Flour City Nat. Bank v. Wechselberg

• Decision Date: 23 March 1891
• Citation: 45 F. 547
• Parties: FLOUR CITY NAT. BANK v. WECHSELBERG et al.
• Court: U.S. District Court — Eastern District of Wisconsin

45 F. 547

FLOUR CITY NAT. BANK v. WECHSELBERG et al.

United States Circuit Court, E.D. Wisconsin.

March 23, 1891

Charles E. Shepard, for plaintiff.

Charles Quarles, for defendants.

JENKINS J.

The complaint charges that the defendants filed articles of incorporation under the laws of Wisconsin, in which the capital stock and the number of shares are stated, the corporators to compose the first board of directors; and they thereafter assumed to act as officers, and published and advertised the incorporation with themselves as officers and stockholders, and engaged in business. It further charges the execution by the defendants, in the name of the alleged corporation, of a certain promissory note, and its delivery for value to one other than a member, and now owned by the plaintiff; that at the time of its execution one-half of the stated capital stock of the company had not been and never has been subscribed for, and 20 per centum thereof had not and never has been paid in. The action is brought against the defendants to recover the note, pursuant to Rev. St. Wis. Sec. 1773, which provides that no stock corporation 'shall transact business with any other than its members until at least one-half of its capital shall have been duly subscribed, and at least 20 per centum thereof actually paid in; and, if any obligation shall be contracted in violation hereof, the corporation offending shall have no right of action thereon, but the stockholders then existing of such corporation shall be personally liable upon the same.'

Sections 3223, 3224, Rev. St. Wis., provide as follows:

'Sec 3223. Whenever any creditor of any corporation shall seek to charge the directors, trustees, or other officers or stockholders thereof, on account of any liability created by law, he may commence and maintain an action for that purpose in the circuit court, and may, at his election join the corporation in such action.

'Sec. 3224. The court shall proceed therein as in other cases, and, when necessary, shall cause an account to be taken of the property and debts due to and from such corporation, and shall appoint one or more receivers, who shall possess all the powers conferred, and be subject to all the obligations imposed, on receivers by the provision of section three thousand two hundred and nineteen; but if, upon the filing of the answer or upon the taking of such account, it shall appear that the corporation is insolvent, and that it has no property or effects to satisfy such creditor, the court may proceed without appointing any receiver to ascertain the respective liabilities of such directors, trustees, or other officers and stockholders, and enforce the same by its judgment, as in other cases.'

The demurrer proceeds upon the grounds (1) that the corporation is a needful party defendant; (2) that the liability can only be adjudged in equity; (3) that the statements of the complaint are insufficient to disclose liability, whether at law or in equity.

The first objection is clearly ill founded. The statute in express terms provides that the creditor may at his election join the corporation. The liability of the shareholder under section 1773 is primary and absolute, attaching upon the contracting of the debt by the corporation. Coleman v. White, 14 Wis. 700. It is limited only by the debt contracted by or in the name of the corporation, and, as to the creditor, is not affected by presence or absence of assets in the corporation. It does not depend upon the continued existence or life of the corporation, but upon the fact that the indebtedness was incurred during its life. Having, by force of the statute, the election to omit, the creditor cannot be compelled to join the corporation liable upon the contract with the shareholder liable under the statute. The corporation may be joined and compelled to respond to its contract obligation. It is a proper party, at the election of the creditor. It is not an indispensable party to an action enforcing statutory liability of a shareholder. Sleeper v. Goodwin, 67 Wis. 577, 586, 31 N.W. 335.

The second objection is of more moment. It was ruled in Bank v. Francklyn, 120 U.S. 747, 7 S.Ct. 757, that when a state statute creating a liability provides a special remedy, such liability can be enforced in no other manner in the federal courts. It also goes without saying that the federal courts will follow the construction of a state statute declared by the supreme tribunal of the state, and that, failing such interpretation, the federal court may, as to the matter in hand, declare its meaning. It is essential, therefore, to inquire what construction has been placed by the supreme court of Wisconsin upon the statute providing remedies in cases of this character. That court has considered the statutes regulating proceedings against corporations in three classes of cases: (1) The personal liability of stockholders in a bank, (Coleman v. White, 14 Wis. 700; Cleveland v. Bank, 17 Wis. 545; Bank v. Chandler, 19 Wis. 437;) (2) the liability of stockholders for unpaid subscriptions to stock, (Adler v. Brick Co., 13 Wis. 57; Pierce v. Construction Co., 38 Wis. 253; Powers v. Paper Co., 60 Wis. 23, 18 N.W. 20;) (3) the special liability of stockholders under Rev. St. 1878, Sec. 1769, for the indebtedness of the corporation to laborers, etc., (Sleeper v. Goodwin, 67 Wis. 577, 31 N.W. 335.)

There is one feature common to the three classes of cases,-- a community of interest in the avails of the litigation. The shareholder in a bank is liable for the debts of a bank to an amount equal to his holding. His liability is primary and absolute, but the amount realized is for distribution among the body of creditors. Likewise the liability of a stockholder for unpaid subscriptions to stock, while secondary and contingent upon failure of assets of the corporation to meet its obligations, is to the whole body of creditors, and can be enforced only for the benefit of all. So, also, the liability under section 1769, considered in Sleeper v. Goodwin, while primary and absolute, is measured not by the debt, but by the amount of stock held by the shareholder. The fruit of liability is for distribution among all the creditors comprehended within the class specified in the section. In all these three classes of cases, as was demonstrated in Coleman v. White, upon general principles, the remedy at law was wholly inadequate. Equity only could deal with the distribution of the fund among creditors, and ascertain and determine their respective rights thereto. The court has held that equity was the only appropriate remedy to the three classes of cases stated, and that equitable proceedings were sanctioned by the statute under consideration. That is the extent of its ruling. It did not undertake to decide-- it had no occasion to decide-- that the statute was exclusive as to the remedy, and limited to proceedings in equity, when the remedy at law was appropriate and complete. Mr. Justice TAYLOR in Sleeper v. Goodwin asserts in so many words that what had been said by the court theretofore, respecting the necessity of joining the corporation, may or may...