Court Opinion

ID: 7897012
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:53:06.822571+00
Date Added: 2024-06-11T16:32:07.362936
License: Public Domain

Alvey, C. J.,
delivered the opinion of the Court.
The two appeals, the one of Howard and the other of Savage, at the suit of Glenn, trustee, may be considered together, as they both present the same state of pleading, and the same questions for consideration.
The defendants in these appeals were each a subscriber to a certain number of shares of the capital stock of the National Express and Transportation Company, a corporation duly incorporated under the laws of the State of *54Virginia; and being sued for a call on tbe stock, tbe principal question.is, whether the discharge of the defendant in bankruptcy, under the Bankrupt Law of-the United States, before the call on the stock sued for was made, will bar the recovery ?
The question in each case arises upon a demurrer to-the pleading; and the contract of subscription to the stock, as set out in the declaration, is, that the defendant “ thereby undertook and promised to pay to the said company, for each and every share so subscribed for by the defendant, the sum of one hundred dollars, in such instalments and at such times as said defendant might be lawfully called upon and required to pay the same, according •to the legal tenor and effect of the law under which said company was so incorporated.” The law under which the company was incorporated, as shown by the case of Glenn, Trustee vs. Williams, 60 Md., 93, requires that there shall be paid, upon each share subscribed for, two dollars, at the time of subscribing, and the residue thereof as required by the president and directors; and if any money which any stockholder has to pay upon his shares be not-paid as required by the president and directors, the same,, with interest thereon, may be recovered by warrant or action, according to amount, &c.
The subscription of each of the defendants was made-in 1865, and the company was duly organized and went-into operation; but soon becoming embarrassed, on the 20th of Sept., 1866, it made a general deed of assignment, for the benefit of its creditors. In the fall of 1871,. certain of the creditors of the company instituted suit in the Chancery Court o the .City of Richmond, against the corporation, and the trustees named in the deed, for the-purposes of account and liquidation of the affairs 'of the corporation; and in that proceeding a decree was passed on the 14th of December, 1880, whereby the former trustees were displaced and • the present plaintiff appointed in *55their stead, to execute the trust created by the deed of assignment. At the time of that decree there remained about eighty per cent, of the amount of each share of stock subscribed, still uncalled for and unpaid; and the Court, upon adjudicating the amount of the indebtedness of the corporation, ordered and directed an assessment of thirty per cent, of the par value of each share, to be made on the unpaid subscriptions, for the purposes-of liquidation, with authority and direction to the plaintiff, as trustee, to proceed by suit or otherwise to collect such call. To the suits instituted under this authority against the defendants, they each pleaded in bar his discharge under the Bankrupt Law of the United States. In the case against, the defendant Howard, the petition for adjudication was filed on the 22nd of January, 1870, and the final discharge was ordered the 14th of Sept., 1871; and in the case against the defendant Savage, the petition for adjudication Avas filed on the 24th of June, 1878, and his final discharge was ordered the 15th day of November, 1879. In each case the final discharge was obtained, and, for aught that appears, the estate fully settled, before the assessment was ordered by the decree; though it is alleged in the plea, in both cases, that the debt or claim sued for existed on the dtiy of the filing of the petition for adjudication in bankruptcy, and that the same was provable against the bankrupt estate in those proceedings. To this plea the plaintiff interposed a demurrer, and also, by agreement, filed a replication, setting forth that the stock of the company, long prior to defendant’s bankruptcy, had ceased to be of any value, and Avas onerous and unprofitable to the holders thereof, and was so at the time of the defendant’s assignment in bankruptcy; and being so worthless and onerous, it was the duty of the assignee in bankruptcy not to accept the defendant’s stock as part of his estate in bankruptcy, and that he did not accept it, nor did it vest in him, but continued the prop*56erty of the defendant, and the defendant continued to be a stockholder in the company, and was registered as such on the books of the company at the time of the making of the assessment under the decree of the 14th of December, 1880. To this replication there was a demurrer by the defendant. The case was thus presented, by agreement of the parties, upon the demurrer; and the plaintiff’s demurrer to the plea was overruled, and that of the defendant to the replication sustained; and upon this ruling there was judgment for the defendant. ■ •
The facts alleged in the replication may be taken to be admitted by the demurrer, unless by operation of the bankrupt law the title to the stock passed to and was vested in the assignee in invitum. It would appear, however, that there could be no object or beneficial purpose subserved by casting valueless property upon the assignee against his consent; and which could only be onerous to him, and ■ detrimental to the interest of the creditors. The great object of the assignment in bankruptcy is -to appropriate the bankrupt’s estate to the payment of his debts, but property that will yield nothing to this purpose the law will not compel the assignee to accept. If in fact the shares of stock, in respect of which tlie call sued for was made, were transferred to the assignee in bankruptcy, by virtue- of the general assignment from the bankrupt, then, of course, the defendant is not liable for any of the subsequent calls on the shares. But we discover nothing in the law that made it compulsory upon the assignee to accept the shares, and it is alleged in the replication, and admitted by the demurrer, that he did not accept them, but that the same still belong to the defendant; and such we must take to be the fact.
In the recent case of the American File Co. vs. Garrett, 110 U. S., 288, 295, where there was a question involved as to the liability of assignees in bankruptcy in respect to shares of stock held by the bankrupt, and *57whether the title to the stock had so devolved upon the assignees as to make them, or the assets in their hands, liable for and on account of the individual liability of the stockholders for the debts of the corporation, the Supreme Court said: “It is well settled that under the circumstances of the case, neither the assignees nor the assets in their hands are subject to the individual liability which attaches to stocks held by the bankrupt. The evidence does not show that the assignees acted in any way as stockholders, that they ever attended any meetings of the corporation, or that-their names appeared upon its books, or that they treated the stock standing in Chapman’s name as an asset of his estate.” And further on in the opinion the Court said: “It has long been a recognized principle of the bankrupt laws that the assignees were not bound to accept property of an onerous or unprofitable character; and as the assignees of Chapman never accepted the stock, and never consented to become stockholders in the American File Company, it follows, that neither they nor the assets of Chapman in their hands are subject to the individual liability of stockholders for the debt of the corporation.” And in support’of the proposition that the assignees did not take the stock, and were -not bound in respect .to it, the Court cite with approval the cases of South Staffordshire R. Co. vs. Burnside, 5 Ex., 129; Furdoonjee’s Case, 3 Ch. Div., 268; Ex parte Davis, 3 Ch. Div., 463; Streeter vs. Sumner, 31 N. H., 542; Amory vs. Lawrence, 3 Cliff., 523; Rugely & Harrison vs. Robinson, 19 Ala., 404.
But while it is true that the stock has never passed to or been accepted by the assignee in bankruptcy, it does not follow, as a necessary legal consequence, that the discharge in bankruptcy may not constitute a bar to the plaintiff’s right to recover for the calls on the stock. This depends upon the question whether the unpaid subscription for the stock constituted such a debt or liability *58as was. provable in the bankruptcy proceedings against the bankrupt’s estate. 'If calls had been made prior to the bankruptcy of the defendant, and remained unpaid, they, beyond doubt, would have been covered by the discharge, and their recovery barred. But where, as in this case, the subscription price of the stock is only to be paid in such instalments and at such times as it may be called for by the company, and at the time of the bankruptcy of the stockholder, and for a considerable time thereafter, and after the settlement of his- estate, there is in fact no call made, the question arises, what claim could' have been proved, and by what means proved, against the bankrupt’s estate ?
The determination of this question must depend upon the terms of the statute, and the judicial construction of those or similar terms, in cases that have arisen upon the subject.
Section 5061, United States Rev. Stats., provides that “ All debts due and payable from the bankrupt at the time of the commencement of proceedings in bankruptcy, and all debts then existing but not payable until a future day, a rebate of interest being made when no. interest is payable by the terms of the contract, may be proved against the estate of the bankrupt.” Section 5068, provides, that “In all cases of contingent debts and contingent liabilities contracted by the bankrupt, and not herein otherwise provided for, the creditor may make claim therefor, and' have his claim allowed, with the right to share in the dividends, if the contingency happens before the order for the final dividend; or he may, at any time, apply to the Court to have the present value of the debt or liability ascertained and liquidated, .which shall then be done in such manner as the Court shall order, and he shall be allowed to prove for the amount so ascertained.” And sect. 5119 provides that a discharge in bankruptcy duly granted, shall release the bankrupt from all debts, *59claims, liabilities, and demands, which were or might have been proved against his estate in bankruptcy.* But no debt or liability not provable as provided could be allowed, and, of course, would not be affected by the discharge of the bankrupt. Sect. 5072.
Sections 5067 and 5068 of the Rev. Stats, just quoted, were provisions embraced in sect. 19 of the Bankrupt Act of 1867, ch. 176, and upon examination it will be found that that section of the Act of 1867, in providing for the proof of debts payable in futuro, and debts and liabilities depending upon contingencies, is in no material respect different from section 5 of the Bankrupt Act of 1841. And the provisions of these sections in regard to the proof and allowance of debts payable at a future day, and of contingent debts and liabilities, while somewhat different in phraseology, do not essentially differ from the provisions found in sections 51 and 56 of the Bankrnpt Act of 6 Geo. 4, ch. 16. The construction, therefore, placed upon these several similar provisions, will greatly aid in arriving at a conclusion with respect to the present question.
Now, was there a provable debt or liability against the bankrupt’s estate ? It must be conceded that there was no right of action until there was a call made, either by the president and directors of the company, or by a Court of equity; for it is clear the trustee under the deed of assignment had no power to make a call upon the stock. Until there was a call legally made, there could be no recovery against the stockholder, either by the company or its assignees. This is a plain proposition, and has already been determined by this Court, in the case of Glenn, Trustee vs. Williams, 60 Md., 93. As against the company, and those claiming to hold under it, the stockholder has a right to stand upon the terms of his contract, and that contract created no obligation upon him to pay, except upon a general call legally made upon all the *60stockholders; and in the absence of such call, no one could foretell, or have the means of ascertaining, what amount, or when, the stockholder would be required to pay on his stock, or whether he would ever be required to pay' at all. Until the affairs of the corporation were wound up and the amount of its indebtedness ascertained, the amount required to be paid by the stockholders for purposes of liquidation could not be determined; and Bankrupt Courts are not clothed with power or jurisdiction to take cognizance of all the complicated affairs of corporations, and direct and control their liquidation, in order simply to render provable a claim against the estate of an individual bankrupt stockholder, who may happen to hold stock, however small in amount, subject to calls. Especially could no such proceeding be had by the Bankrupt Court in regard to the affairs of corporations existing in other jurisdictions. The proceeding in bankruptcy is a summary statutory proceeding, and the only parties thereto, as those proceedings are ordinarily conducted, are the debtor, his assignee, and his creditors. Any attempt on the part of a Bankrupt Court to take jurisdiction of the affairs of a corporation, and all the parties concerned therein, (except where the corporation is itself the bankrupt debtor,) in order simply to determine for what amount a particular claim should be proved against the estate of a bankrupt stockholder, would not only, be an anomalous proceeding for which, as. we suppose, no precedent could be found, but would be truly startling in its consequences. If then the Bankrupt Court could not, in the absence of a call made, determine the provable amount of the claim, under the provision of the statute, for want of proper data, how could the amount have been ascertained? It is contended that. the claim could have- been proved for the entire amount of the unpaid subscription. But to have allowed that to be done would have been doing manifest injustice to the other creditors of the bankrupt; for if a *61dividend were declared lo a claim for eighty per cent, of the par value of the stock, when only thirty per cent, might be the most that would over be called for, it requires no argument to show that great injustice would bo done the other creditors of the bankrupt, in paying a dividend to a debt larger than was really due.
Nor is it anything to this case, that the creditors of the corporation had their remedy in equity against .the stockholders, to have applied to the payment of their claims the full amount of the outstanding unpaid subscriptions. That is the creditor's right or equity as against the stockholders, upon default of the corporation; and a Court of equity proceeds, in such case, upon the ground that the unpaid subscriptions to stock constitute a trust fund for the payment of debts; and even though the subscription is payable only upon call, a Court of equity will make its own call a substitute for that of the corporation; as in the case of Hatch vs. Dana, 101 U. S., 205. But the fact that the entire amount of the unpaid subscription could, in a Court of equity, be proceeded' against and applied by creditors of the corporation, does not in any manner affect the question of the non-provable nature of the claim as between the corporation, or its assignee, and the bankrupt estate of the stockholder. The rights as between them are legal rights, and such rights can be availed of only according to the terms of the contract of subscription; and even upon the supposition that the claim was a provable one, without a precedent call, none but the corporation or its assignee could present and make proof of the claim in bankruptcy.
But the question would seem to be quite clearly settled upon the authority of decided cases, as well as upon principles of reason.
The case of Riggin vs. Magwire, 15 Wall., 549, arose upon the construction of the >5th section of the Bankrupt Act of 1841, in regard to the right to prove “uncertain *62and contingent demands.” That was an action for breach of covenant that the defendant had an indefeasible estate in fee in land sold by him, but which in fact was subject to an inchoate right of dower therein, and which right had not become consummate by the death of the husband, at the time of the bankruptcy of the defendant. It was there contended that the value .of the claim for dower in the land could have been easily established, and ought to have been proved; but the Court said “that as long as it remained wholly uncertain whether a contract or engagement would ever give rise to an actual duty or liability, and there was no means of removing the uncertainty by calculation, such contract or engagement was not provable under the Act of 1841.” And it was accordingly held that the claim was not provable in bankruptcy, and therefore not barred by the discharge.
The case of the South Staffordshire R. Co. vs. Burnside, 5 Exch., 129, is a leading case upon the subject, and the principle of it has been followed in all the subsequent .•cases in the English Courts. The action there, as in the present case, was brought for calls upon corporate stock. The defendant, the stockholder, had become bankrupt on the 8th of Eeb., 1848; and on the 18th of the same month a call was made, and three other calls were subsequently made; and on the 24th of April, 1848, the defendant obtained his certificate of discharge as a bankrupt, which he pleaded in bar of the right to recover. The case was thoroughly argued, and was most carefully considered by the Court. The decision turned upon the construction of sections 51 and 56, of the Bankrupt Act of 6 Geo. 4, c. 16; the 51st section relating to the proof of debts payable in futuro, and section 56 to debts or demands payable upon contingency. There the Court held, that the bankrupt discharge was no bar to the recovery of the calls made subsequent to the defendant’s becoming a bankrupt. v
*63Parke, B., in delivering the considered judgment of the Court, after stating the facts, and the contention of the parties, proceeds: “The property of the shares, therefore, continuing in the bankrupt, the next question is, whether the company are barred by his certificate, on the ground that this was a debt provable under the fiat as a debt due in futuro, under the 51st section, or on a contingency, within the meaning of the 56th section of the 6 Geo. 4, c. 16.
“ That it was not a debt in prcesenti payable in futuro, we consider to be quite clear. The statute which enables the company to recover calls, no doubt merely enforces an obligation on the shareholders, created by contract. If the defendant contracted with the company to take twenty shares, upon each of which the capital to be contributed was 20£, he may be said to have agreed with them to pay 20£ per share by such instalments as, according to the statute, they were entitled to require. If he purchased the shares from another, he may be considered as having taken upon himself the contract of the vendor to the like effect.” And after referring to the provisions of other statutes, the Judge concludes that it was clear that the debt could not have been proved under the 51st section. He then proceeds: “Is this, then, a debt payable on a contingency, under the.56th section? The contract on which the shareholder’s obligation is founded, is not to pay a certain fixed sum upon a future contingency, but such sum or sums as may be required from himself and all the other shareholders from time to time, not exceeding a certain sum, and regulated by the wants of the company. At the time of the bankruptcy it was uncertain what the sum would be which the defendant would be called on to pay, and no certain debt was then contracted. But, in order to bring a case within the 56th section, the bankrupt must have contracted a certain debt before the bankruptcy, payable after it on a contingency.”
*64The subsequent case of the General Discount Co. vs. Stokes, 17 C. B., (N. S.) 765, was also for calls on shares of stock, and there it was held, as in the preceding case, and for the same reasons, that as the calls were not made before the bankruptcy of the defendant, his discharge formed no bar to the plaintiff’s right to recover. And so in the more recent case of Hastie, L. R., 7 Eq., 2, before Lord Romtt.y, M. R. In that case a shareholder in a company became bankrupt, and obtained his discharge. Afterwards the company was wound up voluntarily. The assignee in bankruptcy repudiated the shares, and they remained in the name of the bankrupt on the registry of the company. At the time of the bankruptcy no calls were due, and no attempt was made to prove for future calls in the bankruptcy proceedings, nor was there anything to show that they were capable of valuation at the date of the bankruptcy of the defendant. And such being the case, it was held that the bankrupt remained liable to the future calls, and therefore should be retained on the list of contributories, in the liquidation of the affairs of the company. The question in that case mainly depended upon the construction of section 154 of the Bankruptcy Act of 1861; but Lord Romily, in the course of his opinion, showed that the provisions of that section were not essentially different from the provisions found in the former bankrupt laws, and the • construction of those former provisions were, therefore, applicable and controlling. He said, “ It is quite settled by South Staffordshire R. Co. vs. Burnside, 5 Exch., 129, and General Discount Co. vs. Stokes, C. B., (N. S.) 765, that under the prior bankruptcy acts, future calls were not provable either as a debt payable in futuro, or as a debt due on a contingency.” Upon appeal, this decision of the Master of the Rolls was affirmed, upon a full review of the authorities. L. R., 4 Ch. App., 274.
*65(Decided 10th March, 1886.)
Many other cases, in support of tbe same principle,, could be readily cited, but we deem it unnecessary. We are of opinion, both upon reason and authority, that the call sued for was not a provable claim, or any part of a provable claim, in the bankruptcy proceedings, and therefore the discharge pleaded forms no bar to the plaintiff’s right to recover. The demurrer to the- plea of discharge should have been sustained, and we shall therefore reverse the judgment and remand the 'cause for a new trial.
Judgment reversed, and

cause remanded for neiv trial.

Robinson, J., dissented.