Collins v. Williamson , 143 C.C.A. 653 ( 1915 )

SATER, District Judge

(after-stating the facts as above).

[1] It is not necessary to a decision of this case to determine, as counsel would have us do, whether the company was insolvent at the time the deed of assignment was executed and delivered to Collins, for the reason that a deed duly executed and delivered in trust for the benefit of creditors constitutes an assignment,, whether the assignor be solvent or insolvent. Wambaugh v. N. Y. Mut. L. Ins. Co., 59 Ohio St. 228, 241, 52 N. E. 859; Rockel’s Complete Ohio Prob.. Pr. § 1547; In re Farrell, 176 Fed. 505, 512, 100 C. C. A. 63 (C. C. A. 6).

[2] That the deed of assignment was not filed in Jackson county and that the assignment proceedings were not given in charge of the probate court of that county is not, as claimed by plaintiff, of controlling importance. The company’s articles of incorporation, in compliance with section 8625, General Code Ohio, state where its principal office is to be located; i. e., at Jackson, Ohio. The company never availed itself of the privilege of so amending its charter as to change such place, as authorized by sections 8719-8723. Section 11092 requires that a deed of assignment made by a corporation shall be filed in the probate court of the county in which the assignor resides. Such assignment becomes effective only from the time of its delivery to the probate judge. Section 11093. In Pelton v. Transportation Co., 37 Ohio St. 450, it was held that a certificate of incorporation which under the statute specifies the place where the principal office of the company is to be located is conclusive as to the location of such office; but sections 11092 and 11093 do not say that, if a corporate deed of assignment be filed elsewhere than at the company’s place of residence, such deed or the administration of a corporate estate by a probate court other than that sitting in such county shall be void. On the contrary, in all such cases a remedy is given by section 11094, by the terms of which, on failure for 10 days after the execution of the deed of assignment to file it or a copy of it in tire proper county and of tire assignee to give bond as required by law, the probate court of such county on application of the assignor or of any of his creditors, shall remove the assignee and appoint another in his place.

The deed of assignment specifically recites that the assignor is “the Superior Portland Cement Company, of the city of Cincinnati, county of Hamilton, state of Ohio, a corporation organized and doing business under tire laws of the state of Ohio.” The deed was sufficient on its face to warrant the insolvency court to assume jurisdiction, and nothing appeared in it or in any of the proceedings in that court to suggest that jurisdiction was wanting. Neither the assignor nor any of its members or creditors challenged that court’s right to proceed with the administration of the defendant company’s estate, or invoked action by the Jackson county probate court. The rule is that where a judicial tribunal has general jurisdiction of the subject-matter, as the insolvency court in this case had, and the special facts which give it the right to act in a particular case are averred and not controverted upon notice to all the parties, jurisdiction is acquired and cannot be assailed in any collateral proceeding. Black on Judgments, § 240. When there is a lack of power or want of jurisdiction in the court, all its acts are .void; but when there is merely a wrongful or. defective execution of power, its acts are voidable only, and must be reversed upon error. Lessee of Cochran’s Heirs v. Loring, 17 Ohio, 409, 423; Moore v. Robison, 6 Ohio St. 302, 305. The situation presented is analogous to that in which a suit is filed in a federal judicial district in which none of the parties to the action reside. The defect as to jurisdiction being simply as to the district in.which suit is brought, the parties being citizens of different states, the objection is waived, if the parties make up the issues without objecting to the jurisdiction of the court. Kreigh v. Westinghouse & Co., 214 U. S. 249, 252, 253, 29 Sup. Ct. 619, 53 L. Ed. 984.

[3] It is earnestly urged that the District Court was without jurisdiction to entertain the plaintiff’s bill. By the terms of section 1613, General Code of Ohio, the court, of insolvency, as regards the administration of assignments in trust for the benefit of creditors, has the same jurisdiction, exercises the same powers, and discharges the same duties as are enjoined by the Constitution and laws of the state upon probate courts, and all laws in force or hereafter enacted regulating the manner of proceeding in the administration of such assignments by the probate court extend to the court of insolvency. If a deed of assignment is valid, the jurisdiction of the insolvency court therefore extends only to qualifying assignees, controlling their conduct, and settling their accounts, and to causing the trust created by the deed to be executed according to law. That court does not have the general equity power to set aside and vacate such a deed, but such power is vested in the court of common pleas. Home & Savings Association v. Jones, 64 Ohio St. 147, 157, 158, 59 N. E. 885. Such power being thus vested and the facts averred in the bill being such as confer jurisdiction on a federal court, the District Court was required to entertain the case.

[4] The controversy as to whether the appointment of a receiver by the District Court was warranted must be determined from the facts of the case. The company became indebted to the trust company to the extent of $55,000 before the operation of its plant began in the fall of 1907. Collins generously lent his credit to it for that amount, and subsequently for all other sums borrowed. Had he not done so, the enterprise would have failed for want of operating capital. Indeed, for aught that appears, it would have been unable to operate at all. It is not to be presumed that any moneyed institution prudently conducted would extend credit to a new enterprise without an established business which was bonded for practically its entire original cost, and especially if it knew as time passed, as the trust company did, that the company was unable to reduce an outstanding bank indebtedness of $115,000 and was paying neither dividends on its stock nor interest on its bonds. Collins was never unwilling to do for himself what he requested of others as regards'the surrender of bonds and the lending of financial credit to the company. The burden of carrying its finances rested peculiarly on him, although Zimmerman and Sternberger to a limited extent shared it with him. Considering that the enterprise was new and without an established business, and that, if permitted to go upon the financial rocks, it would, when closed out, in all probability realize but a small portion of the original cost, and could more easily be bought in by him than by any other stockholder, to the almost certain complete elimination of the plaintiff and her relatives, his reasonable request that the bonds be returned to the company, and that he, Zimmerman, and Sternberger shoidd, as far as practicable, be relieved of their personal liability, which had averted financial disaster to all, and that all the stockholders proportionately aid the company, should have met with a prompt and favorable response from the plaintiff, her sister (Mrs. Wright), and the latter’s husband, notwithstanding Collins’ greater interest, on account of his larger holdings, and what is charged to have been at times his secret, if not arbitrary, action.

Collins was under no obligation to carry so largely a burden in which others should share. The plaintiff and her relatives apparently neither appreciated the service he had rendered them and all other stockholders, nor endeavored to avert the financial collapse which the withdrawal of the loan of his credit to the company would produce, although his large investment, amounting to about $275,000, placed him in a position better than theirs to- protect himself in case the company encountered financial misfortune. In fairness to his associates, he should have apprised them of his purchase of the notes of the company from the trust company, giving his own note in their stead, and his payment of the indebtedness more rapidly than the contract with that company required; but in so doing he was but shifting the burden to the defendant company, where it rightfully belonged. There seemed to be no way in which he could satisfy the indebtedness for which he, Zimmerman, and the Sternberger estate were bound, other than by permitting the merchandise accounts to remain unpaid, so long as some of the stockholders blocked the only method of giving the company an improved financial standing which would enable it to obtain credit. The corporate members, however, should have been informed in advance, and should have had the opportunity of considering before its consummation the sale of the company’s contracts and accounts and bills receivable to the Credit Company, the apparently high price he was paying for its services, and the application of the proceeds of such sale to the payment of the company’s debts other than merchandise accounts; and yet had he proceeded, as did the complaining surety in Barbour v. National Exchange Bank, 45 Ohio St. 133, 12 N. E. 5, .and applied for a receiver of the company, his course, whether successfully pursued or not, would in all probability have been even more harmful, though acting within strictly legal rights, 'than was his sale of the quick assets to the Credit Company and the ap-‘ plication of. the proceeds realized from them to the satisfaction of the company’s indebtedness in advance of its actual maturity.

When he determined to cause the company to make a deed of assignment, fair play required that he should incorporate in the notice of the stockholders’ and directors’ meetings to be held October 31st, that the matter of the assignment was to be considered at that time. He should not have proceeded secretly, and withheld such notice until the day on which the meetings were held. That the outstanding bonds were a menace to the life of the corporation, that they were issued as an inducement to procure stock subscriptions and as a bonus without tire payment of any consideration for them, is too manifest to admit of controversy; but what the rights of the holders of them as between themselves, and as between themselves and tire company, may be, and as to what method is to be pursued to determine such rights, and the cancellation and the return of them to the company, if it shall ultimately be decided that such shall be done, are matters which we are not now called upon to decide.

We are not, however, informed as to- how Collins expected to free the company from the incubus of the bond issue by causing the company to assign all of its property for the benefit of its creditors, and yet that was his purpose in causing the assignment to be made. An assignment will be voided which is made in furtherance of a scheme to obtain an advantageous settlement, to force a compromise or to compel creditors to enter into a composition (4 Cyc. 197, 198), and, it may be added, whose purpose is not the protection of the creditors, but the coercion of stockholders to surrender corporate bonds, and for the reason that such action is not within the purview of the statute relating to assignments. The assignment, which was secretly planned, was arbitrarily carried out, and constituted an act of bankruptcy which would almost necessarily and speedily terminate the company’s business career,' to the injury of the stockholders and without benefit to the creditors. A bankruptcy proceeding in fact was, it is stated, instituted and has been held in abeyance only by the planting Of the present suit. For the reasons above stated the trial court was justified in voiding the deed of assignment, and in view of Powers v. Blue Grass Building & Loan Association (C. C.) 86 Fed. 705, 707, the appointment of a receiver pendente lite was warranted.

[5] We are not satisfied that a further continuance of the receivership is necessary. With the deed of assignment set aside and the proceedings thereunder enjoined, there seems no occasion, so far as appears from the record before us, for winding up the corporation or withholding from the directors the control of its assets, for it cannot be presumed that the directors will mismanage the corporate business or act otherwise than in conformity to law. Should the retirement of the company’s bonds be still desired, no obstacle intervenes to prevent an appropriate action to accomplish that result. The differences between the stockholders are not such as reasonable persons may not adjust. The rule is too well settled to require citation of authority that courts of equity, in the appointment of receivers, act with great caution in applying that extraordinary remedy, and require a clear case of right and of present necessity to induce their interference. The extreme remedy of taking and keeping property of a corporation out of the hands of the managers chosen by the stockholders, except" as the last resort, should not be applied unless considered absolutely necessary for the preservation of the corporate property. That necessity, apparently, now ceases with the final decision concerning the validity of the trust deed; but two years have elapsed since this record was made up, and it is possible that something may be presented to the court below justifying a temporary continuation of the receivership. However, we cannot now do as appellants ask and make a peremptory direction that it be terminated.

The decree of the District Court is accordingly affirmed, with costs, but expressly without prejudice to an application to such Court at any time by either party for the termination of the receivership.