In re Putman

• Decision Date: 15 May 1911
• Docket Number: 6,780.
• Citation: 193 F. 464
• Court: U.S. District Court — Northern District of California
• Parties: In re PUTMAN et al.

193 F. 464

In re PUTMAN et al.

No. 6,780.

United States District Court, N.D. California.

May 15, 1911

[Copyrighted Material Omitted]

L. S Melsted and Edwin H. Williams, for petitioners.

W. W Kaufman, for J. A. Folger.

FARRINGTON District Judge.

The petition shows that J. A. Folger was a stockholder and director of the Ocean Shore Railway Company. He owned and there had been issued to him 11,550 shares of its capital stock. In his contract of subscription the price of the stock was fixed at $100 per share; only $45 per share, however, has been actually paid. It is alleged that while he was a director he authorized the creation of, and created debts by said company to a total amount of more than $6,000,000, which was $1,000,000 in excess of the entire subscribed capital stock of the company. None of this indebtedness has been paid, and the railway company is insolvent. Three creditors of the corporation, namely, Kate C. Putman, as administratrix of the estate of Fred C. Putman, deceased, J. A. Schroeder and A. Bernier, seeking to charge J. A. Folger as a director and stockholder in said company, have filed a petition in this court asking that he be adjudged a bankrupt. It is stated that on the 2d day of July, 1910, suit was brought in the superior court of San Francisco by one Charles C. Moore against Mr. Folger to recover $21,443.75, alleged to be due from him as joint indorser of a promissory note executed by the Ocean Shore Railway Company. On the same day an attachment was duly levied on all Mr. Folger's stock in the railway company, and later alias writs of attachment were levied on other stocks, and on moneys, credits, and effects belonging to Mr. Folger. This property was of the value of $50,000. The attachments have never been released or discharged, and it is alleged that they are now subsisting liens, and that on 'November 3, 1910, said liens will become a preference not to be released or avoided by bankruptcy proceedings, and that said attached property will become and be finally disposed of and sequestrated by' the attaching creditor. This constitutes the alleged act of bankruptcy.

The questions raised by demurrer are: (1) Are the claims of Kate C. Putman and A. Bernier barred by the statute of limitations? (2) If not barred by the statute, is the claim of Kate C. Putman a provable claim? (3) Has the alleged bankrupt committed an act of bankruptcy?

Each of the claims mentioned in the petition represents an indebtedness of the Ocean Shore Railway Company for which Mr. Folger is alleged to be liable: (1) On the ground of his ordinary statutory liability as a stockholder of the railway company to pay a proportionate share of its debts; (2) by reason of his unpaid subscription to the capital stock of the company; and (3) because as a director of the company he created, and permitted to be created, debts against it in an amount exceeding the subscribed capital stock by more than a million dollars. There is no allegation as to the number of creditors, nor is it shown that any creditor, other than the three mentioned, has appeared and joined in the petition. The alleged bankrupt takes the position that if the claims of any one of the three creditors are not provable within the meaning of the Bankruptcy Act, the petition is defective, and the demurrer must be sustained. Kate Putman relies on a judgment for $10,000 and costs, recovered by her against the Ocean Shore Railway Company, for negligently causing the death of Fred C. Putman, on the 14th day of July, 1910. Mr. Folger's statutory liability as a stockholder accrued, not on the date of judgment, but when the accident occurred, and was therefore barred by the statute of California at the expiration of three years thereafter, and more than three months before the petition in bankruptcy was filed. The petition was filed November 1, 1910. Cal. Code Civ. Proc. Sec. 359; Raynor v. Mintzer, 72 Cal. 585, 18 P. 82; Hunt v. Ward, 99 Cal. 612, 34 P. 335, 37 Am.St.Rep. 87.

It is well established that a debt outlawed by the statute of limitations is not a provable claim within the meaning of the bankruptcy act. Collier on Bankruptcy (8th Ed.) p. 722; In re Lipman (D.C.) 94 F. 353; In re Resler (D.C.) 95 F. 804.

The allegations of the petition as to when the notes held by Bernier were executed are not sufficient to enable me to determine with certainty when the statute began to run in favor of the stockholders as against creditors of the corporation.

As to the indebtedness contracted in excess of the subscribed capital stock, section 309 of the California Civil Code declares that:

'The directors of corporations must not * * * create debts beyond their subscribed capital stock * * * the directors under whose administration the same may have happened (except those who may have caused their dissent therefrom to be entered at large on the minutes of the directors at the time, or were not present when the same did happen) are in their individual or private capacity jointly and severally liable to the corporation and to the creditors thereof to the full amount of the * * * debt contracted; and no statute of limitations is a bar to any suit against such directors for any sums for which they are liable by this section.'

Clearly the Legislature had in mind only such debts as the directors could voluntarily create or refuse to create; otherwise, directors through an act of negligence for which they are absolutely blameless may become responsible for indebtedness, without having had any opportunity to oppose its creation or to dissent therefrom. The sanctions of this statute are for those directors only who violate its terms; who, acting officially, consent to the creation of debts in excess of the subscribed capital stock of the corporation, or who, being present at the time such debts are created, neglect to express their disapproval in the manner provided. The Putman judgment is not a debt voluntarily created by the directors. It has frequently been held that the word 'debt' in similar statutes imposing a personal liability on directors cannot be construed to include a judgment for a tort. Cable v. Gaty, 34 Mo. 573, 86 Am.Dec. 126; Savage v. Shaw, 195 Mass. 571, 81 N.E. 303, 122 Am.St.Rep. 272; Tradesman Pub. Co. v. Knoxville Car Wheel Co., 95 Tenn. 634, 32 S.W. 1097, 31 L.R.A. 593, 601, 49 Am.St.Rep. 943. Mr. Folger's statutory liability as a stockholder of the Ocean Shore Railway Company is barred by the statute of limitations, and the Putman judgment does not constitute an indebtedness in excess of the subscribed capital stock within the meaning of section 309 of the Civil Code of California. If Mr. Folger is liable to pay the whole or any part of the Putman judgment, his liability rests on the allegation that his subscription to the capital stock of the Ocean Shore Railway Company is not fully paid. When Folger subscribed for his stock, he agreed to pay $100 per share. He still owes $55 per share, or a total sum of $633,250. Respondent says that if he is liable for this unpaid subscription, it is a liability to the corporation itself, and not to Kate Putman; and that Kate Putman's judgment is not in itself a provable claim, either against him or against the Ocean Shore Railway Company, consequently she is not a creditor within the meaning of the bankruptcy act. It is provided in section 59b of the act that:

'Three or more creditors who have provable claims against any person, which amount in the aggregate in excess of the value of securities held by them, if any, to $500 or over * * * may file a petition to have him adjudged a bankrupt.'

In section 1, subd. 9, it is said:

"Creditor' shall include any one who owns a demand or claim provable in bankruptcy, and may include his duly authorized agent, attorney, or proxy.'

Subdivision 'a' of section 63 of the same act enumerates five different classes of debts which may be proven and allowed against a bankrupt estate. The two classes pertinent here are:

'(1) A fixed liability as evidenced by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him, whether then payable or not * * * ; (4) founded upon an open account, or upon a contract express or implied.'

In section 17 it is provided that a discharge in bankruptcy shall release a bankrupt from all his provable debts, with a few specified exceptions, none of which are material to this opinion.

We have here an unsatisfied judgment in favor of the alleged creditor, and an unpaid stock subscription against the alleged bankrupt. Each, in itself, in my opinion is a provable claim; the first, because it is a judgment; the second, because it is founded upon a contract.

'A fixed liability as evidenced by a judgment * * * absolutely owing at the time of the filing of the petition' against the bankrupt is a provable claim.

There is no qualification in this language indicating that Congress intended to distinguish between judgments ex contractu and judgments ex delicto.

Collier in the last edition of his work on Bankruptcy, page 700, says that judgments grounded in tort are almost without exception, provable.

In Remington on Bankruptcy, Sec. 680, it is said that:

'Judgments for personal injury and other similar torts not capable of being presented in form ex contractu are provable, although the unliquidated claims for torts themselves would not be provable. ' In re Lorde (D.C.) 144 F. 320; 1 Remington on Bank. Secs. 635, 680; Collier on Bank. p. 706.

It is suggested that the judgment is not final because a motion for new trial is pending. This suggestion must be ignored. Having demurred to the petition, Mr. Folger admits the truth of each allegation therein which is well pleaded. The allegation...