Harrigan v. Bergdoll
Headline: State law governs shareholder unpaid-stock claims; Court upheld that liability accrues when insolvency is apparent, so the trustee’s delayed suit was blocked by the Pennsylvania statute of limitations.
Holding: The Court held that state law controls when a shareholder’s unpaid stock liability arises, and because the liability became fixed when insolvency was apparent, the trustee’s claim was time-barred.
- Affirms that state law decides when unpaid stock liability accrues.
- Limits trustees from relying on bankruptcy assessments to reset limitation periods.
- Makes creditors act promptly once insolvency is apparent.
Summary
Background
A bankruptcy trustee sued a former shareholder to collect more than $155,000 that the federal bankruptcy referee had ordered assessed against unpaid stock in a Pennsylvania motor company. The company was organized in 1912 and declared bankrupt in 1913, and its insolvency became apparent by May 1913. The trustee did not file for an assessment until October 1917; the referee ordered the assessment in February 1918 and the District Court confirmed it in July 1919. The Circuit Court of Appeals in March 1920 affirmed the need for an assessment but reversed the District Court’s judgment fixing the shareholder’s personal liability. The trustee then brought this suit in state court in 1921, and the shareholder raised the six-year statute of limitations.
Reasoning
The central question was when the shareholder’s obligation became a definite, enforceable claim. The Court relied on Pennsylvania law and explained that state law, not federal bankruptcy procedure, determines when a shareholder’s unpaid stock liability arises. Bankruptcy law transfers the state-created claim to the trustee but does not create a new cause of action or change when the claim accrues. The Court treated the bankruptcy assessment as an administrative step; under Pennsylvania law the liability became fixed when the company’s deficiency was apparent, so the time for suing began then.
Real world impact
The decision confirms that state corporate law sets when unpaid-share obligations become enforceable. Trustees and creditors cannot rely on later bankruptcy confirmations to reset limitation periods. Creditors should act promptly once insolvency is visible to preserve claims.
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