Meyer Bernheimer 167 v. Theodore Converse No 278 Max Drey v. Theodore Converse No 279

Decision Date27 May 1907
Docket NumberNos. 278,279,s. 278
PartiesMEYER S. BERNHEIMER and Lorin S. Bernshimer, Surviving Execuor § of the Last Will and Testament of Simon Bernheimer, Deceased, Plffs. In Err., v. THEODORE R. CONVERSE, Receiver of the Minnesota Thresher Manufacturing Company, Deft. in Err. NO 278. MAX DREY, Charles D. Bernheimer, and Meyer A. Bernheimer, Executors of the Last Will and Testament of Isaac Bernheimer, Deceased, Plffs. in Err., v. THEODORE R. CONVERSE, Receiver of the Minnesota Thresher Manufacturing Company, Deft. in Err. NO 279
CourtU.S. Supreme Court

These are writs of error to the circuit court of the United States for the southern district of New York.

The actions were brought (January 28, 29, 1904) by Theodore R. Converse as receiver of the Minnesota Thresher Manufacturing Company, a corporation of the state of Minnesota, to enforce an alleged stockholders' liability under the Constitution and laws of the state of Minnesota. The court below held the executors of Simon Bernheimer and Isaac Bernheimer, both having died before the suits were brought, liable as such stockholders.

The record discloses that the Minnesota Thresher Manufacturing Company was incorporated under the laws of the state of Minnesota on the 5th of December, 1884, the objects for which the corporation was formed being the purchase of the capital stock, evidences of indebtedness, and assets of the Northwestern Manufacturing & Car Company, also a corporation under the laws of the state of Minnesota, and for the further purpose of manufacturing and selling steam engines, farm implements, machinery, etc., and the manutacture and sale of articles, etc., and the manufacture and sale of articles, wood and iron form the principal parts.

The Northwestern Manufacturing & Car Company was in the hands of a receiver, carrying on its business under the orders of a court, and, on October 27, 1887, the property and plant of that company, including all its bills receivable, farmers' notes, and assets were sold under decree and purchased by the Minnesota Thresher Manufacturing Company. The last-named company continued in business until December, 1900. On December 14 of that year the property and business of the thresher company were placed in the hands of a receiver by the order of the circuit court of the United States for the district of Minnesota, in a suit for the foreclosure of a mortgage upon its property, and this receiver carried on the business until the mortgaged property was sold under a decree of foreclosure on May 25, 1901.

On May 6, 1901, the Merchants' National Bank of St. Paul obtained a judgment in the district court of Ramsey county, Minnesota, against the thresher company, and executions thereon having been returned unsatisfied, the judgment creditor brought suit against the thresher company for the appointment of a receiver and the enforcement of the individual liability of its stockholders in the district court of Washington county, Minnesota. In that suit Theodore R. Converse, defendant in error in these cases, was appointed receiver. On the petition of the receiver, for the purpose of providing funds for the payment of the expenses of the receiver- ship in the enforcement of the stock liability and payment of indebtedness, an order was made, December 22, 1902, reciting, among other things, that copies of an order of April 16, 1902 (not in the record), had been published, mailed, and served as therein required, and that due notice of the hearing had been given to the defendant company and to each stockholder of record, as directed by the order, and, on a hearing duly had, an order of assessment of 36 per cent of the par value of each share of the capital stock of the thresher company, to wit, §18 per share, was §§ essed against each and every share of the capital stock, and against each and every person, corporation, or party liable as such stockholder, and each such person, corporation, or party was directed to pay to the said receiver, at his office in the city of Stillwater, Minnesota, within thirty days after the date of the order, the said sum of $18 a share; and, further, upon failure to pay said sums, the receiver was authorized to prosecute actions or proceedings against the persons liable in any court having jurisdiction in the state of Minnesota or elsewhere. On appeal to the supreme court of the state of Minnesota this order was affirmed. 90 Minn. 144, 95 N. W. 767. Subsequently, as stated, these actions were brought and judgment rendered against the executors of the Bernheimers.

Mr. Laurence Arnold Tanzer for plaintiffs in error.

[Argument of Counsel from pages 519-522 intentionally omitted] Messrs. William G. Wilson and C. A. Severance for defendant in error.

[Argument of Counsel from pages 522-524 intentionally omitted] Mr. Justice Day delivered the opinion of the court:

Before entering upon a discussion of the objections urged against the validity of the assessment upon stockholders which is the subject of controversy here, we may say we find no reason to disagree with the judgment of the supreme court of Minnesota in holding the Minnesota Thresher Manufacturing Company to be a corporation organized for other than the purpose of carrying on any kind of manufacturing or mechanical business, and therefore not within the exception as to stockholders' liability in favor of corporations of that kind. State ex rel. Clapp v. Minnesota Thresher Mfg. Co. 40 Minn. 215, 3 L.R.A. 510, 41 N. W. 1020; Merchants' Nat. Bank v. Minnesota Thresher Mfg. Co. 90 Minn. 144, 95 N. W. 767.

The questions made in these cases involve the right to recover upon a stockholder's liability in a Federal court in a state other than the one in which the original proceedings in liquidation were had, and under whose laws the corporation was formed, and wherein it carried on business, against stockholders in such corporate companies as the Thresher Company, where the stock had been acquired before the passage of the statute of 1899. General Laws of Minnesota, chap. 272, being 'An Act to Provide for the Better Enforcement of the Liability of Stockholders of Corporations.'

A former statute had been for some years in force in Minnesota and was the statute law of the state when the stock which concerns the controversy here was acquired by the Bernheimers. This statute was before this court in the cases of Hale v. Allinson, 188 U. S. 56, 47 L. ed. 380, 23 Sup. Ct. Rep. 244, and Finney v. Guy, 189 U. S. 335, 47 L. ed. 839, 23 Sup. Ct. Rep. 558. It was the act of 1894, General Statutes of Minnesota of that year, chap. 76, p. 1595, and is set forth in full in the margin (188 U. S. p. 60, 47 L. ed. p. 385, 23 Sup. Ct. Rep. p. 245).

Under that act it was held, in a series of decisions in the state of Minnesota, which were reviewed in Hale v. Allinson, that an action could only be maintained under the laws of Minnesota when brought by a creditor or creditors for the benefit of all creditors of the corporation, and the recovery was had for the purpose of making good any deficiency in the corporate assets for the payment of corporate debts; that the receiver could not maintain such an action outside of the jurisdiction of the court appointing him, and that the only remedy was, as stated, in a creditor's action, bringing in all the stockholders, for the realization of a fund to be proportionately distributed among the creditors in one suit.

The principal contentions in these cases are that the act of 1899, above referred to, works such a change in the contract theretofore existing by virtue of the acquisition of stock in a Minnesota corporation as to impair the obligation thereof, and, in ways to be hereafter noticed, undertakes to hold a stockholder by judgment rendered without due process of law.

The act of 1899 was before this court in the case of the First Nat. Bank v. Converse, 200 U. S. 425, 50 L. ed. 537, 26 Sup. Ct. Rep. 306, and its principal parts are set forth in the margin of the report of that case on page 428, L. ed. page 538, Sup. Ct. Rep. page 307. The act, for our purposes, may be summarized as follows:

'Sec. 1. Whenever any corporation created or existing by or under the laws of the state of Minnesota, whose stockholders or any of them are liable to it or to its creditors . . . upon or on account of any liability for . . . the stock or shares at any time held or owned by such stockholders, respectively, whether under or by virtue of the Constitution and laws of said state of Minnesota, or any statute of said state or otherwise, has heretofore made or shall hereafter make an assignment for the benefit of its creditors under the insolvency laws of this state; or whenever a receiver for any such corporation has heretofore been or shall hereafter be appointed by any district court of this state, whether under or pursuant to . . . any other statute of this state, or under the general equity powers and practice of such court, the district court appointing such receiver or having jurisdiction of the matter of said assignment may proceed as in this act provided.'

Section 2 provides that upon the petition of the assignee or receiver, or any creditor of the corporation who has filed his claim, the district court shall appoint a time for hearing not less than thirty days nor more than sixty days from the time of filing said petition, and direct notice of the hearing to be given by publication or otherwise, in the discretion of the court; but if the petition be filed by a creditor, other than the assignee or receiver, the court shall direct notice of the hearing to be personally served on the assignee or receiver.

Section 3 provides that the court shall consider the proofs offered by the assignee or receiver, or by any creditor or stockholder who may appear in person or by attorney as to the probable indebtedness of the corporation and the expenses of the assignment or receivership and the...

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