Hastings Malting Co. v. Iron Range Brewing Co.
| Decision Date | 04 June 1896 |
| Docket Number | Nos. 10,028 - (121).,s. 10,028 - (121). |
| Citation | 65 Minn. 28 |
| Court | Minnesota Supreme Court |
| Parties | HASTINGS MALTING COMPANY and Others v. IRON RANGE BREWING COMPANY and Others.<SMALL><SUP>1</SUP></SMALL> |
Schmidt, Reynolds & Mitchell, for appellants.
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White & McKeon, for respondents.
This action was brought by the plaintiff, on behalf of itself and all other creditors, against the defendant corporation and its stockholders, to enforce their alleged constitutional liability for the corporate debts, and to collect, and apply in payment of the claims of creditors, an alleged unpaid balance due upon the stock of the defendant stockholders; that is, the difference between the par value of their stock and the actual value of the property transferred to the corporation in full payment of stock issued to them. The defendant stockholders, by their answer, denied all liability in the premises. The trial court, on its findings of fact, ordered judgment for the defendants, and the plaintiff appeals from an order denying its motion for a new trial.
The material findings of the trial court are, in substance, as follows:
Defendant Iron Range Brewing Company is a corporation duly organized and existing under and by virtue of the laws of the state of Minnesota, and was organized and its nature of business was as set forth in its articles of incorporation, as follows: "The general nature of the business of this corporation shall be the manufacture or brewing of lager beer and other malt liquor, and to sell and dispose of the same, together with such other business as may be incidental thereto." It was so incorporated on or about June 22, 1892; and, by its articles of incorporation, the time for commencement of its incorporation was and is July 1, 1892, and to continue for a period of thirty years. By its articles of incorporation, the capital stock was fixed at $30,000, divided into 600 shares of $50 each. On July 1, 1892, on the day of the date of incorporation, Michael Fink, Catherine Fink, and the defendant Philip M. Graff were partners, under the firm name of M. Fink & Co., and were the owners of a brewery property at Tower, Minnesota, including all the personal property and paraphernalia, machinery, and manufactured stock and material on hand, good will, and trade secured for the business of such brewery, which property was on that date of the actual worth and value of $18,000. On that day, the firm of M. Fink & Co. sold and transferred the property to the defendant Iron Range Brewing Company, and there were issued to them, in consideration of the transfer, the 600 shares of the capital stock of the corporation as fully paid up, as follows: 588 shares to the defendant Philip M. Graff; 8 shares to the defendant Finley H. Frisbee; 2 shares to the defendant Robert P. Paine; 2 shares to Michael Fink. No other consideration was given for the stock, and no other payments were ever made thereon. The stock was so issued on July 1, 1892, and the parties named are the owners and holders thereof, and have ever since been the owners and holders thereof. The sale of the stock to the defendants in consideration of the property was made in good faith by the defendants, and without any intent to defraud or deceive any of the plaintiffs in this action, or any prospective creditor of the corporation. The defendant corporation is insolvent, and, before the commencement of this action, the plaintiff recovered judgment against it for the amount of its claim, and execution was duly returned unsatisfied. Other creditors have become parties to this action, and have proved their claims. The debt of the plaintiff and of all of the creditors was contracted after such stock was issued as fully paid.
1. The plaintiff's first claim is that the defendant corporation is not a manufacturing corporation, and therefore its stockholders are liable for the corporate debts to the amount of their stock. Its articles of incorporation show that it is a manufacturing corporation. This is apparent on a mere inspection of them. They only authorize the corporation to engage in the business of manufacturing lager beer and other malt liquors, and selling the same, together with such other business as may be incidental thereto. The entire business which the corporation is authorized to engage in is manufacturing, disposing of its product, and such incidental business as may be reasonably necessary for effectuating the purposes of its organization. The case of First Nat. Bank of Winona v. Winona Plow Co. 58 Minn. 167, 59 N. W. 997, is not in point, for in that case the corporation was authorized to purchase and sell plows and farming implements, as well as to manufacture them.
2. Are the findings and conclusion of the trial court, to the effect that the sale of the property in this case to the corporation for paid-up stock was made in good faith, without any intent to defraud creditors, and that it cannot therefore be questioned by them, sustained by the evidence? This is the real question in the case, and we answer it in the negative.
The question as to the liability of stockholders who have received full-paid shares of a corporation without in fact having paid in full for them, or who have received them in exchange for property at an overvaluation, to subsequent creditors of the corporation, is one upon which the adjudged cases are in conflict. In some of the cases the conflict is apparent only, for the diversity in the conclusions reached is the result of a difference in the statutes under which the corporations were organized; but all of the cases cannot be thus reconciled. We are, however, relieved from any extended discussions of the law of this case by reason of the principles laid down in the previous decisions of this court.
In the case of First Nat. Bank of Deadwood v. Gustin M. C. M. Co., 42 Minn. 327, 44 N. W. 198, it was held that where the stock of a corporation was issued as fully paid up, without in fact having been paid to its full par value, equity will hold the shareholders liable for the amount not actually paid, in favor of creditors who can be presumed to have given credit to the corporation in reliance upon its apparent paid-up capital. The matter was further examined and fully discussed in the case of Hospes v. Northwestern Mnfg. & Car Co., 48 Minn. 174, 50 N. W. 1117, wherein it was held that the right of creditors to compel holders of stock not paid for to pay for it, contrary to their agreement with the corporation, rested neither on implied contract nor upon the "trust fund" doctrine, but upon the ground of fraud. The rule and the reason for it, as stated in the opinion, are substantially that the capital of a corporation is the basis of its credit, and a substitute for the personal liability of those who own its stock. People deal with the corporation and give it credit on the faith of its stock, and they have a right to assume that it has a paid-in capital to the amount which it represents itself as having. If the representation is false, it is a fraud on creditors; and, in case the corporation becomes insolvent, equity will compel the holders of bonus stock, or stock not in fact paid in full, to make the representation good, by paying the balance due on their stock to the extent necessary to pay creditors whose debts were contracted subsequent to the issuing of the stock as fully paid, and who are presumed to have relied on the representation. It is the misrepresentation of fact in stating the amount of capital to be greater than it is in fact which...
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