Holland v. Duluth Iron Mining & Development Company

• Court: Minnesota Supreme Court
• Writing for the Court: COLLINS, J.
• Citation: Holland v. Duluth Iron Mining & Development Company, 65 Minn. 324, 68 N.W. 50 (Minn. 1896)
• Decision Date: 29 June 1896
• Docket Number: 9942--(153)
• Parties: GEORGE N. HOLLAND v. DULUTH IRON MINING & DEVELOPMENT COMPANY and Others

68 N.W. 50

65 Minn. 324

GEORGE N. HOLLAND v. DULUTH IRON MINING & DEVELOPMENT COMPANY and Others

Nos. 9942--(153)

Supreme Court of Minnesota

June 29, 1896

Action in the district court for St. Louis county by a judgment creditor against defendant corporation and its stockholders for the appointment of a receiver, the sequestration of its property, and the enforcement of the liability of its stockholders. It appeared that plaintiff's judgment had been entered against the corporation by default. The case was tried before Moer, J., who found in favor of plaintiff and ordered judgment against the stockholders. From an order denying a motion for a new trial, defendants Wilson, Chapman Sheridan and other stockholders appealed. Affirmed.

Order affirmed.

Handlan & McGregor, for appellant Wilson.

The stockholder's liability for unpaid subscriptions is an asset of the corporation and enforceable by it, while his constitutional or statutory liability is directly to the creditors and not enforceable by or an asset of the corporation. In re People's L. S. Ins. Co., 56 Minn. 180, 57 N.W. 468. But see Frost v. St. Paul B. & Inv. Co., 57 Minn. 325, 59 N.W. 308. In an action to enforce the individual liability of stockholders, which is created by the constitution and distinct from their obligation as corporators to the corporation or creditors the admission of the judgment against the corporation is not admissible as evidence. The liability of the stockholders in such cases is not for the judgment, but for the original debt, which rests upon them as individuals and not as corporators, and a complaint against them founded upon the judgment is bad on demurrer. Trippe v. Huncheon, 82 Ind. 307; Southmayd v. Russ, 3 Conn. 52; Mokelumne H. C. & M. Co. v. Woodbury, 14 Cal. 265. The judgment, if admissible at all, was only prima facie evidence.

The stock book of the corporation was inadmissible to prove that defendant was a stockholder. Being a stranger to the corporation, he was not chargeable with admissions in its records until he had previously been connected with the corporation by evidence aliunde. Redding v. Godwin, 44 Minn. 355, 46 N.W. 563; 1 Wharton, Ev. § 662; 1 Phillips, Ev. 449; 1 Greenleaf, Ev. § 493; Haynes v Brown, 36 N.H. 568. The entries in the stock book of a corporation are solely for the benefit and protection of the corporation (Baldwin v. Canfield, 26 Minn. 43, 1 N.W. 261) and of its creditors (Basting v. Northern Trust Co., 61 Minn. 307, 63 N.W. 721; Mudgett v Horrell, 33 Cal. 29; 3 Thompson, Corp. §§ 3657-3659; Howard v. Glenn, 85 Ga. 238, 11 S.E. 610; Tripp v. Appleman, 35 F. 19; Glenn v. Liggett, 47 F. 480). The stock book did not conform to G. S. 1894, § 2599, and hence was not admissible. Tripp v. Appelman, supra; Glenn v. Liggett, supra; Taussig v. Glenn, 2 C. C. A. 318, 51 F. 413; Morawetz, Corp. § 76. To create the presumption that an individual whose name appears as a stockholder is prima facie the owner of the stock, it must be shown by the contents of the stock book, or by extrinsic evidence, or by both combined, that the name found in the book was so entered therein as the name of the party to the litigation. Liggett v. Glenn, 2 C. C. A. 298, 51 F. 393; Glenn v. Liggett, supra; Taussig v. Glenn, supra. The stock book did not sustain a finding that defendant was the owner of stock and that a certificate had been issued to and received by him. Turnbull v. Payson, 95 U.S. 425; Vanderwerken v. Glenn, 85 Va. 9, 6 S.E. 806; Lehman v. Glenn, 87 Ala. 618, 6 So. 44; Taussig v. Glenn, supra; Liggett v. Glenn, supra; Weber v. Fickey, 52 Md. 500; Tripp v. Appleman, supra.

C. d'Autremont, Jr., and Cash, Williams & Chester, for appellant Sheridan, and Mann & Corcoran, for appellant Chapman.

A mere contract to become a stockholder is insufficient to charge a party as stockholder until the contract is executed by the delivery of the stock. Burt v. Rattle, 31 Oh. St. 116; Medler v. Albuquerque Co., 6 N. M. 331, 28 P. 551; Morawetz, Corp. § 46; Thrasher v. Pike Co. R. R. Co., 25 Ill. 393; Stowe v. Flagg, 72 Ill. 397-402; Rhey v. Ebensburg & S. P. R. Co., 27 Pa. 261; Mt. Sterling C. Co. v. Little, 14 Bush (Ky.) 429; Lake Ontario S. R. R. Co. v. Curtiss, 80 N.Y. 219-223; Quick v. Lemon, 105 Ill. 578; Clark v. Continental Imp. Co., 57 Ind. 138; Weiss v. Mauch Chunk Iron Co., 58 Pa. 295-301; Wheeler v. Thayer, 121 Ind. 64, 68, 22 N.E. 972; Wolverhampton N.W. Co. v. Hawkesford, 95 Eng. C. L. 336; Tracy v. Yates, 18 Barb. 152.

The judgment recovered in the former action against the defendant company is not conclusive against the stockholders. In those jurisdictions where a judgment against the corporation is held conclusive against the stockholder, regarding his statutory or constitutional liability, it is urged that it would be a hardship to require the creditor to prove his case twice. This reasoning does not apply in this state under the statutory remedies given to the creditor, under either of which the defendant stockholders would have had a hearing, viz.: (1) At law under G. S. 1894, §§ 2600-2602; Merchants Nat. Bank v. Bailey Mnfg. Co., 34 Minn. 323, 25 N.W. 639; (2) in equity, under G. S. 1894, § 5905; First Nat. Bank v. Winona Plow Co., 58 Minn. 167, 59 N.W. 997.

Jaques & Hudson, for appellants Brown.

The judgment against the corporation in favor of plaintiff is not conclusive evidence of the liability of the corporation to him in the present action. Miller v. White, 50 N.Y. 137; McMahon v. Macy, 51 N.Y. 155; Stephens v. Fox, 83 N.Y. 313; Trippe v. Huncheon, 82 Ind. 307; Union Bank v. Wando M. & M. Co., 17 So. Car. 339; Southmayd v. Russ, 3 Conn. 52; Chestnut v. Pennell, 92 Ill. 55; Chase v. Curtis, 113 U.S. 452, 5 S.Ct. 554; Hawkins v. Glenn, 131 U.S. 330, 9 S.Ct. 739; Beauchaine v. McKinnon, 55 Minn. 318, 56 N.W. 1065. The complaint shows that the corporation was not indebted to plaintiff in the action at the time the judgment was entered. A judgment entered by default on a complaint that does not state a cause of action is void. 1 Black, Judgm. § 84.

Billson, Congdon & Dickinson, for respondent.

The stockholders are concluded by the judgment previously obtained against the corporation. Frost v. St. Paul B. & I. Co., 57 Minn. 325, 331, 59 N.W. 308; Thompson, Corp. § 3392; 2 Black, Judgm. § 583; Bissit v. Kentucky R. Nav. Co., 15 F. 360, note; Thompson v. Reno Sav. Bank, 3 Am. St. Rep. 858, note; 2 Morawetz, Corp. § 619.

The entries in the stock certificate book were admissible against defendant Wilson, and in connection with the parol testimony, were sufficient to establish prima facie that he was a stockholder. Turnbull v. Payson, 95 U.S. 421; Finn v. Brown, 142 U.S. 67, 12 S.Ct. 136; Liggett v. Glenn, 2 C. C. A. 298, 51 F. 393; Rockville & W. T. Road v. Van Ness, 2 Cranch, C. C. 451, Fed. Cas. No. 11,986; Hoagland v. Bell, 36 Barb. 57; Chapman v. Porter, 69 N.Y. 276; Wood v. Coosa & C. R. R. Co., 32 Ga. 273; Semple v. Glenn, 91 Ala. 245, 6 So. 46, 9 So. 265; Glenn v. Orr, 96 No. Car. 413, 2 S.E. 538; Sayre v. Glenn, 87 Ala. 631, 6 So. 44; Pittsburg W. & K. R. R. Co. v. Applegate, 21 W.Va. 172; Weber v. Fickey, 47 Md. 196; 52 Md. 500; 1 Cook, Stock. & Stockh. § 55; 1 Morawetz, Corp. § 270. In order to constitute one a stockholder the certificates to which he was entitled need not have been actually issued. Columbia E. Co. v. Dixon, 46 Minn. 463, 466, 49 N.W. 244; Marson v. Diether, 49 Minn. 423, 427, 52 N.W. 38; 1 Cook, Stock. & Stockh. § 192. Stockholders cannot evade their liability by failing to keep books as required by the statute. This would be to take advantage of their own wrong. The incorporators must be regarded as stockholders even if no formal action was taken by the corporation authorizing the issuance of stock to them in exchange for the leases. Where a corporation or a board of directors consists of a small number of persons, they may transact business without formal votes or resolutions. Melledge v. Boston Iron Co., 59 Mass. 158, 179; 2 Cook, Stock. & Stockh. § 714. Although no record or minute is made of such informal acts or understandings, they may be established by parol proof. Allis v. Jones, 45 F. 148; 1 Beach, Pub. Corp. § 181; Morrill v. Segar Mnfg. Co., 32 Hun, 543. Even in the absence of direct testimony, corporate action may be shown by facts and circumstances from which it may be reasonably inferred. Moss v. Averell, 10 N.Y. 449, 454; Bank of U. S. v. Dandridge, 12 Wheat. 70. It would not be unreasonable to infer that, at some of the directors' meetings, informal conferences, agreements and understandings were had as to the issuance of this stock, which all understood to belong to them individually, and the certificates to which remained unissued for purposes of their individual convenience. No formal action was necessary. Walworth Co. Bank v. Farmers L. & T. Co., 16 Wis. 629; Sherman v. Fitch, 98 Mass. 59; Sherman C. T. Co. v. Swigart, 43 Kan. 292, 23 P. 569; Greig v. Riordan, 99 Cal. 316, 33 P. 916. See Pittsburg, C. & St. L. Ry. Co. v. Keokuk & H. B. Co., 131 U.S. 381, 9 S.Ct. 770; Fort Worth Pub. Co. v. Hitson, 80 Tex. 216, 14 S.W. 843.

The corporation was not organized exclusively for manufacturing or mechanical purposes within the meaning of the constitution. First Nat. Bank v. Winona Plow Co., 58 Minn. 167, 59 N.W. 997; Densmore v. Shepard, 46 Minn. 54, 48 N.W. 528, 681; Arthur v. Willius, 44 Minn. 409, 46 N.W. 851; Mohr v. Minnesota Elevator Co., 40 Minn. 343, 41 N.W. 1074.

OPINION

COLLINS, J.

This was an action brought by a judgment creditor of a corporation to enforce against the stockholders individually their double liability for the corporate debts.

At the trial the court held that the judgment previously obtained against the corporation was conclusive evidence...