Elderkin v. Peterson

• Decision Date: 17 May 1894
• Citation: 8 Wash. 674,36 P. 1089
• Parties: ELDERKIN v. PETERSON.
• Court: Washington Supreme Court

36 P. 1089

8 Wash. 674

ELDERKIN v. PETERSON.

Supreme Court of Washington

May 17, 1894

Appeal from superior court, King county; R. Osborn, Judge.

Action by James K. Elderkin, receiver of the Seattle Insurance Company, against Fred H. Peterson to recover unpaid subscriptions to the capital stock of the company. From a judgment for plaintiff, defendant appeals. Reversed.

Fred H Peterson and Battle & Shipley, for appellant.

John Wiley, H. Bostwick, Will. H. Thompson, Edward P. Edsen, and John E. Humphries, for respondent.

ANDERS J.

The respondent was appointed receiver of the Seattle Insurance Company by the superior court of King county, and, as such receiver, was directed by said court to collect from the subscribers and stockholders of said corporation the whole of their subscriptions to the capital stock of the company. Thereafter the respondent instituted this action to recover the sum of $38,829.33, alleged to be due from the appellant as the unpaid balance on the capital stock of the company held and owned by appellant at the time of the commencement of the action. The defendant filed a motion to strike from the complaint certain designated portions thereof, which motion was in part sustained and in part denied, and the defendant then interposed a general demurrer to the complaint, which was overruled by the court, and thereupon the defendant filed his answer, which denied certain allegations of the complaint, and admitted certain other allegations thereof, and which also set up four separate affirmative defenses. The plaintiff demurred to each of the affirmative defenses pleaded, and the demurrer was sustained as to the first, third, and fourth defenses, and overruled as to the second; whereupon plaintiff replied, denying the allegations contained in the second of said affirmative defenses. A trial was had, resulting in a judgment in favor of the plaintiff for the sum of $8,861.

The appellant's first contention is that the court committed error in overruling his demurrer to the complaint. He urges several propositions in support of his position, the first of which is that the receiver should have instituted an action in equity and not at law, and made all the other stockholders parties defendant, or, at least, should have assigned some reason why the holders of the remaining shares of stock were not made defendants; and he cites the case of Burch v. Taylor, 1 Wash. 245, 24 P. 438, as authority for the proposition that it is the settled law of this state that unpaid subscriptions to the capital stock of a corporation can only be recovered by a proceeding in equity. An examination of that case, however, will disclose the fact that it was an action brought by a creditor of a corporation, who was also a stockholder, against another stockholder, to recover an unpaid balance upon a subscription; and the court held that, in that class of cases, the remedy must be in equity and not at law. But the case at bar is of a different character, and the doctrine announced in that case is not necessarily applicable to this. A stockholder is a debtor of the corporation to the amount unpaid upon his shares of stock, and the receiver in this instance, as the representative of the corporation, is simply seeking to collect such a debt. He has succeeded to all the rights of action which were vested in the insurance company (20 Am. & Eng. Enc. Law, p. 235); and as the corporation itself, under the circumstances of this case, might have maintained an action at law against the appellant, we have no doubt that the action was properly brought by the receiver. It is said in Wait on Insolvent Corporations (section 235) that "the receiver of an insolvent corporation may bring separate suits against the several stockholders to recover any sum remaining due upon their shares of stock. If the corporation has instituted suit for the unpaid subscription the receiver may continue the action in the name of the original plaintiff." And under what circumstances a separate action at law may be brought in this class of cases is clearly explained by Thompson in his treatise on Liability of Stockholders. In section 349 of that work the learned author says that if the liability of stockholders is limited and several,-each one standing responsible for a definite sum, and no more,-and if, under the particular statute, an action at law will lie, then a separate action may be brought against each one; but if the liability of stockholders is primary and unlimited, like that of partners, all should be joined, for such an action is quasi ex contractu. See, also, Boone, Corp. §§ 108, 119; Beach, Rec. § 666; Dayton v. Borst, 31 N.Y. 435; Warehousing Co. v. Badger, 67 N.Y. 294; Billings v. Robinson, 94 N.Y. 415; Railroad Co. v Tipton, 5 Ala. 787.

The next objection to the complaint is that it is not alleged therein that defendant had any notice of the application for the appointment of a receiver, or any notice whatever of the petition upon which it was adjudged that the receiver collect from the subscribers and stockholders of said corporation the whole of their subscriptions to the stock of the corporation. But we are of the opinion that the appellant cannot now question the regularity of the appointment of the receiver, or the judgment of the court as to the necessity of collecting the unpaid subscriptions for the purpose of paying the company's debts. When assessments are made by officers or persons properly authorized so to do, the necessity for making the calls cannot be questioned by the stockholders. Budd v. Railway Co., 15 Or. 413, 15 P. 659; Insurance Co. v. Floyd, 74 Mo. 291. The court not only had a right under the statute to appoint the receiver, but it was also authorized to make a call requiring stockholders to pay for their stock. Wait, Insol. Corp. § 218; Scovill v. Thayer, 105 U.S. 143.

Lastly it is insisted that the complaint is insufficient for want of an allegation that the appellant had notice of the call made by the court, and that demand was made for payment in accordance with the order of the court. This objection, in our opinion, is unanswerable. While the court must be held to have properly made the order to collect all unpaid subscriptions to the capital stock of the insolvent company, and while it was the duty of the receiver to collect the same for the benefit of creditors, yet, as we construe our statute upon this subject, the appellant was entitled to notice of the assessment, and to have an opportunity to pay it before an action could properly be brought against him to recover the amount of the call. It is true there is a diversity of opinion among the decisions of the courts upon this question, but we believe all of the cases recognize the principle that statutory provisions must be complied with. Cook, Stock, Stock. & Corp. Law (3d Ed.) § 117. And in section 1507, 1 Hill's Code, it is provided that in all cases notice of each assessment shall be given to the stockholders personally or by publication in some newspaper published in the county in which the principal place of business of the corporation is located; and, if none be published in such county, then in the newspaper nearest to said principal place of business in the state. It is urged, however, on behalf of the respondent, that this provision only applies in cases where the corporation undertakes to sell the stock of defaulting shareholders for the payment of their assessments, and that notice of the assessment is not required to support an action at law to enforce such payment. But we do not think the statute above mentioned will admit of such construction, for it plainly states that notice must be given in all cases, and not merely in those in which the corporation seeks to apply the proceeds of stock in payment of assessments. The cases cited in support of appellant's position from New York and Indiana, according to our understanding of them, were based on statutes much less specific than ours ( Railroad Co. v. Mason, 16 N.Y. 451; Smith v. Railroad Co., 12 Ind. 61; Heaston v. Railroad Co., 16 Ind. 275); and, even in the case last cited, it was said that, where the statute requires notice, it must be given. A learned text writer lays down the law on this subject as follows: "The general rule is that in the absence of an express provision in the charter or articles of association of a corporation requiring notice to be given to the shareholders after a call has been voted, no notice is necessary in order to hold the shareholders liable to pay the amount of the call; and it has been held that no demand is required before the institution of a suit." 1 Mor. Priv. Corp. § 147. See, also, Cook, Stock, Stockh. & Corp. Law (3d Ed.) § 118; Hughes v. Manufacturing Co., 34 Md. 316; Roofing Co. v. Michael, 54 Md. 65; Plankroad Co. v. Millerd, 3 Mich. 91. The provision of the statute requiring notice of the assessment to be given to stockholders is, of course, as fully applicable to assessments made by the courts as it is to those made by trustees. It is suggested in the brief of the respondent that the allegations in the complaint that certain assessments were made by the trustees of the company, and that the defendant was present at the time the assessments of stock were made by the board of trustees of said corporation, and made the motion before said board for the assessment of said stock to pay said losses incurred by said corporation, amount to an averment that the appellant had notice thereof. But even...