Hospes v. Northwestern Manuf'G & Car Co.
| Decision Date | 18 January 1892 |
| Citation | 48 Minn. 174 |
| Parties | ERNEST L. HOSPES <I>et al.</I> <I>vs.</I> NORTHWESTERN MANUF'G & CAR CO. |
| Court | Minnesota Supreme Court |
The Northwestern Manufacturing & Car Company was a manufacturing corporation organized May 10, 1882, under 1878 G. S. ch. 34, § 120. It confessed judgment in the district court, May 10, 1884, in favor of Ernest L. Hospes and W. K. Wurdeman, for $364.03. Execution was issued on the judgment, and returned wholly unsatisfied. Thereupon Hospes and Wurdeman commenced an action in the district court, Washington county, setting forth these facts, and praying that the property of the corporation be sequestered, and a receiver appointed to continue its business until a sale could be made under the order of the court. 1878 G. S. ch. 76, § 9. On the same day an order was granted requiring the corporation to show cause before McCluer, J., why such receiver should not be appointed at once. The parties appeared, and by consent E. S. Brown was on said May 10, 1884, appointed such receiver of the property of the corporation, and empowered to continue its business, employ and discharge officers, prosecute and defend suits, and wind up its affairs. The receiver thus appointed, qualified, and entered upon the discharge of his trust. The district court on September 9, 1884, made another order, requiring all the creditors of the Northwestern Manufacturing & Car Company to exhibit their claims within six months after the first publication of the order, and become parties to the proceeding, and in default thereof that they be precluded from all benefit of the judgment, and from sharing in the distribution of the assets realized under such judgment.
The Minnesota Thresher Manufacturing Company, another corporation, thereupon presented and filed its claim against the insolvent Northwestern Manufacturing & Car Company, and afterwards, on October 28, 1889, by leave of the court, presented and filed its supplemental complaint, (1878 G. S. ch. 76, § 16,) on behalf of itself and all the other creditors, and against these appellants and more than 100 others, holders of the common stock of said insolvent corporation, to compel them severally to pay to the receiver the face value of this common stock, claiming that this common stock was issued without any payment whatever to the corporation for it; that some of the defendants received it through devices stated in the opinion, and that others took assignments of shares from first holders with full knowledge of all the facts. An order was entered making all these holders of common stock parties to the action, and requiring them to enter their appearance and to answer the complaint, and providing for the service of a summons upon each to answer in conformity with the order.
This supplemental complaint stated that the debts of said Northwestern Manufacturing & Car Company exceeded $3,400,000; that the intervener, the Minnesota Thresher Manufacturing Company, did, prior to October 27, 1887, purchase and become the owner of $1,703,000 thereof; that all the assets of said insolvent car company had been sold, and had realized $1,105,000, but that the expenses contracted by the receiver in continuing the business and completing the articles in process of manufacture were $770,000, and that there remained only $335,000 to apply upon the indebtedness of the insolvent car company; that the stock consisted of $3,500,000 preferred and $1,500,000 common; that the preferred was to receive dividends of 7 per cent. annually and no more; the common to receive no dividend until the dividend on preferred should be first paid out of the profits realized in the business; that the common stock was issued and delivered to defendants without consideration; that it was bonus stock, and was given by said Northwestern Manufacturing & Car Company gratuitously to defendants; that some of such common stock was thereafter transferred by the persons receiving it to the other defendants, but that they each had full notice and knowledge before purchasing that nothing had been paid to the corporation for it, and that it was issued as a bonus, and without consideration. The complaint prayed that each of the holders of such common stock account with the receiver and said thresher company and the other creditors concerning said common stock, and their liability to pay therefor, and that it be adjudged that each of the holders of common stock pay into court an amount equal to the par value of their respective holdings of such stock, and that the money be distributed among the creditors.
Many of the holders of the common stock appeared and demurred to this complaint, upon grounds stated in the opinion, and it was stipulated that M. D. Grover, Esq., should, as referee, hear argument, and report to the court what order he advised to be made upon the demurrers. He heard argument, and reported, July 14, 1891, that the demurrers should be overruled, and it was so ordered. The defendants appealed to this court.
Among the defendants was the St. Paul Trust Company, as executor of the last will of Norman W. Kittson, who died May 10, 1888, and who at his death held $50,000 of said common stock. This executor contended that this claim should have been presented to and proved before the probate court of Ramsey county, the domicile of deceased at his death.
Lusk, Bunn & Hadley, for some appellants.
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Warner, Richardson & Lawrence, for some appellants.
Searles & Gail, for some appellants.
Horace G. Stone, for some appellants.
Harvey Officer, for appellant St. Paul Trust Company.
Flandrau, Squires & Cutcheon and Davis, Kellogg & Severance, for respondent.
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This appeal is from an order overruling a demurrer to the so-called "supplemental complaint" of the Minnesota Thresher Manufacturing Company. The Northwestern Manufacturing & Car Company was a manufacturing corporation organized in May, 1882. Upon the complaint of a judgment creditor, (Hospes & Co.,) after return of execution unsatisfied, judgment was rendered in May, 1884, sequestrating all its property, things in action, and effects, and appointing a receiver of the same. This receivership still continues, the affairs of the corporation being not yet fully administered; but it appears that it is hopelessly insolvent, and that all the assets that have come into the hands of the receiver will not be sufficient to pay any considerable part of the debts. The Minnesota Thresher Manufacturing Company, a corporation organized in November, 1884, as creditor, became a party to the sequestration proceeding, and proved its claims against the insolvent corporation. In October, 1889, in behalf of itself and all other creditors who have exhibited their claims, it filed this complaint against certain stockholders (these appellants) of the car company, in pursuance of an order of court allowing it to do so, and requiring those thus impleaded to appear and answer the complaint. The object is to recover from these stockholders the amount of certain stock held by them, but alleged never to have been paid for. What was said in Meagher's Case, ante, p. 158, 50 N. W. Rep. 1114, (just decided,) is equally applicable here as to the right to enforce such a liability in the sequestration proceeding upon the petition or complaint of creditors who have become parties to it. There is nothing in this practice inconsistent with what was decided in Minnesota Thresher Mfg. Co. v. Langdon, 44 Minn. 37, (46 N. W. Rep. 310.) The complaint is not the commencement of an independent action by creditors in their own behalf, antagonistic to the rights of the receiver, but is filed in the sequestration proceeding itself, and in aid of it.
The principal question in the case is whether the complaint states facts showing that the thresher company, as creditor, is entitled to the relief prayed for; or, in other words, states a cause of action. Briefly stated, the allegations of the complaint are that on May 10, 1882, Seymour, Sabin & Co. owned property of the value of several million dollars, and a business then supposed to be profitable. That, in order to continue and enlarge this business, the parties interested in Seymour, Sabin & Co., with others, organized the car company, to which was sold the greater part of the assets of Seymour, Sabin & Co. at a valuation of $2,267,000, in payment of which there were issued to Seymour, Sabin & Co. shares of the preferred stock of the car company of the par value of $2,267,000, it being then and there agreed by both parties that this stock was in full payment of the property thus purchased. It is further alleged that the stockholders of Seymour, Sabin & Co., and the other persons who had agreed to become stockholders in the car company, were then desirous of issuing to themselves, and obtaining for their own benefit, a large amount of common stock of the car company, "without paying therefor, and without incurring any liability thereon or to pay therefor;" and for that purpose, and "in order to evade and set at naught the laws of this state," they caused Seymour, Sabin & Co. to subscribe for and agree to take common stock of the car company of the par value of $1,500,000. That Seymour, Sabin & Co. thereupon subscribed for that amount of the common stock, but never paid therefor any consideration whatever, either in money or...
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Hospes v. Nw. Manuf'g & Car Co.
... 48 Minn. 174 50 N.W. 1117 HOSPES ET AL. v NORTHWESTERN MANUF'G & CAR CO., (MINNESOTA THRESHER MANUF'G CO., INTERVENER. TWO CASES.) Supreme Court of Minnesota. Jan. 18, 1892 ... [50 N.W. 1118] [50 ... ...