Crowley v. Potts' Estate
| Decision Date | 25 April 1930 |
| Docket Number | No. 27869.,27869. |
| Citation | 230 N.W. 645,180 Minn. 234 |
| Parties | CROWLEY v. POTTS' ESTATE et al. |
| Court | Minnesota Supreme Court |
Appeal from District Court, Crow Wing County; Graham M. Torrance, Judge.
Action by Neal Crowley, as receiver of the Merritt Development Company, against the estate of Charles W. Potts, deceased, and Marie Anna Potts, as administratrix of said estate. From an adverse judgment, defendants appeal.
Reversed in part and affirmed in part.
William Harrison and Arthur Roberts, both of Duluth, for appellants.
James E. Trask, of St. Paul, for respondent.
The appeal is from a judgment entered after defendant's motion for a new trial had been denied.
The action is to enforce the constitutional liability on 10,000 shares, par value of one dollar each, of the capital stock of the Merritt Development Company, a Minnesota corporation, hereinafter referred to as the corporation, issued to Charles W. Potts in May, 1916. Mr. Potts transferred 7,750 shares of this stock on the following dates to the following persons:
On July 18, 1917, to C. E. Updike ............ 2,000 shares
On November 5, 1917, to C. F
Krueger ...................................... 1,250 shares
On January 30, 1918, to A. Sundberg .......... 1,000 shares
On June 20, 1918, to W. H
Fitzer ....................................... 500 shares
On June 20, 1918, to E. C. Downing ........... 150 shares
On June 20, 1918, to L. Peterson ............. 350 shares
On October 15, 1918, to A
Reeves ....................................... 500 shares
On October 15, 1918, to E. A
Reeves ....................................... 500 shares
On December 28, 1918, to J. C
Ranseen ...................................... 1,000 shares
On March 1, 1919, to Webster
Smith ........................................ 250 shares
On March 1, 1919, to L. Peterson ............. 250 shares
_____
Total ..................................... 7,750 shares
Mr. Potts died Mar. 22, 1927, owning 2,250 shares and Mrs. Potts, the appellant, is now the representative of the estate. Plaintiff is the receiver of the said corporation having been so appointed in the federal court in sequestration proceedings instituted on August 30, 1921, wherein a 100 per cent. assessment has been made against those liable as stockholders.
This action is to recover the primary liability on the 2,250 shares, which is admitted, and the secondary liability on the 7,750 shares. By adjustments, stated in the findings, the Sundberg 1,000 shares, and the Ranseen 1,000 shares are out of the case and $187 has been paid on the Krueger 1,250 shares.
The theory is that defendant is "liable" because of an alleged existing indebtedness at the time of the transfer of said stock. This claim rests on these facts: On May 3, 1916, the Gorham-Garbett Company made a mining lease on 80 acres of land to Charles W. Potts and four other persons as lessees, for the term of 50 years. The lessees agreed to pay all taxes on the land and to pay as royalty 35 cents per ton upon all iron and manganese ore mined and removed, and a minimum royalty of 35 cents per ton on from 10,000 tons to 50,000 tons annually, as therein designated. The lessees were to pay such royalties at the end of each three months. They had the privilege to terminate the lease at any time by giving 60 days' notice as therein provided. It was never terminated. On May 13, 1916, said lessee assigned said lease to the corporation which for a consideration covenanted and agreed to assume and perform the lessees' obligations in said lease.
On August 30, 1921, when the sequestration proceedings were instituted, the corporation was indebted to the Gorham-Garbett Company for royalties then due on said lease in the sum of $8,020.83. All this accrued subsequent to the transfer of the stock by Mr. Potts.
There is another similar transaction in which Franklin L. Merritt, Frank A. Barber, A. T. McPherson, and the estate of W. A. Kerr were creditors in the sum of $3,671.86. This item will be controlled by our comments relating to the claim of $8,020.83.
The controversy which relates to the time when the claims of the named creditors came into existence does not rest upon conflicting evidence, but involves the conclusions to be drawn from uncontradicted evidence.
1. The order for assessment is conclusive as to all matters relating to the amount, propriety, and necessity of the assessment. It is not binding upon the question of defendant's liability and she is at liberty in this action to assert and litigate the claim that the facts are insufficient to constitute a cause of action against her. McCabe Bros. Co. v. Farmers' Grain & Supply Co., 172 Minn. 33, 214 N. W. 764; Zander v. Affeldt, 173 Minn. 496, 217 N. W. 595; Kuhlman v. Granite City Investing Corp., 174 Minn. 166, 218 N. W. 885; Selig v. Hamilton, 234 U. S. 652, 34 S. Ct. 926, 58 L. Ed. 1518, Ann. Cas. 1917A, 104.
2. Appellant in this action has attempted to challenge the order of assessment because it does not show a computation demonstrating the propriety of a 100 per cent. assessment upon the transferor's liability, nor does it disclose the proportions involved. The rule is stated in Harper v. Carroll, 66 Minn. 487, 69 N. W. 610, 1069. She can not have these matters determined herein. Much confusion would necessarily follow any effort on the part of any court, other than the court wherein the sequestration proceedings are pending, attempting to determine these matters. The order in that court must be final as to the amount of the assessment and the necessity therefor. A transferor of stock may be liable but for a small net amount. But the determination of that amount, liability being conceded, must rest with the court collecting and distributing the funds. It is not to be assumed that the money which appellant is required to pay will be used for unauthorized purposes. We have an abiding faith in the federal and state courts in Minnesota giving such transferor or past stockholder, who is liable to an assessment because of debts in existence at the time of the transfer, ample hearing so that his money will be used only in the discharge of his obligation, and that any surplus to which he may be entitled will be duly returned. G. S. 1923, § 8031; Selig v. Hamilton, 234 U. S. 652, 34 S. Ct. 926, 58 L. Ed. 1518, Ann. Cas. 1917A, 104. His equities in such matters will be protected in the sequestration court. The argument that he may be burdened by being required to raise and pay a 100 per cent. assessment on a large block of stock when his ratable liability may not exceed three per cent., as an illustration, is fallacious. Courts are not unreasonable and do not require unreasonable or ridiculous things. When a stockholder shows such a situation, he will be given proper relief.
3. The alleged liability herein rests upon article 10, § 3 of our State Constitution, reading: "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."
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