Rutenbeck v. Hohn
| Decision Date | 04 June 1909 |
| Citation | 121 N.W. 698,143 Iowa 13 |
| Parties | L. RUTENBECK, Assignee, etc., Appellee, v. W. C. HOHN and others, Appellants |
| Court | Iowa Supreme Court |
Appeal fro Clinton District Court.--HON. A. P. BARKER, Judge.
Decree affirmed.
F. M Fort, for appellants.
E. L Miller and Wolfe & Wolfe, for appellee.
THE opinion states the material facts.--Affirmed.
In the year 1901 certain persons, living in and near the town of Lost Nation, undertook to organize a company or association for the purpose of establishing and operating a creamery. To that end a paper was prepared in the following form: Whether this subscription was ever completed in accordance with its terms is the principal question of fact here in controversy. The scheme seems to have been for each individual subscriber to give his individual note for the amount of his subscription, without interest, for a period of five years, the paper thus accumulated to be used as a basis of credit for a corporation, which was to be formed to carry on the business, in which corporation each subscriber was to be a stockholder to the extent of his subscription. The evident thought or hope of the organizers was that the business would be sufficiently profitable to enable it to pay off any indebtedness incurred at the outset, and release the subscribers from any obligation to pay the notes given by them. The articles of incorporation, following out the plan provided that the capital stock of $ 4,500 was to be represented by the notes of the stockholders, payable to the corporation, due five years after date, without interest, and to be held as a basis of credit with authority to the board of directors to hypothecate them as collateral security for any indebtedness lawfully contracted. It was further provided that, upon liquidation of its affairs, the makers of said notes might be assessed proportionally for the payment of the corporate debts after exhausting all other assets; no assessment to exceed the amount of the stockholder's note. By another clause of the articles of incorporation all persons who have executed notes as aforesaid or who have agreed so to do, are made stockholders, and authorized to participate in all stockholders' meetings. After several years' business the corporation made an assignment for the benefit of its creditors, under the insolvent laws of the State. The assignee now brings this action in equity, alleging that after applying all other available assets of the corporation, there remains an unpaid balance of over $ 2,000 of corporate indebtedness. He further alleges that the defendants are all subscribers to the capital stock of the concern; that he has made an assessment upon them, in accordance with the plan of its organization, for a sum sufficient to meet said indebtedness, but that they have neglected and refused to pay the same, and he therefore asks the court to assess and adjudge the amount due from each of said stockholders, both those who have executed their notes in accordance with said plan, and those who subscribed to the plan and failed to give their notes, and that he recover from them, and each of them, the amount or share which the court shall find justly due. A motion to transfer the cause to the law calendar for trial having been denied, and a demurrer to the petition having been overruled, the appealing defendants answered, denying the allegations of the petition, and denying that their subscriptions ever became effective because of the failure to obtain a subscription of $ 4,000. The cause was tried to the court which found for the plaintiff, assessing the defendants severally at the rate of one hundred percent upon the amount of their several subscriptions, and entered judgment accordingly. From this judgment two of the defendants, J. C. Houle and J. W. Clapp, appeal.
I. Error is alleged upon the denial of the defendant's motion for a transfer of the cause to the law calendar. The exception can not be sustained. If the action were brought by a single creditor of the corporation to enforce the statutory liability of an individual stockholder, as was the case in Water Power Company v. Hopkins, 79 Iowa 653, 44 N.W 797, and Bayliss v. Swift, 40 Iowa 648, it may well be that an action at law would be sustained. Here, however, the suit is in effect a proceeding to wind up the affairs of the corporation, to which end it is necessary to ascertain what, if any, corporate assets have come into the hands of the assignee, whether the same have been applied to the payment of corporate debts, the amount of such indebtedness remaining unprovided for, and to what extent, if any, an assessment is required upon the unpaid stock subscription to meet such demands. That this is a subject of equitable jurisdiction is too clear to require argument or discussion. 6 Pomeroy's Equity Jurisprudence, section 910. If the liability of the delinquent stockholders were absolute, and each was liable upon the face of his subscription for the full amount thereof, a different situation would be presented. But the liability in this case is of an equitable or contingent nature. By the express terms of the articles of incorporation the stockholders are to be held for only such ratable proportions of their subscriptions as shall be found necessary for the payment of corporate obligations after exhausting all the corporate assets proper. To procure an adjudication of the amount necessary for that purpose, and of each stockholder's proper contribution thereto, it was proper, if not necessary, to bring them all into court, and settle the entire business in a single suit, instead of bringing separate actions at law against each of the numerous stockholders. Such adjudication is essentially equitable in its nature. Bell's Appeal, 115 Pa. 88 (8 A. 177, 2 Am. St. Rep. 532). The direct question here presented arose in Cook v. Carpenter, 212 Pa. 165 (61 A. 799, 1 L. R. A. ...
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