Arthur v. Willius

• Decision Date: 28 October 1890
• Citation: 44 Minn. 409,46 N.W. 851
• Parties: ARTHUR ET AL. v WILLIUS ET AL.
• Court: Minnesota Supreme Court

44 Minn. 409

46 N.W. 851

ARTHUR ET AL.vWILLIUS ET AL.

Supreme Court of Minnesota.

Oct. 28, 1890.

(Syllabus by the Court.)

1. In an action against a corporation under Gen. St. c. 76, the individual liability of stockholders for the corporate debts may be enforced upon the application of any creditor who is a party to the proceedings, although the complaint of the judgment creditor who instituted them did not demand any such relief.

2. If all the stockholders are not joined as parties to the proceedings, the defect is waived if objection is not taken by answer or demurrer; and if any of the stockholders joined as parties are not served or brought into court, the defect is waived if the others go to trial on the merits without applying to have the cause stayed until their associates are brought in.

3. Only those corporations come within the exception in section 3, art. 10, of the constitution of the state which are organized for the purpose, as stated in their articles of association, of carrying on an exclusively manufacturing business; and if the purposes, as stated in the articles, are to carry on both a manufacturing business and also other kinds of business, not properly incidental to or necessarily connected with the manufacturing business, the fact that the corporation never actually engaged in such other kinds of business will not bring it within the exception referred to.

Appeal from district court, Ramsey county; BRILL, Judge.

John B. & W. H. Sanborn, for appellants.

Ingersoll & Ovitt, for Matheny, Haynie & Co.

Thompson & Taylor and C. J. Thompson, for Auerbach, Finch & Van Slyck.

Arthur G. Otis and Geo. B. Young, for Merchants' Nat. Bank of St. Paul.

C. D. & Thos. D. O'Brien, for F. B. Clarke.

Henry C. James, for respondents.

MITCHELL, J.

The two main points made by appellants are: First, that the constitutional “double liability” of stockholders, if it existed, was not enforceable in this action; second, that no such liability existed in this case. The grounds upon which it is sought to maintain the first proposition are: (1) That no such cause of action is set up in the complaint, and (2) that all the stockholders were not made parties to the suit. If the correctness of the first ground is to be determined by reference exclusively to the complaint of the judgment creditors who instituted the action, appellants' contention might perhaps be correct; but in assuming this to be the fact consists the chief fallacy in their argument. An action against a corporation, under chapter 76 of the General Statutes, is in the nature of an action to wind up its affairs, to collect and convert all its assets, and appropriate them ratably among creditors, and to enforce the individual liability of stockholders and others to the extent of the deficiency of assets. As was said in Merchants' Nat. Bank v. Bailey Manuf'g Co., 34 Minn. 327, 25 N. W. Rep. 639, “it is an action not proceeding in the ordinary way of actions at law by trial of simple issues, judgment, and execution, but by the exercise of powers peculiar to the former courts of chancery.” The proceedings are susceptible of being moulded into almost any form necessary to accomplish their purpose of securing a full and final adjustment of the rights and liabilities of all parties growing out of the corporate business. During the progress of the proceedings, new parties may be admitted or brought in, and new issues introduced from time to time, as they become necessary for the final winding up of the affairs of the corporation, and the enforcement of all the rights of creditors. The original complaint need not state more than a case for the sequestration of the corporate assets. Neither stockholders, directors, nor creditors, (save the one who institutes the suit,) need be made parties in the first instance. Other creditors may subsequently come in or be brought in. Stockholders and directors may also be brought in for the purpose of enforcing their individual liability. This may be done at the instance or upon the complaint of any creditor who has become a party to the proceedings. In short, the proceedings are intended to be so elastic as to be susceptible of development during their successive stages of progress, as to reach not only all the corporate assets, but also all liabilities of stockholders and others so far as necessary for the payment of creditors. Hence, in order to ascertain whether the individual liability of the appellant stockholders was properly enforceable in this action, we must look not merely to the complaint of the original plaintiffs, but also to the issues tendered by the pleadings of creditors. It is immaterial by what particular name they designated these pleadings, whether answers, complaints, or cross-bills. In this case at least two of the so-called “answers” of creditors contain all the allegations of fact necessary to constitute a cause of action against appellants upon their individual double liability. That of Auerbach, Finch & Van Slyek in term expressly a vers that each and all of the stockholders are liable for the payment of all the debts of the corporation to the amount of the stock held or owned by them respectively. To this “answer” the appellants replied putting in issue the allegation referred to by a specific denial, thus accepting the issue tendered, and showing that they understand the “answer” as in the nature of a complaint against them, and not a mere defense to the complaint of the plaintiff. And, so far as appears from the bill of exceptions, the cause was tried before the referee, without objection, upon the theory that the question of the individual liability of stockholders was one of the issues in the case. We are clearly of opinion that it was, and that the referee was right in passing upon it in his findings.

As to the alleged defect of parties, the rule undoubtedly is that in an action under chapter 76, when it is sought to enforce the individual...