In re Minnehaha Driving-Park Association of Minneapolis, Insolvent

• Decision Date: 08 June 1893
• Citation: 55 N.W. 598,53 Minn. 423
• Parties: In re Minnehaha Driving-Park Association of Minneapolis, Insolvent
• Court: Minnesota Supreme Court

55 N.W. 598

53 Minn. 423

In re Minnehaha Driving-Park Association of Minneapolis, Insolvent

Supreme Court of Minnesota

June 8, 1893

Submitted on briefs May 23, 1893.

Appeal by Chester B. Dickens and seven others, stockholders of the Minnehaha Driving-Park Association of Minneapolis, from an order of the District Court of Hennepin County, Seagrave Smith, J., made October 6, 1892.

The Minnehaha Driving-Park Association was a corporation organized April 4, 1888, with a capital stock of $ 50,000 divided into shares of $ 50 each. On October 19, 1891, the corporation being insolvent, made a general assignment of its property to Wayland B. Augir, in trust for its creditors. On August 18, 1892, the assignee presented to the District Court his petition stating that the assigned property had been converted into money and was insufficient to pay the claims that the capital stock was fully subscribed by about two hundred and twenty different persons, who agreed to pay therefor as called for by the board of directors; that only seventy per cent. upon the stock was called for by the board but some of the stockholders had voluntarily paid their stock in full, so that only $ 13,335 remained unpaid; that claims against the corporation had been filed with the assignee to the aggregate sum of $ 8,906.73; that many of the stockholders were insolvent, or dead, or removed from the state to parts unknown, and that not more than one-half of the unpaid subscriptions were collectible. He asked the court to order a call of the unpaid balance on the stock. Dickens and his seven associate stockholders appeared and opposed the application, claiming that the power to make calls rested only in the board of directors, and not in the court; that the claims against the corporation were invalid, and were contracted in violation of the articles of incorporation, and that there was still $ 8,713 uncollected on calls made by the board of directors prior to the assignment. They asked the court to refuse the application, or, in the alternative, to order the holders of claims to prove their demands in some appropriate manner, before any call should be made on the stockholders for money to pay them.

The court granted the petition of the assignee and adjudged that all of the money subscribed for the capital stock of the corporation, and remaining unpaid and collectible, was required for the payment of its valid debts, and directed the assignee to call upon the stockholders for payment, and directed them to pay within ten days after service of a copy of that order.

Dickens and his associates appealed from the order to this court.

Order affirmed.

A. M. Harrison and Jamison, Penney & Hayne, for appellants.

What we chiefly complain of in this proceeding is the action of the court in making this order, calling upon the stock subscribers to pay over to the assignee $ 13,335 in addition to $ 8,713 due upon former calls, without ascertaining that there were any debts of the defunct corporation rendering it necessary to make a call upon this fund. The board of directors, before insolvency, may make calls to meet running and operating expenses, and for the purpose of carrying on the business, but this power the court does not possess. It has only power to make calls to pay the legal debts of the corporation. The great body of the pretended claims could not have been established had they been examined into by the court. It was the duty of the court to first ascertain what the liabilities of the stockholders were, before any call could be made. Scovill v. Thayer, 105 U.S. 143; Chandler v. Keith, 42 Iowa 99; American Ins. Co. v. Schmidt, 19 Iowa 502; Mann v. Pentz, 3 N.Y. 415; Cook, Stock & S. §§ 111, 208; Adler v. Milwaukee Pat. Brick Mfg. Co., 13 Wis. 63; Citizens' Bank & T. Co. v. Gillespie, 115 Pa. St. 564.

This proceeding cannot be maintained, because it is not the proceeding pointed out by our statute for enforcing a liability against stockholders for unpaid stock. This liability can only be enforced after judgment against the corporation and execution returned unsatisfied. 1878 G. S. ch. 34, §§ 9, 10, 11; ch. 76, §§ 17 to 23, incl.; Cook, Stock & S. § 200; Johnson v. Fischer, 30 Minn. 173; Allen v. Walsh, 25 Minn. 543; Priest v. Essex Mfg. Co., 115 Mass. 380; Handy v. Draper, 89 N.Y. 334.

The assets of the corporation must be exhausted, or clearly shown to be insufficient, before any resort can be had to the unpaid stock subscriptions. The liability of the corporation is the primary one, and that of the stockholders only secondary. Harper v. Union Mfg. Co., 100 Ill. 225; First Nat. Bank v. Greene, 64 Iowa 445; Wright v. McCormack, 17 Ohio St. 86; Lane v. Harris, 16 Ga. 217; Jackson v. Meek, 87 Tenn. 69; Drinkwater v. Portland Marine Ry. Co., 18 Me. 35; Dauchy v. Brown, 24 Vt. 197.

Byers & Augir, for respondent.

The appellants assume that there has been no determination of the amount or validity of the claims of creditors against the insolvent company. The records in the District Court show an order of the court directing creditors to verify and file their claims with the assignee, the publication of the notice thereof, and the allowance by the assignee of claims to the amount mentioned in the petition. In re Rees, 39 Minn. 401; In re Mann, 32 Minn. 60.

If the assignee wrongfully disallows a claim, the creditor has his remedy under Laws 1881, ch. 148, § 8. If the assignee allows a claim which is unjust, any person interested can have the matter reviewed by the court directly, by proceedings under § 10. It is not the proper remedy of a stockholder in such a case to first appear upon the scene and resist the efforts of the assignee to collect the assets of the insolvent. His remedy is not a negative and obstructive one, but a direct proceeding under § 10 of the insolvent law, and that proceeding can be instituted at any time before the distribution of the insolvent's assets among its creditors. Until such direct proceeding is instituted by a party in interest, the business of collecting the assets of the insolvent and of distributing the proceeds in payment of claims allowed by the assignee is to take its usual course. Perry v. Murray, 55 Iowa 416.

In none of the cases cited by appellants had there been any determination by an assignee or receiver of the amount or validity of the debts of the insolvent at the time the collection of unpaid stock subscriptions was sought to be enforced, except in Scovill v. Thayer, 105 U.S. 143, but in that case the other assets of the corporation had not been exhausted.

1878 G. S. ch. 76, is not adapted to the circumstances of this case. Here the corporation has made a voluntary assignment. Marson v. Deither, 49 Minn. 423.

Gilfillan, C. J. Vanderburgh, J., took no part.

OPINION

Gilfillan, C. J.

This is an appeal from an order of the district court making a call upon the unpaid subscriptions to the stock of a corporation, in proceedings upon an assignment by such corporation for the benefit of its creditors.

The return is somewhat short in several particulars. It does not disclose distinctly whether the assignment was under 1878, G. S. ch. 41, or Laws 1881, ch. 148, but we infer that it was under the latter. It does not make it appear very satisfactorily at what stage of the proceedings the assignee applied to the court to make or direct the call; that is, what had been done in the proceedings prior to the application. But we infer that the claims to satisfy which the call was applied for had been presented to, and allowed by, the assignee, or accepted by him as valid, and that nothing else had been done in respect to them.

When a court has charge, through its receiver or assignee, of collecting and converting the assets of a corporation, and applying the proceeds to the satisfaction of its debts, the court's call for the unpaid subscriptions to stock stands precisely as does a call made by the directors of an operating corporation....