Good v. Starker

• Decision Date: 05 April 1932
• Citation: 242 N.W. 204,207 Wis. 567
• Court: Wisconsin Supreme Court
• Parties: GOOD v. STARKER.

207 Wis. 567

242 N.W. 204

GOOD

v.STARKER.

Supreme Court of Wisconsin.

April 5, 1932.

Appeal from an order of the Circuit Court for Dane County; August C. Hoppmann, Circuit Judge.

Action by John P. Good, as receiver of the Interstate Securities Company, against H. J. Starker. From an order overruling a demurrer to the complaint, defendant appeals.--[By Editorial Staff.]

Affirmed.

Action by a receiver appointed by a South Dakota court in a creditors' suit against an insolvent corporation of that state, brought pursuant to an order of that court, to recover a superadded liability on paid-up stock of the corporation imposed by the articles of incorporation, commenced July 3, 1930; order entered overruling demurrer to complaint September 8, 1931. Defendant appeals.

This is an appeal from an order overruling a demurrer to the complaint on the ground of insufficiency of facts. From the complaint it appears that the Interstate Securities Company was organized as a corporation in South Dakota in 1913 for the purpose of conducting a loan and brokerage business. The defendant owns its common stock of par value of $3,400. Article VI of the articles of incorporation provides that the holders of such stock shall be liable for the corporate debts to an amount of any unpaid portion thereof and to an additional amount equal to the par value of the stock held, and that the directors of the corporation have power to make assessments to enforce this superadded liability. The stock certificates do not set out the provisions of article VI or expressly state that it imposes any superadded liability, but recite that the certificate is issued under the provision of article VI “which provides for and determines the extent of the liability of holders of both common and preferred stock of the corporation.” A holder of some bonds of the corporation sued the corporation for nonpayment and recovered judgment in a South Dakota court. On the return unsatisfied of an execution issued on said judgment, the judgment creditor in behalf of himself and all creditors of the company commenced a sequestration action in a South Dakota court. The company did not interpose any defense, and judgment was entered adjudging the corporation insolvent; appointing plaintiff as receiver; adjudging that the superadded liability of the stockholders, as fixed by article VI, is a contractual obligation and an asset of the corporation; adjudging that its assets consist of the said superadded liability of holders of common stock and unpaid portions of common and preferred stock; that the affairs of the corporation be wound up and its assets sequestered; empowering the receiver to bring actions in his own name; declaring and levying an assessment equal to its par value on each share of the common stock of the corporation and adjudging that each stockholder pay to the receiver an amount equal to the par value of his stock; directing the receiver to collect from the stockholders the amount of their superadded liability; ordering that the receiver bring suit in South Dakota or elsewhere against such stockholders as do not pay their superadded liability within a time specified; and directing that notice of the assessment be mailed to the several record owners of the common stock at their addresses as shown by the corporate stock books. Creditors were ordered to file their claims with the court, and claims in excess of the total assets were allowed.

Bagley, Spohn, Ross & Stevens, of Madison, for appellant.

James E. Trask, of St. Paul, Minn., N. O. Varnum, of Hudson, and Oscar Hallam, of St. Paul, Minn., for respondent.

FOWLER, J.

Appellant contends (1) that the incorporators of a corporation do not have power to create a superadded liability of stockholders in the absence of a statute of the state in which the corporation is organized authorizing such creation, and that, as there is no such statute in South Dakota, the provision of said paragraph VI of the articles does not create such liability; (2) that the conclusion or adjudication of the court in the sequestration proceedings that the superadded liability article VI purports to impose is a contractual obligation, and that each stockholder is liable thereon, is erroneous and not binding upon the defendant; (3) that, if the superadded liability exists, the receiver is not empowered to sue, because the liability is not an asset of the corporation; and (4) that, if the liability exists and is a corporate asset, title thereto is not vested in the receiver and he is for that reason without power to sue in this state.

A companion case was brought in the federal court in the Western District of Wisconsin and the Circuit Court of Appeals affirmed an order overruling the demurrer. Good, Rec'r, v. Derr, 46 F.(2d) 411. The Supreme Court of the United States refused a writ of certiorari to review that decision. 283 U. S. 849, 51 S. Ct. 495, 75 L. Ed. 1457. The respondent contends that a federal question is involved, and that we are bound under the full faith and credit clause of the Constitution of the United States (article 4, § 1) by that decision. We are of opinion that our decision may better rest upon other grounds and do not consider that question.

[1][2] 1. To us it seems fundamental that, regardless of statutory authority therefor, the stockholders of a corporation may agree to be liable for the superadded liability that the terms of article VI of the corporate articles impose, and that, when the articles themselves provide for that liability, every holder of the stock agrees to it, actually or presumably, and that he thereby becomes bound to respond as he has agreed. This makes the provision a contractual obligation. If a statute prohibited such an obligation, of course that would defeat it, but, as there is none such, the obligation is lawfully imposed.

That articles of incorporation may impose a superadded liability on the holders of paid-up corporate stock inferentially appears from Wells v. Green Bay, etc., Co., 90 Wis. 442, 453, 64 N. W. 69. This inferentially also appears from statements in 7 Fletcher, Cyc. Corporations, p. 7523, where it is stated that such liability may be imposed by a statute in force at the time of the incorporation or by charter provisions. 6 Thompson, Corporations, p. 721, and 1 Cook Corporations, p. 671, are inferentially to the same effect, where it is said that such obligation may not be imposed unless authorized by statute or charter provision or express agreement binding on all stockholders. The cases there cited, however, with few exceptions, show that a statute either imposed the obligation or authorized its imposition by articles or by-law. But in the following cases, involving ordinary corporations organized for conducting business for profit, it is expressly held that the obligation may be imposed by articles of incorporation. Melville v. Rhodes, 136 Wash. 220, 239 P. 560;Mirage Irrigation Co. v. Sturgeon, 77 Neb. 175, 108 N. W. 977;Johns v. Clother, 78 Wash. 602, 139 P. 755;Huxtable v. Berg, 98 Wash. 616, 168 P. 187;Great Falls, etc., Ry. Co. v. Copp, 38 N. H. 124.

[3] It is true that there are many cases stating that assessments cannot be made upon full paid stock in the absence of statutory authority therefor, but in these cases, as far as we have examined them, attempt was made to assess stock in absence of provision therefor, in the articles or in other voluntary agreement of the stockholders for such assessment. Such was the situation in Harris v. Northern Blue Grass Co. (C. C.) 185 F. 192, also reported on appeal in (C. C. A.) 194 F. 835, in which it is said an assessment cannot be made without statutory authority. Voluntary agreements made by all the stockholders of a corporation to be responsible for future debts are binding. “It scarcely needs judicial authority to the proposition that stockholders can agree that an assessment can be levied on their stock.” Good v. Derr, supra, 46 F.(2d) 411, 417, quoting from Harris v. Northern Blue Grass Co., supra; 1 Cook, Corporations, 383. Such an agreement should, as matter of common sense, be as valid when set out specifically in the articles of incorporation themselves, as when made in a separate contract contemporaneous with or subsequent to the organization of the corporation. The mere incident of the time at which such an agreement is made, or by what sort of instrument it is evidenced, should not be permitted to affect its validity.

[4][5][6][7] However, it may be conceded that an assessment cannot be...