Peck v. Elliott

Citation79 F. 10
PartiesPECK et al. v. ELLIOTT.
Decision Date02 March 1897
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

The Southern Malleable Iron Company is a manufacturing company incorporated in August, 1890, under the general law of Tennessee. In November 1893, H. H. Peck and Charles D McGuffey were appointed receivers under a bill filed in the United States circuit court for the Southern division of the Eastern district of Tennessee, by the Northern Bank of Kentucky, a judgment creditor, -with a levy upon certain assets. The object of the bill was to preserve the property as an operative unit plant, collect in its debts, complete certain valuable contracts, and sell the property as a whole including its good will, for the satisfaction of all its debts according to priority of lien. The appellants under this bill were appointed receivers, and placed in possession of all its assets of every kind. During the course of the proceedings usual to such a creditors' bill, the receivers filed a petition, alleging the total inadequacy of the assets to pay debts, and setting out that the appellee J. M. Elliott, a director and president of the corporation, was a subscriber to the capital stock of said company to the extent of 120 1/2 shares of $100 each, and was indebted on that account in a balance due thereon of $6,997.32, and that the insolvency of the corporation rendered it necessary that this stock liability should be enforced. Leave of court was asked to file this petition in the principal case, and that J. M. Elliott be made a defendant thereto by proper process, and for a decree against him to the extent of his unpaid stock liability. An order was accordingly made by the Honorable D. M. Key, district judge, holding the circuit court, allowing the petition to be filed, and ordering that process should issue as prayed., t may not be out of place to say that, after the filing of the original bill, other bills were filed by creditors, including one for a foreclosure of a mortgage on the property of the company made to secure an issue of bonds. Subsequently all these bills were consolidated, and ordered to proceed under the name and style of 'Ross-Meehan Brake Shoe Foundry made a defendant to the proceeding begun by the receivers, and filed his answer, denying the jurisdiction of the court; denying the jurisdiction to proceed against him by petition or bill in equity; and denying his liability as a stockholder. Proof was taken, and, upon a final hearing, the petition of the receivers was dismissed. 72 F. 957. From this decree, an appeal has been prosecuted, and errors assigned by the receivers.

Thomas McDermott, for appellants.

Geo. T. White, for appellee.

Before TAFT and LURTON, Circuit Judges, and SAGE, District Judge.

LURTON Circuit Judge (after stating the facts as above).

The jurisdiction of the court to entertain this petition of the receivers against the appellee depends upon its jurisdiction in the original case, to which this proceeding was wholly ancillary. This petition is auxiliary to the original suit. It is a petition by the receivers asking the aid of the court to enable them to collect in an asset of the corporation. It was filed by direction of the court under an order made in the principal cause. The jurisdiction of the court in the principal cause is not questioned, and cannot be in this collateral suit. Compton v. Railroad Co., 31 U.S. App. 486-529, 15 C.C.A. 397, and 68 F. 263; Mellen v. Iron Works, 131 U.S. 352-367, 9 Sup.Ct. 781; Lumley v. Railroad Co., 22 C.C.A. 60, 76 F. 66. The fact that the circuit court had possession of all the assets of the Southern Malleable Iron Company, for the purpose of winding up its affairs as an insolvent corporation, is the fact which made it admissible to bring a debtor of that corporation into the court, to the end that his debt might be ascertained and payment coerced. For the purpose of collecting in choses in action, the court might direct its receivers to institute independent suits in that or courts of the state, or cause such debtors to be made defendants in the principal cause, and determine for itself any question which might be involved by the defenses to the claim. Such a proceeding would not involve any question of citizenship, or amount in controversy, nor mode of trial. The complete jurisdiction of the court over the res, the property and assets of this corporation, involved its right to bring before it persons having possession of any of those assets, or having claims thereon, or who were indebted to it, and either itself hear and determine all controversies, or refer them to a master or to a jury, as it saw fit. A court of equity is not deprived of jurisdiction simply because a purely legal question becomes collaterally involved. It might, in its discretion, submit such controversy upon issues made to a jury, or dispose of them without doing so. That the liability of appellee was one of a legal character did not operate to defeat the jurisdiction, and bring its proceedings against him to a stand. These questions seem conclusively settled by White v. Ewing, 159 U.. 36, 15 Sup.Ct. 1018, a case which arose upon a like proceeding in the same court, and in which certain questions were certified by this court under the court of appeals statute.

We come, then, to the merits of the case. The defense of this stock liability is that the stock subscribed for by appellee was increase stock, and that there was no power in the corporation to increase its capital. In Tennessee, prior to 1870, all charters were granted by special legislation. Such charters, as in other states, usually defined definitely the amount of the capital stock of the company, or fixed a maximum beyond which it should not go. By article 11, Sec. 8, of the Tennessee constitution, adopted in 1870, it is provided as follows:

'No corporation shall be created, or its powers increased or diminished, by special laws, but the general assembly shall provide by general laws for the organization of all corporations hereafter created.'

The 'general law' under which the Southern Malleable Iron Company was organized was approved March 23, 1875, and is chapter 142 of the Acts of Tennessee for 1875. That act prescribes a form of application to be followed whenever the corporation is one for the purposes of profit, and that the general powers of such corporations shall be those prescribed by application for incorporation shall anywhere state the amount of the capital stock proposed to be invested in the business. Upon the contrary, the only provision in the act of 1875 touching the matter of capital stock is found in section 5, where it is said:

'The corporation may, by by-laws, make regulations concerning the subscription for, or transfer of stock; fix upon the amount of capital to be invested in the enterprise; the division of the same into shares; the time required for payment thereof by subscribers for stock; the amount to be called for at any one time.'

Judge Clark, who heard this case in the court below, was of opinion that this power should be construed as authorizing the corporation 'to fix only the original or initiatory stock of the company,' and that this corporation, having, by a by-law, settled upon 'the amount of capital to be employed by the enterprise,' was without power to subsequently increase this capital by an amendment of the by-law. He was further of opinion that the fact that Elliott, by virtue of this new stock, became a member of the corporation, a director, and its president, did not estop him from denying the validity of the new stock, although creditors of the corporation were dependent upon its collection for the satisfaction of claims presumably contracted upon the faith of the increased capital. This latter conclusion was grounded upon the proposition that, where the corporation is totally without power to increase its stock, the void act of increase cannot be adopted or ratified or the subscriber estopped in favor of creditors. Scovill v. Thayer, 105 U.S. 143. That changes in the amount of the capital stock do involve changes in the organization, and in the relative relation of the original stockholders towards the corporation and each other, is very evident. That such changes cannot occur without consent of the shareholders affected is also elementary. How such consent is to be given depends upon the organic law of the corporation. In the absence of some other binding provision in the constitution, that consent would have to be unanimous. But if the stockholder becomes such under a charter of statutory provision which subjects him, by the action of the directors or of a majority of the members of the corporation, to the liability of such change of relation growing out of an increase of stock, he cannot complain. He has so contracted. Cook, Stocks & S. Sec. 280; Thomp. Corp. Sec. 78; Payson v. Withers, 5 Biss. 276, Fed.Cas.No. 10,864; Payson v. Stoever, 2 Dill. 427, Fed. Cas. No. 10,863; Railroad Co. v. Gammon, 5 Sneed, 567; Read v. Gas Co., 9 Heisk. 545-553. In the case last cited, where a large increase in the capital stock had been authorized, after the defendant in error had become a subscriber, Judge McKinney, referring to the effect upon the relative rights of original subscribers, said:

'One of the terms of his subscription was that after organization the board of directors would have the power under the charter to increase the capital stock from time to time, not exceeding one million of dollars. But (said the judge) such increase of the capital stock could work no change in the rights or liabilities of the original subscribers, for the reason that the corporation continues to be the same entity, and for the further reason that it was part of the contract of the original
...

To continue reading

Request your trial
32 cases
  • Comm'r of Banks v. Cosmopolitan Trust Co.
    • United States
    • United States State Supreme Judicial Court of Massachusetts
    • July 2, 1925
    ...v. Hood (C. C.) 89 F. 11, affirmed in Hood v. Wallace, 182 U. S. 536, 555, 660, 21 S. Ct. 885, 45 L. Ed. 1227; Peck v. Elliott, 79 F. 10, 18, 24 C. C. A. 425, 38 L. R. A. 616; Columbia National Bank v. Mathews, 85 F. 934,29 C. C. A. 491, 496;Aspinwall v. Butler, 133 U. S. 595, 10 S. Ct. 417......
  • TH Mastin & Co. v. Kirby Lumber Co.
    • United States
    • U.S. District Court — Southern District of Texas
    • April 29, 1936
    ...255 F. 488; Gunby v. Armstrong (C.C.A.) 133 F. 417, 427; Bottom v. National Railway Association (C.C.) 123 F. 744; Peck v. Elliott (C.C.A.) 79 F. 10, 38 L.R.A. 616; Ross-Meehan Brake-Shoe Co. v. Iron Co. (C.C.) 72 F. 957; Cherry v. Insull Company (D.C.) 58 F.(2d) 1022; Green-Boots Construct......
  • Sneeden v. City of Marion, Ill.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • June 1, 1933
    ...97 U. S. 546, 24 L. Ed. 1082. Such repeals will not be indulged if there is any other reasonable construction. Peck v. Elliott (C. C. A.) 79 F. 10, 38 L. R. A. 616; Chicago, etc., R. Co. v. Doyle, 258 Ill. 624, 102 N. E. 260, Ann. Cas. 1914B, 385. The presumption against implied repeals has......
  • Carey v. McMillan
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • April 23, 1923
    ......(C.C.). 175 F. 629; Whelan v. Enterprise Co. (C.C.) 164 F. 95. There are cases to the contrary; perhaps the leading one. is Peck v. Elliott, 79 F. 10, 24 C.C.A. 425, 38. L.R.A. 616, which cites as authority White v. Ewing. But in. White v. Ewing. [289 F. 386] . the demand ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT