Sanger v. Upton, Assignee

• Decision Date: 01 October 1875
• Citation: 23 L.Ed. 220,91 U.S. 56
• Parties: SANGER v. UPTON, ASSIGNEE
• Court: U.S. Supreme Court

91 U.S. 56

23 L.Ed. 220

SANGER v. UPTON, ASSIGNEE.

October Term, 1875

ERROR to the Circuit Court of the United States for the Northern District of Illinois.

This was an action of assumpsit, brought by Clark W. Upton as assignee in bankruptcy of the Great Western Insurance Company, against Mary C. Sanger, for the balance unpaid on her stock. The Bankruptcy Court made an order that the amount unpaid on the capital stock of the corporation should be paid to the assignee on or before Aug. 15, 1872, and, in default thereof, that the assignee proceed to collect the same; and that notice of this order be given to the stockholders by publication or otherwise. Notice was given by publication, and by mailing to each subscriber a copy of the order, with a demand for payment. Defendant below failing to pay, this suit was brought. The evidence offered on the part of the plaintiff below, and excepted to by the defendant below, is stated in the opinion of the court.

Mr. H. S. Monroe and Mr. L. H. Bisbee for plaintiff in error.

1. Plaintiff in error not bound by the order of July 5, 1872, as she was not before the court.

2. Under the evidence in the case, the plaintiff in error was not liable.

Mr. L. H. Boutell for defendant in error.

1. The District Court had authority to pass the order of July 5, 1872. Upon the bankruptcy of the company, its corporate powers, so far at least as they were necessary for the winding up of its affairs, were transferred to that court.

2. No notice to the stockholders of the application to the District Court for the assessment was necessary. Ward v. Griswold Manuf. Co., 16 Conn. 593; Ex parte Herodry, 15 Ves. 498; Ogilvie et al. v. Knox Co. Ins. Co., 22 How. 380; Angell & A. on Corp. (9th ed.) 599-604; Sawyer v. Hoag, 17 Wall. 610, 619.

3. An action at law is the proper remedy.

MR. JUSTICE SWAYNE delivered the opinion of the court.

Several errors are assigned and relied upon touching the admission of evidence and the instructions given to the jury.

We shall give our views of the case as it is presented in the record, so as to meet these objections without adverting specifically to any of them.

The original charter of the Great Western Insurance Company fixed its capital at $100,000. By an amendment of the charter, the capital was increased to $5,000,000. It became insolvent. A petition was filed against it in the District Court of the United States for the Northern District of Illinois; and on the 6th of February, 1872, it was adjudged a bankrupt. On the 11th of April, 1872, the defendant in error was appointed its assignee in bankruptcy. Upon the application of the assignee, the District Court made an order that the balance unpaid upon the stock held by the several stockholders should be paid to the assignee on or before the fifteenth day of August, 1872; that notice of the order should be given by publication in a newspaper or otherwise; and that, in default of payment, the assignee should proceed to collect the amount due from each delinquent. The assignee gave notice by publishing the order accordingly, and by mailing a copy, with a demand of payment, to each stockholder. The plaintiff in error was so notified. It was claimed that she was the owner of $10,000 of the stock, upon which it was alleged there was due sixty per cent. The original charter required the payment of five per cent of the capital stock, and that the balance should be secured in the manner prescribed. The amended charter is silent upon the subject. The stock certificates issued by the company set forth that twenty per cent was to be paid in four quarterly instalments of five per cent each, 'the balance being subject to the call of the directors as they may be instructed by the majority of the stockholders represented at any regular meeting.'

This was a regulation of the company, and not a requirement of either the original or amended charter. It did not appear that any call was ever made by the directors, or authorized by the stockholders.

The plaintiff in error having failed to pay pursuant to the order of the court, this suit was instituted by the assignee.

The order was conclusive as to the right of the assignee to bring the suit. Jurisdiction was given to the District Court by the Bankrupt Act (Rev. Stat., sect. 4972) to make it. It was not necessary that the stockholders should be before the court when it was made, any more than that they should have been there when the decree of bankruptcy was pronounced. That decree gave the jurisdiction and authority to make the order. The plaintiff in error could not, in this action question the validity of the decree; and, for the same reasons, she could not draw into question the validity of the order. She could not be heard to question either, except by a separate and direct proceeding had for that purpose. She might have applied to the District Court to revoke or modify the order. Had she done so, she would have been entitled to be heard; but it does not appear that any such application was made. As a stockholder, she was an integral part of the corporation. In the view of the law, she was before the court in all the proceedings touching the body of which she was a member. In point of fact, stockholders in such cases can hardly be ignorant of the measures taken to reach the effects of the corporation. If they choose to rest supine until cases against them like this are on trial, they must take the consequences. Not having spoken before, they cannot be permitted to speak then, especially to make an objection which looks rather to the embarrassment and delay than to the right and justice of the case. A different rule would be pregnant with mischief and confusion. Hall v. U. S. Ins. Co., 5 Gill, 484; Sagory v. Dubois, 3 Sandf. Ch. 510.

This court has applied the same rule to an order made by the comptroller of the currency, under the fiftieth section of the National Bank Act, appointing a receiver, and directing him to proceed to make collections from the stockholders of an insolvent bank. Kennedy v. Gibson and Others, 8 Wall. 505.

In that case it was said, 'It is for the comptroller to decide when it is necessary to institute proceedings against the stockholders to enforce their personal liability, and whether the whole or any part, and, if a part, how much, should be collected. These questions are referred to his judgment and discretion, and his determination is conclusive. The stockholders cannot controvert it. Its validity is not to be questioned in the litigation that may ensue. He may make it at such time as he may deem proper, and upon such data as shall be satisfactory to him.'

This principle was applied also in Cadle, Receiver, v. Baker & Co., 20 Wall. 650.

It was competent for the court to order payment of the stock, as the directors under the instruction of a majority of the stockholders might, before the decree in bankruptcy, have done. The former is as effectual as the latter would have been. It may, perhaps, be well doubted whether the stockholders would have voluntarily imposed such a burden upon themselves. The law does not permit the rights of creditors to be subjected to such a test. It would be contrary to the plainest principles of reason and justice to make payment by the debtor for such a purpose in any wise dependent upon his own choice. A court of equity has often made and enforced the requisite order in such cases. The Bankrupt Court possessed the same power in the case in hand. The order rests upon a solid foundation of reason and authority. Ward v. The Griswold Manuf. Co., 16 Conn. 599; Adler v. The Mil. Pat. Brick Manuf. Co. et al.,13 Wis. 61; Sagory v. Dubois, 3 Sandf. Ch. 510; Man v. Pentz, 2 id. 285.

A resolution or agreement that no further call shall be made is void as to creditors. 3 Sandf. Ch., supra. An agreement that a stockholder may pay in any other medium than money is also void as a fraud upon the other stockholders, and upon creditors as well. Henry et al. v. Vermilion & A. R.R. Co., 17 Ohio St. 187. The owner of stock cannot escape liability by taking it in the name of his infant children. Roman v. Fry, 6 J. J. Mar. 634. Nor is it any defence to show that the holder took and held the stock as the agent of the corporation, to sell for its benefit. Allibone v. Hager, 46 Penn. St. 48.

The capital stock of an incorporated company is a fund set apart for the payment of its debts. It is a substitute for the personal liability which subsists in private copartnerships. When debts are incurred, a contract arises with the creditors that it shall not be withdrawn or applied, otherwise than upon their demands, until such demands are satisfied. The creditors have a lien upon it in equity. If diverted, they may follow it as far as it can be traced, and subject it to the payment of their claims, except as against holders who have taken it bona fide for a valuable consideration and without notice. It is publicly pledged to those who deal with the corporation, for their security. Unpaid stock is as much a part of this pledge, and as much a part of the assets of the company, as the cash which has been paid in upon it. Creditors have the same right to look to it as to any thing else, and the same right to insist upon its payment as upon the payment of any other debt due to the company. As regards creditors, there is no distinction between such a demand and any other asset which may form a part of the property and effects of the corporation. Curran v. Arkansas, 15 How. 308; Wood v. Dummer, 3 Mas. 308; Slee v. Bloom, 19 Johns. 474; Briggs v. Penniman, 8 Cow. 387; Society, &c. v. Abbot, 2 Beav. 559; Walworth v. Holt, 4 Myl. & C. 789; Ward v. Griswoldville Man. Co., 16 Conn. 598; Fowler v. Robinson, 31 Me. 789; Angell & A. on Corp., sect. 600 and post; Wright v. Petrie, 1 Sm. & M. 319; Nathan v. Whitelock, 3 Edw. C. 215; 4 Am. Law Mag. 93.

The earliest authority upon the point under consideration is Dr. Salmon v. The Hamborough...