Louisville Trust Co. v. Knott

• Decision Date: 27 June 1904
• Docket Number: 1,290.
• Citation: 130 F. 820
• Parties: LOUISVILLE TRUST CO. v. KNOTT et al.
• Court: U.S. Court of Appeals — Sixth Circuit

130 F. 820

LOUISVILLE TRUST CO. v. KNOTT et al.

No. 1,290.

United States Court of Appeals, Sixth Circuit.

June 27, 1904

The Evening Post Company, one of the appellees above named, was organized as a corporation under the laws of Kentucky with a capital stock of $60,000, divided into 600 shares, and began its corporate life on May 1, 1878. By the terms of its charter the duration of its existence was limited to the period of 25 years, and terminated May 1, 1903. The Kentucky Statutes, 1903, Sec. 561, however, provided that 'when any corporation expires by the terms of the articles of incorporation, or by the voluntary act of its stockholders it may thereafter continue to act for the purpose of closing up its business, but for no other purpose; and it shall be the duty of the officers to settle up its affairs and business as speedily as possible; and they shall cause notice to be published, for at least once a week for four consecutive weeks, in some newspaper printed and published in the county, if any, of the fact that it is closing up its business; and all debts and demands against the corporation shall be paid in full before the officers receive anything ' On April 30, 1903, there was a meeting of all the officers and stockholders of the company, at which, against the objection and protest of the representatives of the Haldeman estate, who owned 48 shares of $100 each, the following resolutions were passed:

'Be it resolved:

'(1) That the Columbia Finance & Trust Company be, and it is hereby appointed, liquidator of the affairs of the corporation, with directions to operate for the use of the stockholders the affairs and business of said corporation as they have been operated, until the property can be properly advertised and sold, and the possession thereof delivered to the purchaser.

'(2) That prior to the said sale liquidator shall cause to be made for the use of the stockholders a comprehensive statement of the assets and liabilities of the corporation, and furnish each stockholder with a copy of said statement.

'(3) That the said liquidator shall in its advertisements specify the nature of the articles to be sold, and shall make such sale for cash to be paid on the delivery of possession, and shall require of the purchaser that he deposit a certified check for an amount equal to one-third of the total purchase price, which the liquidator shall hold and credit upon the purchase price when the sale is consummated, or if for any reason it shall be set aside, return to the bidder. If said bidder to whom the property is knocked down shall fail at once to deliver to the liquidator the certified check as herein provided, the liquidator shall immediately resell the property and refuse to receive bids from said former bidder.

'(4) Said liquidator may, in his discretion, employ an auctioneer or other agents necessary or proper to be used in the sale of the property.

'(5) Until said sale, and during the operation of said property, said liquidator is given full authority and permission to employ such agents and persons as may be necessary to properly, conveniently and economically operate the company, and keep an account of all its expenses and take vouchers therefor. And after the property has been fully administered it shall make out a comprehensive account of its actings and doings, and shall furnish a copy thereof to each of the stockholders.

'(6) The said liquidator shall, from the proceeds of the sale of the property, pay all the debts of the corporation, and the balance, if any, shall be distributed among the stockholders according to their legal rights.'

On the same day the Columbia Finance & Trust Company accepted the appointment, and entered upon the discharge of the duties thereof. Shortly before this, and on April 25, 1903, the representatives of the Halderman estate, as stockholders therein, made application to the Evening Post Company to be allowed to inspect the books and records of the company for the purpose, as they claimed, of enabling them to determine what course they should pursue in relation to is affairs. This application was refused. It was renewed after the appointment of the Columbia Finance & Trust Company, and again refused by the latter, but with the statement by it that in a short time it would make out an exhibit of the assets and liabilities of the corporation, a copy of which would be furnished to each stockholder. But this did not satisfy the applicants, and they demanded the inspection of the books themselves, which was refused them.

On May 12, 1903, those stockholders filed their bill of complaint in the circuit court for Jefferson county, Ky., against the Evening Post Company, the Columbia Finance & Trust Company, Richard W. Knott, J. M. Atherton, John R. Knott, Eugene Q. Knott, and Laura G. Boyle, stating the organization of the Evening Post Company, the limitation of its existence, its capital stock, their ownership of the 48 shares thereof, and the ownership of the rest of it by the individual defendants had for a long time been managing the affairs of the company in their own interests, without any meeting of stockholders or election of directors; their demands and the refusals to be allowed inspection of the books above stated; the meeting of the stockholders and the passage of the resolutions on April 30, 1903; that the complainants did not know what was the indebtedness of the Evening Post Company, or to whom it was owing, or how secured, nor what assets the company owned; that the defendants were still operating the business of the company at great loss and expense; that the individual defendants were converting to their own use the entire assets of the company, including its good will; that the limitation of the indebtedness when the company might incur was $40,000, but that the defendants were claiming that they themselves were its creditors to the extent of $109,000; and that an inspection of the company's books was necessary to ascertain the real state of the company's business. The prayer of the bill was that the affairs of the Evening Post Company be wound up and liquidated; that an inspection of the books be ordered and allowed; that the defendants who are the creditors of the company be required to prove their accounts; that a reference be ordered to ascertain the debts and liabilities of the company, and that its assets be sold, and the proceeds distributed to the parties entitled thereto according to their interests; that the court shall determine whether the business of the company shall be continued pending the suit; and for all proper equitable relief. Process was issued and served on all the defendants. Then, on May 19, 1903, the complainants in that suit moved for an order requiring the defendants to permit them to have access to the books, records, and documents of the company, to enable them to inspect the same. Hearing on this motion was assigned to May 23, 1903. The defendants appeared and opposed the granting of the motion. The hearing was not completed on that day, and was postponed to May 25th, and again to May 30th, when the hearing was completed. On June 4th the court filed its opinion granting the motion. The defendants on May 23, 1903, filed their answer to the bill. While the motion for the production of the books was pending, and on May 26, 1903, Stuart R. Knott claiming to be a creditor of the Evening Post Company in the sum of $6,000, brought suit against it in the Circuit Court of the United States, and on the same day, by consent of the company, obtained a judgment for that sum, with interest. On the day following he took out an execution, which was immediately returned nulla bona. Thereupon he filed a creditors' bill in that court, making the Evening Post Company, the Columbia Finance & Trust Company, and other parties, stockholders and creditors who were also defendants in the case in the state court, defendants. This bill was filed in behalf not only of the complainant therein, but of all other persons similarly interested, and who were creditors of the Evening Post Company. It prayed, among other things, that a receiver might be appointed, and that he be directed to take into his possession and control all the property of the Evening Post Company, its books of account, its records, its circulation lists, and everything else pertaining to its business; that all the property of the company, including its good will, should be sold; that the court determine the means by which the publication of the Evening Post should continue pending the suit; that the debts of the company and their rank be ascertained; and that its property be sold, and the proceeds brought into court for distribution among its creditors. On the day of the filing of this bill, the complainant made a motion for the appointment of a receiver, and the court entered the following order;

'Pending the hearing of said motion, it is ordered by the court that the said Columbia Finance & Trust Company be, and it is restrained from disposing of any part of said property, and from delivering possession of any part thereof to any person or officer, otherwise than in such manner as may be approved by this court.'

All the defendants filed answers consenting to the appointment of a receiver, and on the next day, May 28th, the court appointed L. C. Humphrey, one of the appellees, receiver, who immediately took possession of the property of the company including its books and papers. Subsequent to these proceedings in the Circuit Court of the United States, and on June 27, 1903, the state court, on motion of the complainants in the suit there pending, appointed the Louisville Trust Company receiver, and directed it to take possession and charge of the entire estate of the Evening...