Court Opinion

ID: 8299152
Source: CourtListenerOpinion
Date Created: 2022-10-17 11:10:38.112276+00
Date Added: 2024-06-11T16:44:06.805987
License: Public Domain

OPINION ON PETITION TO REHEAR.
Wilkes, J.
Upon petition to rehear it is urged upon us that on the original hearing the Court did *11not consider Sec. 5 of the general incorporation Act of 1875, which permits an increase of capital stock by by-law. This is true, from the fact that Sec. 5 relates to corporations generally, while Sec. 6 relates to railway companies and the increase of capital stock by railways, and. this section is made part of the charter of complainant, and is the law under which it was organized and operates. It is also called to our attention that the proof shows that the corporation is in debt to the extent of ten or twelve thousand dollars. This is' also true, but it likewise appears that it owns some tracks and real estate representing over $95,000. The bill does not allege any indebtedness or the necessity of collecting the subscription to pay debts, and no creditor appears in the record in any way seeking to collect anything from the company or from W. M. Sneed.
Our attention is also called to the case of Peck & McGuffey, Receivers, v. J. M. Elliott, Jr., decided in the United States Circuit Court for the Eastern District of Tennessee, on the second of March, 1897, by Judges Taft, Lurton, and Sage. It is insisted that this case. is in point, and persuasive in favor of the binding obligation of this subscription. We have examined the case critically. The proceeding was one affecting the properly of the Southern Malleable Iron Company, a manufacturing corporation chartered under the Acts of 1875, Ch. 142, Sec. 11, but incorrectly stated in the opinion to be Ch. 97 of said Acts. The object of *12the bill was to preserve the entity of the property as an operative unit plant, collect its debts, complete certain valuable contracts, and then sell the property as a whole, including its good will, for the satisfaction of all its debts according to priority of liens. The bill was brought by receivers, in whose hands it had been placed at the instance of a judgment creditor, as an insolvent concern, and the bill was essentially a bill to wind up an insolvent corporation for the benefit of its creditors. Elliott, a director and the president of the company, was made a defendant, and it was attempted to collect from him a balance of unpaid subscription, upon the ground that the insolvency of the company and pressing of creditors rendered such action necessary. Elliott, among other grounds, defended upon his contention that his subscription was to increased stock, which the corporation had no power to authorize or collect.
The provisions of Sec. 5 of the general incorporation Act of 1875 were considered as applicable, but not those of Sec. 6, inasmuch as the corporation then before the court was not a railway, but a manufacturing corporation. The court below held that the proper construction of Sec. 5, and of the Act referred to, was that while the corporation could fix its capital stock by by - law, yet, when once fixed, it must remain fixed, and could not be either increased or diminished by a subsequent bylaw. The provision of Sec. 5 is substantially that *13‘ ‘ the corporation may, by by-laws, make regulations concerning the subscription for or transfer of stock, fix upon the amount of capital to be invested in the enterprise, the division of the same into shares, the time required for payment thereof by subscribers for stock, the amount to be called for at any one time.” There is no special provision as to the increase of the capital stock of a manufacturing corporation chartered under Sec. 11 of the Act, as there is of a railway corporation chartered under Sec. 6 of the same Act. The question considered in the case was whether such manufacturing corporation had power to increase its capital after it had once been fixed by by-law. The conclusion reached in the case was that when the corporation has the power by by-law to fix its capital, it may, by the same means, increase its capital, and that the Act of March 27, 1883, Ch. 163, did not take away this power. But that case does not pass upon the manner of making the increase effective, except that it majr be done by by-law, or, as elsewhere stated, by a resolution of the members of the incorporation, but it does not refer to the provisions of Sec. 19, which provides that the directors shall copy the desired amendment, make formal application to the State, have the amendment probated and registered, and the registration certified by the Secretary of State, under the great seal of State. This we hold to have been the, necessary ceremony to be performed in order to make the increase of stock valid *14and effectual under that Act, and so long as it remained in force, if we concede that it might be authorized by by-law' or resolution. In other words, although the power to increase by. by-law or resolution may have existed under the Acts of 1875, Ch. 142, still it must be exercised according to the provisions of the Acts of 1883, Ch. 163, and in the manner there prescribed, while said Act was in force. The requirements of the Acts of 1883, Ch. 163, not having been complied with, the increase was ’ not validly made, even if we concede that it might be changed after being once fixed.
The petition to rehear is therefore dismissed.