Palmer v. Bank of Zumbrota
| Decision Date | 19 May 1898 |
| Docket Number | 10,961 - (65) |
| Parties | HEMAN H. PALMER v. BANK OF ZUMBROTA and Others |
| Court | Minnesota Supreme Court |
Action under G.S. 1894, §§ 5900, 5901, in the district court for Goodhue county. The case was tried upon issues arising between the intervening creditors of defendant bank and its stockholders before Crosby, J., whose findings of fact and conclusions of law are stated in the opinion. From an order denying a motion for a new trial, certain of the intervening creditors appealed. Remanded with directions to modify the conclusions of law and order for judgment.
Bank -- G.S. 1878, c. 33 -- Powers of Bank of Issue.
1. Banks organized under G.S. 1878, c. 33, had, before the passage of Laws 1895, c. 145, the charter powers of banks of issue, whether they issued any circulating notes or not.
Laws 1885, c. 155 -- Constitution -- Title of Act -- Amendment of Articles of Incorporation.
2. In so far as Laws 1885, c. 155, attempts to give authority to amend articles of incorporation in other respects than by extending the term of the existence of the corporation, it is unconstitutional and void, because no subject except such extension is expressed in the title of the act.
Laws 1881, c. 77 -- Const. art. 9, § 13 -- Two-Thirds Vote of Legislature.
3. Section 13 of article 9 of the constitution requires that a law for the organization of banks of issue shall be passed by a two-thirds vote of the legislature. Held, Laws 1881, c. 77 which attempts to amend section 18 of said chapter 33 contravenes this constitutional provision and is void because it was not passed by such two-thirds vote.
G.S. 1878, c. 33, § 18 -- Increase of Capital Stock -- Amendment of Articles.
4. Held, said section 18, as originally enacted, authorized banks organized under said chapter 33 to increase their capital stock by amending the articles of incorporation.
G.S. 1878, c. 33, § 18 -- Formalities Required.
5. But, as the statute is silent as to the manner in which the amendment shall be made, the same formalities are required with reference to the execution, filing, and publication of the amendment as are required with reference to the original articles of incorporation.
G.S. 1878, c. 33, § 18 -- Failure to Comply with Formalities -- Subsequent Creditors -- Estoppel of New Stockholders.
6. Where, in amending the articles of incorporation, the requirements as to these formalities were not complied with, but the amendment was voted for by the stockholders, the increased stock was issued, and held by the new stockholders until, the bank being insolvent, an action was commenced to appoint a receiver for it, under G.S. 1894, c. 76, held, as to creditors who have become such on the faith of the new stock, the holders of it are estopped to deny its validity.
G.S. 1878, c. 33, § 18 -- Creditors Relying on Increase of Stock -- Presumption.
7. Creditors are presumed to have trusted the bank on the faith of the increase of the stock from the time that such increase was voted.
G.S. 1878, c. 33, § 18 -- Prior Creditors -- Estoppel of New Stockholders.
8. But, as against creditors who became such before such vote, the new stockholders are not estopped, unless there is in favor of such creditors some special equity which creates such estoppel. On the facts in this case, held, there is no such equity.
G.S. 1878, c. 33, § 18 -- Creditors Receiving Stock in Lieu of Claims -- Right to Rescind.
9. Held, as against such creditors, the holders of the new stock, who received it from the bank in lieu of claims which they formerly held as creditors of the bank, are entitled to rescind and stand as creditors, not stockholders.
Action under G.S. 1894, c. 76 -- Allowance of Claims -- Distribution of Fund among Creditors.
10. The receiver appointed in such an action has no authority to allow or disallow the claims of creditors; and where he allowed some, and paid a dividend thereon, and disallowed others, the court may allow the latter, and order the same dividend to be first paid on them out of the fund derived from the stockholders' double liability, and order the distribution of the balance of that fund to all the creditors pro rata.
Action under G.S. 1894, c. 76 -- Creditor Failing to Intervene -- Right to Dividend.
11. Order construed, and held to provide that creditors who failed to intervene and exhibit their claims should receive a dividend; held, error.
Action under G.S. 1894, c. 76 -- Purchaser of Claims -- Consideration -- Right to Dividend.
12. Where the purchaser of a number of the claims of creditors owed no fiduciary relation to the bank or its stockholders, and paid a price which was not so inadequate as to shock the conscience, held, he is entitled to a dividend on the full face of the claims.
Action under G.S. 1894, c. 76 -- Stockholders' Liability -- Interest -- G.S. 1894, § 5504.
13. Held, the stockholders' double liability is an unliquidated demand; and in an action, under chapter 76, to enforce it, interest should, under G.S. 1894, § 5504, be allowed on the amount of the double liability from the time of filing the decision in the court below, but not before.
Action under G.S. 1894, c. 76 -- New and Old Stockholders -- Stockholders as Creditors -- Apportionment of Liability.
14. Held, the amounts which the new stockholders, standing as creditors, may collect from the old stockholders on their double liability, should be applied, as far as necessary, in payment of the amounts for which such new stockholders are liable, to the creditors who became such on the faith of the increase of the stock. The manner of determining the extent of this liability stated.
Smith & Parsons and Wright & Matchan, for appellants.
The stockholders had the power to amend the articles of incorporation by unanimous consent so as to provide for an increase of the capital stock, notwithstanding that there existed no provision for amendment in the organic act, and although the articles of association as originally adopted did not provide for such amendment. The charter of a corporation organized under a general law is the general statute brought into specific operation by the substantial compliance with the terms of the statute on the part of those persons organizing themselves into a body corporate by the adoption of articles of association. 1 Thompson, Corp. §§ 216, 226. The state having granted its permission to corporations organized under this statute to increase their capital stock, the stockholders could use such methods to avail themselves of the privilege as natural persons might use under similar circumstances. Bailey v. Champlain, 77 Wis. 453; Railroad Co. v Allerton, 18 Wall. 233; Barry v. Merchants, 1 Sandf. Ch. 280; White Water v. Vallette, 21 How. 414, 424; McKiernan v. Lenzen, 56 Cal. 61; Thompson v. Lambert, 44 Iowa 239; 1 Beach, Priv. Corp. § 44; Bissell v. Michigan, 22 N.Y. 258. The objection that certain stockholders did not consent cannot be raised by those who did consent. Heath v. Silverthorn, 39 Wis. 146; Handley v. Stutz, 139 U.S. 417. It was not even necessary that the full amount of the proposed increase should be subscribed. Farnsworth v. Robbins, 36 Minn. 369; Masonic Temple Assn. v. Channell, 43 Minn. 353. Express power to amend the articles of association is given by Laws 1885, c. 155, and was strictly pursued. The act is constitutional; and, even if unconstitutional, stockholders who have acted thereunder will be estopped to assert the invalidity of the statute. A general law applicable to all corporations which neither grants nor takes away a banking right or privilege is not within the constitutional restriction upon legislative action. In re Koetting, 90 Wis. 166.
Even presuming this law is unconstitutional, persons who have held themselves out to the world as stockholders in a corporation and have held and owned shares in it will be estopped from claiming that the law under which they are organized is unconstitutional. 2 Morawetz, Priv. Corp. § 759; Elliott, Corp. § 36; Building & Loan Assn. v. Chamberlain, 4 S.D. 271; Olson v. State Bank, 67 Minn. 267; Wright v. Lee, 4 S.D. 237; Freeland v. Pennsylvania, 94 Pa. St. 504; McClinch v. Sturgis, 72 Me. 288; Estey v. Runnels, 55 Mich. 130; Wentz v. Lane (Pa. St.) 3 A. 878; Smith v. Sheeley, 12 Wall. 358; Daniels v. Turney, 102 U.S. 415, 421; Central v. Alabama, 70 Ala. 121; McDonnell v. Alabama, 85 Ala. 401. Even presuming that Laws 1881, c. 77, is constitutional, failure to comply therewith is an irregularity and, the authority to increase the stock actually existing in some form, and the increase having been made in good faith on the assumption that the legal right to do so had been acquired, and the stock having been actually issued, delivered, accepted and paid for, the stockholder will be estopped to deny his liability to the corporation or its creditors, when he has acquiesced in the irregular or illegal acts. Elliott, Corp. § 36; Minnesota G.L.E. Co. v. Denslow, 46 Minn. 171; 2 Morawetz, Priv. Corp. § 624.
It is said that the existence of three things will make a corporation de facto: (1) Capacity to become a corporation (2) a good-faith attempt to form a corporation; and (3) user of the right. Taylor, Priv. Corp. § 145; Evanson v. Ellingson, 67 Wis. 634; Martin v. Deetz, 102 Cal. 55. And when these conditions exist there is a corporation de facto, even though there has been an utter failure to comply with the requirements of the law under which there has been an attempt to organize. Spring Valley v. San Franscisco, 22 Cal. 434, 440; Bakersfield v. Chester, 55 Cal. 98; Foster v. Moulton, 35 Minn. 458; State v. Steele, 37 Minn. 428. Stockholders who have acted and held themselves out to the world as such, and permitted their...
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