Arthur Selig v. Charles Hamilton, No. 361

• Court: United States Supreme Court
• Writing for the Court: Hughes
• Citation: 234 U.S. 652,58 L.Ed. 1518,34 S.Ct. 926
• Docket Number: No. 361
• Decision Date: 22 June 1914
• Parties: ARTHUR L. SELIG, Plff. in Err., v. CHARLES E. HAMILTON, as Receiver of Evans, Johnson, Sloane Company

234 U.S. 652 34 S.Ct. 926 58 L.Ed. 1518 ARTHUR L. SELIG, Plff. in Err.,

v.

CHARLES E. HAMILTON, as Receiver of Evans, Johnson, Sloane Company.

No. 361. Argued May 6, 1913. Decided June 22, 1914.

[Syllabus from pages 652-654 intentionally omitted]

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Messrs. Abram I. Elkus and Wesley S. Sawyer for plaintiff in error.

[Argument of Counsel from page 654 intentionally omitted.]

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Messrs. James E. Trask, E. H. Morphy, and John J. Clark for defendant in error.

Mr. Justice Hughes delivered the opinion of the court:

This action was brought in the district court of the United States for the southern district of New York, to enforce the liability of a stockholder of an insolvent Minnesota corporation.

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In 1902 the Evans, Munzer, Pickering Company was incorporated under the laws of Minnesota for the purpose of transacting a mercantile business. In 1904 its name was changed to the Evans, johnson, Sloane Company. Its capital stock consisted of 1,500 shares of common and 1,000 shares of preferred stock of the par value of $100 each. The plaintiff in error, Arthur L. Selig, became the owner of 50 shares of preferred stock in 1902, and held the same until September 5, 1904, when they were transferred on the books of the company to Max Mayer. On September 25, 1905, a petition in bankruptcy was filed against the company in the United States district court for the district of Minnesota; adjudication followed on October 13, 1905, and trustees in bankruptcy were appointed.

On May 28, 1906, a creditor of the company, on behalf of itself and all other creditors, brought a sequestration suit in the district court of Ramsey county, Minnesota, for the purpose of enforcing the liability of the stockholders of the company. In that suit, on June 25, 1906, Charles E. Hamilton (the defendant in error here) was appointed receiver. Further order was made on June 28, 1906, requiring creditors to exhibit their claims, and become parties to the suit, within six months from the date of the first publication of the order. On July 6, 1906, in the same suit, the receiver filed a petition for an assessment upon the stockholders. The court set a date for hearing and directed notice to be given by publication and mailing. Thereupon, on September 4, 1906, the court entered its order assessing the sum of $100 against each share of the capital stock and against those liable as stockholders on account of such shares; the latter were directed to pay to the receiver the amount of the assessment within thirty days, and the receiver was authorized in default of payment to institute an action against anyone liable as a stockholder, in any court having jurisdiction, whether in the state of Minnesota or elsewhere. On April 23, 1907,

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the court entered a decree—in the sequestration suit—allowing the claims against the company as set forth in an annexed schedule, which showed the nature of each claim, its amount, and when it arose. A further decree allowing an additional claim was entered on February 13, 1908. It appeared from these decrees, and the schedules to which they referred, that of the claims thus allowed, upwards of $11,000 wholly arose prior to September, 1904, and, in addition, over $20,000 in part arose prior to that date.

Pursuant to the order of September 4, 1906, the present action was brought in December, 1909, to recover from Selig the amount assessed on 50 shares. The complaint set forth the proceedings in the sequestration suit, the statutes under which they were instituted, and the order of assessment. It was also alleged that Selig, on or about September 5, 1904, had transferred his stock, when the company was in an unsound financial condition, for the purpose of concealing his ownership, but that he remained the owner of the entire beneficial interest in the shares in question, and that the transfer was fraudulent as against the creditors; and also that, under the law of Minnesota, a stockholder in a corporation could not avoid his liability for prior debts by a bona fide sale of his shares to a solvent person and a recorded transfer. In his answer, Selig admitted the transfer of the shares at the time mentioned, alleged that it was duly made and entered on the corporate books, and denied the other allegations pertinent to his liability.

Upon the trial the record of the proceedings in the sequestration suit, including the order of assessment and the decrees allowing the claims of creditors, were received in evidence. The entry in the stock book showing the record of the issuance of 50 shares to Selig and their transfer, together with the original certificate as canceled, was introduced. Aside from what was contended to be the effect of the proceedings in the sequestration suit, there

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was no evidence impeaching the transfer. This being the state of the proof, the plaintiff rested and the defendant moved to dismiss the complaint upon the grounds that the plaintiff had failed to prove facts sufficient to constitute a cause of action, that the suit should have been brought in equity, and not at law, and that the cause of action had accrued more than three years prior to the commencement of the action, and hence was barred by the statute of limitations of the state of New York. Each party also moved for a direction of a verdict. The district judge directed a verdict in favor of the receiver for the sum of $5,000 with interest, and in the view that, in sustaining and enforcing the order of assessment, a question arose involving the application of the Federal Constitution, this writ of error has been sued out.

The legislation of Minnesota with respect to the liability of stockholders, as construed by the state court, was reviewed and its constitutional validity was upheld in Bernheimer v. Converse, 206 U. S. 516, 51 L. ed. 1163, 27 Sup. Ct. Rep. 755. The conclusions there reached were reaffirmed in Converse v. Hamilton, 224 U. S. 243, 56 L. ed. 749, 32 Sup. Ct. Rep. 415. Briefly restating them, it may be said: The Constitution of Minnesota (art. 10, § 3) provides: 'Each stockholder in any corporation (excepting those organized for the purpose of carrying on any kind of manufacturing or mechanical business) shall be liable to the amount of stock held or owned by him.' The provision is self-executing. The liability of the stockholder, measured by the par value of his stock, 'is not to the corporation, but to the creditors collectively; is not penal, but contractual; is not joint, but several; and the mode and means of its enforcement are subject to legislative regulation.' (See Willis v. Mabon (Willis v. St. Paul Sanitation Co.) 48 Minn. 140, 16 L.R.A. 281, 31 Am. St. Rep. 626, 50 N. W. 1110; McKusick v. Seymour S. & Co. 48 Minn. 158, 50 N. W. 1114; Minneapolis Baseball Co. v. City Bank, 66 Minn. 441, 38 L.R.A. 415, 69 N. W. 331; Hanson v. Davison, 73 Minn. 454, 76 N. W. 254; Straw & E. Mfg. Co. v. L. D. Kilbourne Boot & Shoe Co. 80 Minn. 125, 83 N. W. 36; London & N. W. American Mortg. Co. v. St. Paul Park Improv. Co.

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84 Minn. 144, 86 N. W. 872; Way v. Barney, 116 Minn. 285, 38 L.R.A.(N.S.) 648, 133 N. W. 801, Ann. Cas. 1913A, 719). Under the statute of 1894 (chap. 76), this liability was enforceable exclusively by means of a single suit in equity, in a court of the state, which was brought for the benefit of all the creditors against all the stockholders, or as many as could be served with process within the state. Hale v. Allinson, 188 U. S. 56, 47 L. ed. 380, 23 Sup. Ct. Rep. 244; Finney v. Guy, 189 U. S. 335, 47 L. ed. 839, 23 Sup. Ct. Rep. 558. To make the remedy more effective, the act of 1899 (chap. 272) was passed, and under the provisions of this statute as continued in substance (Way v. Barney, 116 Minn. 294, 38 L.R.A.(N.S.) 648, 133 N. W. 801, Ann. Cas. 1913A, 719), in the Revised...