Young v. Erie Iron Co.

• Decision Date: 15 February 1887
• Citation: 65 Mich. 111,31 N.W. 814
• Court: Michigan Supreme Court
• Parties: YOUNG v. ERIE IRON CO. and others.

31 N.W. 814

65 Mich. 111

YOUNG v. ERIE IRON CO. and others.

Supreme Court of Michigan

February 15, 1887

Appeal from circuit court, Marquette county.

Bill brought by Olin Young, appellee, against the Erie Iron Company and others, defendants, for the appointment of a receiver. Judgment for plaintiff. Defendants Martin Butzel Magnus Butzel, Emil S. Heineman, Emil Heyn, and Henry Heyn appeal.

Hayden & Young, for appellee.

Dickinson Thurber & Hosmer, (F.O. Clark, of counsel,) for appellants.

MORSE J.

The complainant filed the bill of complaint in this suit in behalf of himself and such other creditors of the Erie Iron Company as shall come in and prove their claims against said defendant corporation, and share the expense of the proceedings against the said Erie Iron Company, a corporation organized under act No. 113 of the Session Laws of 1877, and the acts amendatory thereof, and certain of the stockholders of the said company, naming them. The complainant endeavored to make all the stockholders who were responsible and residents of the state defendants. He also made defendants those stockholders who were supposed to be responsible and non-residents.

The controversy in this court relates wholly to the liability of the defendants Martin Butzel, Magnus Butzel, and Emil S. Heineman, composing the firm of Heineman, Butzel & Co., of Detroit, Michigan, and Emil Heyn and Henry Heyn, also of Detroit, who are the only ones appealing from the decree in the court below. The complainant, who is the assignee of D.F. Wadsworth & Co., of Ishpeming, recovered a judgment against the Erie Iron Company, in the June term, 1884, of the Marquette circuit court, for the sum of $14,204.91, upon which judgment execution was duly issued June 25, 1884, placed in the hands of the sheriff, and by him returned nulla bona. This judgment is still in force. The object of the bill is the appointment of a receiver of the defendant corporation, who shall take charge of its affairs and property, if any, and levy an assessment upon the stockholders to pay the claim of complainant and other debts of the corporation. No other creditors joined in the proceeding.

The bill alleges, in substance, the existence of judgment, issue, and return of execution as before stated; that the Erie Iron Company is a mining corporation organized under act No. 113 of the Session Laws of 1877, and having its only business office at the Erie mine, in Republic, Marquette county. It names the stockholders, who are made defendants, and avers that none of them have fully paid their stock subscription to said defendant corporation; that said corporation operated the Erie mine upon land leased to it by Elias H. and William A. Wright, two of the defendants, during the time the debt of complainant was incurred. It sets forth the organization and operations of the corporation mainly as will be stated in the summary of facts hereafter given. It also states the names of the persons, firms, and corporations to which the defendant corporation was indebted at the time of the filing of the bill, and the respective amounts owing to each. It avers the total insolvency of said corporation about September, 1883. The bill further alleges that the capital stock of $500,000 was never fully paid in; that only $18,018 in cash was paid; and that the lease transferred by the rights to the corporation, at the sum of $422,000, and counted as so much cash capital paid, was worthless, and of no value whatever, and the corporation paid nothing for it; that the stock of the company, which was divided into 20,000 shares at $25 per share, was placed upon the market, and sold at from $5 to $8 a share,--none higher than $8; and charges that this enormous valuation was placed upon said lease with the fraudulent intent to secure the stockholders from assessments to pay the just debts of the corporation, and so to cheat and defraud its creditors; and that the defendants had knowledge of such intended fraud. It avers that the stock of said corporation is liable to assessment to the full face value thereof, less the amount paid in thereon in cash. It gives the names and residences of all the stockholders, and the number of shares held by them at the time the company ceased doing business. It then shows the insolvency of the said Wrights, who, as it will be seen, were the main promoters of the company, and originally owned nearly all the stock. It alleges that the defendant corporation has no assets of any kind, except its right to levy and collect its assessments against its stockholders; that, if said right is enforced, ample means may be obtained with which to satisfy the complainant's judgment, but unless said assessments are made the complainant will lose his debt.

The prayer of the bill is: (1) That answer (not under oath) may be made. (2) That an account may be taken of the indebtedness of said defendant corporation. (3) That a receiver may be appointed. (4) That said defendant corporation may be decreed to pay complainant the amount due to him upon his judgment, principal, interest, and costs. (5) That the indebtedness of said company to Elias H. and William A. Wright may be set off against the amount due from said Elias and William on their stock subscription, so far as it will go; that an account may be taken of the respective liabilities of the stockholders herein named as defendants, other than said William A. and Elias H. Wright, on their said stock subscriptions; and that they may each be decreed to pay to said receiver the amount due and remaining unpaid on the shares of stock held by him, or so much thereof as shall be found to be necessary to satisfy the debts of the company other than the indebtedness to said William A. and Elias H. Wright. (6) And that the said receiver may apply all sums which he may receive from said stockholders in payment of such decree for stock subscriptions, and all other assets of said defendant corporation (if any) which he may collect or receive as such receiver, to the payment of your orator's judgment, and costs aforesaid, and the other indebtedness of said company. (7) That the defendant corporation may be enjoined from any way discharging, releasing, incumbering, collecting, canceling, or intermeddling with the right of recovery of said corporation against said defendant stockholders upon their respective liabilities as such stockholder as aforesaid to the said corporation, or the creditors thereof, and that it may also be prohibited from making any assignment of its property, equitable or otherwise, or any part thereof, or in anywise disposing of any of its assets, and that your orator may have such other and further relief in the premises as the nature of his case shall require, and as the court shall deem meet.

The answers of the defendants involved here deny that they were original incorporators or subscribers at any time to the stock of the defendant corporation, or that they ever purchased any stock from the corporation itself, but aver their purchase of the same from other persons in the good faith and belief that it was non-assessable and fully paid up. They also aver that their stock was not burdened with any liability for this indebtedness.

Under a demurrer clause in their answer the point is made here that one creditor cannot file a bill to obtain a decree against stockholders in his own behalf, even if the defendants are liable. Under the view that I take of the facts, and the law as applied to such facts, it is not necessary to examine this objection.

The proofs in this case were taken in open court, and after the closing of the same and argument thereon, the Hon. C.B GRANT, judge of the Marquette circuit court, January 2, 1886, made and entered an interlocutory decree, in which, among other things, it was found, ordered, and decreed that the defendant Erie Iron Company was indebted to complainant as claimed, and that such corporation became insolvent September 7, 1883. That, at the time the suit was commenced, said company had no property or funds of any kind of which said debt could be made or paid. That the statement in the articles of association of said corporation that $422,000 of property had been conveyed to it, at the date of its organization, the same being the Wright lease, was fraudulent in law as to the creditors of said corporation, and no such amount in value was by such conveyance paid into the capital stock of said corporation. "That at no time has money or property, aside from said sublease, to an amount to exceed twenty thousand dollars, been paid into said capital stock, and that, including said conveyances of property by said sublease, not to exceed one hundred thousand dollars of the capital stock of said corporation has ever to this date been paid in." "That the amount of such capital stock, by the articles of association of said corporation, was and is the sum of five hundred thousand dollars, divided into twenty thousand shares, of twenty-five dollars each, all of which stock was issued by the corporation." "At least $400,000 of the capital stock of the corporation remains unpaid." "The statement contained in stock certificates issued by the corporation, that the stock was fully paid and unassessable, was, as against creditors of the corporation, a fraud in law and void. That all holders of stock of said corporation, at the time it ceased business and became insolvent, on or about the seventh day of September, A.D.1883, aforesaid, who were original incorporators of said company, or who, prior to said date, became holders of such stock with knowledge of the facts by which such stock remains unpaid as aforesaid, or who voluntarily remained such after discovery thereof, while the corporation continued to do business,...