Oswald v. Minneapolis Times Co.

• Decision Date: 23 June 1896
• Citation: 65 Minn. 249,68 N.W. 15
• Parties: OSWALD ET AL. v MINNEAPOLIS TIMES CO. ET AL.
• Court: Minnesota Supreme Court

65 Minn. 249

68 N.W. 15

OSWALD ET AL.vMINNEAPOLIS TIMES CO. ET AL.

Supreme Court of Minnesota.

June 23, 1896.

(Syllabus by the Court.)

1. In an action by a judgment creditor under chapter 76, Gen. St. 1894, for the sequestration of the assets of a corporation and the appointment of a receiver, the judgment against the corporation upon which the action is predicated is conclusive upon the stockholders as well as the corporation, unless impeached for fraud by a direct proceeding.

2. Findings considered, and held insufficient to show that the claims of certain creditors exceeded, when contracted, the limit of indebtedness for which, under the articles of association, the corporation should be liable at any one time.

3. Held, also, that evidence that at the time of the signing of the articles of association, and during the negotiations which resulted in their execution, it was verbally agreed among those who signed them and became stockholders that they should not be individually liable for corporate debts, was inadmissible, because tending to vary the terms, implied by law, of the articles themselves.

4. The constitutional individual liability of stockholders for corporate debts extends to debts due creditors who are also stockholders, as well as to debts due those who are not members of the corporation.

5. Held, also, that the Northern Trust Company was a stockholder of the Times Publishing Company. Basting v. Trust Co. (Minn.) 63 N. W. 721, followed.

Appeal from district court, Hennepin county; Charles B. Elliott, Judge.

Action by John S. Oswald and Theodore Basting, partners as J. C. Oswald & Co., on behalf of themselves and others, against the Minneapolis Times Company. Henry Oswald, a creditor of defendant, interposed a supplemental complaint, bringing in William S. Ankeny and others, stockholders of defendant. A receiver was appointed, and various orders were made in the proceedings, and from an order denying them a new trial defendants William S. Ankeny and another appeal. Affirmed.

Geo. T. Halbert, Harrison & Noyes, and Carman N. Smith, for appellants.

Cobb & Wheelwright, for respondents.

MITCHELL, J.

A record of over 1,000 folios, and briefs with 60 assignments of error, appear formidable, but, when carefully sifted, it will be found that they contain a vast amount of chaff, and very little grain.

The plaintiffs, J. C. Oswald & Co., as judgment creditors, brought this action under chapter 76, Gen. St. 1894, in behalf of themselves and all other creditors, for the appointment of a receiver and the sequestration of the assets of the Minneapolis Times Company, an insolvent corporation. Ankeny, a stockholder, appeared in the action, and interposed an answer to plaintiffs' complaint, the only substantial portions of which were (1) that plaintiffs' claim upon which the judgment was rendered was contracted after the limit of indebtedness had been reached which the corporation was authorized to contract by its articles of association; (2) that the suit on this claim, and the rendition of judgment thereon, and the issuing and return of execution, and the subsequent commencement of this action, were all the result and culmination of a fraudulent and collusive scheme entered into between plaintiffs and other stockholders and directors of the corporation, to wind up its affairs and force its dissolution.

As to the validity of plaintiffs' claim against the corporation, the judgment is conclusive against the stockholders until reversed for error or impeached for fraud by a direct proceeding. The judgment cannot be impeached collaterally by stockholders, any more than by the corporation itself. While the proceedings are profusely characterized as collusive and fraudulent, no facts are alleged or proved to substantiate the charge. It is not claimed that plaintiffs' claim was not a just and valid one, except that it exceeded the authorized indebtedness. There is neither allegation nor proof that the corporation was not insolvent, nor that its affairs ought not to be thus wound up, and its assets sequestrated. On the contrary, the evidence is conclusive that it was hopelessly insolvent, and that the very best thing for both stockholders and creditors was to wind up its affairs precisely in the way proposed by this action. Neither is there any evidence of bad faith or collusion unless the fact that both the plaintiffs and the directors and the great majority of stockholders were all alike willing and anxious that the affairs of the company should be wound up in this way, and to that end the legal proceedings were, as between them, amicable. The only fact alleged or attempted to be proved tending to show that these sequestration proceedings were not proper or necessary was that, at the time the execution on plaintiffs' judgment was issued and returned unsatisfied, there were sufficient funds in the hands of the treasurer to pay the judgment. But the corporation was hopelessly insolvent, and known to be so by the plaintiffs; and for them to have taken this money to pay this judgment under the circumstances would have amounted to an unlawful preference over other creditors, which would have required the corporation to make a voluntary assignment, and, in the event of its failure to do so, would have authorized such other creditors to have forced it into involuntary insolvency. In view of the provisions of the insolvent law, the requirement that the execution shall be returned unsatisfied is more formal than substantial, and hence its regularity will not be scrutinized very strictly. But, in any event, it cannot be thus attacked collaterally, any more than the judgment can. The court was right in appointing a receiver and sequestrating the assets of the corporation. This disposes of the issue raised by Ankeny's answer to plaintiffs' complaint.

2. In pursuance of the order of the court, the creditors of the corporation became parties to the action, and exhibited their claims. A majority of these creditors were stockholders and directors of the corporation, but some of them were in no way interested in the corporation except as creditors. The only party who opposed the allowance of these claims was Ankeny. He interposed answers to all of them, the only substantial allegations of which were that these debts were contracted after the debt limit of the corporation had been reached, and that that fact was known at the time by the creditors. All these claims were...