Friede v. Sprout
| Decision Date | 02 June 1936 |
| Parties | FRIEDE v. SPROUT. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
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.
T. Hunt, of Boston, for plaintiff.
W. R Bigelow, of Boston, for defendant.
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 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 been maintained. Cunningham v. Commissioner of Banks, 249 Mass. 401, 425, 426, 144 N.E. 447; Continental Corp. v. Gowdy, 283 Mass. 204, 209-211, 186 N.E. 244, 87 A.L.R. 1039; Frank Kumin Co., Inc. v. Marean, 283 Mass. 332, 334, 335, 186 N.E. 780; Standard Oil Co. of New York v. Back Bay Hotels Garage, Inc., 285 Mass. 129, 134, 135, 188 N.E. 619. In the cases in which the statutory liability of stockholders in foreign corporations has been held unenforceable here, the statute has been deemed penal, or some condition of liability has not been satisfied, or the liability has depended wholly upon statutory machinery existing only in the state of incorporation. Hancock National Bank v. Ellis, 172 Mass. 39, 45-47, 51 N.E. 207,42 L.R.A. 396, 70 Am.St.Rep. 232; American Spirits Manuf. Co. v. Eldridge, 209 Mass. 590, 597, 95 N.E. 942; Broderick v. Rosner, 294 U.S. 629, 642-644, 55 S.Ct. 589, 79 L.Ed. 1100, 100 A.L.R. 1133.
The suit in the District Court in Minnesota, where the bank has its usual place of business if not its location for purposes of jurisdiction (First Carolinas Joint Stock Land Bank of Columbia, S.C. v. Page [D.C.] 2 F.Supp. 529), was the proper means of determining the extent of the insolvency of the bank, and the necessity and amount of an assessment upon stockholders. Where the statute (12 U.S.C.A. § 812) provides for responsibility of stockholders ‘ equally and ratably,’ it would be impracticable to reserve those questions for determination anew in every jurisdiction in which a stockholder might be found. As was said in Howarth v. Lombard, 175 Mass. 570, 576, 577, 56 N.E. 888, 890,49 L.R.A. 301,‘ The stockholders * * * must be presumed to have agreed that on the insolvency of the corporation a receiver might be appointed by the court, * * * and the amount of its assets and liabilities determined, and the deficiency ascertained under the order of the court, and an assessment to meet this deficiency made ratably upon all who were then stockholders. This is the only proper way of accomplishing the object of the statute. * * * The undertaking of the stockholders relates directly to the payment of amounts so to be ascertained. The ascertainment is like a common case of a judgment against a corporation, which is binding on stockholders. The members of such corporations, as well as the corporations themselves are within the jurisdiction of the local court, so far as is necessary for the determination of the rights and liabilities of the corporation and its members among themselves. In reference to this kind of liability such decisions and orders are binding on stockholders who are not before the court otherwise than by virtue of their membership in the corporation.’ Such a suit bears some resemblance to a class suit, in which the entire class is bound by the decree. Martin v. Smith, 286 Mass. 227, 233, 190 N.E. 113.
The act of Congress may furnish a scanty verbal basis for inferring that such a proceeding for an assessment was contemplated by the statute itself, but no more scanty than the basis afforded by the statute of Washington considered in Howarth v. Lombard, supra. The practical necessity of such a proceeding justifies the inference. Clark v Knowles, 187 Mass. 35, 72 N.E. 352,105 Am.St.Rep. 376,2 Ann.Cas. 26; Francis v. Hazlett, 192 Mass. 137, 78 N.E. 405,116 Am.St.Rep. 230; Converse v. Ayer, 197 Mass. 443, 84 N.E. 98; Miller v. Aldrich, 202 Mass. 109, 88 N.E. 441,132 Am.St.Rep. 480; Stone v. Old Colony Street Railway, 212 Mass. 459, 462, 99 N.E. 218; Butterworth v. Ross, 238 Mass. 279, 130 N.E. 678; ...
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