In re Marshall Paper Co.

• Decision Date: 14 July 1899
• Docket Number: 646.
• Citation: 95 F. 419
• Parties: In re MARSHALL PAPER CO.
• Court: U.S. District Court — District of Massachusetts

95 F. 419

In re MARSHALL PAPER CO.

No. 646.

United States District Court, D. Massachusetts.

July 14, 1899

Brandeis Dunbar & Nutter, for objecting creditors.

M. F Dickinson and Hollis R. Bailey, for the bankrupt.

LOWELL District Judge.

The Marshall Paper Company is a corporation organized under the laws of Massachusetts, which has been adjudged bankrupt upon an involuntary petition. It has filed two petitions: First for a discharge; and, second, that a certain creditor be enjoined from proceeding to judgment in a suit brought against it before the commencement of proceedings in bankruptcy. The trustees in bankruptcy have also filed a petition seeking to enjoin the same creditor from proceeding to judgment.

Two interesting questions have been argued: First, under the bankrupt act of 1898, is a corporation entitled to a discharge in bankruptcy? To discharge a corporation in bankruptcy or insolvency is almost or quite unprecedented. What useful object will be accomplished by the discharge is hard to imagine. Although it is now generally held, after some conflict of decision, that bankruptcy or insolvency does not work the corporation's dissolution, yet in several states insolvency affords sufficient ground for proceedings commenced by a creditor to dissolve a corporation. See Stim Am. St. Law Sec. 8341. Everything of pecuniary value which belonged to the corporation, and could be transferred by it, must be applied for the benefit of its creditors,-- good will; trade-marks, whether registered or not; all transferable franchises; and in some cases, by statute, even the franchise to be a corporation. McClain's Code Iowa, Sec. 1636. A discharge in bankruptcy is granted to an individual in order that, being freed from his debts, he may have a new start in life; but to attribute this condition to a corporation is to use a mere figure of speech. If there is anything of pecuniary value in a corporation apart from the energy of the individuals concerned in it, to that, speaking generally, the corporation's creditors are entitled. These and other arguments against granting a discharge in bankruptcy to a corporation are stated by Mr. Justice Clifford in New Lamp Chimney Co. v. Ansonia Brass & Copper Co., 91 U.S. 656, 666:

'Good and sufficient reasons may be given for granting a discharge from prior indebtedness to individual bankrupts which do not exist in the case of corporations, and equally good and sufficient reasons may be given for withholding such a discharge from corporations which do not in any sense apply to individual bankrupts. Certificates of discharge are granted to the individual bankrupt 'to free his faculties from the clog of his indebtedness,' and to encourage him to start again in the business pursuits of life with fresh hope and energy, unfettered with past misfortunes, or with the consequences of antecedent improvidence, mismanagement, or rashness. Many corporations, if is known, are formed under laws which affix to the several stockholders an individual liability to a greater or less extent for the debts of the corporation, which, in case certain steps are taken by the creditors, become in the end the debts of the stockholders. Such a liability does not, in most cases, attach to the stockholder until the corporation fails to fulfill its contract, nor in some cases until judgment is recovered against the corporation, and execution issued, and return made of nulla bona. Stockholders could not be held liable in such a case if the corporation is discharged, nor could the creditor recover judgment against the corporation as a necessary preliminary step to the stockholder's individual liability. Consequences such as these were never contemplated by Congress; and the fact that they would flow from the theory of the defendants, if adopted, goes very far to show that the theory itself is unfounded and unsound.'

These considerations would be decisive in interpreting the present law, were it not for other considerations which are of some weight. The bankrupt relies upon section 1, subd. 19, of the bankrupt act: 'Persons shall include corporations, except when otherwise specified;' and section 14a: 'Any person may * * * file an application for a discharge. ' Moreover, section 37 of the act of 1867 (Rev. St. Sec. 5122) expressly excluded corporations from a discharge; and this provision, we should suppose, was present in the minds of the framers of the present law. Unless these intended to permit the discharge of a corporation, it is hard to say why they did not insert a similar excluding clause in the present act. Yet again, some earlier drafts of section 14 of the present act-- drafts which, in other respects, resemble almost literally the section as passed-- began with the words 'Any person not a corporation.' See S. 1694, 52d Cong., 1st Sess., Sec. 50; H.R. 9348, 52d Cong., 1st Sess., Sec. 13; S. 1035, 55th Cong., 2d Sess., Sec. 13 of the substitute. In the process of redrafting, the three words, 'not a corporation,' were stricken out; for what reason it is hard to perceive, unless their omission was intended to permit the discharge of a corporation, almost meaningless and unprecedented as such a discharge would be. See, also, the similar change made in drafting section 14 of the act of 1898. Finally, later decisions of the supreme court, and particularly Hill v. Harding, 130 U.S. 699, 9 Sup.Ct. 725, have thrown some doubt upon the unqualified statement of Mr. Justice Clifford, just quoted, that 'stockholders could not be held liable in such a case if the corporation is discharged, nor could the creditor recover judgment against the corporation as a necessary preliminary step to the stockholder's individual liability. ' It may be that this objection to discharging a corporation has been obviated, partially at least. The inconvenience and apparent uselessness of discharging a corporation, the lack of precedent for such a discharge in earlier legislation, and on the other hand, the definite language of the existing statute, and the omission to forbid a discharge under the circumstances above stated, are considerations so conflicting in their bearing upon the interpretation of the present law that I have been unable to determine definitely if, in all cases, a corporation should be refused a discharge. The determination is not necessary to the decision of this case. The other objections to the bankrupt's discharge have not been considered. It should be observed, however, that under the existing bankrupt act the duties of the judge regarding discharges are more onerous than those imposed by the act of 1867. He is directed to 'investigate the merits of the application,' and hence is not confined to the consideration of those objections to the...