Crocker v. Gentry

• Decision Date: 23 October 1928
• Citation: 271 P. 38,127 Or. 168
• Parties: CROCKER v. GENTRY ET AL.
• Court: Oregon Supreme Court

271 P. 38

127 Or. 168

CROCKER v. GENTRY ET AL.

Supreme Court of Oregon

October 23, 1928

Department 1.

Appeal from Circuit Court, Umatilla County; James Alger Fee, Judge.

Suit by O. S. Crocker, trustee in bankruptcy of the Pendleton Packing and Provision Company, bankrupt, against L. W. Gentry and others. Decree of dismissal, and plaintiff appeals. Reversed.

This is a suit by the trustee in bankruptcy of a corporation to enforce payment by the stockholders of their subscriptions to the capital stock.

The complaint alleged that the corporation was adjudged a bankrupt, that later the plaintiff was appointed trustee of the estate, and that the defendants were subscribers to the capital stock of the corporation in amounts alleged. Continuing, the complaint alleges that after the adjudication in bankruptcy a proceeding occurred before the referee in bankruptcy of the federal court for this district upon a petition presented by the trustee in bankruptcy, wherein he prayed for an order authorizing him to make a call upon all of the stockholders of the bankrupt for their unpaid balances upon subscriptions to the capital stock. Constituting a portion of the complaint in this suit is a copy of the findings of fact entered as the result of the trial upon the foregoing petition; these findings set forth that none of the stockholders of the corporation, who are defendants in this suit, paid the par value of his stock or any portion thereof and that there is due and unpaid on each of their subscriptions the whole amount. Further, the findings set forth that claims have been proved and allowed against the estate in the amount of $44,123.83, no part of which has been paid, that other claims have been presented, but not yet acted upon, and that in addition there will be charges incurred for the administration of the estate. The findings set forth that the assets, aside from the obligations of the stockholders, are of the approximate value of $4,000, that all of the delinquent stockholders are not financially responsible, and that the obligations, consisting of subscriptions to the capital stock, were appraised as of the value of $10,000. The findings conclude that:

"There is a necessity for the collection in full of all the said obligations of said stockholders on account of unpaid stock * * * to liquidate the indebtedness of said bankrupt company."

The order directed the trustee to make a call upon all of the stockholders for the par value of their stock, and authorized him, in event the call was not complied with, to institute proceedings against any defaulting stockholder.

The complaint alleges that the trustee made the call and that the defendants in this suit "have not paid anything upon their stock subscriptions," concluding with an allegation that the plaintiff has no plain, speedy, adequate or complete remedies at law." He prays for a decree that the plaintiff "have and recover of and from the respective defendants the respective amounts shown and recited hereinabove with interest as owing and unpaid on account of said stock liability from each of them, and that a several decree be entered against each of said defendants for said amount, with interest, and for the costs and disbursements of this suit in and for such further, other and separate relief as shall in equity be meet." Four of the defendants appeared; each demurred "for the reason and on the ground that the equity side of this court has no jurisdiction of the subject of this suit." The demurrer was sustained, and the court entered a decree in behalf of each defendant dismissing the plaintiff's suit. From these decrees the plaintiff has appealed.

Edward J. Clark, of Portland (R. I. Keator, of Pendleton, on the brief), for appellant.

J. R Raley, of Pendleton (Raley, Raley & Warner, of Pendleton, on the brief), for respondents.

ROSSMAN J. (after stating the facts as above).

This court has upon many occasions dealt with the problem whether a creditor, receiver, or trustee of a corporation who undertakes to enforce a stockholder's liability upon the latter's unpaid subscription to the capital stock may resort to a court of equity or is possessed of an adequate and appropriate remedy at law. The considerations historically which influenced courts of equity to assume jurisdiction in situations analogous to that before us are dealt with exhaustively by Professor Langdell in 4 Harvard Law Review, 99; the article is entitled "Creditor's Bills." See, also, Creditor's Bills, 5 Harvard Law Review, 101. It was the fact that courts of law could not supply a remedy as efficient as that devised by equity that persuaded the latter to take jurisdiction when a suitor presented himself. The same thought has been enunciated by this court upon many occasions. Thus, in the early case of Ladd & Bush v. Cartwright, 7 Or. 329, we find:

"The next question presented for our consideration is whether the individual liability of a stockholder to existing creditors of the corporation may be enforced by an action at law, or whether a suit in equity must be resorted to. It is insisted by counsel for appellants that the remedy is at law. * * * But upon the other hand, we find that there are many cases in which it has been held that the remedy is in equity, where the rights of the corporation, the stockholders, and creditors can all be adjusted in one suit upon the principles of equality and justice. And as the views presented in those cases recommend themselves to our consideration as the most reasonable and appropriate, we have concluded to adopt them."

This case was followed shortly by Hodges & Wilson v. Silver Hill Mining Co., 9 Or. 200, which was a suit in equity against the stockholders of insolvent corporations to recover upon their unpaid subscriptions to its capital stock. Mr. Chief Justice Lord, in announcing the decision of the court, used the following language, which has a bearing upon the matter now submitted to us:

"To the extent of the stock subscribed and unpaid, each stockholder is liable for the indebtedness of the corporation. It is a several, distinct and limited liability, as to which each stockholder stands alone, irrespective of the amount for which others are liable, except that if he pays more than his proportion of such debts, he may, as in other cases, have contribution from his coshareholders. In the absence of any legislation providing for the enforcement of this liability, the implication of law is that the common law would supply a remedy. Our predecessors, however, conceived that the remedy in equity, where the rights of the corporation, the stockholders and creditors, could all be adjusted in one suit, upon principles of equality and justice, would be more appropriate, adopted the remedy in equity for the enforcement of such liabilities."

Shortly thereafter the case of Brundage v. Monumental, etc., Co., 12 Or. 322, 7 P. 314, was before the court. It again presented the question whether the liability of a subscriber to the capital stock of a corporation was enforceable by a suit in equity. Mr. Justice Lord announced the decision of the court, and in dealing with this problem stated:

"The Constitution provides that 'the stockholders of all corporations and joint-stock companies shall be liable for the indebtedness of said corporation to the amount of their stock subscribed and unpaid, and no more.' Section 3, art. 11, Const. By this section the liability of stockholders of a corporation is limited to the amount of their stock subscribed and unpaid; and the remedy to enforce this

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