Gray Construction Co. v. Fantle
| Citation | 253 N.W. 464,62 S.D. 345 |
| Decision Date | 23 February 1934 |
| Docket Number | 7189 |
| Parties | GRAY CONSTRUCTION CO., Respondent, v. LILLIAN P. FANTLE, et al., Appellants. |
| Court | South Dakota Supreme Court |
Appeal from Circuit Court, Codington County, SD
For former opinion, see Gray Construction Company v. Hyde, 244 N.W. 320.
Attorneys for Appellants.
Case & Case, Watertown, SD
Bruell & Henderson, Redfield, SD
Attorneys for Respondent.
Opinion Filed Feb 23, 1934
The present litigation has been carried on in the courts of this state for about sixteen years. It has been twice ruled upon by the circuit court; three opinions have been written by this court, and two rehearings have been granted by this court, upon the second of which the case has been reargued and is now for our decision. Before writing further concerning it, we may profitably (in the words of Daniel Webster) refer to the point whence we departed, in the hope of being able to conjecture where we now are.
In the year 1901 a small group of men in Sioux Falls became interested in the project of a railroad to run northwesterly from Sioux Falls. In the fall of 1903 the South Dakota Central Railroad Company was incorporated. The par value of the capital stock was $100 per share. The manner of its issuance we will discuss later. For the present it is enough to say that it is stipulated in this case that the corporation, as a matter of fact, never received value in excess of $25 per share for any of its capital stock, although all the stock was issued as fully paid.
Actual construction of the railroad was commenced in the spring of 1904 and a line was subsequently built and started in operation running from Sioux Falls to Watertown. In January, 1907, the company, in order to raise money for its needs, put out a $1,000,000 bond issue; the bonds being secured by mortgage or deed of trust on all the property, real, personal or mixed, which the company then had or might thereafter acquire. The company was unable successfully to continue its operations for any very considerable period of time and presently, and in January, 1916, the trust deed was foreclosed for the benefit of bondholders and all the property of the railroad company was sold thereunder leaving the corporation insolvent, with no assets or property, and a considerable amount of liabilities. Thereupon one Shugart, a creditor of the railroad company, started an action in the district court of Jasper County, Iowa, against F.L. Maytag and other stockholders of the railroad company seeking to enforce his claim against them on the ground that the stock held by them had not been fully paid for. Shortly thereafter the present action was started in the circuit court of Codington County, S.D., by Gray Construction Company, also one of the creditors of the railroad company, as plaintiff, against A.W. Hyde and others as stockholders of the railroad company; the basis of the action being that the plaintiff was a creditor of the insolvent corporation and that the defendants were the owners of stock therein of the par value of $100 per share for which the corporation had never received more than $25 per share. At about the same time five other actions were started in the Codington County circuit court against the same defendants upon the same theory. The six cases mentioned were tried in the circuit court and appealed to this court upon the same record although by separate appeals, and the decision in this case must control all six. Other similar actions were likewise instituted by other creditors wherein stipulations were made that they should be controlled by the decision herein. Although the claim of the present plaintiff (in behalf of itself and its assignors) amounts only to about $6,000 with interest from March, 1917, nevertheless, by reason of the other actions instituted and stipulations made as aforesaid, the decision in this case in point of fact determines the liability of defendants in an amount approximating in the aggregate some $30,000 plus interest thereon for sixteen years or more.
The cause was not brought on for trial in the circuit court in the first instance until after the Shugart Case had been tried in the district court of Jasper County, Iowa, appealed to the Supreme Court of that state, and there affirmed. Shugart v. Maytag et al. [March 23, 1920] 188 Iowa, 916, 176 N.W. 886. The present case thereafter corning on for trial, the findings, conclusions, and judgment of the circuit court were adverse to the defendants A.W. Hyde (who has since died, his executrix, Anna R. Hyde, being substituted as party defendant), W.L. Baker, Sam Fantle, and Charles Fantle (who also has since died, his executrix, Lillian Fantle, being substituted as party defendant). From such adverse judgment and from the denial of their application for new trial the defendants last above named appealed to this court and the judgment was here affirmed. Gray Construction Co. v. Hyde, 207 N.W. 536. Thereafter a rehearing was granted by this court and the former opinion was modified and the cause remanded to the circuit court for further proceedings, particularly with reference to ascertaining whether or not the defendants and appellants had acquired their stock in the insolvent corporation with notice of the fact that although said stock purported to be fully paid and of the par value of $100, nevertheless the corporation had not received to exceed $25 per share upon the issuance thereof. Gray Construction Co. v. Hyde, 222 N.W. 675. Further testimony was, taken in the circuit court, supplemental findings were made, and a second judgment in favor of the plaintiff and against the same defendants as before was again entered in the circuit court, from which judgment and a denial of their application for new trial the defendants again appealed to this court. This court affirmed the judgment as to W.L. Baker, Charles Fantle, and Sam Fantle, modifying it in some respects as to defendant, and appellant Anna R. Hyde, as executrix of A.W. Hyde. Gray Construction Co. v. Hyde, 244 N.W. 320. Thereafter defendants and appellants W.L. Baker, Samuel Fantle and Lillian Fantle, as executrix of Charles Fantle, petitioned separately to this court for rehearing. The petition of W.L. Baker was denied, but the petition of the Fantles was granted, and as to the Fantles only the matter is again before us. It will be much simpler and more convenient to speak of the two Fantles throughout this opinion and to discuss the matter without making constant reference to the facts that Charles Fantle has died since this action was started and that his executrix has been substituted as party defendant, and appellant herein. We shall accordingly so do.
Charles and Sam Fantle were brothers engaged in the business of conducting a department store in Sioux Falls, having been engaged in such business since about the year 1895. Neither of them was among those who organized the South Dakota Central Railroad in 1903. At the time of the insolvency of the South Dakota Central Railroad, Charles Fantle was the owner of 100 shares of the capital stock of that corporation and. Sam Fantle was the owner of 335 shares thereof, the facts concerning which will be more fully hereinafter discussed. Concededly the corporation itself never received in excess of $25 per $100 share for any of said stock. The sole question now for our consideration is the liability of the Fantles as stockholders, the insolvency of the corporation, and the validity of respondent’s claim as a creditor thereof being conceded.
Section 8779, Rev. Code 1919, reads as follows:
“Each stockholder of a corporation is individually and personally liable for the debts of the corporation to the extent of the amount that is unpaid upon the stock held by him. Any creditor of the corporation may institute joint or several actions against any of its stockholders that have not fully paid the capital stock held by him, and in such action the court must ascertain the amount that is unpaid upon the stock held by each stockholder and for which he is liable, and a several judgment must be rendered against each in conformity therewith. The liability of each stockholder is determined by the amount unpaid upon the stock or shares owned by him at the time such action is commenced, and such liability is not released by any subsequent transfer of stock. And in no other case shall the stockholders be individually and personally liable for the debts of the corporation. The term ‘stockholder,’ as used in this section, shall apply not only to Such persons as appear by the books of the corporation to be such, but also to every equitable owner of stock, although the same appear upon the books in the name of another; and also to every person who has advanced the installments or purchase money of stock in the name of a minor, so long as the latter remains a minor; and also to every guardian or other trustee who voluntarily invests any trust funds in the stock. Trust funds in the hands of a guardian or trustee shall not be liable under the provision of this section by reason of any such investment, nor shall the person for whose benefit the investment is made be responsible in respect to the Stock until he becomes competent and able to control the same; but the responsibility of the guardian or trustee making the investment shall continue until that period. Stock held as collateral security, or by a trustee, or in any other representative capacity, does not make the holder thereof a ‘stockholder,’ within the meaning of this section, except in the cases above mentioned, so as to charge him with the debts or liabilities of the corporation, but the pledgor, or person or estate represented, is to be deemed the ‘stockholder,’ as respects such liability.
The present action was predicated originally on the theory that by virtue of this statute it was only necessary to allege and...
To continue reading
Request your trial