Opinion On Rehearing

• Decision Date: 01 July 1907
• Citation: 76 Kan. 736,93 P. 173
• Parties: OPINION ON REHEARING
• Court: Kansas Supreme Court

93 P. 173

76 Kan. 736

OPINION ON REHEARING

Supreme Court of Kansas

July 1, 1907

Judgment reaffirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. CORPORATIONS--Liability of Stockholders--"Dues." In the provision of the Kansas constitution (Art. 12, § 2; Gen. Stat. 1901 § 211, repealed in 1906) that "dues from corporations shall be secured by individual liability of the stockholders to an additional amount equal to the stock owned by each stockholder" the word "dues" was used in a sense broad enough to cover a judgment rendered against a corporation in an action founded upon tort.

2. CORPORATIONS--Liability of Stockholders--"Dues." Rights of Creditors--Unsatisfied Execution--Judgment for Tort. In view of such interpretation of the constitutional provision referred to, section 1192 of the General Statutes of 1889 (repealed by chapter 10, Laws of 1898), authorizing the owner of a judgment against a corporation upon which an execution had been returned unsatisfied to proceed against any of the stockholders and hold them liable thereon to the extent of the amount of their stock, applied to judgments founded on tort as well as upon contract, notwithstanding that elsewhere in the same act the person to whom the right is given is described as a creditor of the corporation and the claim against it as a debt.

3. CORPORATIONS--Liability of Stockholders--"Dues." Liability of Stockholders. Said section imposed upon the stockholder a liability for the payment of corporate obligations, including those founded upon tort, to the extent of the stock owned.

4. CONSTITUTIONAL LAW--Appointment of Receiver for a Corporation--Obligation of Contract. Section 1302 of the General Statutes of 1901 (repealed by chapter 152, Laws of 1903), which substituted for all other methods of enforcing the individual liability of stockholders an action to be brought by a receiver, was available against stockholders who became such prior to its enactment. Its application to them did not constitute an impairment of the obligation of the contract arising out of their membership in the corporation, even although the new remedy might be more efficient than the old and might incidentally under some circumstances prove somewhat more burdensome, so long as it involved no actual increase in their liability.

OPINION

MASON, J.:

In the original opinion in this case, in holding that the plaintiffs in error, as stockholders, could be held upon their double liability for the payment of a judgment against the corporation founded upon a tort, some stress was placed upon the fact that the statute of January 11, 1899, provided that such liability should be considered an asset of the corporation in the event of insolvency. (Gen. Stat. 1901, § 1315.) The court overlooked the consideration, which seems sufficiently obvious, that to base the decision upon the language of that statute would involve an assumption that the legislature could change the essential character of the liability of one who had already become a stockholder. Upon this phase of the matter being suggested a rehearing was granted, with special reference to this question: Under the constitution and statutes of Kansas as they existed prior to January 11, 1899, could a stockholder ever be held liable beyond the amount of his subscription for the payment of a corporate obligation which originated in tort?

The affirmance of the judgment of the trial court was based, as the opinion showed, upon an approval of the reasoning of the Ohio court in giving a broad meaning to the word "dues" as used in the constitution. The language of the statute of 1899 expressly providing that the stockholders' liability should be deemed a corporate asset was referred to as affording a special ground for applying the arguments quoted from Rider v. Fritchey, Adm'r, 49 Ohio St. 285, 30 N.E. 692, 15 L. R. A. 513, and also as a basis for distinguishing the present case from Ward v. Joslin, 100 F. 676, 105 F. 224, 44 C. C. A. 456, 186 U.S. 142, 22 S.Ct. 807, 46 L.Ed. 1093. The effect of the decision in that case, however, was somewhat overstated. The precise matter there determined was that a stockholder could not be compelled to contribute to the payment of a judgment against the corporation founded upon a contract which the corporation had no power to make, but against which it was estopped to defend. Such a liability was said not to be one of those the risk of which was assumed by the contract of membership in the corporation. And while the argument employed might be thought to apply as well to the case of a corporate liability based upon tort, that question was not involved or directly discussed.

Upon the grounds indicated in the original decision this court is of the opinion that the word "dues" as used in the constitution was not intended to be limited to contractual obligations. Granting that no liability could be fastened upon the plaintiffs in error by the act of 1899, the question remains whether they were liable under the statute which that act superseded. So far as here important it reads:

"If any execution shall have been issued against the property or effects of a 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 proceeding 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." (Gen. Stat. 1889, § 1192.)

"If any corporation, created under this or any general statute of this state, . . . be dissolved, leaving debts unpaid, suits may be brought against any person or persons who were stockholders at the time of such dissolution, without joining the corporation in such suit." (Gen. Stat. 1889, § 1204.)

"Any . . . corporation shall be deemed to be dissolved for the purpose of enabling any creditors of such corporation to prosecute suits against the stockholders thereof to enforce their individual liability if it be shown that such corporation has suspended business for more than one year." (Gen. Stat. 1889, § 1200.)

"No stockholder shall be liable to pay debts of the corporation, beyond the amount due on his stock, and an additional amount equal to the stock owned by him." (Gen. Stat. 1889, § 1206.)

The language of section 1192 in terms covers an execution in any case, regardless of the character of the claim out of which the judgment grew. Two of the other three sections refer to "debts" in describing the obligations for which stockholders shall be held, and the third refers to the claimants as "creditors." As all are parts of the same chapter, doubtless the subsequent sections should be looked to in interpreting the first one. Therefore, although that purports to be complete in itself, perhaps it should be interpreted as though it, too, described the remedy it provided as one for the enforcement of corporate debts. Even so, in view of the meaning already assigned to the constitutional provision, the word "debts" must be deemed to have been used in a broad sense, so as to include judgments founded upon torts.

Upon the rehearing the plaintiffs in error seek to press the argument with regard to the impairment of the obligation of their contract one point further. They not only maintain that the legislation of 1899 could not make them liable for the torts of the corporation if they had previously been liable only for its contracts, but they also contend that the procedure it provided for the enforcement of whatever liability did exist is not available against them because it is more burdensome than that of the earlier statute, which was in effect when they acquired their stock. This exact contention was upheld in Evans v. Nellis, 101 F. 920, decided by the United States circuit court for the northern district of New York. It was there held that the later law visited additional hardships upon the stockholder, first, in depriving him of the right to avail himself of any defense he might have against the particular creditor pursuing him; second, in subjecting him to an action for the full amount of his stock, whether the corporate indebtedness was large enough to require so large a payment or not; and, third, in compelling him to pay a part of the expenses of the receivership. That case having been taken by writ of error to the circuit court of appeals, the questions involved were from there certified to the supreme court, where the matter was disposed of by answering only one question--whether the receiver was entitled to maintain the action, the court saying, upon the authority of Waller v. Hamer, 65 Kan. 168, 69 P. 185, that he could not do so, because no action had been brought against all the stockholders. The court expressed no opinion regarding the validity of the statute as applied to conditions existing at the time of its enactment. (Evans v. Nellis, 187 U.S. 271, 23 S.Ct. 74, 47 L.Ed. 173.)

It is settled that a corporate creditor who became such while the earlier statute was in force could not be deprived of his right to proceed thereunder by the enactment of the new law. (Woodworth v. Bowles, 61 Kan. 569, 60 P. 331.) But it does not follow that one who became a stockholder prior to 1899 is exempt from being proceeded against under the later act. The constitutional prohibition against legislati...