Dickinson v. Kline

• Citation: 148 N.W. 141,96 Neb. 435
• Decision Date: 23 June 1914
• Docket Number: No. 17418.,17418.
• Parties: DICKINSON v. KLINE ET AL.
• Court: Supreme Court of Nebraska

96 Neb. 435

148 N.W. 141

DICKINSON

v.KLINE ET AL.

No. 17418.

Supreme Court of Nebraska.

June 23, 1914.

Syllabus by the Court.

The proceedings against the stockholders of an insolvent corporation by or in behalf of the creditors of the corporation to recover the full amount for which each stockholder is liable as fixed by his contract must be an action at law in which defendant is entitled to trial by jury. When the amount for which each stockholder is liable is unknown, but must be determined in the action, and depends upon equities to be adjusted among creditors or stockholders, or both, the action must be in equity. In such case there is a community of interest among them in the questions of law and fact involved, and the action may be brought in the county of the principal place of business of the corporation where the corporation itself can be served and summons can be issued to other counties where other necessary defendants can be served.

In such action, when the defendant stockholders have paid for their stock all that their contract with the corporation calls for, property of the corporation is the primary resource for the satisfaction of the claims of the creditors, and, until this resource fails, the creditors have no claim against such stockholders.

In an action in equity for the appointment of a receiver and to adjust and wind up the affairs of an insolvent corporation, a decree against stockholders for contribution is not final, nor is a decree allowing a claim of a creditor against the corporation final as to equities existing between such creditors and such stockholder who has paid the full amount of his subscription for stock. When the nature of the claims of creditors appears, and it also appears that stockholders who have fully performed their contract with the corporation ought not in equity to be required to contribute to such claims, all persons interested should be made parties to the proceedings, and the court should consider and determine the equities of the parties in allowing such claims.

When subscribers have paid for their stock all that they have agreed to pay, nothing further can be recovered upon their contract. If their contract and dealing with the corporation of which they become members are such as to mislead bona fide creditors who have trusted the corporation, relying upon the assets thereof, they may become liable to such creditors for further payments to the amount of the par value of their stock.

An agreement that payment in full for stock at the par value thereof shall not be required is a fraud upon subsequent creditors who deal with the corporation on the faith of the capital stock being fully paid. A court of equity will, at the instance of such creditors, compel the holder of such stock to pay so much of the difference between the par value of the stock and what has been paid therefor as is necessary to satisfy the claims of such creditors. This, however, does not apply in favor of persons who dealt with the corporation with notice of the facts.

Upon the evidence in this case indicated in the opinion, it is found that none of the creditors whose claims are contested in the answer was a bona fide creditor without notice of the equities of these defendants.

Appeal from District Court, Douglas County; Troup, Judge.

Action by Charles T. Dickinson, as receiver of the Omaha & Nebraska Central Railway, against John J. Kline and others. From decree for plaintiff, defendants appeal. Reversed and remanded.Tibbets, Morey & Fuller, of Hastings, Sullivan & Rait, of Omaha, Hastings & Coufal, of David City, Chas. G. Ryan, of Grand Island, Chas. P. Craft, of Aurora, and James C. Kinsler, of Omaha, for appellants.

H. H. Bowes, of Omaha, for appellee.

SEDGWICK, J.

In 1904 a corporation was organized under the laws of this state called the Omaha & Nebraska Central Railway, with an authorized corporate stock of $1,500,000. In 1908 John W. Ege, a stockholder of the company, began an action in the district court for Douglas county against the corporation, and, alleging gross misconduct on the part of the corporation and its officers, asked for the appointment of a receiver and an accounting. This plaintiff, Charles T. Dickinson, was by the court appointed as receiver for the corporation, and afterwards claims were allowed by the court in favor of certain creditors. The assets of the corporation were sold under the order of the court, and, the proceeds not being sufficient to satisfy the claims allowed, the court ordered this action begun by the receiver against these defendants as stockholders to recover their unpaid subscription for stock. The defendants answered, denying their liability, and upon trial the court found in favor of the plaintiff against some of the defendants, and entered a decree fixing their liability as stockholders for unpaid subscriptions, and the defendants have appealed.

[1] 1. The first question presented is as to the jurisdiction of the court over the subject–matter of the action, and especially over the persons of these defendants. This action was begun in the district court for Douglas county, and these defendants, who are very numerous, do not reside in Douglas county, but summons was issued against them to the sheriffs of the respective counties of their residence, and was there served upon them. They object that there was no jurisdiction to issue summons to other counties in the state because there was no joint liability between these defendants and the defendants who resided and were served in Douglas county.

Whether the remedy against the stockholders of an insolvent corporation is by an action at law or an action in equity depends upon the nature and extent of their liability. The defendants cite and rely upon the decision of this court in Burke v. Scheer, 89 Neb. 80, 130 N. W. 962, 33 L. R. A. (N. S.) 1057, and the decision of the Supreme Court of the United States in Hale v. Allinson, 188 U. S. 56, 78, 23 Sup. Ct. 244, 253 (47 L. Ed. 380). In the latter case the question is discussed at large, and numerous authorities are cited. The point discussed and decided, however, relates wholly to cases in which the amount for which each individual stockholder is liable has been determined and fixed. The court said:

“In this case, from the complainant's own bill, the amount demanded is the full amount of the par value of the shares held by each defendant.”

And the court quotes from Kennedy v. Gibson, 8 Wall. 498, 505, 19 L. Ed. 476:

“Where the whole amount is sought to be recovered, the proceeding must be at law. Where less is required, the proceeding may be in equity, and in such case an interlocutory decree may be taken for contribution, and the case may stand over for the further action of the court if such action should subsequently prove to be necessary, until the full amount of the liability is exhausted.”

This is the rule that this court has sought to apply in Burke v. Scheer, supra, and in other cases. When the amount that each individual stockholder is liable for is unknown, but depends upon facts not yet ascertained and upon equities to be adjusted between creditors or stockholders or both, “there is a community of interest among them in the questions of law and fact involved in the general controversy,” as said in Hale v. Allinson, supra, and they are properly joined in an action in equity. But a stockholder who is liable at all events for a definite fixed amount has no community of interest in questions of law or fact with any other defendant. When there is a community of interest, tested by the above rule, the action may be brought in the county of the principal place of the business of the corporation where the corporation itself can be served, and summons against others necessary as defendants can be issued to the county where they can be served. It will be seen from the subsequent discussion that these defendants were properly served with summons in the respective counties of their residence, and there is no doubt of the jurisdiction of a court of equity.

[2] 2. In the original action against the corporation by Mr. Ege as one of the stockholders it was alleged in the petition:

“That said defendant is a corporation duly organized and existing under and by virtue of the laws of the state of Nebraska for the purpose of operating an electric railway between Omaha, Neb., and Hastings, in the same state; that the promoters of the said concern in the past four years or more have failed to construct or operate said electric railway such as they pretended to construct; that said promoters and officers, during said time, by means of glaring advertisements in the newspapers of the city, advertised for the subscription of stock by making willful, fraudulent, and false representations as shown by Exhibit B, and is hereby made a part of this petition; that said concern was authorized to operate an electric railway, whereas its charter permits it only to operate a steam railway. Said officers and promoters further represented in said advertisement that they would offer as a premium and inducement to the purchasers of the stock gold watches of 14 carat, and further that: ‘An investment of $280 buys ten shares, or, in other words, $1,000 worth of stock. The dividends will be declared on the $1,000, and not on the $280. The dividend on a 10 per cent. basis on $1,000 would be $100 a year. Therefore you would get $100 a year on an investment of $280; in other words, 35 per cent. on your money. Do you want anything better?’ * * * Your petitioner further represents to the court that said officers and promoters have during said times collected by means of the sale of stock the sum of $55,000 or more, and that the said promoters and officers have actually expended for the purchase of property, right of way, grading, etc., about $6,000; * * * that said sum of $49,000 said officers and promoters have fraudulently appropriated to themselves.”

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