In re Canister Co.

• Decision Date: 13 February 1918
• Citation: 248 F. 587
• Parties: In re CANISTER.
• Court: U.S. District Court — District of New Jersey

248 F. 587

In re CANISTER.

United States District Court, D. New Jersey.

February 13, 1918

Edward L. Katzenbach, of Trenton, N.J., and George M. Shipman, of Belvidere, N.J., for trustee.

Malcolm G. Buchanan, of Trenton, N.J., for respondent stockholders.

Joseph A. Seidman and A.C. Cohen, both of New York City, for creditors' protective committee and Hudson Brass Works.

DAVIS District Judge.

It appears from the proofs submitted in the above-stated cause tat in July, 1909, and for some time prior thereto, the Canister Manufacturing Company was and had been in financial difficulties. There seems to have been an understanding between the officers and stockholders, or some of them, of the said company, and the creditors thereof, that a reorganization of the company should take place, and that the creditors of the company should receive stock in the new and reorganized company, called the Canister Company, for and on account of their claims against the old company. A written instrument, purporting to contain the terms of the said agreement, was introduced in evidence before the referee; but the same was unsigned, and just who were the parties to the alleged agreement, embracing the reorganization, is not quite clear. A reorganization was, however, effected. All the personal property was sold for a nominal sum under execution sale, upon judgments secured by the Phillipsburg Investment Company, to which certain creditors of the old company had assigned their claims, and the real estate of the old company was sold under foreclosure proceedings, likewise for a nominal sum. All the property, both real and personal purchased at the said sale, was conveyed to the newly organized Canister Company. An inventory and appraisement were made of this property, which amounted to $299,098.58. It is charged, however, that the inventory and appraisement were made by persons who were interested in both companies, the old and the new, and whose interest caused them to make the appraisement much in excess of the value of the articles appraised. Stock was issued by the new company to creditors of the old company on account of their claims against the old company.

The trustee contends: (1) That the creditors of the old company had no legal claim against the new company, and that their only claim was against the proceeds of the said sales of the personal property and real estate of the old company; and (2) that if the agreement, tacit or otherwise, is taken into account as binding in the case, because it was acquiesced in and ratified for six or seven years by the creditors of the old company and officers of the new, the stock issued to the present stockholders of the new company, creditors of the old company, was in excess of the property received by the new company, in return for which it issued its stock to the present holders.

Passing over the first contention presented in the brief of counsel for the trustee, the order of the referee seems to have been based upon the second proposition. He finds as facts, inter alia:

(1) "That there is substantial doubt about the full payment of any of the stock, and that the weight of evidence, as the proofs now stand, is that some of the shares are only partly paid, and some are entirely paid."

(2) "The Phillipsburg Investment Company proceeded to purchase at sheriff's sale the property of the Canister Manufacturing Company, and the proofs indicate that that property did go over into the possession of the present bankrupt company, and said bankrupt company did issue to numerous creditors of the Canister Manufacturing Company capital stock, in varying amounts, aggregating $91,300 in par value, and having acquired title to the real estate, it gave to previous bondholders of the company, in lieu of their bonds, which had been foreclosed, bonds to the amount of $79,800."

(3) "I am therefore constrained by the present proofs to find that there is very considerable doubt concerning the payment in full of all the capital stock outstanding. It is true undoubtedly that the property did go over from the Canister Manufacturing Company to the Canister Company, and that it is payment on stock, but to what extent and on what shares it applies cannot be determined by the present proofs. In my judgment that can only be determined by the trustee bringing a plenary suit against a stockholder in which the issues can be narrowed down to his particular dealings which resulted in his holding the stock."

Upon said facts, inter alia, as found by him, the referee made an order assessing all stockholders of the Canister Company "to an amount equal to the par value of the stock issued to and held by said stockholders," and directed the trustee "to enforce payment of such assessments and calls, if necessary, by an action or actions at law or in equity in any court of competent jurisdiction in this or in any other state or country against the stockholders of the Canister Company both common and preferred."

The jurisdiction of the...