Crofoot v. Thatcher

Decision Date03 April 1899
Citation19 Utah 212,57 P. 171
CourtUtah Supreme Court

Appeal from the First District Court, Cache County, Hon C. H. Hart Judge.

Action by plaintiff as the duly appointed receiver of the Omaha Fire Insurance Company, against defendants on a promissory note payable on demand, alleged to have been made under and by virtue of Sec. 3, Chap. 43, Compiled Laws of Nebraska, as set forth in the complaint.

Defendants interposed and demurred under the provisions of Subdivision 2 of Sec. 2875, Rev. Stat. 1898, and also Sec. 314, C. L. U 1888 and Sec. 3143 C. L. U. 1888. The demurrer was sustained and plaintiff, electing to stand upon his complaint, a judgment was entered, dismissing the action with costs.

From that judgment plaintiff appealed.

Reversed and remanded.

J. E. Frick, Esq., for appellant.

It is conceded that the law of Utah controls in so far as the remedy is concerned; that the statute of limitations falls within the remedy, and thus these statutes control. This, however, applies only to an existing and enforcible cause of action. When the cause of action in fact arose, or whether there was a cause of action, or whether there is such now, against the respondent, is not of the remedy but of the right, and must be controlled by the law of the State where the contract sued on was made, and the same is governed by the laws of that State. Beach on Corporations, Sec. 148; Ferguson v. Sherman, 47 P. 1024; Coffing v. Dodge, 45 N.E. 928; Thompson on Corporations, Sec. 3047; Lowry v. Inman, 46 N.Y. 120; Feru v. Fidelity Bldg. Assn., 45 N.E. 784; Mandell v. Swan Trust & Cattle Co., 154 III., 177; 45 Am. St. Rep. 124.

The stock sued on in this case was made under the authority therefor given in Sec. 3, of Chap. 43 of the Compiled Statutes, as found in the Statutes of Nebraska of 1895, and which chapter is entitled "Insurance Companies." That part of the section material to the question now in issue, is as follows: "Sec. 3. Capital Required. No joint stock company shall be incorporated under the provision of this act, with a smaller capital than one hundred thousand dollars, nor more than one million dollars, as may be specified in the certificate of incorporation, which stock shall be divided into shares of one hundred dollars each, of which capital at least fifty per cent shall be fully paid up in cash, and that for the remainder of its capital there are in its possession, notes of its stock holders, secured by at least one surety, or by mortgages on unincumbered real estate, within this State, worth at least twice the amount of such notes, which notes or other security shall be approved by the State Auditor."

The section of the constitution which must be considered in connection with the language above quoted, is a part of Art. 11, being Sec. 4 of the subdivision of said Art. 11, entitled, "Miscellaneous Corporations," and reads as follows:--

"In all cases of claims against corporations and joint stock associations, the exact amount justly due shall be first ascertained, and after the corporate property shall have been exhausted, the original subscribers thereof shall be individually liable to the extent of their unpaid subscription, and the liability for the unpaid subscription shall follow the stock." Sawyer v. Hoag, 17 Wal. U.S. 610; Williams v. Taylor, 24 N.E. 288-290; Gilberth v. Gaylord, 34, Ohio St., 305; State v. German Savings Bank, 70 N.W. 221; Van Pelt v. Gardner 75 N.W. 874.

In addition to the authorities already cited upon this subject, the court will find the following cases instructive: Merrimac Mining Co. v. Levy, 54 Pa. 227; 93 Am. Dec., 697; Fear v. Bartlett, 32 A. 322.

The following cases taken from the several State and federal courts, all hold that the unpaid subscriptions to the capital stock of corporations is a trust fund. Most of them also hold that the statute of limitations has no application and does not begin to run until a call or demand for payment is made, or until the corporation becomes an adjudged insolvent and the creditors can proceed to collect the same. Glenn v. Semple, 80 Ala. 159; 60 Am. Rep. 92; Lehman v. Glenn, 6 So., 44; Crandall v. Lincoln, 52 Conn. 73; 52 Am. St. Rep. 560; Herman v. Page, 62 Cal. 448-450 and 464; Coleman v. Howe, 30 N.E. 725 (Ill.); Jackson v. Traer, 64 Iowa 469; 20 N.W. 764; Lane's Appeal, 105 Pa. 49; 51 Am. Rep. 166; Young v. Erie Iron Co., 31 N.W. 822 (Mich.); Walburn v. Chenault, 23 P. 661 (Kan.); Mackay v. Elwood, 41 P. 919; Ogden Clay Co. v. Harvey, 9 Utah 497; 35 P. 510; Noble Mer. Co. v. Mt. Pleasant Co-op., 18 Utah 213; 42 P. 869; Farnsworth v. Robbins, 31 N.W. 349; Hastings v. Drew, 76 N.Y. 16; Goebec Int. Co. v. Iron Chief Min. Co., 47 N.W. 726; Shickle v. Watts, 94 Mo. 410; National Trust Co. v. Miller, 33 N. J. Eq., 155; Priest v. Glenn, 51 F. 405; Hawkens v. Glenn, 131 U.S. 515; Fogg v. Blair, 139 U.S. 118; Thompson on Corporations, Secs. 2002-7, Secs. 3779-90 and 81; Cook on Stockholders, Sec. 195; Beach on Private Corporations, Vol. 2, Sec. 568, 569. The doctrine is fairly stated in the case of Wyeth Hdw. & Mfg. Co. v. James-Spencer-Bateman Co., 47 P. 604.

George Q. Rich, Esq., and A. T. Schroeder, Esq., for respondents.

By expressly fixing the maturity of the one class of obligations at call, and providing in the same section for the giving of another class of obligations, without making the same provisions, the Legislature precludes the presumption that such other obligations are to be payable only on call. The maxim, "Expressio unius est exclusio alterius," applies to this case. Sutherland on Statutory Construction, Sec. 327.

In the case at bar there was no written agreement of subscription, and even if there had been, all such prior agreements are merged in the subsequent secured promissory note and superseded and discharged all liability on stock subscriptions as such. Baxter v. Downer, 29 Vt. 412; Smith v. Furmo, 16 Amer. Dec., 618; Stowe v. Russell, 36 Ill. 18; Hargrave v. Conroy, 19 N. J. Eq., 281; McDonough v. Kane, 75 Ind. 181; Hadden v. Dimmick, 13 Abb. Pr. N. S., 135.

This rule of merger is applied to just such cases as the one at bar in Union Cent. Life Ins. Co. v. Curtiss, 35 Ohio St. 343; Howland v. Edmunds, 23 How., Pr. 159.

In effect the case of Gilbreth v. Gaylord (cited by appellant) has been overruled in the later cases of Union Ins. Co. v. J. Curtiss, 35 Ohio St. 343; Union Ins. Co. v. N. Curtiss, 35 Ohio St. 357.

The following cases hold that the note was an absolute promise to pay, and therefore barred: White v. Haight, 16 N.Y. 310 (and cases); Savage v. Medbury, 19 N.Y. 32; Union Cent. Life Ins. Co. v. Curtiss, 35 Ohio St. 343; Howland v. Edmunds, 24 N.Y. 307; 23 How., Pr. 159, and cases; Osgood v. Strauss, 55 N.Y. 672; 65 Barb., 627; May on Insurance, Vol. 2, Sec. 549, 549 a; Wood on Limitations, Sec. 158; Railroad v. Mason, 16 N.Y. 451; Tuckerman v. Brown, 33 N.Y. 297; Williams v. Taylor, 24 N.E. 289; Goshen Turnpike Co. v. Hurtin, 6 Am. Dec., 273; Hibernia T. Co. v. Henderson, 11 Am. Dec., 602 (Penn.); Williams v. Taylor, 24 N.E. 289.

Numerous cases are cited to the proposition that unpaid subscription to corporate stock is a trust fund. With this we have no quarrel. We only deny the application of the doctrine made by the appellant.

(a) Because, by authorities already cited, this is not a stockholders' liability as such, but a liability on a secured promissory note given in payment of stock and of no other effect than if given for borrowed money.

(b) Even under the trust fund doctrine as appellant claims it to be, this action would still be barred, as shown by appellant's own cases. "But it is only when the company has been dissolved or has become insolvent, that this equitable doctrine arises." Fear v. Bartlett, 32 Atlantic, 323.

Since the company did not become insolvent until 1897, the note sued on (or stock subscription, if it can be treated as such) was barred before the obligation became a trust fund.

(c) The trust-fund doctrine properly understood, carries with it no such consequences as are claimed for it by appellant. Wabash & C. Ry. Co. v. Ham, 114 U.S. 594; Peters v. Bain, 133 U.S. 691; Fogg v. Blair, 133 U.S. 538; County of Morgan v. Allen, 103 U.S. 508; Hollins v. Coal Co., 150 U.S. 381; Wyeth Hdw. Co. v. James-Spencer-Bateman Co., 47 P. 604.

Let us see whether or not this contract, interpreted by the laws of Nebraska, creates a trust such as will prevent the statute of limitations from operating. The Supreme Court of Nebraska has answered in the negative by holding that there was nothing in the relation of the parties to prevent the statute of limitations from applying. National Bank v. Green, 17 N.W. 86; S.C., 20 N.W. 754.

Where the liability and the remedy against the stockholders are statutory, they are confined in their operation to the limits or the sovereignty creating the corporation, and without extra territorial force or obligation. May v. Black, 30 Am. & Eng. Corp. Cas., 158; Lowry v. Inman, 46 N.Y. 119; Erickson v. Nesmith, 87 Mass. 234; Bank of N. Am. v. Rindge, 36 Am. & Eng. C. C., 269-106 N.

Upon the question that this receiver has no standing in Utah courts, we call attention also to the following authorities: Booth v. Clark, 58 U.S. 321; Ayres v. Siebel & Co., 82 Iowa 347; Parker v. Lamb & Son, 92 Iowa 245; High on Receivers, Sec. 289; Beach on Receivers, Sec. 680; Fitzgerald v. Fitzgerald, 59 N.W. 843.

The last is a Nebraska case, and shows that its courts would not recognize the right which is here claimed for this plaintiff.

MINOR, J., delivered the opinion of the court. BARTCH, C. J., and BASKIN, J., concur.


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