Musgrave v. The Glen Elder Association and J. K. P. Boyd

• Decision Date: 22 March 1897
• Docket Number: 262
• Citation: 49 P. 338,5 Kan.App. 393
• Parties: JOHN E. MUSGRAVE v. THE GLEN ELDER ASSOCIATION AND J. K. P. BOYD
• Court: Kansas Court of Appeals

49 P. 338

5 Kan.App. 393

JOHN E. MUSGRAVE v. THE GLEN ELDER ASSOCIATION AND J. K. P. BOYD

No. 262

Court of Appeals of Kansas, Northern Department, Central Division

March 22, 1897

March 22, 1897.

Error from Mitchell District Court. Hon. Cyrus Heren, Judge. Affirmed.

Judgment affirmed.

D. M Thorp, F. T. Burnham, I. D. Young, V. H. Branch, and J. W Turner, for plaintiff in error.

A. W Hicks, and F. J. Knight, for defendants in error.

MCELROY J. Wells, J., concurring. MAHAN, P. J., dissenting.

OPINION

MCELROY, J.

The plaintiff in error, as a creditor of the Glen Elder Farmers Alliance Co-operative Shipping and Purchasing Association, sought to recover against the defendant, Boyd, as a stockholder of the Association, under the provisions of paragraph 1192, General Statutes of 1889, which reads:

"If any execution shall have been issued against the property or effects of a corporation, except a railway or a religious or charitable corporation, and there cannot be found any property whereon to levy such execution, then execution may be issued against any of the stockholders, to an extent equal in amount to the amount of stock by him or her owned, together with any amount unpaid thereon; but no execution shall issue against any stockholder, except upon an order of the court in which the action, suit or other proceedings shall have been brought or instituted, made upon motion in open court, after reasonable notice in writing to the person or persons sought to be charged; and upon such motion, such court may order execution to issue accordingly; or the plaintiff in the execution may proceed by action to charge the stockholders with the amount of his judgment."

The case was tried upon an agreed statement of facts, which is as follows:

"The defendant association was a corporation under the laws of Kansas and became insolvent, whereupon the plaintiff brought suit and obtained judgment against said corporation for $ 751.66 in the above court; afterward plaintiff duly moved the court for an execution against said J. K. P. Boyd, defendant, in this proceeding as a stockholder in defendant corporation. It is admitted that said Boyd is a stockholder in defendant corporation to the amount of $ 410, the par value of his stock, which was all paid up.

"1. Before plaintiff moved for execution herein, S.W. Earl, a stockholder and a creditor of defendant corporation, obtained a judgment against the corporation, and an order for execution against said Boyd as a stockholder therein, in the sum of $ 115, which defendant Boyd paid and which he claims as a set-off in this proceeding.

"2. Before plaintiff moved for execution herein, S.W. Watson, after defendant corporation became insolvent, obtained a judgment against the corporation, and duly obtained an order for execution, in the same court where said judgment was rendered, against defendant Boyd for forty-five dollars, which sum defendant Boyd paid in satisfaction of said order for execution, and defendant Boyd claims said sum as a set-off in this proceeding.

"3. That after said corporation became insolvent, and before plaintiff moved for execution herein, said defendant, Boyd, paid to the Bank of Glen Elder $ 112.78 upon an existing indebtedness of eight hundred dollars of defendant corporation to said bank, which sum he claims as a set-off herein.

"4. That after defendant corporation became insolvent, and before plaintiff moved for execution herein, defendant Boyd paid to the Farmers and Merchants National Bank of Cawker City, Kan., the sum of sixty-one dollars upon a valid claim in the sum of eight hundred dollars which said bank then held against defendant corporation, which sum of sixty-one dollars so paid defendant Boyd claims as a set-off herein.

"5. That during the time said corporation was doing business as such, defendant Boyd as the agent, and at the request of defendant corporation, rendered services and expended time and expenses, in and about soliciting stock subscriptions and obtaining loans for said corporation, of the amount and value of $ 33.40, no part of which has been paid, and which defendant Boyd claims as a set-off herein.

"6. That during the time said defendant corporation was doing business, defendant Boyd was a director of said association, and as such, rendered services and expended money for said corporation in the sum of $ 23.40, no part of which has been paid, and which sum defendant Boyd claims as a set-off herein.

"7. That during the time said corporation was doing business, defendant Boyd was by the directors and stockholders appointed on the building committee in the erection of a warehouse for the business of said corporation; that as such, he was acting for said corporation actually and necessarily for twenty-five days and that his services were of the value of $ 68.75, no part of which has been paid, and which he claims as a set-off herein.

"All the facts herein stated to have been done by the defendant Boyd were done before plaintiff moved for execution herein, and that all the allegations of the plaintiff's motion are true. Dated at Beloit, Kan., this twenty-fourth day of January, A. D. 1895."

Judgment was rendered for defendant Boyd and against the plaintiff Musgrave for costs, to which ruling of the court the plaintiff excepted, filed his motion to vacate and set aside the judgment, which motion was by the court overruled, and he brings the case here for review.

The determination of this case involves the examination of three propositions: First. Was Boyd entitled to plead as a set-off the amount paid to S.W. Earl and S.W. Watson? Each of these parties procured a judgment against the Association and had an execution issued which was returned unsatisfied, for want of property on which to levy the same; and each of these parties procured an order for the execution against Boyd thereupon. He paid the amount of their judgment, for which he asks credit on the amount of his liability for his stock. Second. The second question is upon the third and fourth paragraphs of the agreed statement of facts. The Bank of Glen Elder, and the Farmers and Merchants National Bank of Cawker City, Kan., were creditors of the Association and held a just and valid claim against the Association, on which Boyd made payments, for which he asks credit on his liability for stock. Third. Boyd held a claim against the Association as a creditor, and he asks that the amount the Association owed him be treated as a set-off against his liability on his stock. These three claims, that is, the amount that Boyd paid upon execution awarded against him as a stockholder, the amount that he paid to the Bank of Glen Elder and to the Farmers and Merchants National Bank of Cawker City, and the amount of the indebtedness that the Association owed him, exceed the amount of his liability under this statute on his stock as a stockholder in this Association.

The questions, then, for determination are as to Boyd's right to use these three claims as a set-off in this action brought by Musgrave. Our Supreme Court has decided the first two propositions in favor of the contention of Boyd, in the case of Abbey v. Long (44 Kan. 688, 691, 24 P. 1111). Strang, C., delivering the opinion of the court says:

"The statute creating a liability on the part of the stockholder guarantees to the creditor of a corporation a trust fund, in the hands of the stockholders, liable for the ultimate payment of the corporation debts. The law says you may combine your capital, create a corporation, relieve yourselves of the common-law liability of copartners, and obtain the many other advantages growing out of corporate existence; but, as a protection to the public, in lieu of the partnership liability you escape, you shall be held not only liable to the corporation and creditors for the full amount of your stock subscribed, but to guarantee further protection to creditors of the corporation, you shall, if the corporation itself becomes insolvent, be charged with a further liability to such creditors equal to the amount of your stock in the corporation. This liability may be discharged by payment on execution issued pursuant to the statute, as in this case. The authorities also hold, as a matter of equity, that such liability may be discharged by a voluntary payment by the stockholder, in good faith, of the just debts of the corporation equal to the amount of the stock held by him in the corporation. This method of discharge from liability had its origin in and is based entirely upon equity; it being held, that as no creditor has any exclusive right to the fund in the hands of any individual stockholder before execution issues, the voluntary and bona fide payment, in good faith, of a just debt of the corporation equal to the amount of stock held by a stockholder, is, in equity, equivalent to the payment of so much on an execution issued under the statute. But as this method of discharge depends upon equity for its existence, the voluntary payment, to operate as a discharge, must be a bona fide payment of a just debt, made in good faith."

There remains, then, the question of Boyd's right to plead as a set-off to this claim of Musgrave, the indebtedness of the Association to himself. This question was considered in the case of Mathez v. Neidig (72 N.Y. 100). Church, C. J., in delivering the opinion says:

"I agree with the counsel for the appellant, that the statute liability constitutes a fund which belongs to the creditors to secure the payment of their debts, but it belongs to all the creditors, as well those who are stockholders as those who are not. The defendant, as a creditor, had an interest in the fund as well as the plaintiff, and his debt was one which would be chargeable against the...