Smith v. Dickerson
| Decision Date | 19 March 1931 |
| Docket Number | 5581 |
| Citation | 297 P. 402,50 Idaho 477 |
| Parties | P. E. SMITH, Receiver, PAYETTE-BOISE WATER USERS' ASSOCIATION, LTD., a Corporation, Respondent, v. FRANK DICKERSON, FRED O. BURRIS, M. E. WEBSTER, ED STRAUS, SAVILLA FROST and HARVEY HATCH, Appellants |
| Court | Idaho Supreme Court |
WATER AND WATERCOURSES - CORPORATIONS - ASSESSMENT AGAINST CORPORATE STOCK.
1. Assessment held properly levied against stock of water users' association sufficient to discharge legitimate obligations.
2. Assessment may be levied against nonresident's stock in domestic corporation.
3. Proposed assessment against stock of water users' association properly took into consideration payment of previous assessments by some stockholders so as to permit credits accordingly.
4. Costs of proceeding to assess stock of water users' association were properly taxed against stockholders (C. S sec. 7207, subd. 5, and sec. 7210).
APPEAL from the District Court of the Seventh Judicial District, for Canyon County. Hon. A. O. Sutton, Judge.
Application by receiver of insolvent corporation for order levying assessment on corporate stock. Application granted. Affirmed.
Judgment affirmed; costs to respondent. Petition for rehearing denied.
T. A Walters and Walter Griffiths, for Appellants.
The power to assess fully paid stock by Idaho corporations is prohibited. (Const., art. 2, sec. 17; C. S., sec. 4728.)
Unless there existed at the time of the appointment of the receiver a present subsisting liability on the part of the stockholders to pay the indebtedness of the company, the court is without power or authority to order an assessment. The power or authority of the court and the receiver is limited and restricted to ascertaining the amount of indebtedness, the assets of the corporation, and converting the assets into money, and distributing the money to the creditors according to the priority of classes and claims of creditors. Unless a contract can be shown by which there has been created a present subsisting liability on the part of the stockholders to pay the debts of the corporation, any order for an assessment is void. (C. S., sec. 6821; Fralick v. Guyer, 36 Idaho 648, 213 P. 337; Wall v. Basin Min. Co., 16 Idaho 313, 101 P. 733, 22 L. R A., N. S., 1013; Payette-Boise Water Users Assn. v. Miller, 44 Idaho 325, 259 P. 286; Dewey v. St. Albans Trust Co., 57 Vt. 332; John W. Cooney Co. v. Arlington Hotel Co., 11 Del. Ch. 286, 101 A. 879; Bottlers' Seal Co. v. Rainey, 243 N.Y. 333, 153 N.E. 437.)
Scatterday & Stone, Thos. E. Buckner and Charles F. Reddoch, for Respondent.
Authority to levy assessments and the liability of the shareholders to pay the same are founded upon the stock subscription contract and the by-laws. (Independent School Dist. v. Stone, 106 U.S. 183, 1 S.Ct. 84, 87, 27 L.Ed. 90; Webster's International Dictionary; Payette-Boise Water Users' Assn. v. Fairchild, 35 Idaho 97, 205 P. 258; Wall v. Basin Min. Co., 16 Idaho 313, 101 P. 733, 22 L. R. A., N. S., 1013; Hobbs v. Twin Falls Canal Co., 24 Idaho 380, 133 P. 899; Beedy v. San Mateo Hotel Co., 27 Cal.App. 653, 150 P. 810; People's Home Sav. Bank v. Sadler, 1 Cal.App. 189, 81 P. 1029; McFadden v. Board of Supervisors of Los Angeles County, 74 Cal. 571, 16 P. 397; 14 C. J., p. 346, sec. 432.)
All assessments attempted to have been levied by the board of directors of the association were void and unenforceable for the reason that the law relating thereto was not complied with in levying such assessments. (C. S., secs. 4733-4751, now repealed and superseded by sec. 44, chap. 262, Sess. Laws 1929; Cal. Civ. Code, secs. 331-347; Brown v. St. Paul Consolidated Oil Co., 101 Cal.App. 263, 281 P. 646; Cheney v. Canfield, 158 Cal. 342, 111 P. 92, 32 L. R. A., N. S., 16; Ruck v. Caledonia Silver Min. Co., 6 Cal.App. 356, 92 P. 194.)
If any assessments levied by the board of directors were valid, such fact could not impose any limitation upon the court, and it had the right to levy an assessment sufficient to pay the debts of the association. (Kirkpatrick v. American Alkali Co., 140 F. 186; John W. Cooney Co. v. Arlington Hotel Co., 11 Del. Ch. 286, 101 A. 879; Brown v. Allebach, 166 F. 488; 1 Tardy's Smith on Receivers, pp. 898, 899.)
This proceeding is in the nature of an application for an order after judgment, upon petition filed by the receiver of the Payette-Boise Water Users Association, Limited. A judgment had previously been entered against the association representing claims of various creditors filed with the receiver and by him allowed. The petition prayed for an order of the court levying an assessment upon each and every share of stock belonging to the members or stockholders of the association, said assessment to be declared a lien on the lands of the individual stockholders, and the proceeds of said assessment to be used in the payment of the judgment aforementioned, together with interest on the claims represented thereby, expenses of the receivership, etc. After notice given to the stockholders, persons representing different classes of interests as stockholders appeared and filed objections and protests to the levying of the assessment prayed for. These protests were in the form of motions to strike any demurrers to the petition. After a hearing on the petition and the objections thereto a decree was made and entered by the court levying an assessment on the stock of $ 1.83 per share and providing that the lands of the stockholders be sold, together with the stock in the event of failure to pay the assessment; also an order taxing costs against the protestants. This appeal is from the decree and order taxing costs.
The Payette-Boise Water Users Association was incorporated in 1904, under and by virtue of the laws of the state of Idaho; its purpose being to provide and distribute water for the irrigation of the lands of its shareholders. Pursuant to this purpose the association in 1906 entered into a contract with the United States and under the terms of the contract the Boise project, consisting of certain irrigation works, was constructed comprising lands now embraced within the boundaries of a number of irrigation districts. See, for detailed statement relating to organization and development of project, Payette-Boise Water Users' Assn. v. Cole, 263 F. 734.
The by-laws of the association provided that the owners of land within a certain described area should be qualified to own shares of stock in the association. Under a form of stock subscription contract set out in the by-laws and executed by those desirous of becoming stockholders of the association, the subscriber agreed that "in conformity with the by-laws of said association" the water rights and shares of stock obtained thereunder should become and be perpetually appurtenant to the land, unless otherwise forfeited or transferred by reason of it being impracticable to use water for the irrigation of the land. The subscription contract further provided:
By art. 5, sec. 1, of the by-laws it is provided:
"Revenues necessary for the accomplishment of the purposes of this Association shall be raised by an assessment thereof from time to time as required upon and against the shareholders."
The by-laws further providing (art. 3, sec. 6) that the board of directors should have the power to prosecute and defend lawsuits, etc., and to make all contracts in the name of the association necessary and proper for the conduct of the affairs and the carrying on of the business of the association, an assessment would appear to be proper which seeks the raising of revenue for the purpose of liquidating an indebtedness created by the board of directors under the powers conferred upon them.
Thompson, in his work on Corporations (vol. 6, p. 734, sec. 4828), says: "It scarcely needs judicial authority to the proposition that stockholders can agree that assessment may be levied on their stock." The stock subscribers' contract herein having been made subject to and in conformity with the by-laws of the association, the provisions of each, above quoted, show that the subscribers expressly agreed to the levy of assessments, waiving the method of enforcing collection as fixed by the statutes then in force. In Payette-Boise Water Users' Assn. v. Fairchild, 35 Idaho 97, 205 P. 258, 259, the following language was used by the court in passing upon the identical provisions:
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Michaelson v. Miller
...as receiver for the association thereupon brought the instant suits to enforce payment of said assessments. For further details see Smith v. Dickerson, supra, and Payette-Boise Water Users' Assn. v. 263 F. 734. Appellants contend that at the time the assessment was made they were not stockh......