Converse v. ÆTna Nat. Bank

• Citation: 64 A. 341,79 Conn. 163
• Court: Supreme Court of Connecticut
• Decision Date: 30 July 1906
• Parties: CONVERSE v. ÆTNA NAT. BANK.

64 A. 341

79 Conn. 163

CONVERSE

v. ÆTNA NAT. BANK.

Supreme Court of Errors of Connecticut.

July 30, 1906.

Appeal from Superior Court, Hartford County; Joel H. Reed, Judge.

Action by Theodore R. Converse against the Ætna National Bank. From a judgment for plaintiff, defendant appeals. Reversed and remanded.

Action brought to the superior court for Hartford county by a receiver of an insolvent Minnesota corporation, appointed in Minnesota, against a national banking association as a shareholder in the Minnesota corporation, to collect an asessment made against the defendant and other shareholders in the latter by a Minnesota court, under the laws of Minnesota imposing a double liability on shareholders of an insolvent corporation. A demurrer to the complaint was overruled (Thayer, J.), and judgment for the plaintiff on issues of fact subsequently rendered (Reed, J.). Error.

Charles E. Searls and Gardiner Greene, for appellant. William Waldo Hyde and Charles Welles Gross, for appellee.

BALDWIN, J. The Minnesota Thresher Manufacturing Company was organized in 1884, under the laws of Minnesota. Its articles of incorporation specified as the corporate purposes the purchase, in whole or part, of the capital stock, evidences of indebtedness and assets of the Northwestern Manufacturing & Car Company, and the manufacture of steam engines and certain other articles. The defendant became a shareholder in the Minnesota Thresher Manufacturing Company prior to 1899. At that time the Constitution of Minnesota declared that "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." And the statutes of the state provided for the enforcement of this liability by a creditor's bill brought in any of its district courts which possessed jurisdiction to enforce it, and that in any such action a receiver might be appointed; that in all cases in which the directors, officers, or stockholders of a corporation were made parties to such an action, if its debts remained unsatisfied after applying its assets, including all sums due and remaining unpaid on the shares of its stock, the court "shall proceed to ascertain the respective liabilities of the directors or other officers, and of the stockholders, and to adjudge the amount payable by each, and enforce the judgment as in other cases;" and that in any such action the court might order notice to be published to all the creditors of the company, requiring them within a certain time to exhibit their claims and become parties to the action, under pain of being excluded, in default thereof, from all benefit under such judgment as might be rendered.

Under this state of the law, it was decided by the Supreme Court of Minnesota that no suit could be maintained by a receiver, either in or out of Minnesota, to enforce the liability of shareholders (over such amount as might be unpaid upon their shares) for the debts of a corporation; but that the sole remedy was by a single suit by a creditor in the courts of that state. In 1899, "An act to provide for the better enforcement of the liability of stockholders of corporations" was passed. This authorized any receiver of a corporation within the scope of the constitutional provision, who had been appointed by any district court, either by virtue of the provisions of the statutes which have been previously described, or under its general equity powers, to apply to it for an order of assessment against the shareholders. Upon such application, a time for a hearing was to be set and an order of notice made. At the hearing the court was to consider such testimony as might be offered by him and by any creditors or shareholders "as to the probable indebtedness of said corporation, and the expenses of said * * * receivership, and the probable amount of assets available for the payment of such indebtedness and expenses; and also as to what parties are or may be liable as stockholders of said corporation, and the nature and extent of such liability." Then followed these provisions: "And if it appear to the satisfaction of the court that the ordinary assets of said corporation, or such amount as may be realized therefrom within a reasonable time, will probably be insufficient to pay and discharge in full and without delay, its indebtedness, and the expenses of such * * * receivership, and that it is necessary or proper that resort be had to such liability of its stockholders, the said court shall thereupon, by order, direct and levy a ratable assessment upon all parties liable as stockholders, or upon or on account of any stock or shares of said corporation, for such amount, proportion or percentage of the liability upon or on account of each share of said stock as the court, in its discretion, may deem proper (taking into account the probable solvency or insolvency of stockholders, and the probable expenses of collecting the assessment); and shall direct the payment of the amount so assessed against each share of said stock to the * * * receiver within such time thereafter as said court may specify in said order. Said order shall direct the * * " receiver to proceed to collect the amount so assessed against each share of said stock from the parties liable therefor; and shall direct and authorize said * * * receiver, in case of the failure of any party liable upon or on account of any share or shares of said stock to so pay the amount so assessed against the same within the time specified in said order, to prosecute actions against each and every such party so failing to pay the same, wherever such party may be found, whether in this state or elsewhere. Said order and the assessment thereby levied shall be conclusive upon and against all parties liable upon or account of any stock or shares of said corporation, whether appearing or represented at said hearing or having notice thereof or not, as to all matters relating to the amount of and the propriety of and necessity for the said assessment This provision shall also apply to any subsequent assessment levied by said court as hereinafter provided. It shall be the duty of such * * * receiver to, and he may, immediately after the expiration of the time specified in said order for the payment of the amount so assessed by the parties liable therefor, institute and maintain an action or actions against any and every party liable upon or on account of any share or shares of such stock who has failed to pay the amount so assessed against the same, for the amount for which said party is so liable. Said actions may be maintained against each stockholder, severally, in this state or in any other state or country where such stockholder, or any property subject to attachment, garnishment or other process in an action against such stockholder, may be found. But if said * * * receiver shall in good faith believe any stockholder so liable to be insolvent, or that the expense of prosecuting such action against such stockholder will be so great that it will be of disadvantage to the estate and the interest of creditors to prosecute the same, said * * * receiver shall so report to said court; and shall not be required to institute or prosecute any such action unless specifically directed so to do by said court And in such case said court shall not require said receiver to institute or maintain such action unless said court shall have reasonable cause to believe that the result of such action will be of advantage to the estate and creditors of said corporation; except as hereinafter provided."

When the defendant acquired its shares in the Minnesota Thresher Manufacturing Company, as the latter was not incorporated solely for manufacturing purposes, its shareholders were, in favor of its creditors, subject to a double liability, under the Constitution and laws of Minnesota. This has been expressly determined by the highest court in that state, and on grounds which seem to us impregnable. State v. Minnesota Thresher Manufacturing Co., 40 Minn. 213, 41 N. W. 1020, 3 L. R. A. 510; Merchants' Bank v. Minnesota Thresher Manufacturing Company, 90 Minn. 144, 95 N. W. 707. The company was formed for several purposes, one of which was to buy up the shares of stock and indebtedness of an existing manufacturing corporation. Such a purchase would not be an act directly and naturally incidental to carrying on a manufacturing business. The exception made by the Constitution in favor of manufacturing corporations was not one to be extended by construction. As it is admitted on the face of the pleadings that the defendant acquired its stock duly and lawfully, no question of ultra vires arises. California Bank v. Kennedy, 167 U. S. 362, 17 Sup. Ct. 831, 42 L. Ed. 198. It therefore incurred, by becoming a shareholder in a Minnesota corporation, a liability to perform such contractual obligations as were attached by the laws of Minnesota to the ownership of its capital stock. Fish v. Smith, 73 Conn. 377, 380, 47 Atl. 711, 84 Am. St Rep. 161. One of these obligations was to be answerable for the debts of the corporation, in case of a deficiency of corporate assets to the extent of the par value of its shares of stock. Hawthorne v. Calef, 2 Wall. 10, 22, 17 L. Ed. 776; Ball Electric Light Co. v. Child, 68 Conn. 522, 525, 37 Atl. 391. The amount of this liability could not be thereafter increased by subsequent legislation. The mode of enforcing it could be varied within reasonable limits. A corporation organized under general incorporation laws, whether there be or be not a statutory reservation of a power of amendment or repeal, holds its franchises necessarily subject to the right of the state to change those general laws and their application to existing corporations in any manner not prejudicial to vested Interests of the latter or of its creditors or stockholders, nor inconsistent with...