U.S. Supreme Court
Potts v. Wallace, 146 U.S. 689 (1892)
Potts v. Wallace
Argued November 14, 1892
Decided December 12, 1892
146 U.S. 689
The directors of a corporation organized under the laws of Pennsylvania voted to make an assignment of the property of the corporation for the benefit of its creditors, which vote was ratified by the stockholders. They further voted to make a mortgage to secure a claim of one of the directors as a preferred claim. The assignment was made without making the mortgage. In an action by the assignee to enforce payment from a stockholder of his subscription to the stock, held that the defendant could not set up the failure to make the mortgage as invalidating the assignment.
When the assets of an insolvent corporation organized under the laws of Pennsylvania fail to meet the liabilities of the company by an amount equal to or greater than the sum due the company from a stockholder by reason of unpaid subscriptions to his stock, the assignee has an action at law against him to recover such unpaid subscriptions without first resorting to equity for an assessment.
In an action against a stockholder in an insolvent corporation to recover unpaid subscriptions to his stock for the benefit of creditors, it is no defense to show that when the corporation was solvent, he offered to pay in full and his offer was declined, if it also further appear that he refused to be absolved from his contract and stood upon his rights as a stockholder until the company became embarrassed.
When the plaintiff's evidence makes out a prima facie case, and the defendant, after going into his evidence, does not go to the jury on the question of fact, he abandons his defense, so far as it depends on his own evidence, and takes the position that the plaintiff's evidence does not make out a case.
This was an action brought originally in the New York supreme court, and afterwards removed into the circuit chanroblesvirtualawlibrary
court of the United States for the Eastern District of New York, by Henry Potts, Jr., as assignee of the Chester Tube and Iron Company, plaintiff, against William H. Wallace.
The Chester Tube and Iron Company was a corporation of Pennsylvania, duly incorporated under the provisions of an act of assembly of that state approved April 29, 1874, entitled "An act to provide for the incorporation and regulation of certain corporations" for the purpose of the manufacture of iron or steel, or of any article of commerce made from them. The place where the business of the corporation was to be transacted was Chester, Delaware County, in the State of Pennsylvania, and the capital stock was fixed at one hundred thousand dollars, divided into two thousand shares of the par value of fifty dollars each. The whole amount of the capital stock was subscribed for by the defendant, William H. Wallace, and six other persons, who had associated themselves together for the purpose of forming the corporation. The charter or agreement of association was dated the 13th day of December, 1877, and letters patent were issued by the Governor of Pennsylvania on the 5th day of January, 1878. The charter was signed by the associates, and William S. McManus, Augustus B. Wood, William H. Wallace, Patrick Reilly, and John Shotwell were named therein as directors for the first year.
In and by this charter, the defendant, Wallace, subscribed for three hundred shares of the stock, and he continued to hold his position as director of the company until the 6th day of July, 1880, when at a meeting of the board then holden, he resigned, his resignation was accepted, and on the 14th day of July, 1880, one F. C. Shotwell was elected to take his place. There was no meeting of the board of directors from January 21, 1880, to July 6, 1880.
At a meeting of the board on August 3, 1880, the following resolution was adopted:
"Whereas it has become apparent that in order to enable this company to meet its liabilities, some indulgence on the part of its creditors is necessary therefore resolved that the president is authorized to negotiate for and effect an extension
of the claims against the company upon such terms as he may deem most likely to make it meet its indebtedness, and in the event of his failure to accomplish such extension, the president is authorized to execute, under the corporate seal, with his attestation, a deed of general assignment for all the estate and property of the company for the benefit of its creditors pro rata and without preference."
On the 14th day of September, 1880, a deed, purporting to be a deed of assignment by the Chester Tube and Iron Company, by its president, William S. McManus, under its seal, was executed to Henry Potts, Jr., and was recorded the same day in the recorder's office of Delaware County, Pennsylvania. This deed purported to convey and transfer to Henry Potts, Jr., as assignee, all the property and estate of the company of every description, in trust to sell and dispose of the same, and to collect all the claims of the company, conduct all the steps necessary for the purpose of converting the assets into cash, and to divide the same without preference among the creditors of the corporation, with the further provision that, should there be any surplus after paying the debts, the same should be returned to the corporation.
In pursuance of the provisions of the Pennsylvania statutes, regulating such assignments, Henry Potts, Jr., on October 20, 1880, executed his bond, conditioned for the faithful performance of his duties as assignee, in the penalty of $191,000, which bond was approved by the Court of Common Pleas of Delaware County. Henry Potts, Jr., assumed the trust, and proceeded with the execution of the same so far as to file an account, which account was confirmed by the court of Delaware County. On the 5th of March, 1882, a petition was filed in said court, alleging the death of Henry Potts, Jr., and on the same day an order was made appointing Henry W. Potts as assignee to fill the vacancy occasioned by the death of Henry Potts. Jr., and directing him to give a bond, with sureties, in the sum of $44,000, and such bond was filed on March 6, 1882, and on December 16, 1882, the Supreme Court of New York, County of Kings, in which the action brought by Henry Potts, Jr., against the defendant Wallace was still pending, ordered that chanroblesvirtualawlibrary
Henry W. Potts, as assignee of the Chester Tube and Iron Company, be substituted as plaintiff in the place of Henry Potts, Jr., deceased.
On the 22d day of June, 1883, on the petition of Henry W. Potts, assignee, the said action was removed to the Circuit Court of the United States for the Eastern District of New York, and at the May term, 1888, came on to be tried before the Honorable E. Henry Lacombe, Circuit Judge, and a jury, and resulted in a verdict for the defendant on the 9th day of May, 1888.
On February 5, 1889, judgment was entered on the verdict in favor of the defendant and against the plaintiff, and on the 5th day of April, 1889, a writ of error was allowed, and the cause was brought thereby into the Supreme Court of the United States.
The record discloses, in addition to the foregoing facts, that the defendant's answer admitted that he had subscribed for three hundred shares of stock, had not paid anything on account of the same, and that demand for payment had been made on him by the plaribed for three hundred shares of stock, had not paid anything on account of the same, and that demand for payment had been made on him by the plaribed for three hundred shares of stock, had not paid anything on account of the same, and that demand for payment had been made on him by the plaintiff as assignee.
To meet the prima facie case thus made out against him, the defendant put in evidence proceedings of the stockholders on August 12, and of the board of directors on August 20th. At these meetings, the president and treasurer were directed to execute and deliver to A. B. Wood, trustee, a bond and mortgage of the company for $11,200, to secure money advanced by him, as trustee for John E. and Mary D. Browning, for the use of the company, and also to assign to A. B. Wood all the company's interest in the leasehold, machinery, and fixtures of the company, in payment of $12,260 due Wood for money advanced by him individually for the use of the company. The resolutions of the stockholders and of the directors at these meetings directed the president that, after the mortgage and assignment to A. B. Wood were executed and delivered, he should execute the deed of general assignment provided for by the resolution of August 3, 1880.
The defendant likewise put in evidence, under objection by the plaintiff, the proceedings of a meeting of the directors held chanroblesvirtualawlibrary
on September 16, 1880, wherein resolutions were passed declaring the act of the president in executing and delivering the deed of assignment to have been void and without authority, and in fraud of the rights of the company, and contrary to the will of the directors and stockholders. These resolutions further provided that the said pretended assignment should be repudiated, that notice of this action should be given to Henry Potts, Jr., and that the president should be and was removed from office and D. F. Houston elected to take his place.
The defendant likewise offered evidence tending to show that several times during the year 1879 and early in 1880, when the affairs of the company were in an apparently prosperous condition, he offered to pay to the treasurer of the company the amount of his subscription, $15,000, and demanded his stock; that the treasurer, acting, as he testified, under directions of the president, refused to accept the money and to deliver the stock. The defendant likewise proved his resignation as director on July 6, 1880.
The record further discloses that after the defendant had put in the foregoing evidence, the plaintiff called W. S. McManus, the president, who testified that he had never refused to accept defendant's subscription money or to deliver the stock, and that he gave no instructions to the treasurer to refuse defendant's payment or to refuse to deliver his stock. He also testified that he continued to consult with the defendant about the affairs of the company down until July, 1880.
The record further shows that, on the closing of the testimony, it was conceded by the counsel for the plaintiff and the defendant, respectively, that there was no question of fact to be submitted to the jury; that thereupon the counsel for the plaintiff requested the court to direct the jury to find a verdict for the plaintiff, which request was denied, and this ruling was excepted to; that the court, on motion of defendant's counsel, directed a verdict in favor of the defendant, and that the plaintiff's counsel duly excepted to the ruling in that behalf. The jury, under the direction of the court, found a verdict for the defendant. chanroblesvirtualawlibrary