Rogers v. Stag Mining Company

• Decision Date: 12 December 1915
• Parties: ADA ROGERS, Appellant, v. STAG MINING COMPANY and C. C. YODER and ALEXANDER LARKIN, Respondents
• Court: Missouri Court of Appeals

171 S.W. 676

185 Mo.App. 659

ADA ROGERS, Appellant, v. STAG MINING COMPANY and C. C. YODER and ALEXANDER LARKIN, Respondents

Court of Appeals of Missouri, Springfield

December 12, 1915

Appeal from Jasper County Circuit Court, Division Number One.--Hon Joseph D. Perkins, Judge.

Case reversed and remanded. (with directions.)

Frank Lee, Ray Bond and R. H. Davis for appellant.

(1) The judgment of plaintiff is a "due" and a "debt" within the meaning of the Constitution and Statutes of this State making subscribers to the capital stock of corporations liable to its creditors, upon insolvency of the corporation, for the difference between the reasonable value of the property received and accepted by the corporation in payment of its capital stock and the par value of said stock. Rider v. Fritchie, 15 L.R.A. 513; Flenniken v. Marshall, 28 L.R.A. 402; Powell v Oregonian R. Co., 2 L.R.A. 270; In re Putman, 193 F. 464; 4 Thompson on Corp. (2 Ed), sec. 4845; 1 Cook on Corp. (5 Ed.), sec. 210, page 420; 10 Cyc. 684; Henry v Myers, 17 L.R.A. (N. S.) 779. (2) Plaintiff is not precluded from recovery in this action, even though it be held that the record of the articles of association of defendant corporation charged plaintiff with notice of the fact that the capital stock of defendant was paid in the property described in said articles. Section 8 of Article 12 of the Constitution; Van Cleve v. Berkley, 143 Mo 109; Kelley v. Fourth of July Mining Co., 42 L.R.A. 621. (3) If the amendment of section 3339, Revised Statutes 1909, in 1911, and the Act of March 30, 1911, Acts 1911, page 151, relieve defendants from liability to the creditors of defendant corporation for the difference between the par value of the stock issued to them and the reasonable value of the property delivered to and accepted by defendant corporation in payment of said stock, then said amendment and the Act of 1911 are in conflict with section 8, article 12 of the Constitution, and are void. Powell v. Oregonia R. Co., 2 L.R.A. 272.

Walden & Andrews, H. W. Currey and Geo. V. Farris for respondents.

(1) The liability of a stockholder upon the suit of a creditor of the corporation is secondary, not primary. Pfaff v. Gruen, 92 Mo.App. 560, 565; Swing v. Furniture Co., 123 Mo.App. 367, 380; Guilbert v. Kessinger, 173 Mo.App. 680, 692; Elevator Co. v. Whitbeck, 63 Kans. 102, 64 P. 984; Shrainka v. Allen, 76 Mo. 384; Little v. Kohn, 185 F. 295; Brant on Suretyship, sec. 49, page 118, citing Grand Rapids Sav. Bank v. Warren, 32 Mich. 557; Hanson v. Donkersly, 37 Mich. 184; Harpold v. Stobart, 46 Ohio St. 15 Am. St. 618, 21 N.E. 637; Neal v. Head, 133 Cal. 110, 65 P. 131; Smith v. Sheldon, 35 Mich. 42, 47. (2) Cases holding that a tort judgment cannot be the basis of recovery against the stockholder, on unpaid stock subscription. Bohn v. Brown, 33 Mich. 257; Heacock v. Sherman, 14 Wendell, 59; Tilley v. Coykendall, 71 N.Y.S. 457; Ward v. Joslyn, 105 F. 224; Doyle v. Kimball, 52 N.Y.S. 195; Schraeder v. Bank, 133 U.S. 67; Ward v. Joslyn, 186 U.S. 142; Chase v. Curtiss, 113 U.S. 452; Brown v. Trail, 89 F. 642; Kelley v. Fourth July Mining Co., 53 P. 959; Childs v. Iron Works, 50 Am. St. 328; Savage v. Shaw, 81 N.E. 303; Avery & Son v. McClure, 47 So. 901, 22 L.R.A. (N. S.), 256; Old Colony Boot & Shoe Co. v. Adams Co., 67 N.E. 870, 871; Esmond v. Bullard, 16 Hun. 65, 68; Doolittle v. Marsh, 9 N.W. 54; Cable v. McCune, 26 Mo. 371, 383; Cable v. Gaty, 34 Mo. 573, 574; Leighton v. Campbell, 20 A. 14, 15. (3) It devolves upon the creditor, who sues for unpaid stock subscription, where property was put in as the capital stock of the corporation, to prove affirmatively that he did not know that the capital stock was not, in fact, paid, as specified in the articles of association. How could the rule be at all applied to a case where the suit was based on a judgment. Davies v. Ball, 116 P. 823; Douglass v. Loftus, 119 P. 74; Rider v. Fritchey, 49 Ohio St. 295; Flenniken v. Marshall, 20 S.E. 788; Whitman v. Bank, 176 U.S. 559, 562; Ward v. Joslyn, 186 U.S. 142, 150.

STURGIS, J. Robertson, P. J., and Farrington, J., concur.

OPINION

STURGIS, J.

--This is a suit to enforce against defendants Yoder and Larkin, as original stockholders in the defendant Stag Mining Company, a corporation, the collection of an unsatisfied judgment against that corporation. A demurrer to the petition was sustained.

The material facts admitted by the demurrer are these: That the defendant Stag Mining Company is a Missouri corporation having a capital stock of $ 48000; that plaintiff obtained a judgment against it for negligence resulting in the death of her husband; that an execution was issued thereon and returned not satisfied, the defendant corporation being insolvent; that defendants Yoder and Larkin are two of the three original incorporators of said company and have been and are large stockholders therein; that the entire capital stock of said corporation, as stated and set forth in the articles of incorporation, was paid up in property, to-wit, a mining plant and lease, therein described and valued at the entire capital stock, but, in fact, not worth over $ 1000, as defendant stockholders well knew.

Two questions are thereby presented for our consideration: First whether a judgment creditor can avail himself of the remedy provided against stockholders for failure to pay their stock subscriptions when the judgment arises from tort; second, whether under our present statute, Acts of 1911, p. 149, the capital stock being paid in property at a fixed valuation and so stated in the articles of incorporation, a judgment creditor can show that the property is not of the value fixed and thereby that the stock subscription is not fully paid. It is just to remark that we are much assisted in the proper solution of these propositions by the able and exhaustive briefs of counsel for either side wherein the authorities pro and con are ably and exhaustively collected, discussed and distinguished.

As to the first of these propositions, it will be found that most of the authorities agree that the proper solution depends largely on the intent and wording of the constitutional and statutory provisions of the various States imposing liability on the stockholders for unpaid obligations of the corporation. We may grant that such obligations are contractual and grow out of the stockholders' voluntary subscription of stock. Yet, the laws of the State authorizing the corporation to be formed and to exist enter into and become a part of that contract and the liability imposed must be determined by the laws of such State.

An early and leading case on this subject, and one cited in many of the authorities hereinafter referred to, is Cable v McCune, 26 Mo. 371, 72 Amer. Dec. 214, which arose under the statute of 1845, making stockholders liable for the "debts" of the corporation "then existing" and thereafter "contracted" for failure to publish an annual notice showing "the existing debts of the corporation." The demand sued for grew out of a tort of the corporation. It will be first noted that this statute does not deal with unpaid stock subscription, but imposes a penalty on the stockholders for failure to publish the required notice. The court held this statute to be penal and not remedial and this, as we shall see, is an important distinction. The court further held that the statute then under consideration, being strictly construed, by its terms imposed a liability for a limited kind of demands only, to-wit, those arising from contract and not for tort. In discussing this matter, the court said: "The question, however, here is, what class of demands is embraced within the words 'debts contracted?' Our Legislature did not go the length which others have in fixing the liabilities of the stockholders of these manufacturing corporations. They did not enact, as in many other States it is enacted, that the stockholders should be responsible for every liability established against the corporation, and which its assets turned out insufficient to meet. Such statutes as these, creating a general and determined liability not dependent on circumstances, becoming as it were a part of the very essence of the charter, may reasonably admit of a very different construction from a law which seems to recognize the general principle of individual irresponsibility subject to a very limited exception, and only ventures to hold out such responsibility as a penalty for a failure on the part of its managers to perform certain acts directed in the law and supposed to furnish some advantages to the public." The court then distinguishes that case from Carver v. Braintree Man. Co., 2 Story 432, holding that the stockholders' liability extends to tort debts, largely because of a different wording of the Massachusetts statute making it a remedial one. The Cable v. McCune case, supra, was followed in Cable v. Gaty, 34 Mo. 573, 86 Amer. Dec. 126, construing in a similar manner a then statute of this State imposing on the directors of a corporation liability, with some limitations, for debts "existing and contracted" in excess of the capital stock of the corporation. The court again remarked: "It is very clear from the language and obvious purpose of the section, that the debts, which must exceed in amount the capital stock paid in to subject the directors to liability, must be debts voluntarily created by them or under their authority. . . . The language of the section seems to apply only to one kind of liabilities of the corporation, and to make the directors liable to pay the same debts which constitute debts of the company, in excess of the capital stock paid in, and no other. The claim of the plaintiffs is not a debt voluntarily...