Lavell v. Bullock
| Decision Date | 21 August 1919 |
| Docket Number | 1915 |
| Citation | 174 N.W. 764,43 N.D. 135 |
| Court | North Dakota Supreme Court |
Appeal from judgment of the District Court of Cass County, Cooley Special Judge.
Reversed and dismissed.
Judgment reversed and action dismissed, with costs.
Lawrence & Murphy, for appellant.
The action is not one properly triable in a court of equity under the circumstances here presented, but should be in the form of an action at law in which this defendant has the right to have the facts determined by a jury. Comp. Laws 1913, § 7608; Kohler v. Agassiz (Cal.) 33 P. 741.
The ordinary action for the recovery of a call is an action at law. 4 Thomp. Corp. pp. 351, 352.
"The remedy to collect subscriptions was held not to be in equity although the defense was interposed that the board of directors released the subscription, but the corporation claimed that such release was fraudulent." 4 Thomp Corp. p 352.
The basis of this action is the purported call by the referee which is simply a demand for a debt due on contract, and therefore if the basis for an action at all is a basis for an action at law. Porter v. Northern F. & M. Ins. Co. The meaning of the word "call" or "instalment" strictly speaking means the action of the board of directors or of a corporation demanding the payment of all or a portion of unpaid subscriptions. 4 Thomp Corp. § 3686.
"An action by a receiver to collect unpaid subscriptions is an action at law, and it is not proper practice to join all delinquent stockholders as defendants in one action." See also Johnston v. Allis, 71 Conn. 207, 41 A. 816.
"On the contrary the probability or even the possibility of a multiplicity of suits is negatived by the facts in the case, nor are any facts averred showing that the remedies provided by law are not entirely adequate." Bismarck Water Supply Co. v. Barnes, 153 N.W. 458.
Youngblood v. Sexton, 20 Am. Rep. 657; Marshall-Wells Co. v. New Era Co. 13 N.D. 396.
The stockholders' liability is not conditional nor secondary under said section. It is a primary liability, and accrues as soon as the debt is contracted. It may be enforced as a personal liability by the procedure laid down in §§ 5767, 6770, Revised Code 1899. Comp. Laws 1913, §§ 7997, and following; Burke v. Schoer, 33 L.R.A.(N.S.) 1057, 130 N.W. 962.
Subscriptions to the stock of a corporation do not constitute trust funds for the benefit of its creditors, so as to give chancery jurisdiction of a suit to reach them for the creditors' benefit.
"Compelling creditors of a corporation to elect between a pending garnishment proceeding and suit in chancery to reach unpaid stock subscriptions will not confer jurisdiction on the chancery court if it did not otherwise exist." Hall v. Henderson, 63 L.R.A. 673; O'Bear Jewelry Co. v. Volfer, 28 L.R.A. 707.
"The general rule supported by a great number of cases is that the stockholders' statutory liability does not pass either to a receiver or to an assignee in insolvency, and cannot be enforced by either." Hammond v. Cline, 170 Ind. 453, 84 N.E. 827; Wallace v. Milligan, 110 Ind. 498, 11 N.W. 599; Runner v. Dwiggins, 147 Ind. 238, 36 L.R.A. 645, 46 N.E. 580. See also Lane v. Morris, 8 Ga. 468; Abbey v. Grimes Dry Goods Co. 44 Kan. 415, 24 P. 426; Howell v. First Nat. Bank, 52 Kan. 133, 34 P. 395; Hanson v. Konkersley, 37 Mich. 184; Patterson v. Stewart, 41 Minn. 84, 42 N.W. 926, 16 Am. St. Rep. 671, 4 L.R.A. 745; Re People's Live Stock Ins. Co. 56 Minn. 180, 57 N.W. 468; Minneapolis Baseball Co. v. City Bank, 66 Minn. 441, 38 L.R.A. 415, 69 N.W. 331; Olson v. Cook, 57 Minn. 552, 58 N.W. 625; Palmer v. Bank, 65 Minn. 90, 67 N.W. 893; Liberty Female College Asso. v. Watkins, 70 Mo. 13; Hamilton Nat. Bank v. American Loan & T. Co. 66 Neb. 67, 92 N.W. 189; Wright v. McCormack, 17 Ohio St. 86; Umstad v. Buskirk, 17 Ohio St. 113; Cushing v. Perot, 175 Pa. 66, 34 A. 447, 52 Am. St. Rep. 835, 34 L.R.A. 737; Parker v. Carolina Sav. Bank, 53 S.C. 583, 31 S.W. 673, 69 Am. St. Rep. 888; Colton v. Mayer, 90 Md. 711, 45 A. 874, 78 Am. St. Rep. 456, 47 L.R.A. 617.
"It does not exist in favor of a subsequent creditor who has dealt with the corporation with full knowledge of the arrangement by which the bonus stock was issued, for a man cannot be defrauded by that which he knows when he acts." Hospes v. N.W. Manufacturing & Car Co. 15 L.R.A. 474.
"But the law implies such a promise only in favor of the subsequent creditors who are presumed to have extended credit to the corporation on the faith of the increased stock, and they alone are entitled to enforce their claims against those accepting that stock." Anglo-American Land, M. & A. Co. v. Lombard, 132 F. 735. See also Hadley v. Stutz, 139 U.S. 417-435, 34 L.Ed. 706.
Where the plaintiff placed no reliance upon the supposed full-paid capital of a corporation, on an increase in the number of shares of its capital stock, it was held, in Coit v. North Carolina Gold Amalgamating Co. supra, that he would have no cause of complaint by reason of the subsequent recall of such shares. Easton Nat. Bank v. American Brick & Tile Co. (N. J.) 8 L.R.A.(N.S.) 271, 272; Anglo-American Land, M. & A. Co. v. Lombard, 132 F. 733.
"The fact that stock certificates cite that the stock is 'fully paid up and nonassessable' was held to be no protection to the assignee thereof as against corporate creditors where such assignee had notice that it was not in fact paid up, or where the circumstances are such that a person of average intelligence would know the facts in relation to the stock being paid up, but the rule does not apply to an innocent purchaser." 4 Thomp. Corp. 1327; Davies v. Ball, 116 P. 833; note in 38 L.R.A. 494.
Fowler & Green and Pfeffer & Pfeffer, for respondent.
"The stockholder is liable to the extent that the subscription represented by his stock requires him to contribute to the corporate funds, and when sued for the money he owes, it must be in a way to put what he pays, directly or indirectly, into the treasury of the corporation, for distribution according to law." Patterson v. Lynde, 106 U.S. 519, 27 L.Ed. 265.
"Unpaid subscriptions on the capital stock of a corporation pass, like other assets, to the trustee in bankruptcy, and he is the only party that can bring an action or proceeding thereon." Sanger v. Upton, 91 U.S. 56, 23 L.Ed. 220; Re Crystal Spring Bottling Co. (D. C.) 96 F. 945; Lane v. Nickerson, 99 Ill. 284.
"It is only through the instrumentality of the trustee, when the corporation has been adjudged a bankrupt, and the estate is in process of settlement in the bankrupt court, that the creditor can reach and subject such assets to the payment of his debt." Glenny v. Langdon, 98 U.S. 20, 25 L.Ed. 43; Peery v. Carnes, 86 Mo. 652; Lane v. Nickerson, supra; Blair v. Hanna, 87 Ind. 298; Perkins v. Cowles, 157 Cal. 625, 30 L.R.A.(N.S.) 283, 108 P. 711.
"The amount due from the stockholders for the subscribed stock of the corporation is a trust fund for the creditors of the corporation, and such unpaid subscriptions to its stock are a part of its assets, and may be collected for its creditors." Vermont Marble Co. v. Declez Granite Co. 135 Cal. 579, 56 L.R.A. 728, 87 Am. St. Rep. 143, 67 P. 1057; Walter v. Merced Academy Asso. 126 Cal. 583, 59 P. 136; Visalia & T. R. Co. v. Hyde, 110 Cal. 632, 52 Am. St. Rep. 136, 43 P. 10.
Babbitt v. Read, 137 F. 712, 215 F. 395; Re Remington Automobile & Motor Co. 153 F. 345; Allen v. Grant (Ga.) 50 S.E. 494 (opinion by Judge Lamar); Re Bothe, 173 F. 597.
As to the necessity of an assessment, and as to the amount necessary to be assessed upon each share of stock, the finding of the referee is conclusive. To this extent the authorities are unanimous. Re Remington, 153 F. 345; Re Munger, 168 F. 910; Re Newfoundland Syndicate, 201 F. 917; Re Stipp Const. Co. 221 F. 372. (This is a late case approving procedure followed here.)
The equity jurisdiction should be sustained upon the ground that a multiplicity of suits thereby was avoided, if for no other reason. 1 Pom. Eq. 3d ed. chap. 269; Wyman v. Bowman, 127 F. 257; Patterson v. Lynde, 106 U.S. 519, 520, 27 L.Ed. 265, 1 S.Ct. 432; Van Pelt v. Gardner, 54 Neb. 711, 75 N.W. 874.
Any shareholder who pays more than his proportion of the corporate debts may enforce contribution of his cosubscribers. Van Pelt v. Gardner, 54 Neb. 709, 75 N.W. 874; Dill v. Ebey, 27 Okla. 584, 46 L.R.A.(N.S.) 440, 112 P. 973.
"Each and every stockholder shall be personally liable to the creditors of the company to the amount of what remains unpaid upon his subscription to the capital stock, and not otherwise." Patterson v. Lynde, 106 U.S. 519 27 L.Ed. 265; Hayden v. Thompson, 71 F. 60; Kelley v. Fourth of July Min. Co. (Mont.) 42 L.R.A. 621; Allen v. Grant (Ga.)...
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