Pfaff v. Gruen

• Decision Date: 25 February 1902
• Citation: 69 S.W. 405,92 Mo. App. 560
• Parties: PFAFF v. GRUEN et al.
• Court: Missouri Court of Appeals

69 S.W. 405

92 Mo. A. 560

PFAFF v. GRUEN et al.

Court of Appeals at St. Louis, Missouri.

February 25, 1902.

FOREIGN CORPORATIONS — LIABILITY OF STOCKHOLDERS — ENFORCEMENT — FOREIGN STATUTES — CONSTRUCTION — RIGHTS OF ACTION — PARTIES — JOINDER.

1. The statutory liability of stockholders for more than the amount of their stock is not in the nature of a penalty, nor is it an asset of the corporation, but is, in legal effect, a contract of the stockholder with the creditor to answer for the debts of the corporation in proportion to the stock owned.

2. The construction by the Ohio supreme court of the Ohio statute which provides that proceedings by creditors to enforce the statutory liability of stockholders shall be for the benefit of all creditors against all stockholders, as providing a remedy by bill in equity to be filed in behalf of all creditors against all the stockholders, joined as codefendants with the corporation itself, will be followed in Missouri.

3. Where an Ohio court, acting in pursuance of its constitution and statutes providing that stockholders shall be liable to corporation creditors in excess of their stock, has determined the amount owing by the stockholders, the liability of such stockholders as reside in Missouri will be enforced by the Missouri courts.

4. The decree of the Ohio court in such proceedings, determining the liability of the Missouri stockholders, is not conclusive of their liability in a suit in Missouri to enforce such liability, if they were not parties to the proceeding in the Ohio courts.

5. The joinder of all the Missouri stockholders of an Ohio corporation is proper, in a suit in equity in Missouri by corporation creditors to enforce the stockholders' liability under the Ohio statutes.

Appeal from St. Louis circuit court; James E. Withrow, Judge.

Suit by Carl T. Pfaff against Jacob Gruen and another. From a judgment for defendants, plaintiff appeals. Reversed.

Noble & Shields, for appellant. J. Hugo Grimm, for respondents.

GOODE, J.

A demurrer was sustained to the plaintiff's petition in this case, in which he seeks to enforce a statutory liability against Jacob Gruen and John Gruen as stockholders in the Columbus Watch Company, an insolvent corporation organized under the laws of the state of Ohio. The grounds of the demurrer were a misjoinder of parties defendant, and a failure to state facts sufficient to constitute a cause of action. Plaintiff stood on his petition. From the allegations of the petition, it appears the plaintiff is both a stockholder and a creditor of an insolvent Ohio corporation, — the Columbus Watch Company, — and that he brings this suit in behalf of himself and all its other creditors. The defendants are, and for years have been, stockholders therein, and the only stockholders resident in this state. It also appears that two suits have been instituted in the court of common pleas of Franklin county, Ohio, against said watch company. In one, the plaintiff in this action, Carl Pfaff, and Louis Lindeman were plaintiffs; in the second, Jacob Schuetz was plaintiff. In both cases the corporation itself and all the stockholders in Ohio were made parties defendant, either by service of process or their voluntary appearance. The object of both suits was to wind up the corporation, ascertain its indebtedness, collect its assets, and distribute them among its creditors. By the finding of the said court of common pleas, and also by the return of an execution which had been issued on a judgment obtained by said Schuetz against the Columbus Watch Company, and returned nulla bona prior to the filing of his bill in equity, it appears the corporation is insolvent. A receiver was appointed in the first case, prior to the institution of the second one; but the two causes were subsequently consolidated, and the same receiver retained. It further appears that an assessment of 30 per cent. of the par value of the company's capital stock was assessed against the shareholders in said suit in Ohio, which they were directed to pay to the receiver, and that all holders of stock, including these defendants, have paid that assessment. Afterwards another assessment was levied against the stockholders, which, with the first levy, carried the assessments against them up to the full par value of the capital stock. The amounts necessary to be paid by the defendants and all other shareholders to make good what the company owes were definitely fixed by the decree of the court in said consolidated case, and all the stockholders have paid their second assessment, except these defendants, who refused to pay, wherefore this action was instituted to compel payment.

We regard most of the propositions of law involved in the controversy as well settled and supported by harmonious decisions; but some of them are still open, at least in this jurisdiction, and the cases dealing with them are so contradictory as to cast doubt on what the rule is or ought to be. A statutory liability like the one with which the defendants are sought to be charged is not strictly an asset of a corporation, but an indemnity or further security exacted by the laws of the state of the corporation's domicile for the benefit of its creditors. Such a liability is not in the nature of a penalty, nor does the obligation to discharge it if the contingency for which it is provided happens (that is, if the corporation becomes insolvent) rest exclusively on the constitution and statutes which impose it. While it is a legislative expression of the public policy and popular sentiment of the states where it prevails as to how incorporated companies can be best regulated, as between a shareholder of a company and the company's creditors it is in the nature of a contract, because, when persons subscribe for shares in a company organized under laws which impose the liability, they are presumed to have subscribed with reference to those laws, as well as all others regulating companies and their members, and to have consented to be thus responsible. It is therefore, in legal effect, a promise to answer to corporate creditors in proportion to the value of the stock one holds, — an implied contract to pay the company's debts if the company itself cannot. Brown v. Hitchcock, 36 Ohio St. 667; Bank v. Hawkins, 174 U. S. 372, 19 Sup. Ct. 739, 43 L. Ed. 1007. The disposition of the courts of states outside the one where an insolvent company is domiciled is to enforce such a statutory liability, both because of that comity and good will which ought to exist among the states of the Union, and that respect which the governmental departments of other states ought to show to the laws and policies of a sister state, and also because it is the duty of courts everywhere to compel parties to keep all obligations and engagements, not illegal or immoral, into which they have entered. As has been said, a liability of this kind is more than a public policy, — more than a mere indemnity exacted from the holders of corporate stock in favor of the company's creditors. It is an obligation voluntarily assumed by every individual who subscribes for shares in a company organized and doing business under laws which prescribe such a liability, and therefore, over and above the duty of comity (that noblesse oblige which should constrain sovereign states), ought to be enforced on the same broad principles and for the same persuasive reasons that other contracts are enforced, because a principal duty of courts is to compel men to perform their contracts. Judicial compulsion is what makes agreements useful, and the transaction of business by and through agreements possible. It is the obligation of contracts which consists in the remedy given by the law for their enforcement. "A contract is an agreement in which a party undertakes to do or not to do a particular thing. The law binds him to perform his undertaking, and this is, of course, the obligation of his contract," was the language of Chief Justice Marshall in Sturges v. Crowninshield, 4 Wheat. 122, 4 L. Ed. 529.

The foregoing observations apply to the statutory liability of members of corporations generally, wherever that kind of liability exists, without reference to the particular provisions of the constitution and statutes of Ohio which we are called on to consider in this case, and which need to be noticed. The constitution of that state contains this clause: "Dues from corporations shall be secured, by such individual liability of the stockholders, and other means, as may be prescribed by law; but, in all cases, each stockholder shall be liable, over and above the stock by him or her owned, and any amount unpaid thereon, to a further sum at least equal in amount to such stock." Article 13, § 3. In the Revised Statutes of Ohio are the following sections, undertaking to execute the foregoing constitutional provision: "The stockholders of a corporation which may be hereafter formed, and such stockholders as are now liable under former statutes, shall be deemed and held liable, in addition to their stock, in an amount equal to the stock by them subscribed, or otherwise acquired, to the creditors of the corporation, to secure the payment of the debts and liabilities of the corporation." "The term `stockholders,' as used in the preceding section, shall apply not only to such persons as appear by the books of the corporation to be such, but to any equitable owner of stock although the stock appears on the books in the name of another." Sections 3258, 3259. There is also this statute providing the procedure according to which the liability is to be enforced in the state of Ohio: "A stockholder or creditor may enforce such liability by action jointly against all the holders or owners of stock, which action shall be for the benefit of all creditors of a corporation and against all persons liable as stockholders, and in such action there shall be found and determined the amount payable by...