Read v. Tidewater Coal Exchange, Inc.

• Decision Date: 20 April 1922
• Citation: 13 Del.Ch. 195,116 A. 898
• Parties: BENJAMIN H. READ, trading as Lynah & Read, v. THE TIDEWATER COAL EXCHANGE, INC., a dissolved corporation of the State of Delaware
• Court: Court of Chancery of Delaware

116 A. 898

13 Del.Ch. 195

BENJAMIN H. READ, trading as Lynah & Read, v. THE TIDEWATER COAL EXCHANGE, INC., a dissolved corporation of the State of Delaware

Court of Chancery of Delaware, New Castle

April 20, 1922

RULE TO SHOW CAUSE WHY RECEIVERS SHOULD NOT BE DISCHARGED. A petition was filed against the Tidewater Coal Exchange, Inc. averring that the defendant was a corporation, existing under the laws of this state, that it had been duly dissolved, that a certificate of dissolution had been issued by the Secretary of State, and praying that the Chancellor appoint receivers for the corporation. The petition was filed under the provisions of Section 43 of the General Corporation Law of this state [Section 1957 (Section 43, Chapter 65), Revised Code of 1915], which is, as follows:

"1957. Section 43. Dissolved Corporations; Receivers for; How Appointed; Powers.--When any corporation organized under this chapter shall be dissolved in any manner whatever, the Court of Chancery, on application of any creditor or stockholder of such corporation, at any time, may either continue such directors, trustees as aforesaid, or appoint one or more persons to be receivers of and for such corporation, to take charge of the estate and effects thereof, and to collect the debts and property due and belonging to the company, with power to prosecute and defend, in the name of the corporation, or otherwise, all such suits as may be necessary or proper for the purposes aforesaid, and to appoint an agent or agents under them, and to do all other acts which might be done by such corporation, if in being, that may be necessary for the final settlement of the unfinished business of the corporation; and the powers of such trustees or receivers may be continued as long as the Chancellor shall think necessary for the purposes aforesaid."

Answer was made to the petition admitting all its allegations. Thereupon the Chancellor appointed receivers as prayed.

Thereafter a petition was presented by Charles W. Hendley, trading as C W. Hendley & Co., a member of the Tidewater Coal Exchange Inc., praying an order upon the receivers to pay to the petitioner certain moneys claimed to be due him. On the presentation of this petition a rule was directed to the receivers and to all members and creditors of the Exchange directing them to appear on a designated day and show cause, if any they had, why the prayer of the petition should not be granted.

On the return of the rule, L. C. Smith & Bros. Typewriter Company, a creditor, averred on information and belief "that the said Tidewater Coal Exchange, Inc., was conducted for the profit of its members, and was not lawfully organized under the said laws of the state of Delaware," that as a consequence the members of the Exchange constitute a partnership and not a body corporate.

Upon the reading of this averment, the Chancellor directed the hearing on the Hendley petition to stand over to a date later to be fixed, and, at the same time, because of the question as to the jurisdiction of the court to appoint the receivers which the L. C. Smith & Bros. Typewriter Company had by its answer raised, ordered a rule on the receivers and all members and creditors of the Exchange to show cause why the receivers heretofore appointed should not be discharged.

This rule came on to be heard on the original petition and answer, the petition of C. W. Hendley & Co., and the answers filed thereto, and is the matter now before the court for disposition.

Rule to show cause discharged.

Sylvester D. Townsend, Jr., and James I. Boyce, for the rule.

Herbert H. Ward, of the firm of Ward, Gray and Neary, and William S. Hilles, and Gibbs L. Baker, of Washington, D. C., opposed.

OPINION

THE CHANCELLOR

The points made against the propriety of the appointment of the receivers are, as stated on the brief of the solicitors for L. C. Smith & Bros. Typewriter Company:

1. That the said the Tidewater Coal Exchange, Inc., was not incorporated under the laws of the state of Delaware:

(a) Because it was illegal to attempt to incorporate such an organization "not for profit."

(b) Because the alleged charter failed to state the conditions of membership in the alleged corporation.

2. That the alleged incorporation was a mere nullity for failure to come within, or to comply with, the laws of the state of Delaware.

3. That being a mere nullity, the attempted incorporation did not create either a corporation de jure or de facto.

4. That in the absence of even a corporation de facto the members of the association are individually liable as partners.

Preliminary to a consideration of the points of law thus made, it is advisable to first make a statement of the nature of the activities in which the Exchange became engaged. The certificate by which it claims to be entitled to a corporate franchise under the laws of this state was filed with the Secretary of State on April 12, 1920. Prior to that time an unincorporated association bearing a similar name had been in existence since the latter part of the year 1917. This unincorporated association had been formed for the purpose of aiding in the movement of coal at tidewater in the most expeditious manner. Its operations were under the direction of certain railroads, whose purpose it was to relieve congestion of coal at tidewater, and thereby release cars for immediate return to the mines. This was a great desideratum at that time because of the special stress and strain of circumstances occasioned by the World War. Because of the highly meritorious purpose thus sought to be subserved by the unincorporated association, it appears that membership in it was, during a large period of its operations, made compulsory by an order of the Fuel Administration of the United States Government. After the war was ended, the work done by the unincorporated association having proved so efficacious, it was manifestly desired by those who were interested in tidewater coal and its convenient handling to continue an organization similar in character, whose function it would be to render a similar service.

Accordingly such an organization was formed, and a certificate filed under the laws of this state seeking its incorporation. Such certificate was received and filed by the Secretary of State on April 12, 1920. The new organization took the corporate name of "The Tidewater Coal Exchange, Inc." While the fact of the corporate existence of this organization is attacked, yet for convenience I shall, in referring to it, speak of it as a corporation.

The certificate contains the following three paragraphs which are pertinent to be considered in connection with the question now in controversy before the court:

"Third. The nature of the business and objects or purposes proposed to be transacted, promoted or carried on are:

"(a) To inspect, grade, classify, and pool coal of all classes and character on a just and uniform basis.

"To foster the business of coal producers, coal distributors and coal consumers in the transshipment of coal at tidewater; to reform abuses with respect thereto: to secure freedom from unjust or unlawful exactions with respect thereto; to promote uniformity and certainty in the method of conducting the transshipment of coal at tidewater; to settle all differences in respect thereto between members of this corporation; to promote the economical and easy transshipping of coal at tidewater in all respects in order to lessen the cost of producing, distributing, and consuming coal and to release promptly railroad facilities in order that the production of coal shall be increased. To promote and encourage a closer and more friendly relation between the producers distributors and consumers of coal transshipped at tidewater; to diffuse accurate and reliable information as to all matters and things pertaining to the transshipment of coal at tidewater.

"(b) To co-operate through membership or otherwise, with any other tidewater transshipment organization instituted for mutual help and not conducted for profit.

"(c) To acquire by grant, gift, purchase, devise or bequest, and to hold and dispose of such property as the purposes of the corporation shall require, subject to such limitations as may be prescribed by law, for the benefit of the members and not for pecuniary profit.

"(d) To borrow money of any person, firm or corporation and to issue bonds, debentures or obligations of this corporation from time to time, for any of the objects or purposes of the corporation and to secure the same by mortgage, pledge, deed of trust or by any other lawful means and to take and receive notes, bonds, mortgages, deeds of trust, or any evidence of indebtedness for the use and benefit of the corporation.

"(e) To apply for, take out, acquire, own, use and dispose of trademarks, copyrights and patents necessary, convenient or desirable for furthering any of the purposes for which this corporation is formed, and to make rules and regulations with reference to the use thereof, and from time to time to change, modify or repeal such rules and regulations.

"In general to carry on any other operations in connection with the foregoing, and to have and to exercise all the powers conferred by the laws of Delaware upon corporations formed under the act hereinafter referred to, and to do any or all of the things hereinbefore set forth to the same extent as natural persons might or could do.

"The foregoing clauses shall be construed both as objects and powers; and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of this corporation.

"Fourth. This corporation is instituted for the purpose of mutual help in...