Friede v. Sprout

• Court: United States State Supreme Judicial Court of Massachusetts
• Citation: 294 Mass. 512,2 N.E.2d 549
• Parties: FRIEDE v. SPROUT.
• Decision Date: 02 June 1936

294 Mass. 512
2 N.E.2d 549

FRIEDE
v.
SPROUT.

Supreme Judicial Court of Massachusetts, Suffolk.

June 2, 1936.

Report from Superior Court, Suffolk County; Dowd, Judge.

Action of contract by Ervin J. Friede, receiver of the Southern Minnesota Joint Stock Land Bank of Minneapolis, against William B. Sprout, wherein defendant filed a demurrer. The judge overruled the demurrer, and reported his interlocutory action in so doing.

Order overruling demurrer affirmed.

[2 N.E.2d 550]

T. Hunt, of Boston, for plaintiff.

W. R. Bigelow, of Boston, for defendant.

LUMMUS, Justice.

The plaintiff, a resident of Minnesota, is the receiver, appointed by the Federal Farm Loan Board,¹ of an insolvent joint stock land bank known as Southern Minnesota Joint Stock Land Bank of Minneapolis, incorporated on June 25, 1919, under the Federal Farm Loan Act. Act of July 17, 1916, c. 245, 39 Stat. 374; U. S. C. title 12, c. 7, § 641 et seq. ( 12 U.S.C.A. § 641 et seq.) Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 41 S.Ct. 243, 65 L.Ed. 577. Under that act, every stockholder is liable for the debts of the bank to the extent of the par value of the stock held by him.² On July 28, 1932, creditors brought a bill in the United States District Court for the District of Minnesota, on their own behalf and in behalf of all other creditors, against the bank, its receiver, and all stockholders, praying for the levy of an assessment upon every stockholder to the extent of his legal liability, and for the appointment of a receiver with power to enforce such assessment and liability in all states. Resident stockholders were served personally, and nonresident stockholders, of whom the defendant was one, were served by publication. On April 20, 1935, the District Court, having found that the bank was insolvent on May 2, 1932, and thereafter, to an amount exceeding the par value of its capital stock ( Holmberg v. Southern Minnesota Joint Stock Land Bank of Minneapolis [D.C] 10 F.Supp. 795, 798), levied an assessment upon every stockholder to the full par value of his stock, and appointed the plaintiff, theretofore a receiver appointed by the Federal Farm Loan Board only, the receiver vested with ‘the title to and the right to recover upon said assessment’ and ‘full power * * * to sue for and upon said assessment in any appropriate court and in any state.’ The plaintiff qualified as such receiver.

The defendant, a resident of Massachusetts who did not appear in the proceedings in the District Court, was on May 2, 1932, the owner of twenty-three shares, of the par value of $100 each, of the stock of said bank, which stood in his name on the books of the bank. This is an action of contract, brought on August 1, 1935, to recover the amount of the assessment against him. The foregoing facts appeared in the declaration, to which the defendant demurred. The judge overruled the demurrer, and reported his interlocutory action in so doing, under G.L.(Ter.Ed.) c. 231, § 111.

It is plain from Wheeler v. Greene, 280 U.S. 49, 50 S.Ct. 21, 74 L.Ed. 160, that the Federal Farm Loan Board could not have levied an assessment if it had wished to do

[2 N.E.2d 551]

so, and that the receiver appointed by that board had no power to collect an assessment. The court said (280 U.S. 49, at page 52, 50 S.Ct. 21, 22, 74 L.Ed. 160), ‘The receiver had power to collect the assets of the bank, but the liability of stockholders is no part of those assets. It is a liability to creditors which the creditors may be left to enforce.’ See, also, Partridge v. St. Louis Joint Stock Land Bank of St. Louis, Mo. (C.C.A.) 76 F.(2d) 237. It is as receiver under the decree of the District Court that the plaintiff seeks to maintain this action.

The statutory liability imposed upon stockholders, although they have fully paid for their stock, has been declared to be contractual in its nature, though it has its origin in legislation. Two things have been relied on for the creation of a contract, first, the voluntary assumption of the relation of stockholder in view of the statute declaring the liability, and, second, the act of creditors in extending credit to the corporation in reliance upon the statutory liability, whereby the obligation of the stockholders has been said to become part of every contract and engagement of the corporation. As a contractual obligation, it may be enforced wherever the stockholder may be found. Post & Co. v. Toledo, Cincinnati & St. Louis Railroad Co., 144 Mass. 341, 344, 11 N.E. 540,59 Am.Rep. 86;Howarth v. Lombard, 175 Mass. 570, 574, 575, 56 N.E. 888,49 L.R.A. 301;Broadway National Bank v. Baker, 176 Mass. 294, 296, 57 N.E. 603;Commissioner of Banks v. Prudential Trust Co., 242 Mass. 78, 87, 88, 136 N.E. 410;First National Bank of Boston v. Nichols (Mass.) 200 N.E. 869;Richmond v. Irons, 121 U.S. 27, 55, 56, 7 S.Ct. 788, 30 L.Ed. 864;Concord First National Bank v. Hawkins, 174 U.S. 364, 372, 19 S.Ct. 739, 43 L.Ed. 1007;Whitman v. National Bank of Oxford, 176 U.S. 559, 20 S.Ct. 477, 44 L.Ed. 587;Bernheimer v. Converse, 206 U.S. 516, 27 S.Ct. 755, 51 L.Ed. 1163;Converse v. Hamilton, 224 U.S. 243, 32 S.Ct. 415, 56 L.Ed. 749, Ann.Cas.1913D, 1292; Early v. Richardson, 280 U.S. 496, 50 S.Ct. 176, 74 L.Ed. 575, 69 A.L.R. 658;Broderick v. Rosner, 294 U.S. 629, 643, 55 S.Ct. 589, 79 L.Ed. 1100, 100 A.L.R. 1133;Broderick v. McGuire, 119 Conn. 83, 94, 174 A. 314, 94 A.L.R. 890;Pulsifer v. Greene, 96 Me. 438, 445, 446, 52 A. 921. As to some of the constitutional consequences of this theory, see Commonwealth v. Cochituate Bank, 3 Allen, 42, 44;Bernheimer v. Converse, 206 U.S. 516, 27 S.Ct. 755, 51 L.Ed. 1163;Luikart v. Paine, 126 Neb. 251, 253 N.W. 86; note, L.R.A.1915B, 797; note, 72 A.L.R. 1252. The former statutory liability of stockholders in Massachusetts corporations, and the existing liability of officers and directors in such corporations upon failure to comply with certain statutory requirements, have been distinguished in some particulars, but the same theory that the liability is contractual has...