Gamewell Fire Alarm Telegraph. Co. v. Fire & Police Telegraph Co.

76 S.W. 862, 116 Ky. 759, 1903 Ky. LEXIS 248

• Court: Court of Appeals of Kentucky
• Decided: November 18, 1903
• Status: Published

Opinion

Opinion of the court by

JUDGE NUNiN

Affirming.

The record in this case is voluminous, and we will state only such facts as ara necessary for a proper understanding of the questions1 involved. It appears that the appellant, the Gamewell Fire Alarm Company, is a foreign corporation organised under the laws of the State of New York. The New Gaynor Electric Company is a corporation organized under the laws of this State, and likewise the Fire and Police Telegraph Company. It appears that the New Gaynor Company was organized in June, 1892, and that the Fire and Police Company was organized in July, 1894. That, prior to this last date, the New Gaynor Company was a competitor of the appellant, Gamewell Company, in this territory; they being engaged in the same line of business. The Game-well Company had three or four agents representing it in Louisville, and they, with the president and other officials of the appellant, conceived the plan and purpose of organizing thé Fire and Police Company, and preventing further competition by the New Gaynor Company by purchasing its stock. That since the organization of the Fire and Police Company it has owned all the stock of the New Gaynor Company, and there has not been held, or pretended to be held, any stockholders’ meeting of the New Gaynor Company, or the election of any officei’s thex’eof. That since that date the New Gayuor Company has only had nominal existence, at the dictation of the Fire and Police Company, for the purpose of acting as a pretended competitor in obtaining business, and that it had no independence whatever. That this absorption of the New Gayuor Company by the Fire and Police Company, and holding it out as a pretended competitor for business, was at the instance, dictation, and for the benefit of the appellant. There was placed in the hands of agents of appellant, after the absorption of the Fire and Police Company, enough of the New Gayuor Company stock for the purpose of officering it. These persons' continued to hold themselves out as the officers of the New Gaynor Company until the institution of ijhis action. The public had no notice or information whatever that it] only had nominal existence, and was in fact owned by the Fire and Police Company, and during this time it contracted debts to the amount of many thousand dollars; and they also transferred to the Fire and Police Company all the personal property belonging to them, by a simple entry on the books of both companies, without notice to any one-, and without visible change of ownership of the property. During the existence of the Fite and Police Company, it contracted debts to the extent of many thousand dollars.

The appellant claimed to be one of the creditors of the Fire and Police Company, and in the year 1900 brought this action against it for about $8,000, and also made the New Gaynor .Company a defendant, claiming that, by reason of the matters hereinbefore stated, its property and effects, were also liable to the payment of the claims of the Fire and Police Company’s creditors, and made the necessary allegations for the appointment of a receiver to take charge of the property and assets of both defendant corporations. Appellant also alleged in its petition that the property of the defendant corporations was in danger of being lost, wasted, and largely consumed unnecessarily in costs and in enforced sales under executions of their property in behalf of their divers and sundry creditors, and that its interest as a stockholder and creditor, and the interests of all5 other creditors and stockholders i!n thelse defendant companies, would be materially injured unless the court appointed a receiver to take charge of this property, and convert the proceeds' thereof, anid pay the same into court for equal distribution among their creditors', and that all the creditors of these defendant corporations be enjoined and restrained from instituting or prosecuting any suit againlst either the Fire and Pólice Company or the New Gaynor Company. The court, on the application of the appellant, appointed a receiver as requested, and granted the injunction enjoining and restraining the creditors of these corporations from instituting or prosecuting suits except in this action. The New Gaynor Company and the Fire and Police Company filed their answers, admitting and .stating that the allegations- of appellant’s petition were true, and joined appellant in its prayer for relief.

The real appellees in this case are the creditors of the New Gaynor Company and of the Fire and Police Company. The E. A. Kinsey Company, as a creditor of the New Gaynor Company, filed its petition, asking that it be made its answer and counterclaim to appellant’s petition and cross-petition against the Fire and Police Company. Ini these petitions and amended petitions, the Kinsey Company alleges that the creditors of the New Gaynor Company were numerous, and that its interests and the interests of all the other creditors of «the New Gaynor Company were identical, and that the questions involved a common and general interest of many persons; that the parties were numerous; that it was impracticable to bring all of them before the court within a reasonable time, and that the 'expense would be great if each and all of the creditors were required to file independent and separate pleas in presenting their claims; and that it (the Kinsey Company) be allowed to sue and'defend for the benefit of all the creditors of the New Gaynor Company. The appellee, Southern Electric Company, a creditor of the Fire and Police Company, filed a similar pleading, with like allegations for the benefit of all the creditors of the Fire and Police Company; and the court made an order allowing the Kinsey Company to sue and defend for the New Gaynor Company creditors, and the Southern Company for the Fire and Police Company creditors.

These appellees, the creditors of the two defendant corporations, admitted the attempted transfer, of the property of the New Gaynor Company to the Fire and Police Company, and of the purchase by the Fire and Police Company of the New Gaynor Company stock, but say that it was done without any notice to them, or their having any knowledge or information thereof, and for a fraudulent purpose, and with the intent to cheat the creditors of the two companies, and with intent to benefit the appellant. They further allege that the' appellant, Gamewell Company, the Fire and Police Company, and the Gamewell Fire Alarm Auxiliary Company (which was a Maine corporation) were, at and during the times mentioned in the petitifon, organized, and had become a pool, trust, combine, and confederation, for the purpose of regulating, controlling, increasing, and fixing the price of electrical apparatus and appliances and fire alarms in the city >of Louisville and community, and for the purpose of fixing, establishing, and limiting the amount and quantity of such articles to be produced and manufactured, bought or sold, and that the nates sued on in appellant’s petition and transactions and contracts- of which they were evidence were made and executed for the purpose of carrying out such illegal combination, pool, or trust, and that the money loaned, pretended to have been loaned, or furnished by the appellant, Gamewell Company, to the Fire and Police Company, as claimed in the petition, was loaned or furnished for -such illegal purpose, and in furtherance of such unlawful scheme; that these transactions’ were in violation of provisions of the statutes of this State, and that the notes and contracts alleged and set forth in appellant’s petition, by reason of these facts, were each and all null and void; and that the appellant had n'o claim against the assets -of the Fire and Police Company by reason of such pretended notes and contracts. They further alleged that the assets of the New Gaynor Company and the Fire and Police Company were not sufficient to pay their indebtedness, and would only pay a small pro rata thereon (naming the amount which was also reported by the commissioner1 of the court), and that the Fire and Police Company owned all the stock of the New Gaynor Company; that the New Gaynor Company was not organized for any of the purposes- mentioned in section 5-17 o-f the Kentucky 'Statutes, and that by reason thereof the Fire and Police Company was liable to all the creditors of the New Gay-nor Company to the extent of the amount of stock held by it in the New Gaynor Company at par value, in addition to the amount of its stock, not exceeding the total amount of the respective debts of such creditors after the assets of the New Gaynor Company had been exhausted; that the settlement of the affairs of the New Gaynor Company and the Fire and Police Company was then in the hands of the receiver appointed by the court in that action, and they were about to be wound up, and the assets of -each company about to be distributed, and unless the liability of the Fire and Police1 Company as stockholder in the New Gaynor Company be determined in that action, and its liability be enforced, great and irreparable injury would be done to- the creditors of the New Gaynor Company, and they would be powerless to enforce their respective rights and claims against the Fire and Police Company as such stockholder! They asked the court not to allow the Fire and Police Company its pro rata on the claim it had filed against the New Gaynor Company, but to distribute its part among the other creditors, and give the Fire and Police Company credit on its liability therefor. The appellees also allege in their pleadings that the appellant, Gamewell Company, was a foreign corporation; that its chief office and place of business was in the city of New York, and that appellant was claiming in its action tp be one of the creditors of the Fire and Police Company to the extent of about $6,000 and interest, and was seeking to subject the assets of the Fire and Police' Company and the New Gaynor Company to the payment' of its claims, and that the appellant was the owner in its own right of seventy shares of stock, of the par value of $100 each, in the Fire and Police Company, and that the Fire and Police Company continued to contract and be contracted with until the commencement of this action; that the assets of the Fire and Police Company will only pay a very small pro rata part of the claims of its creditors, and that the larger part of the respective claims can not be satisfied from the assets of the company then in the hands of the receiver of the court; that the Fire and Police Company was not organized for any of the purposes! mentioned in section 547 of the Kentucky Statutes of 1899, and that by reason thereof the stockholders of the Fire and Police Company, including the appellant, the Gamewell Company, were each individually liable, and! responsible equally and ratably, and not one for tbe other, for all contracts and liabilities' of the Fire and Police Company, to the extent of the amount of their stock at par value, in addition to the amount of their stock, and that the Fire, and Police Company was organized with a capital stock of $50,000, divided into 500 shares, of the par value of $100 per share, and that 450 shares of this stock was issued to and then owned by various persons, all of whom were unknown to the petitioners', except the appellant, who then held seventy shares of the stock; that, of the stock issued by the Fire and Police Company, the appellant owned seven forty-fifths thereof, and that it was liable for its proportional part to the creditors of the Fire and Police Company, after deducting therefrom the assets in the hands of the receiver, not to exceed the par value of the stock held by it in the Fire and Police Company; that the appellant is seeking to withdraw from this State ‘whatever sum it recovered, if any, against the Fire and Police Company on its claim, and remove it from the State of Kentucky, and out of the jurisdiction of this court; and asked the court not to permit it to do so, and also that it be. required to account to the creditors on its stock liability, by virtue of section 547 of the Kentucky Statutes of 1899.

The issues were made up, the proof was heard, and the court adjudged, in substance, as follows: Among other things, it gives judgment to the creditors of the New Gay-nor Company for the amount of their respective- claims, by confirming the commissioner’s report allowing their claims. It gives judgment to the creditors of the New Gaynor Company against the Fire and Police Company as stockholder in the New Gaynor Company upon the balance of these claims of the creditors of the New Gaynor Company remaining unpaid after its assets had been distributed. It gives' judgment to the ordinary creditors of the Fire and Police Company, including the appellant, upon their respective claims. It distributes the assets of the Fire and Police Company pro1 rata among all of its creditors, including those to whom it was liable as stockholder in the New Gaynor Company, as well as those to whom it was liable by reason of its ordinary transactions. It gives judgment over against the appellant, the Gamewell Company, a foreign corporation, for the amount of its statutory fixed proportional liability as stockholder in the Fire and Police Company to all of the creditors of this company. It subjects to the payment of this last-mentioned judgment against the appellant, so far as they would go, the funds of this non-resident appellant in the hands of the court, to-wit, the pro rata allowed it upon its claim against the Fire and Police Company, and in a subsequent judgment fixed the fee of the attorneys representing the. creditors of the two defendant corporations, and allowed them a certain per cent, out of the amounts recovered, but only made those of the creditors responsible who were not represented by other counsel in the preparation and trial of the case.

The appellant asks for a reversal of this case for several reasons1. It contends that the court erred in adjudging that the stockholders in the Fire and Police Company were subject to the double liability imposed by section 547 of the Kentucky Statutes of 1899, claiming that it appeared from the charter of the Fir» and Police Company that its business was solely and exclusively that of selling agent of appellant, Gamewell Company, in the construction and installation of fire alarm1, telegraph, and police alarm telegraph plants, and that by this'section of the statutes the stockholders therein were expressly exempt from this double liability. The statute, in so far as is necessary for the determination of this question, reads as follows: “The stockholders of each corporation shall be liable to creditors for the full amount of the unpaid part of the stock subscribed for by them, and stockholders of corporations, not organized for educational, religious, charitable or benevolent purposes; or for the purpose of building, constructing or grading turnpikes or bridges, lines of railroad, telegraph or telephone, or developing or improving lands, mines or water-ways, or constructing or operating water, gas or electric plants, or operating for petroleum, natural gas or salt water, shall be individually responsible,' equally and ratably, and not one for the other, for all contracts arid liabilities of such corporations to the extent of the amount of their stock at par value, in addition to the amount of such stock.” The latter portion of section 573 of the Kentucky Statutes of 1899 reads as follows: “After the 28th day of September, 1897, the provisions of this chapter shall apply to all corporations created or organized under the laws of this State, if said provisions would be applicable to them if organized under this chapter.”

The Fire and Police Company, having been organized in 1894, before these acts became laws, the stockholders therein were nevertheless liable, because it continued to do business after the law went into effect, and up to the time of the institution of this action, in 1900, provided they are not relieved by the exceptions contained in the statutes, which is the contention of the appellant. We quote so much of the charter of the Fire and Police Company as will aid in determining the question under consideration: “The business which said Corporation proposes to carry on shall be the manufacturing and dealing in electric machinery, apparatus and supplies; conducting a general electric business, and exploiting or promoting the fire and police telegraph business; the purchasing or otherwise acquiring stock, bonds or other obligations of other corporations, and selling, transferring- and disposing of the same, and the doing and performing of all things incident to or connected with or necessary or proper to be done in carrying on the general business herein stated as fully, and to the same extent, as a private person may do.” It appeárs that the statute only exempts' stockholders in corporations! from double liability when, the corporation is organized for educational or other like purposes,, or for the purpose of building, constructing1, or operating telegraph, or other lines1, or constructing or operating electric or other plants. It appeal's that the Fire and Police Company was organized for other purposes than those exempted in the statutes. It was permitted to manufacture and deal in electric •machinery and supplies, and to exploit or promote the fire and police telegraph business, to purchase or otherwise acquire stock, bonds, or other obligations of other corporations, and sell, transfer, and dispose of the same, and to do and perform all1 things incident to or necessary or proper to he done in the conduct of the general business herein stated to the same extent that a private person might do. Even admitting that the proof’ of appellant shows that the Fire and Police Company only acted as its agent in disposing of its electric supplies this would not relieve its stockholders from the double liability under the statutes. Their liability must be determined from the language of the statutes and. its charter, showing the purposes for which it was organized. Any other construction would place a burden upon those dealing with corporations that would be onerous and unjust. Persons dealing with corporations have the right, and it is their duty, to look to their charters for their powers and responsibilities. The statute says, if the corporation was organized for the purpose. It does not say that, if they were engaged in such business, they would be exempt. The case of Arthur v. Willius, 44 Minn., 409, 46 N. W., 851, is in point. The Constitution of that State provided that corporations organized for manufacturing purposes should be excepted from the general provisions of the Constitution making stockholders of corporations doubly liable. In the opinion, the court said: “And if the corporation is organized for the purpose, as declared in the articles of association, of carrying' on both a manufacturing business and also' some other kinds) of business not properly incidental to or necessarily connected with a manufacturing business, .the mere fact that the corporation never exercised all its corporate powers, and never in fact engaged in or carried on anything but a manufacturing business, will not bring the case within the constitutional exception.” The statute excepts such companies as are organized for the construction or.operation of electric plants. It does not except all corporations dealing in electric machinery, and buying and selling electric .supplies. The field covered by electric machinery and electric supplies is ■entirely too broad to come within the meaning of the statute. The statute does not except corporations organized for ijhe purpose of conducting a “general electric business.” A general electric business would include the manufacture of, the buying and selling of, every electric contrivance or apparatus known to modern science; and there are no exceptions in the statutes in favor of corporations organized for the pupose “of acquiring stocks and bonds or other obligations of other corporations, and selling and transferring the same.” There is not an intimation in the charter of the Fire and Police 'Company that its only business was to be that of acting as selling agent of appellant, Gamewell Company, in selling and disposing of its appliances. Even if the proof sustained this contention,.the petition of plaintiff states that it did engage in other business, by buying and dealing ini stocks of other corporations, to-wit, the New Gaynor Company.

The appellant, the Gamewell Company, contends that even admitting its double liability, under the statutes, as a stockholder in the Fire and Police Company, it was error of the court in so adjudging in this action, for the reasons that the other stockholders in the Fire and Police Company were not made parties to this action, and that it,'the sole stockholder before the court in this action, was made responsible upon its statutory liability. From the record it appears that the stockholders in this corporation were unknown to appellees, and the presumption is that the appellant, knew the stockholders in the Fire and Police Company, it being one of them; and, if it deemed it necessary that the other stockholders should be made parties to the action, it could have, by appropriate pleadings and proceedings, made them parties, but it made no effort in this direction. Even if this was error, it was not prejudicial to the substantial rights of the appellants. All the stockholders of the Fire and Police Company were responsible for the double liability under the statute quoted, 'but the liability of each stockholder therein was several and individual, equally and ratably, but not one for the otliei*. The only thing necessary to be done was to ascertain the indebtedness of the corporation, and deduct its assets therefrom, and then ascertain the amount of liability of appellant under the statute quoted. The case of Castleman v. Holmes, 4 J. J. Marsh., 5, was where stockholders in a corporation had been sued. In that case the court said: “The liability of the defendants .is several, and not joint. They were properly united in the same action, as we have already seen; but when the rule of apportionment was ascertained, and the cause prepared as to any one, we can not see any sufficient reason why he should not be directed to do justice, without delaying until others can be x’eacked.” Section 28 of the Civil Code is as follows: “The court may determine any controversy between parties1 before it, if it can do so without prejudice to others. . . The presence and appearance of the other stockholders of the Fire and Police Company in this action could not have, under any possibility, increased or diminished the amount of appellant’s liability under the statute quoted.

There can be no question as to the double liability of the Fire and Police Company to the creditors of the New Gaynor Company. It being the sole stockholder and a corporation does not alter the case. The statute says that all stockholders, unless within the excepted class, shall be liable. It does not make any distinction between the stock-holding corporation and an individual. Their responsibility under the statutes is the same. Nor does it relieve it of liability because it was the sole stockholder of the New Gaynor Company. It placed stock in the hands of three persons, who were thus qualified to be, and did continue to be,' officers of the New Gaynor Company, until a receiver was appointed in this action. This was a fraudulent transaction entered Into by the appellant, the Fire and Police Company, and the New Gaynor Company, for the purpose of holding the New Gaynor Company out as a real corporation and as a pretended competitor, when it was in fact only a dummy for the appellant, and the Fire and Police Company, with a view to beat the public. This fraud might have been taken advantage of by parties in interest not implicated, but it can not relieve the parties who caused or induced the wrong from liability imposed by their own acts. See Louisville Gas Co. v. Kaufman, 20 R., 569, 105 Ky., 131, 48 S. W., 434, and Louisville Banking Co. v. Eisenman, 94 Ky., 83, 14 R., 705, 21 S. W., 531. 1049, 19 L. R. A., 684,. 42 Am. St. Rep., 335.

The appellant contends' that appellees’ pleadings by which they sought to enforce appellant’s liability as a ■stockholder under section 547 of the Kentucky Statutes of 1899 did not constitute a counterclaim, and, being by a defendant against the plaintiff, could not be a cross-petition. We are of the opinion that the facts1 stated constituted a counterclaim. A counterclaim is defined by section 96 of the Civil Code to be a cause of action in favor of a defendant against a plaintiff, or against him and another, which arises out of the contract or transaction stated in the petition as the foundation of the plaintiff’s claim, or which is connected with the subject of the action. The purpose of this action, as stated by appellant in the prayer •of its. petition, was to have the affairs of the insolvent resident corporations placed in the hands of a receiver of the court, and their assets collected, and the same paid to the creditors of the two corporations. The assets of the two corporations consisted; in addition to visible personal property, in debts due them by contract, as well as sums: due from stockholders under their liability created by the statutes. It was certainly connected with the subject of this action and the settlement of these insolvent corporations for the appellees to ask the court to require the appellant, a nonresident corporation, to pay and settle the amount it owed under its statutory liability. This would not have been improper even if it had been a resident corporation. The court was right in not permitting appellant, a foreign corporation, to receive its pro rata on its claim, and then leave the State and compel its creditors to seek a foreign jurisdiction for their relief. See Forbes & Bro. v. Cooper & Co., 88 Ky., 288, 9 R., 716, 11 S. W., 24; Tinsley v. Tinsley, 15 B. Mon., 159. A nonresident creditor -who owns stock in an insolvent Kentucky corporation can not come into a court of equity in this State and subject to the payment of its debts the assets of the insolvent domestic corporation, upon which other creditors have equal claims, and escape from the jurisdiction of our courts with a part of this trust fund in its hands, and thereby lessen the pro rata of other creditors, without first doing equity by paying to the other creditors the amount of its statutory liability to them upon these corporate debts as a stockholder in the insolvent corporation. The other creditors can protect themselves and enforce their rights by a counterclaim

The appellant also objects to the relief granted by the .lower court to all the creditors of the insolvent resident corporation other than the appellees Kinsey Company and' Southern Company, they being the only creditors to file written pleadings setting forth their claims. The appellant contends that the judgments rendered in behalf of the other creditors are erroneous and should be reversed. All these creditors had a common or general interest in requiring the appellant io account for its statutory liability as a stockholder of the Fire and Police Company, and the creditors were numerous, and it would have been impracticable to bring them all before the court within a reasonable time. For them to appear in the circuit court by written pleadings would have been unnecessary and exceedingly expensive, and the court had, at the beginning of the action, on the application of appellant, enjoined and restrained all these creditors from bringing or prosecuting any action or actions on their claims, except in this action. The Kinsey Company and the Southern Company were authorized by an order of court to prosecute and defend for all of these creditors under section 25 of the Civil Code. Under section 432 of the Civil Code, it is provided: “A

creditor appearing before the commissioner and presenting his claim becomes thereby a party to the action, and is concluded by the final judgment of the court in allowing or rejecting his claim.” In view of the fact that these creditors had filed their claims before the master commissioner as required by statute, and that the Kinsey Company and the Southern Company had prepared and filed pleadings for the benefit of themselves and all the creditors having a common or general interest with them, and had been permitted by an order of court to sue and defend for all', and in view of the provisions of the Code last quoted, and the further fact that these creditors had been enjoined and restrained, at the instance of appellant, from prosecuting actions for their relief except in this action, and the enormous additional expense herein if they had been required to file separate written pleadings in behalf of each of the hundred or more creditors setting forth their claims, it would be a travesty on justice to say that they were not entitled to the relief granted them herein by the lower court.

The appellant further complains of the action of the lower court in allowing a certain per cent, of the amounts recovered to be charged against all the creditors who were not represented by special counsel. Admitting this to be true, it is not a cause for reversal of the judgment, for the reason that the creditors who were required to pay it have not appealed, and the appellant has no interest in the matter, as it does not have to pay any part of it.

Perceiving no error prejudicial to the substantial rights of the appellant, the judgment of the- lower court is affirmed.