Opinion
02-13-1903
CUMBERLAND LUMBER CO. v. CLINTON HILL LUMBER & MFG. CO.
J. E. Howell, for receiver. Frank E. Bradner, contra.
Action by the Cumberland Lumber Company against the Clinton Hill Lumber & Manufacturing Company. Application by the receiver of the latter for an order authorizing an assessment on the stockholders for subscriptions. Order advised.
J. E. Howell, for receiver. Frank E. Bradner, contra.
In this case I will advise an order authorizing the receiver to call upon the respondents, as stockholders, for such an amount of their subscriptions, not exceeding 60 per cent. of the subscriptions made by the individual respondents and William S. Ketcham, Sr., as may be necessary to pay the debts against the company allowed by the receiver, including the costs and expenses of administration. If these amounts are not agreed upon, I will settle them. The receiver will also be authorized to enforce payment of the unpaid subscriptions to this amount by suit, if necessary, against each of the respondents claimed to be stockholders. The order will be made without prejudice to the rights of any of the respondents to any defense they may have to any action, legal or equitable, which might be brought against them for such alleged stock subscription.
The principal defenses set up to the application are: First, that the company never became a corporation de jure, and the corporators never became liable on their subscriptions; second, that it never became a corporation de facto; third, that the agreement to incorporate was abandoned and the subscriptions were canceled by the subscribers; fourth, the statute of limitations; fifth, that the claim against the estate of William S. Ketcham is barred by a decree of the orphans' court. All of these defenses are, in my judgment, defenses which must be set up and considered in an action to recover the subscription, and not on this application. In Dorris Receiver v. Sweeney (1875) 60 N. Y. 463, cited by respondents' counsel, the defense of no corporation was sustained in an action by the receiver to recover the subscription.
The whole of this court's authority on an application of this character, as I understand it, extends, first, to the ascertainment of the amount of the debts which are valid as against the company itself; second, the ascertainment of the stockholders of the company who have not fully paid their subscriptions or for their stock; and, third, the amount of the call for unpaid subscriptions or stock necessary to pay the debts, taking into account the assets of the company in the receiver's hands and the solvency or insolvency of the stockholders liable or claimed to be liable. As to the first, the final ascertainment of the amount of debts in the insolvency proceeding itself must be taken as final against the company, and, for the purpose of this proceeding, as against the stockholders or persons claimed to be such. As to the second point, if the status of the respondents as stockholders is disputed, and the receiver shows on his part a case which entitles him to test this question by suit, the court should direct the assessment, leaving the defenses of any stockholder or alleged stockholder to be settled by suit, if necessary. The receiver does show such a case here, and therefore should be allowed to test the liability of the respondents as stockholders by regular proceedings. The present proceeding is, in my judgment, neither intended for nor adapted to the settlement of the above defenses of the different stockholders or persons claimed to be stockholders, set up in this proceeding against a recovery for unpaid subscriptions for stock. This is purely a Judicial proceeding of an administrative character, intended to give to the receiver the same status which the company itself had, or might reasonably be claimed to have, to make a call for the payment of its debts against its stockholders or persons claimed to be such. In relation to the calls upon stockholders for the payment of debts, the receiver succeeds to the rights of the company. Falk v. Whitman Cigar. Co. (N.J.Ch.; Stevens, V. C, 181)7) 36 Atl. 1094. It is objected that by the provisions of the twenty-seventh section of the corporation act the assessment by directors could only be made by the consent of two-thirds of the stockholders, but this express provision authorizing the directors, at their discretion, to make the call for any purpose, does not touch the power or the duty of the directors to make a call, when necessary for the payment of the debts; and in case of insolvency the court of equity will execute this trust upon which the capital stock is held by directing the assessment. 3 Thomp. Corp. pars. 3386, 3537.
In reference to the third question to be settled on this proceeding, viz., the amount of the assessment, it is insisted that the receiver has a right of action or claim against the estate of William S. Ketcham for the subsequent conversion to his own use of the goods and chattels which, as the receiver claims, were conveyed to the company in payment of 40 per cent. of the subscriptions of Ketcham and his two sons to the capital stock, and that he should exhaust this right of action before an assessment is made. There is, in my judgment, no substantial basis for this contention. The claim is disputed. The receiver has no assets for its prosecution, and could not be required to prosecute, in aid of the stockholders, except upon their indemnification against the expenses. Kalmus v. Ballin, 52 N.J.Eq. 290, 295, 28 Atl. 791, 46 Am. St. Rep. 520. In the absence of such indemnification and of the stockholders' assertion of the validity of the claim, the receiver, for the purpose of the speedy settlement of the estate, as required by the general policy of the insolvent corporation law, should be authorized to call for the unpaid subscription, leaving to the stockholders the right, if they desire, to prosecute for their own indemnification hereafter in the receiver's name, if necessary, any claim the company may have against the estate of Ketcham for this conversion of the goods.
The receiver will therefore be directed tomake an assessment, and the form of the order will follow the order in Falk v. Whitman Cigar Co., supra.