Patterson v. Stewart

• Decision Date: 18 June 1889
• Citation: 41 Minn. 84
• Parties: WILLIAM H. PATTERSON <I>vs.</I> J. H. STEWART, impleaded with Minnesota Manufacturing Company.
• Court: Minnesota Supreme Court

41 Minn. 84

WILLIAM H. PATTERSON vs. J. H. STEWART, impleaded with Minnesota Manufacturing Company.

Supreme Court of Minnesota.

June 18, 1889.

Action brought in the district court for Ramsey county against the defendant corporation and J. H. Stewart, one of its directors. Defendant Stewart demurred to the complaint on all the statutory grounds except want of jurisdiction. The demurrer was sustained by Kerr, J., and the plaintiff appealed.

The case made by the complaint is in substance as follows: The defendant corporation was organized in December, 1875, under the "Act relating to manufacturing corporations," approved March 7, 1873. (Laws 1873, c. 11; Gen. St. 1878, c. 34, §§ 120-143.) On April 1, 1883, plaintiff lent the company $250 on its promissory note, payable six months from date, with interest at six per cent. per annum, which is still wholly unpaid. From December 22, 1875, until January 15, 1888, the defendant company was engaged in the business of making and selling agricultural implements, and from the first to the last of those dates, the company, through its officers duly authorized to make and negotiate its commercial paper and to transact all its business, executed and delivered a large amount of negotiable paper, and indorsed a large amount of like paper, without any consideration moving to it, and solely for the accommodation of other persons. During the same period the company loaned large sums of money to other persons and corporations, although such money was needed and could have been profitably employed in its own business, for the loan of most of which sums it received no return whatever, either in principal or interest. By reason of its making and indorsing such accommodation paper and loans, the company became unable to meet its obligations as they matured, and on January 15, 1888, was by a court of competent jurisdiction duly placed, with all its property and business, in the hands of a receiver. During all the period from December 22, 1875, to January 15, 1888, defendant Stewart was a director of the company, "and did not at any time object to the transactions above set out, but on the contrary said defendant had full knowledge of the by-laws and resolutions of said corporation, whereby the officers thereof were given authority to execute such paper and indorsements and make such loans as aforesaid, and acquiesced in the same."

The complaint does not state the amount of the accommodation paper made or indorsed, or of the loans made, by the company, nor the names of any of the persons and corporations for whose benefit the paper was made or indorsed, or to whom the loans were made. It does not state in what court or at whose suit the receiver was appointed, or who the receiver was, nor does it state the terms of the "by-laws or resolutions" authorizing the transactions complained of, or make any mention of them except in the passage quoted.

For a second cause of action the following statements are made: The defendant company is indebted to plaintiff in the sum of $250 and interest at six per cent. from April 1, 1883, as before stated. Prior to 1882 the president and secretary always made the certificate required by section 12 of the act of 1873, (Gen. St. 1878, c. 34, § 131,) and filed it with the register of deeds of Ramsey county, (the county wherein the company transacted its business,) prior to February 15th in each year; but no such certificate nor any certificate relative to the company's affairs was made in the year 1882 or in 1883, or filed in the register's office of Ramsey county either before February 15th or at all. "During all said years 1882 and 1883 said J. H. Stewart was a member of the board of directors of said corporation, and did not at any time object or remonstrate with said president and secretary, or with any other of the members of the board of directors of said corporation, or of the officers thereof, in regard to said failure to file said certificate as aforesaid."

Judgment is demanded against each defendant in the sum of $250, with interest at six per cent. per annum from April 1, 1883, and for costs.

Rogers, Hadley & Selmes, for appellant.

Flandrau, Squires & Cutcheon, for respondent.

MITCHELL, J.

If any proof were needed of the chaotic condition of our statutes relating to corporations it could be found in the confused and diverse provisions, scattered through chapters 34 and 76, relating to the enforcement of the personal liabilities of stockholders and officers for corporate debts. In Dodge v. Minn. Plastic Slate Roofing Co., 16 Minn. 327, (368,) it was assumed, and in Merchants' Nat. Bank v. Bailey Mfg. Co., 34 Minn. 323, (25 N. W. Rep. 639,) it was expressly held, that a creditor of a corporation organized under title 2 of chapter 34 might sue the corporation for the debt, and join as defendants one or more of the stockholders to enforce their liability, and that in such action it was not necessary to join all the creditors or all the stockholders subject to liability. This was put upon the ground that sections 10 and 11 of that chapter clearly contemplated such an action, different from that provided for in chapter 76. In Allen v. Walsh, 25 Minn. 543, which was an action by a creditor of an insolvent bank against a stockholder to enforce his individual liability under the banking law, it was held that the exclusive remedy was under chapter 76. This was put mainly upon considerations growing out of the character and purpose of the liability and the inadequacy of any other form of remedy to accomplish the object of the statute. In Johnson v. Fischer, 30 Minn. 173, (14 N. W. Rep. 799,) which was an action by a creditor of a manufacturing company organized under the act of 1873, to enforce what was assumed to be the personal liability of a stockholder under Laws 1878, c. 56, (Gen. St. 1878, c. 34, § 111,) it was held, following Allen v. Walsh, and for similar considerations, that an action under chapter 76 furnished the exclusive remedy. The present case raises the question of the proper procedure to enforce the personal liability of directors of a manufacturing corporation organized under Laws 1873, c. 11, imposed by section 23 of that act, (Gen. St. 1878, c. 34, § 142,) for ordering or assenting to violations of the act by which the corporation became insolvent. It will be observed that none of our decisions referred to cover the case.

Gen. St. 1878, c. 34, § 138, (repealed in 1883,) provides that if the president or secretary of the corporation intentionally neglects or refuses to comply with the twelfth section of the act, (making and filing an annual certificate,) the persons so neglecting and refusing "shall jointly and severally be liable to an action founded on this statute for all debts of such corporation contracted during the period of any such neglect or refusal." Section 139 provides that if the capital stock shall be withdrawn and refunded to the stockholders before the payment of all the debts of the corporation for which such stock would have been liable, the stockholders shall be liable to any creditor in an action founded on this statute to the amount of the sum refunded to them, respectively; but if any stockholder shall be compelled by such action to pay the debts of any creditor, he shall have the right to call upon all the stockholders to whom any part of the stock has been refunded to contribute their proportionate share. Section 140 provides that if the directors pay a dividend when the corporation is insolvent, or any dividend the payment of which would render it insolvent, knowing the fact, the directors assenting thereto shall be jointly and severally liable in an action founded on this statute for all debts due from such corporation at the time of such dividend. Section 141 provides that if certain officers intentionally neglect or refuse to comply with the provisions of the act, and to perform the duties therein required of them, such as so neglect or refuse shall be jointly and severally liable in an action founded on this statute for all debts of the corporation contracted during the period of such neglect or refusal. Section 142 (which is the one under which this action is brought) provides that if any corporation organized under the authority of the act "shall violate any of its provisions, and shall thereby become insolvent, the directors ordering or assenting to such violation shall be jointly and severally liable in an action founded on this statute for all debts contracted after such violation."

We have referred to these various sections, not only because, as we think, the particular language used is itself strongly indicative of the kind of action intended by the legislature, but because the nature, extent, and purpose of the liabilities imposed illustrate what form of remedy would be adequate and appropriate under the circumstances. In...