Randall Printing Co. v. Sanitas Mineral Water Co.

• Decision Date: 17 January 1913
• Citation: 120 Minn. 268,139 N.W. 606
• Parties: RANDALL PRINTING CO. et al. v. SANITAS MINERAL WATER CO. et al. (two cases).
• Court: Minnesota Supreme Court

120 Minn. 268

139 N.W. 606

RANDALL PRINTING CO. et al.

v.SANITAS MINERAL WATER CO. et al. (two cases).

Supreme Court of Minnesota.

Jan. 17, 1913.

Appeal from District Court, Ramsey County; Oscar Hallam, Judge.

Action by the Randall Printing Company and others against the Sanitas Mineral Water Company and others. From order denying motions for amended findings and for new trial, defendants Frederick A. Conger and another appeal. Affirmed.

Syllabus by the Court

In this action by creditors of a corporation to recover of stockholders thereof unpaid stock subscriptions, it is held that the point that a judgment obtained by one of the plaintiffs against the corporation was rendered without jurisdiction of the defendant is not available to appellants here, there being no assignment of error challenging the finding that such judgment was duly recovered.

An action in the nature of a creditors' bill under R. L. 1905, s 3173, to reach unpaid stock subscriptions by resident stockholders of a foreign corporation, may be maintained in this state. Conceding that an action under R. L. 1905, s 2865, will not lie to recover unpaid subscriptions to the stock in a foreign corporation, the complaint in this case was sufficient as a complaint under section 3173, save for a defect of parties plaintiff or defendant, and such defect, not having been objected to by demurrer or answer, was waived.

The right of creditors to recover of stockholders in a corporation unpaid stock subscriptions does not depend upon constitutional or statutory provisions imposing a liability of stockholders to the corporation, but is based upon fraud. The remedy is governed by the law of the forum, and there is no distinction between domestic and foreign corporations in respect to such right of creditors to recover.

A corporation, unless prohibited by constitutional or statutory provisions, may in good faith issue paid shares for the purchase of property or for services actually rendered; but where the stock is not paid for in full, either in money, property, or services, equity will inquire into the actual transaction, including the value of the property or services received as payment. In this case the stock issued to appellants in return for their services as directors, and purporting to be fully paid, was in fact bonus stock, and no paid for by any services rendered.

When a creditor proves the issuance of stock to a stockholder, and that he subsequently trusted the corporation, it is presumed that he relied upon the subscription, and the representation that the stock was fully paid. The evidence in this case did not show that plaintiffs did not rely upon such subscription and representation when they extended credit to the corporation.

The evidence sustains the decision that appellants were stockholders of the corporation at the time the indebtedness to plaintiffs was incurred.

There was no error in the rulings on the admission of evidence or in the findings. Durment, Moore & Sanborn, of St. Paul, for appellant Conger.

Farnam & Tappan, of Minneapolis, for appellant Thompson.

Russell L. Moore, of St. Paul, for respondents.

BUNN, J.

This action was brought by plaintiffs, creditors of defendant Sanitas Mineral Water Company, a corporation, to recover of the other defendants, alleged to be stockholders, balances alleged to the due and unpaid on their stock. The case was tried to the court, and a decision rendered to the effect that plaintiffs were entitled to recover the amount of their claims from defendants Conger, Barringer, Ferring, and Thompson. Defendants Conger and Thompson each moved, for amended findings and for a new trial, and each appealed from an order denying a new trial.

The facts are these: Sanitas Mineral Water Company is a corporation, duly incorporated in June, 1908, under the laws of South Dakota. One Sullivan was the promoter. His plan involved the bottling and selling of mineral water produced by a spring in southern Minnesota, and to obtain prominent druggists and physicians as directors and stockholders. Defendants Conger and Thompson were named as directors in the articles of incorporation, and on the letter heads of the company. July 27, 1908, resolutions were passed at a meeting of the board of directors allotting to each 2,500 shares of the capital stock of the corporation, and authorizing the secretary to ‘issue scrip’ for said amount ‘for services as director in this company.’ Defendant Thompson was not present at this meeting, but defendant Conger was, and voted for the resolutions. The stock ‘allotted’ by the resolutions appears from the stockbook to have been issued September 1, 1908. Conger's certificate was delivered to him November 28, 1908, and retained. Thompson's certificate was mailed to him by Sullivan on December 19, 1908, and retained, though Thompson testified to unsuccessful efforts to locate Sullivan, in order to return the certificate. Neither Conger or Thompson ever paid anything for his stock, nor had either performed labor or rendered services that can be considered as payment.

The Constitution of South Dakota provides that ‘no corporation shall issue its stocks or bonds except for money, labor done, or money or property actually received.’ The indebtedness of the corporation to the plaintiffs accrued in November, 1908. At least one of the claims was reduced to judgment, and an execution levied and returned unsatisfied. It is conceded that the corporation had no property within this state and is insolvent.

We will consider the two appeals together, in so far as the questions argued by either appellant are applicable to both.

[1] 1. The first contention is that the municipal court, in which the judgment obtained by plaintiff Fiterman was rendered, had no jurisdiction in that action of the defendant corporation. This claim is based upon the allegation in the complaint in the present case, found true in the findings, that the Sanitas Company on or about January 1, 1909, disposed of all its assets in the state of Minnesota; the argument being that a valid service of a summons cannot be made upon a foreign corporation unless it has property within the state. We think this point is unavailable to appellants at this time. It was not made at the trial, and, indeed, it seems to have been conceded that the judgment was regular and valid. In any event, there is no assignment of error that challenges the correctness of the trial court's finding that this judgment was ‘duly recovered.’

[2] 2. It is vigorously urged that because the Sanitas Company is a foreign corporation, never authorized to do business in this state, this action will not lie. It is admitted that an action in the nature of a creditors' bill to reach unpaid subscriptions for the benefit of all the creditors of a foreign corporation may be maintained in this state. First National Bank v. Gustin Minerva Con. Min. Co., 42 Minn. 327, 44 N. W. 198,6 L. R. A. 676, 18 Am. St. Rep. 510;Rule v. Omega Stove & Grate Co., 64 Minn. 326, 67 N. W. 60. But it is claimed that this is not such an action, but is an action by part of the creditors on behalf of themselves only, not to impound the unpaid subscriptions for the benefit of all the creditors, but to recover their own claims. In other words, the claim is that the action was brought under R. L. 1905, § 2865, instead of under R. L. 1905, § 3173. It may be conceded that section 2865 applies only to domestic corporations. Rule v. Omega Co., supra. But admittedly an action under section 3173 might be maintained. The complaint, it is true, does not say that the action is brought on behalf of plaintiffs and all other creditors, nor does it demand any relief in favor of any creditors except the plaintiffs. But no objection was made by either demurrer or answer. If the complaint was deficient, it was so, not because it showed plaintiffs entitled to no relief, but because the action was not brought by or on behalf of all the creditors. It was in the nature of a defect of parties plain...