Dight v. Chapman

• Decision Date: 01 February 1904
• Citation: 44 Or. 265,75 P. 585
• Parties: DIGHT v. CHAPMAN.
• Court: Oregon Supreme Court

75 P. 585

44 Or. 265

DIGHT v. CHAPMAN.

Supreme Court of Oregon

February 1, 1904

Appeal from Circuit Court, Multnomah County; Arthur L. Frazer Judge.

Action by John H. Dight, as receiver for the collection and enforcement of the liability of the stockholders of the Duluth Dry Goods Company, insolvent, against Simcoe Chapman. Judgment for defendant. Plaintiff appeals. Affirmed.

This is an action by a receiver of an insolvent foreign corporation to recover the par value of certain shares of stock in that corporation. The complaint states the facts constituting the plaintiff's right to maintain this action, and the defendant's liability for the sum demanded. The answer after admitting almost all the allegations of the complaint for a separate defense alleges that the defendant was duly adjudged a bankrupt, of which fact the plaintiff, as such receiver, had actual knowledge and notice, and that the defendant's discharge therefrom constitutes a plea in bar. The reply denies the allegation of new matter in the answer, and, the cause having been tried without a jury, the findings of the court are, in effect, that about September 1 1890, the Duluth Dry Goods Company was incorporated in Minnesota under the laws thereof, and issued 1,309 shares of capital stock of the par value of $100 each, for 50 shares of which the defendant subscribed and became the owner, paying therefor the sum of $5,000; that under the Constitution and laws of that state a stockholder in such a corporation is liable for its debts to the extent of the par value of his stock, which obligation is enforceable by a receiver appointed for that purpose on behalf of the creditors of such corporation, who may recover such par value in the courts of any sister state that can secure jurisdiction of the person of such stockholder; that Luther Mendenhall, a creditor of the Duluth Dry Goods Company, in behalf of himself and of all other creditors who might join therein, instituted a suit in the state court of Minnesota against the corporation and its stockholders residing in that state, and, other creditors having intervened, a decree was rendered February 25, 1899, establishing the indebtedness of the corporation at $81,717.76, and awarding a recovery against it for that sum, and against the stockholders severally for sums equal to the par value of the stock owned by each; that in pursuance of the decree the plaintiff herein was appointed receiver to collect the sums so awarded and to enforce the liability against nonresident stockholders, and, having duly qualified May 6, 1899, he has ever since been and now is such officer; that the defendant, at the time this suit was instituted, was a resident of Chicago, and, not having been made a party thereto, though the owner of stock in the corporation, he, on January 19, 1900, filed in a federal court his petition in bankruptcy, together with a schedule of his assets and liabilities and a list of his creditors, but failed to include therein his liability on account of such stock, or to name the creditors of the corporation; that he was thereupon adjudged a bankrupt, and on notice to creditors a trustee was elected, who, having duly qualified, took charge of and sold his assets, realizing therefrom a sum sufficient to pay his secured debts and to distribute the sum of $10 among his other creditors, and, the estate having been settled, the defendant was discharged March 19, 1900; and that soon after filing the petition in bankruptcy, and during the pendency of the proceedings, plaintiff had actual knowledge and notice thereof, obtained while cashier of the First National Bank of Duluth, one of the defendant's creditors, by reading notices sent from time to time by the referee in bankruptcy to the bank. From these findings the court concluded that at the time the decree was rendered establishing the indebtedness of the corporation the defendant was liable to its creditors in the sum of $5,000, which was a provable debt against his estate; that plaintiff's actual knowledge of the proceedings was equivalent to naming the creditors of the corporation in the schedule; that the defendant's discharge in bankruptcy released him from all liability on the obligation sued on; and that he was entitled to a dismissal of the action; and, judgment having been rendered in accordance therewith, plaintiff appeals.

John M. Gearin, for appellant.

E.E. Coovert, for respondent.

MOORE C.J. (after stating the facts).

Section 17 of the act of Congress to establish a uniform system of bankruptcy throughout the United States, approved July 1 1898 (30 Stat. 550 et seq., c. 541 [U.S. Comp. St.1901, p. 3428]), is, so far as material herein, as follows: "A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as *** (3) have not been duly scheduled in time for proof and allowance, with the name of the creditor, if known to the bankrupt, unless such creditor had notice or actual knowledge of the proceedings in bankruptcy." The first inquiry presented is whether or not the claim here sought to be enforced is a debt "provable" against the bankrupt's estate, within the meaning of the term as used in the statute. To answer the question necessitates an examination of the Constitution and laws of Minnesota in respect to the liability of stockholders of insolvent corporations in that state. "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." Const. Minn. art. 10, § 3. The statute of that state regulating proceedings to enforce the liability of stockholders of an insolvent corporation, as stated in the findings and admitted by the pleadings, is, in substance, as follows: Whenever a creditor of any corporation seeks to charge the stockholders thereof with any liability created by law, he may maintain an action for that purpose, and secure an order requiring all creditors to exhibit their claims and become parties within a reasonable time; and, if it appear that the corporation is insolvent, the court may ascertain the liabilities of the respective stockholders, and adjudge the sum payable by each, and, when necessary, may appoint one receiver to take charge of the assets of the corporation, and another to enforce the liability of stockholders. The statute of Minnesota denominates the procedure specified "an action," but, as the distinction between suits and actions has been abolished in that state, it is evident that the mode prescribed partakes of the character of a suit in equity. Allen v. Walsh, 25 Minn. 543; Johnson v. Fischer, 30 Minn. 173, 14 N.W. 799; Hanson v. Davison (Minn.) 76 N.W. 254. The findings admit that the decree of the Minnesota court established the insolvency of the corporation, the amount of its indebtedness, and the number of shares of capital stock issued by it, from which it follows that a payment by each stockholder of 62 1/2 per cent. of his capital stock, if solvent, would have discharged the entire indebtedness, notwithstanding which he was required to pay a sum equal to the par value thereof. Though the defendant was not a party to the decree rendered against the corporation, he cannot, in his own defense, deny such liability, for a judgment against the corporation is, in effect, a judgment against the stockholder. Holland v. Development Co., 65 Minn. 324, 68 N.W. 50, 60 Am.St.Rep. 480; Holyoke Bank v. Goodman Paper Mfg. Co., 9 Cush. 576; Hanson v. Davison (Minn.) 76 N.W. 254. Such decree, however, as to the ultimate question of a nonresident stockholder's liability and the measure thereof, is not conclusive as against such stockholder who was not made a party to the suit, and will be regarded as open in the trial of an ancillary action based on the decree. Hale v. Hardon, 95 F. 747, 37 C.C.A. 240. Under the Constitution and statute of Minnesota, stockholders of corporations in that state occupy a relation tantamount to sureties to its creditors for the payment of its debts, for which each stockholder is severally liable to the extent of the par value of his stock. Allen v. Walsh, 25 Minn. 543; Harper v. Carroll, 66 Minn. 487, 69 N.W. 610, 1069. "Such liability," says Aldrich, J., in Hale v. Hardon, supra, in construing the law of Minnesota, "is not like that of being assessed for nonpayment of the full amount of subscription to stock, for the reason that it is not an asset of the corporation." The measure of the corporation's indebtedness properly chargeable to the defendant is proportionate to the number of shares of stock owned by others from whom the pro rata share, augmented by the insolvency of others, could have been collected. This ratio must remain uncertain until it is determined who cannot pay their just proportions, thereby imposing upon the solvent stockholders the burden of discharging the entire obligation if the par value of their stock equals a sum sufficient for that purpose. Such uncertainty, however, does not prevent the Minnesota court from rendering a decree against each stockholder for a sum equal to the par value of his stock, though the aggregate awarded exceeds the amount of the indebtedness of the insolvent corporation. Harper v. Carroll, 66 Minn. 487, 69 N.W. 610, 1069. In that case, Mr. Justice Canty, in speaking upon this subject, says: "Then one of two propositions must be true: First, the creditors are entitled to successive judgments for successive assessments until the full limit of such statutory liability is exhausted, if such successive assessments and judgments are made necessary by reason of the insolvency of stockholders; or, second, the creditors are entitled to one judgment for the full amount of such...