George Whitman v. National Bank of Oxford

• Decision Date: 05 March 1900
• Docket Number: No. 27,27
• Citation: 176 U.S. 559,44 L.Ed. 587,20 S.Ct. 477
• Parties: GEORGE L. WHITMAN v. NATIONAL BANK OF OXFORD
• Court: U.S. Supreme Court

176 U.S. 559

20 S.Ct. 477

44 L.Ed. 587

GEORGE L. WHITMAN

v NATIONAL BANK OF OXFORD.

No. 27.

Argued March 8, 9, 1899.

Decided March 5, 1900.

This was an action brought in the circuit court of the United States for the southern district of New York, by the National Bank of Oxford, a national banking association, incorporated and established under the laws of the United States, and doing business at Oxford in the state of Pennsylvania, against George L. Whitman, a citizen of the state of New York, asserting his liability, under the provisions of the Constitution and laws of the state of Kansas, for a debt of more than $2,000 due to the plaintiff from the Arkansas City Investment Company, a corporation of the state of Kansas, in which the defendant was a stockholder.

The Constitution of the state of Kansas of 1859 provided, in article 12, § 2, as follows:

'Dues from corporations shall be secured by individual liability of the stockholders to an additional amount equal to the stock owned by each stockholder; and such other means as shall be provided by law; but such individual liabilities shall not apply to railroad corporations, nor corporations for religious or charitable purposes.'

The General Statutes of 1868 of that state, chapter 23, contained the following provisions:

'Sec. 32. If any execution shall have been issued against the property or effects of a corporation, except a railway or a religious or charitable corporation, and there cannot be found any property whereon to levy such execution, then execution may be issued against any of the stockholders to an extent equal in amount to the amount of stock by him or her owned, together with any amount unpaid thereon; but no execution shall issue against any stockholder, except upon an order of the court in which the action, suit, or other proceeding shall have been brought or instituted, made upon motion in open court, after reasonable notice in writing to the person or persons sought to be charged; and, upon such motion, such court may order execution to issue accordingly; or the plaintiff in the execution may proceed by action to charge the stockholders with the amount of his judgment.'

'Sec. 40 (as amended in 1883). Laws 1883, chap. 46, p. 88. A corporation is dissolved—first, by the expiration of the time limited in its charter; second, by a judgment of dissolution rendered by a court of competent jurisdiction; but any such corporation shall be deemed to be dissolved for the purpose of enabling any creditors of such corporation to prosecute suits against the stockholders thereof to enforce their individual liability, if it be shown that such corporation has suspended business for more than one year, or that any corporation now so suspended from business shall for three months after the passage of this act fail to resume its usual and ordinary business.'

'Sec. 44. If any corporation, created under this or any general statute of this state, except railway or charitable or relig- ious corporations, be dissolved, leaving debts unpaid, suits may be brought against any person or persons who were stockholders at the time of such dissolution, without joining the corporation in such suit; and if judgment be rendered, and execution satisfied, the defendant or defendants may sue all who were stockholders at the time of dissolution, for the recovery of the portion of such debt for which they were liable, and the execution upon the judgment shall direct the collection to be made from property of each stockholder, respectively; and if any number of stockholders (defendants in the case) shall not have property enough to satisfy his or their portion of the execution, then the amount of deficiency shall be divided equally among all the remaining stockholders, and collections made accordingly, deducting from the amount a sum in proportion to the amount of stock owned by the plaintiff at the time the company dissolved.'

The complaint alleged, and the plaintiff at the trial introduced evidence of, the following facts: The Kansas corporation was duly formed under the general laws of the state of Kansas in 1886, for the purpose of a general banking and real-estate business; had its only place of business at Arkansas City in that state; was not a railway, religious, or charitable corporation; and had a capital of $200,000, divided into 2,000 shares of $100 each, of which the defendant, from the time of the formation of the corporation, and ever after, owned one half. In December, 1890, that corporation made a general assignment for the benefit of its creditors, and from that time wholly suspended business. About four months before its failure, it indorsed and guaranteed for value two promissory notes, together amounting to $4,875, which were discounted by the plaintiff. In 1895 the plaintiff brought an action to recover the unpaid balance of those notes, in a district court of the county of Cowley and state of Kansas, against the corporation, and, after its general appearance and subsequent default, recovered judgment against it for the sum of $3,449; an execution thereon against the corporation was issued to the sheriff of the county, who returned it wholly unsatisfied, because he could not find any property on which to make a levy; and the corporation had in fact no assets of any kind.

The defendant moved the circuit court of the United States to direct a verdict in his favor, upon the ground that it had no jurisdiction to enforce a statutory remedy of the state of Kansas. The court denied the motion, directed a verdict for the plaintiff, overruled a motion for a new trial, and entered a final judgment for the plaintiff. 76 Fed. Rep. 697. That judgment was affirmed by the circuit court of appeals. 51 U. S. App. 536, 83 Fed. Rep. 288, 28 C. C. A. 404. The defendant thereupon applied for and obtained this writ of certiorari. 168 U. S. 710, 18 Sup. Ct. Rep. 950.

Messrs. William G. Choate, Joseph H. Choate, and William G. Wilson for Whitman.

Messrs. Howard A. Taylor and Mr. William B. Hornblower for Bank.

Mr. Justice Brewer delivered the opinion of the court:

By § 2 of article 12 of the Constitution of Kansas a certain definite liability is cast upon each stockholder in other than railway, religious, and charitable corporations. This liability is for the dues of the corporation and to an amount equal to the stock owned by him. The word 'dues' is one of general significance, and includes all contractual obligations. Whether broad enough to include liabilities for torts, either before or after judgment, is not a question before us, and upon it we express no opinion. The words, 'shall be secured,' are not merely directory to the legislature to make provision for such liability, but of themselves declare it. To this extent the Constitution is self-executing. Willis v. Mabon, 48 Minn. 140, 16 L. R. A. 281, 50 N. W. 1110. The discretion of the legislature extends beyond this, as indicated by the clause 'and such other means as shall be provided by law.' A failure of the legislature to create courts or prescribe modes of procedure may, it is true, make ineffective this constitutional provision, but does not destroy the liability; nor is it created by the act of the legislature prescribing the mode of its enforcement. This is the obvious meaning of the constitutional provision. 'The simplest and most obvious interpretation of a Constitution, if in itself sensible, is the most likely to be that meant by the people in its adoption.' Lamar, Justice, in Lake County v. Rollins, 130 U. S. 662, 671, 32 L. ed. 1060, 1063, 9 Sup. Ct. Rep. 651, 652.

But this constitutional provision does not stand alone. The legislature of Kansas has acted on the subject-matter, and the Constitution and the statutes are to be taken together, as making one body of law; and it serves no good purpose to inquire what rights and remedies a creditor of a corporation might have, or what liabilities would rest upon a stockholder, if either Constitution or statutes stood alone and unaided by the other.

In § 32 of chapter 23 of the General Statutes of that state, passed before the organization of the corporation referred to, the legislature prescribed the mode of enforcing this constitutional liability, and if such were needed declared to what extent it could be enforced. It may be either by motion in a case in which judgment has been rendered against the corporation and execution thereon returned unsatisfied, or by a direct action by the plaintiff in such judgment. Neither remedy can be made effectual in the courts of Kansas against a stockholder unless by due service of process he is brought within the jurisdiction of such courts. Wilson v. Seligman, 144 U. S. 41, 36 L. ed. 338, 12 Sup. Ct. Rep. 541; Howell v. Manglesdorf, 33 Kan. 194, 199, 5 Pac. 759.

Whatever else may be said about the remedy, it is direct, certain, and available to every creditor of a corporation, and leaves to the stockholders the adjustment between themselves of their respective individual shares of the corporate obligations. In view of the present tendency to carry on business through corporate instrumentalities and the freedom from personal liability which attends ordinary corporate action, it cannot be said that this limited additional remedy is open to judicial condemnation.

The liability which by the Constitution and statutes is thus declared to rest upon the stockholder, though statutory in its origin, is contractual in its nature. It would not be doubted that if the stockholders in this corporation had formed a part- nership, the obligations of each partner to the others and to creditors would be contractual, and determined by the general common law in respect to partnerships. If Kansas had provided for partnerships with limited liability, and these parties, complying with the provisions of the statute, had formed such a partnership, it would also be true that their obligations to one another and to creditors would be...