
par value................... 3,900 00
That out of the proceeds of the sale of the bonds the sum of $75,000 was distributed among the parties, as follows:
To B. D. Harris the defendant herein.............. $22,500 00
To G. D. Harris.................................... 22,500 00
To John Carlisle................................... 16,800 00
To George S. Richardson............................. 1,950 00
To George W. Carlisle.............................. 11,250 00
That, as a matter of fact, when the stock was contributed the company was insolvent, and could not carry on its business without making the said loan; that said stock was worthless, and was sold to the company at 50 cents on the dollar for the purpose above mentioned, and thereafter said stock was transferred to the purchasers of the bonds. Then follow allegations as to the mismanagement of the company, and the wrongful payment of dividends, and the averment that on or about September 12, 1892, one of the creditors of the company was compelled to make an application to the United States circuit court of Kentucky, wherein a request was made for the appointment of a receiver of the property and franchises of the company for the purpose of realizing its assets, and distributing them among its creditors; that in said proceedings all of the property of the Great Western Mining & Manufacturing Company was sold, and was found to be of the value of $75,666.66, which left a large floating indebtedness of about $90,000, besides a large balance due upon the bonded indebtedness, aggregating about $270,000; that in said proceedings in the United States court for the district of Kentucky, L. P. Black was appointed receiver of the assets of the company, for the purpose of realizing upon the same for the benefit of its creditors, and it is averred that, by special order of the United States court, said receiver had been directed to prosecute this suit, either in his own name or that of the company, as may be proper. The prayer of the bill is for an accounting respecting the matters and things set up in the bill, and that the defendant be required to pay to the complainant the sums which may be found to be due by reason of the matters and things set forth, and for general relief. An answer and replication were filed, and the issues made up were heard upon the pleadings and testimony. The circuit court found the estate of B. D. Harris, he having died pending the suit, liable in the sum of $15,000, being the amount Harris received from the company in exchange for the 300 shares of stock issued to him in April,...
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