Shugart v. Maytag
| Decision Date | 23 March 1920 |
| Docket Number | 33152 |
| Citation | 176 N.W. 886,188 Iowa 916 |
| Parties | P. E. SHUGART, Appellee, v. F. L. MAYTAG et al., Appellants |
| Court | Iowa Supreme Court |
Appeal from Jasper District Court.--K. E. WILLCOCKSON, Judge.
SUIT in equity by a creditor of a South Dakota corporation against certain stockholders, who, it is alleged, have paid only a portion of the face value of the stock held by them. There was judgment and decree in the court below in favor of plaintiff. Defendants appeal.
Affirmed.
C. O McLain, Joe Kirby, and Henderson, Fribourg & Hatfield, for appellants.
Bert B Welty, Lee & Garfield, C. W. Garfield, and J. E. Cross, for appellee.
The South Dakota Central Railway Company is a corporation, organized under the laws of South Dakota, with its principal place of business at Sioux Falls, in that state. Plaintiff, in 1914, performed services therefor, for which there was, on December 1, 1914, due and owing him the sum of $ 24,708.46. After the completion of the services for which he was employed, the railway company went into the hands of a receiver, and all of its assets were sold on execution in favor of the bond-holders. All defendants admit that plaintiff rendered the services claimed, and that the amount stated is due him from the corporation.
Plaintiff alleged in his petition that the contract for said services was oral, and was entered into in the state of South Dakota; that the defendants were, at the time of the commencement of this suit, the owners and holders of stock in said corporation as follows: F. L. Maytag, 9,569 shares; E. H. Maytag, 52 shares; L. B. Maytag, 212 shares; and Sam Fantle, 340 shares; that the par value of said stock was $ 100, and that 87 1/2 per cent thereof remained unpaid.
Plaintiff further alleged that Section 441 of the Civil Code of South Dakota, copy of which is set out in the petition, makes each stockholder of a corporation individually and personally liable for the debts of the corporation, to the extent of the amount unpaid upon the stock held by such stockholder. Other provisions of the Code are also set out in plaintiff's petition, which will be referred to hereafter. The Maytags and Fantle filed separate answers, in both of which it is alleged that Section 441 contravenes the provisions of Section 8, Article 17, of the Constitution of South Dakota, and that same is, therefore, void, and of no effect. Other constitutional provisions are pleaded, which it is unnecessary to set out at this time. Defendants also set up the statute of limitation; and the Maytags, that they obtained the stock without notice or knowledge that same had not been paid for in full. Other material issues and facts will be referred to in the course of the opinion. The trial resulted in a judgment against F. L. Maytag and Sam Fantle for the full amount of plaintiff's claim, and against E. H. Maytag for $ 4,719, and against L. B. Maytag for $ 21,780.
I. The defendant Fantle, at the time the services were rendered by plaintiff, was a resident of Sioux Falls, South Dakota, where he has continued to reside. His plea of the statute of limitations is bottomed upon the thought that a cause of action in favor of the corporation for the unpaid portion of the purchase price of the stock arose immediately upon the sale thereof, and, under Section 60 of the Code of Civil Procedure of South Dakota, became barred in six years, thereby ceasing to be an enforceable liability against the stockholders; and that, as the liability of the corporation to plaintiff grows out of the obligation of the stockholders to the corporation, the bar was complete when this suit was begun. All of the stock held by the defendants was issued and sold by the railway company more than six years before the services rendered by plaintiff were begun.
On the other hand, counsel for appellee asserts that the statute did not commence to run until plaintiff's cause of action against the corporation matured. There may be some lack of harmony in the decisions upon this question, but the general rule undoubtedly is that the statute commences to run in favor of the stockholders from the time claims of creditors against the corporation mature. Under the law of South Dakota, the liability of the holder of corporate stock to creditors of the corporation for the difference between the par value thereof and the amount actually paid thereon is primary, and a creditor is not required to first proceed against the corporation. It is stated in Cook on Corporations (7th Ed.), Section 225, that:
"Where the liability of the stockholder is immediate and primary, and not contingent on the obtaining of a judgment against the corporation, it is clear that the statute of limitations begins to run in favor of the stockholder when the debt matures against the corporation."
We find, upon examination of the authorities cited, that much of the apparent lack of harmony appearing therein is due to the dissimilarity of the various statutory provisions considered. In some jurisdictions, the statute does not commence to run against creditors until the insolvency of the corporation; but it makes no difference in this case whether the statute commenced to run from the maturity of plaintiff's claim against the railway company, or its insolvency. The services were rendered before the appointment of the receiver. The cause of action which plaintiff seeks to enforce against the defendants is not, however, one that arose in favor of the corporation, but is a liability which, under the South Dakota statute, accrued directly to him. The capital stock of a corporation is a fund for the payment of debts--a trust fund. The doctrine of the so-called trust fund rests upon the proposition that, as the state has relieved the stockholder from general liability for the debts of the corporation, he ought, in good faith, to pay, in money or its equivalent, to the extent of the face value of the stock received. The corporation may never demand payment of any unpaid portion of the purchase price of said stock. Payment may not be necessary until the rights of creditors intervene, and their claims must be met. Surely, a cause of action which could not accrue until more than six years after the issuance of the stock held by the defendants, cannot be barred by the statute of limitations, and the overwhelming weight of authority sustains the rule quoted from Cook on Corporations. Parmelee v. Price, 208 Ill. 544 (70 N.E. 725); 1 Cook on Corporations (7th Ed.), Section 225; Chapman v. Lynch, 156 N.Y. 551 (51 N.E. 275, 276); West v. Topeka Sav. Bank, 66 Kan. 524 (97 Am. St. 385, 72 P. 252); O'Neill v. Quarnstrom, 6 Cal.App. 469, 92 P. 391.
II. Section 441 of the Civil Code of South Dakota is as follows:
The provisions of the above section are assailed by counsel for appellant, upon the ground that same contravenes the provisions of Section 8, Article 17, of the Constitution of South Dakota, which is as follows:
They also state that it contravenes the provisions of the Fourteenth Amendment to the Constitution of the United States, and is, therefore, void. Section 423 of the Civil Code of South Dakota provides that:
"Whenever the capital stock of any corporation is divided into shares and certificates thereof are issued, such shares of stock are personal property, and may be transferred by endorsement by the signature of the proprietor or his attorney or legal representative and delivery of the certificate, but such transfer is not valid except between the parties thereto, until the same is so entered upon the books of the corporation as to show the names of the parties, by and to whom transferred, the number or designation of the shares, and the date of the transfer."
We have been unable to find any decision of the Supreme Court of South Dakota wherein the constitutionality of Section 441 has been passed upon or discussed; but counsel for appellee have cited numerous cases from other jurisdictions, construing similar constitutional provisions, to which attention will be directed presently. However, the decision of the Supreme Court of South...
To continue reading
Request your trial