Pfaff v. Gruen

CourtCourt of Appeal of Missouri (US)
Writing for the CourtGOODE, J.
Citation69 S.W. 405,92 Mo.App. 560
PartiesCARL T. PFAFF, Appellant, v. JACOB GRUEN and JOHN GRUEN, Respondents
Decision Date25 February 1902

69 S.W. 405

92 Mo.App. 560

CARL T. PFAFF, Appellant,


Court of Appeals of Missouri, St. Louis

February 25, 1902

Appeal from St. Louis City Circuit Court.--Hon. James E. Withrow, Judge.

REVERSED AND REMANDED (with directions).

Noble & Shields for appellant.

(1) Stockholders are bound by the decree in insolvent proceedings to the extent of showing that it was necessary that assessments to pay creditors should be made, and that they were made. Thomp. on Corporations, sec. 3049; Howard v. Glenn, 85 Ga. 238; Hawkins v. Glenn, 131 U.S. 319; Glen v. Liggett, 135 U.S. 533; Glen v. Marburg, 145 U.S. 499; Railroad v. Smith, 54 Ohio St. 562; Thomp. on Corp., secs. 3567, 3499. (2) The statutory double liability of the stockholders in a corporation is contractual and may be enforced against the stockholder, in the courts of his domicile. Kirtley v. Holmes, 107 F. 1; Hodgson v. Cheever, 8 Mo.App. 318; Bagley v. Tyler, 43 Mo.App. 195; Guerney v. Moore, 131 Mo. 650; Farmer's Co. v. Gallaher, 43 Mo.App. 482; Sackett Bk. v. Blake, 3 Rich Eq. 225, 234; Aultman's Appeal, 98 Pa. St. 505. (3) The proceeding is properly in equity. Leuke v. Treadway, 45 Mo.App. 507; Perry v. Turner, 55 Mo. 418; Shickle v. Watts, 94 Mo. 410; King v. Armstrong, 50 Ohio St. 222-233; Turnbull v. Pomeroy Salt Co., 24 Weekly Law Bulletin, 133; Morgan v. Lewis, 46 Ohio St. 1; Younglove Lime Co., 49 Ohio St. 663; Barnett v. Gifford, 47 Ohio St. 180. (4) The action is good under Missouri statutes. Laws 1891, p. 68; Riley v. Grand Island Receivers, 72 Mo.App. 281.

J. Hugo Grimm for respondents.

(1) The right to hold stockholders in an amount equal to the stock held by them is a right unknown to common law; it is a right created by statute. As the statute creating this right also prescribes the remedy for its enforcement, that remedy is the only and exclusive remedy. And the remedy prescribed is of such a character as to be available only in the courts of the State creating the corporation, being an equitable proceeding against the corporation and all its resident stockholders for the purpose of completely winding up its affairs. Finney, Receiver, v. Guy, 106 Wis. 256; Nimick v. Mingo Iron Works, 25 W.Va. 184; Bank v. Francklyn, 120 U.S. 746; Marshall v. Sherman, 148 N.Y. 10; Fowler v. Lamson, 146 Ill. 472; Bates v. Day, 198 Pa. St. 513; 3 Thompson's Corporation, sec. 3054, 3055; 1 Cook Corporation, sec. 220, 223; Erickson v. Nesmith, 15 Gray, 221; Knowlton v. Ackley, 8 Cush. 93; Dauchy v. Brown, 24 Vt. 197; Pollard v. Bailey, 20 Wall. 527. (2) It will not do to say the suit is based upon the Constitution of Ohio and not the statutes. As a matter of fact, the petition distinctly predicates the suit upon the statutes. Marshall v. Sherman, 148 N.Y. 9. (3) Indeed, the suit must be based upon the statutes, as the Constitution of Ohio, so far as the provision in question is concerned, is clearly not self-executing, but distinctly calls for legislation to carry out its provision. Marshall v. Sherman, 148 N.Y. 9; Groves v. Slaughter, 15 Pet. 449; Morley v. Thayer, 3 F. 737; May v. Black, 77 Wis. 101; Woodworth v. Bowled, 61 Kan. 569. (4) Defendants in this cause are not bound by the judgment rendered in Ohio by the court of common pleas because they were never served with summons and did not enter an appearance therein. They were not in said suit represented by the corporation in any such sense as that judgment could be rendered against them or affecting their individual liability. Wilson v. Railroad, 108 Mo. 588; Rood v. Wharton, 67 F. 434; Winston v. Bosler, 102 F. 70; Finney, Receiver, v. Guy, 106 Wis. 256. (5) Upon plaintiff's theory as to the force and effect of the action of the Ohio case, the demurrer was properly sustained because of a misjoinder of parties defendant. Plaintiff's theory is that the Ohio court rendered judgment against Jacob Gruen for a certain amount and against John Gruen for a certain amount, and plaintiff now asks this court to render a judgment against each defendant for the amount determined by the Ohio court, plus interest. In other words, he is joining two suits upon judgments rendered against different persons. Whether the suit be considered legal or equitable in its nature, there is a misjoinder of parties defendant. Perry v. Turner, 55 Mo. 418.

GOODE, J. Bland, P. J., and Barclay, J., concur.


[92 Mo.App. 564] 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 contained therein 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 thereof 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 Scheutz 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 [69 S.W. 406] the return of an execution which had been issued on a judgment obtained by said Scheutz against the Columbus [92 Mo.App. 565] 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 thirty 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 refuse 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 in other States which deal 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 [92 Mo.App. 566] the public policy and popular sentiment of the State 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 if persons subscribe for shares in a company organized under a law which imposes the liability, they are presumed to have subscribed with reference to that law as well as all others regulating the 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 can not. Brown v. Hitchcock, 36 Ohio St. 667; Concord Nat. Bank v. Hawkins, 174 U.S. 364, 43 L.Ed. 1007, 19 S.Ct. 739; Blakeman v. Benton, 9 Mo.App. 107.

Another settled rule is that this liability on the part of shareholders is not primary but contingent on the insolvency of the company and its inability to meet its obligations to creditors.

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 enter. 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 corporation 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...

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