Marshall-Wells Hardware Co. v. New Era Coal Co.

• Decision Date: 19 October 1904
• Citation: 100 N.W. 1084,13 N.D. 396
• Parties: MARSHALL-WELLS HARDWARE CO. v. NEW ERA COAL CO. et al.
• Court: North Dakota Supreme Court

13 N.D. 396

100 N.W. 1084

MARSHALL-WELLS HARDWARE CO.

v.NEW ERA COAL CO. et al.

Supreme Court of North Dakota.

Oct. 19, 1904.

Syllabus by the Court.

1. A creditor whose claim has not been reduced to judgment may maintain an action against an insolvent corporation on behalf of himself and all other creditors to enforce stockholders' liabilities as defined by section 2902, Rev. Codes 1899. Sections 5767-5770 authorize such an action.

2. Section 5773, Rev. Codes 1899, authorizes an injunction prohibiting creditors from proceeding with actions against an insolvent corporation where a creditor has brought an action under sections 5767-5770. But it is an abuse of discretion to issue an injunction under said section against a creditor who has brought an action to foreclose a lien in his favor, when it is shown that general creditors can in no event derive any benefit from the proceeds of the property covered by the liens; and it is also an abuse of discretion to grant an injunction against the foreclosure of a lien in such a case or to restrain a pending action by a creditor against such corporation owning property without first appointing a receiver to preserve such property.

Appeal from District Court, Cass County; C. A. Pollock, Judge.

Action by the Marshall-Wells Hardware Company against the New Era Coal Company and others. Judgment for plaintiff, and the Second National Bank of Minot appeals. Reversed.

Le Sueur & Bradford, for appellant. Newman, Spalding & Stambaugh, for respondent Marshall-Wells Hardware Co. Turner & Lee, for respondents New Era Coal Co. et al.

MORGAN, J.

This action is brought by the plaintiff on behalf of itself and all other creditors of the New Era Coal Company, a corporation organized under the laws of this state. The plaintiff furnished the New Era Coal Company goods and merchandise, for which payment has been refused. Other claims for merchandise by other persons against this corporation, duly assigned to the plaintiff, are also included in plaintiff's cause of action. The coal company is alleged to be insolvent, and its directors and stockholders are made defendants in this action, and judgment is asked against them for these creditors' claims, pursuant to the liability imposed upon them for all debts of the corporation to the extent of the amount of unpaid stock. The plaintiff is a general creditor only, and its debt has not been reduced to judgment. The Second National Bank of Minot was also a creditor of said New Era Coal Company, and had commenced two actions upon its claims against said corporation. One of these actions was founded on a debt secured by a miner's lien, and the action was brought to foreclose such lien. All other lienholders against the defendant's property were made parties to that action. The New Era Coal Company appeared in that action. The other action against the coal company was a money demand action. Both of these actions were pending when this action was commenced. The relief prayed for in this action is that creditors be required to exhibit their claims and become parties to this action; that all proceedings by other creditors be restrained; that the amount due plaintiff and all other creditors be ascertained; that an account be taken of the property and debts due to and from said company, and if, upon such account, it shall appear that the defendant corporation is insolvent, that the court shall proceed and ascertain the liabilities of each of the defendant stockholders; that a receiver of the property of such corporation be appointed, and such property be converted into cash, and, if the proceeds of the property be insufficient to pay the debts of said corporation, that the stockholders be adjudged to pay the same; and that the court adjudge the amount payable by each of said defendants Wm. Von Stinwehr, E. C. Cole, E. Y. Sarles, Seth G. Wright, F. B. Mille, O. P. Carter, R. S. Lewis, and Harry Richards, and that the proceeds of the corporation's property be distributed among the creditors as provided by section 5779, Rev. Codes 1899.

Before issue was joined in this action, the plaintiff procured an injunction restraining the Second National Bank of Minot from proceeding with its actions. This injunction was procured on notice, and the said bank appeared at the hearing, and resisted the granting of the injunction. The injunction was based on an affidavit reciting no facts as grounds for granting the injunction except the commencement of this action on behalf of itself and all other creditors. It recited as grounds for granting the injunction the commencement of this action, and the complaint was made a part of the affidavit. It further stated that, “if said Second National Bank of Minot is permitted to prosecute to a conclusion its said actions, this court will be unable to grant the full and complete relief prayed for in the above-entitled action.” The district court granted the injunction, and this appeal is from the order granting the same.

Two questions present themselves for consideration under the facts set forth: (1) Whether a plaintiff in this class of actions can maintain the same, as a general creditor, before reducing his claim to a judgment and exhausting all his legal remedies; (2) whether section 5773, Rev. Codes 1899, authorizes an injunction in such actions without a showing therefor, as required in equitable proceedings generally. Respecting the first question we are agreed that such action will lie by a general creditor on behalf of himself and all the other creditors before his claim is reduced to judgment. The cause of action is based upon section 2902, Rev. Codes 1899, which provides that “each stockholder of a corporation is individually and personally liaable for the debts of the corporation to the extent of the amount that is unpaid upon the stock held by him,” etc. This section makes the stockholders liable for the debts of the corporation to the amount of the stockholders' unpaid stock. 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 sections 5767-5770, Rev. Codes 1899. The action to enforce the stockholders' liability under section 2902 is an equitable action, and involves the adjustment of all creditors' rights, and the liability of the stockholders to the creditors and among themselves as stockholders. The stockholders' liability under section 2902 is not subject to conditions nor secondary, but is an absolute liability to the extent of the unpaid stock subscriptions. Section 5767 reads as follows: “In an action against a corporation upon a claim for which its stockholders, directors, trustees or other officers, or any of them, are liable by law in any event or contingency, one or more or all of the persons so liable may be made parties defendant by the original or by an amended or supplemental complaint, and their liability may be declared and enforced by the judgment in such action.” Section 5769 provides that “whenever any creditor of a corporation shall seek to charge the directors, trustees, or other officers or stockholders thereof on account of any liability created by law, he may commence and maintain an action for that purpose in the district court and may at his election join the corporation in such action.” Said section 5770 provides: “The court shall proceed therein as in other cases and when necessary shall cause an account to be taken of the property and debts due to and from such corporation and appoint one or more receivers who shall possess all the powers conferred and be subject to all the obligations imposed on receivers by the provisions of section 5765; but if, upon the filing of the answer or upon the taking of such account it shall appear that the corporation is insolvent and that it has not property or effects to satisfy such creditor, the court may without appointing any receiver, proceed to ascertain the respective liabilities of such directors, trustees or other officers and stockholders and enforce the same by its judgment as in other cases.” Under these sections the action is not strictly one to sequester the property of a corporation. As the complaint is framed, some of its allegations would indicate that the action is one brought for that purpose. But the action for sequestration alone is authorized by section 5761, ...