Straw & Ellsworth Mfg. Co. v. L. D. Kilbourne Boot & Shoe Co.

• Decision Date: 01 June 1900
• Citation: 80 Minn. 125,83 N.W. 36
• Court: Minnesota Supreme Court
• Parties: STRAW & ELLSWORTH MFG. CO. v. L. D. KILBOURNE BOOT & SHOE CO. Appeal of KILBOURNE et al.

80 Minn. 125

83 N.W. 36

STRAW & ELLSWORTH MFG. CO.

v.L. D. KILBOURNE BOOT & SHOE CO.

Appeal of KILBOURNE et al.

Supreme Court of Minnesota.

June 1, 1900.

Appeal from district court, Hennepin county; Frank C. Brooks, Judge.

Action by the Straw & Ellsworth Manufacturing Company against the L. D. Kilbourne Boot & Shoe Company. Application by Horace R. Robinson, receiver of said shoe company, for assessment of its stockholders. From an order of assessment, L. D. Kilbourne and others appeal. Affirmed.

Syllabus by the Court

1. Under the provisions of Laws 1899, c. 272, an act entitled ‘An act to provide for the better enforcement of the liability of stockholders of corporations,’ the district court is authorized to proceed (section 2), upon notice given as such court may direct, to ascertain (section 3) the probable indebtedness of a corporation which has made an assignment under the laws of this state for the benefit of its creditors, or for which a receiver in insolvency has been appointed, and the expenses of such assignment or receivership; and also the probable amount of assets available for the payment thereof; and also as to what parties are or may be liable as stockholders, and the nature and extent of such liability; and if, on such ascertainment, it appears to the court that the assets are insufficient to meet the indebtedness and expenses of the trust, it is authorized and directed to levy a ratable assessment upon all parties liable as stockholders, or on account of stock shares, for such an amount, proportion, or percentage of the liability as in its discretion such court may deem proper. Under section 5 the order and assessment so levied is made conclusive upon and against all parties so liable as to all matters relating to the amount of, the propriety of, and the necessity for, such an assessment. Held, that in a proceeding in accordance with sections 2, 3, supra, the court having obtained jurisdiction over the corporation, the shareholders of the corporation are within the jurisdiction of the court in which the proceeding is instituted, so far as is necessary for a determination of all of the questions specified in section 3, and that the decision of the court is binding upon stockholders who are not before the court otherwise than by virtue of their membership in the corporation. As members they are conclusively bound, as provided in section 5, by a determination as to the amount of the corporate assets and the amount of the liabilities, and as to the amount of the assessment, which is levied per share of stock against the stockholders, not against them by name, but generally.

2. Section 5 goes no further than this. It does not purport to deprive a person, when sued for the amount assessed on each share, under section 4, from showing, if he can, that he is not a stockholder, or that he is not the holder of so large an amount of stock as is alleged, or that he has a claim against the corporation which in law or equity he may be entitled to set off as against the claim or judgment in assessment; or he may make any other defense which is personal to himself. Under section 5, the order of assessment is conclusive upon all of the stockholders, so far as it decides the amount of the assets or the liabilities of the insolvent corporation, and it is also conclusive as to the necessity of making an assessment to the extent and in the amount ordered.

3. And collection of such amount can be enforced wherever the stockhodlers are found.

4. The sections of said chapter 272 heretofore referred to are not in violation of any of the provisions of the constitution of the United States or of the state of Minnesota, in that a judicial proceeding is thereby authorized without due process of law. Nor are said sections unconstitutional because, as to stockholders who became such prior to the passage of the law, they impair the obligation of a contract.

5. There is no such thing as a vested right to a particular remedy. The legislature may always alter the form of administering right and justice. An objection to a law like the one under consideration, to be tenable, must go further than to a mere change of remedy. It must show that it increased the actual liability of the stockholders, or, in other words, that the extent or measure of liability has been augmented. Nor were substantial rights of stockholders affected by chapter 272, because there may be equities and different liabilities as between them, and as between them and creditors, of the corporation. These equities and liabilities are to be inquired into, adjusted, and passed upon in the original action or proceedings.

6. Findings of fact upon which to base an order of assessment under section 3 are unnecessary, and need not be made. Fred B. Dodge, for appellants.

Stiles W. Burr, for respondent.

COLLINS, J.

The principal question involved in this appeal is that of the constitutionality of chapter 272, Laws 1899, entitled ‘An act to provide for the better enforcement of the liability of stockholders in corporations.’ Appellants contend that the course of procedure authorized by the act is without due process of law, and that as to stockholders who became such before its passage the act impairs the obligation of contracts.

The dedendant corporation was declared insolvent in 1897, in proceedings instituted under Gen. St. 1894, c. 76, to sequestrate its assets; the petitioner, Robinson, being appointed receiver. Some of the shareholders were nonresidents, and in May, 1899, the receiver, having been unable to realize from the assets sufficient to pay the claims proven, filed his petition under and pursuant to said chapter 272 for an assessment of the stockholders. An order for hearing was made, which, by direction of the court, was personally served on the resident stockholders, and on the attorneys for the defendant corporation, and by publication upon the nonresidents. See section 2. Upon the hearing had pursuant to said order, the resident stockholders appeared, and objected, among other things, that the statute in question is unconstitutional, and that the court had no jurisdiction. The court received oral testimony subject to objection, as well as testimony by affidavit, and thereafter, without making findings of fact, filed its order, which was as follows, in so far as is now pertinent: ‘That an assessment of seventy-five per cent. of the par value of each share of the capital stock of said defendant, to wit, the sum of seventy-five dollars ($75) on each share thereof, be, and the same is hereby, assessed upon and against each and every share of said capital stock, and upon and against the person or party liable as a stockholder of defendant for, upon, or on account of such shares of stock; and that each and every person or party liable as such stockholder of said defendant be, and he is hereby, directed to pay to Horace R. Robinson, receiver of said defendant, at his office in said city of Minneapolis and said state of Minnesota, within 30 days after the date of this order, the said sum of seventy-five dollars ($75) for and on account of each and every share of said stock for or upon which said person or party is liable as a stockholder of said defendant as aforesaid.’ It is to be noticed that the trial court construed the act as authorizing it to assess a certain sum against each and every share of stock, and upon each and every person liable as a stockholder, the latter being directed to pay the sum stated on account of each share so held to the receiver within 30 days from the date of the order. The court made no attempt to determine who were stockholders, or the number of shares held by any particular person, or the amount of liability which had been incurred by any individual. It did ascertain, under section 3, the probable indebtedness of the insolvent and expenses of the receivership, and the probable value of the assets available in payment; and also what parties were or might be liable as shareholders, and the nature and extent of this supposed liability. From this examination of the condition of the corporate affairs,-which, at most, must be merely tentative on all of the questions investigated,-the court directed and levied the assessment mentioned in the order. And this levy and assessment is, under the provisions of section 5, declared to be conclusive upon and against all stockholders, present or absent at the hearing, having notice or without notice, resident or nonresident, as to all matters relating to the amount of, the propriety of, and the necessity for, said assessment, as well as for any subsequent assessment which may be levied. The amount of these assessments is to be collected (sections 4, 6), if not voluntarily paid, in actions at law instituted by the receiver. Provision is made for further assessments if necessary. Sections 7, 8. If the assessment proves more than the sum required, the surplus is to be returned to the stockholders who have paid. Section 11. Although the court inquires into the amount of the liabilities as well as to what will probably be realized out of the assets, its sole determination is that it is necessary and proper that an assessment of a given amount shall be levied against each share of stock. That, and that only, is the ultimate issuable fact to be found by the court.

The plain purport of sections 3 and 5 is that after an order of assessment has been duly made, and the receiver has sued an alleged stockholder to recover upon the assessment, the order cannot be attacked in that action upon the ground that the assessment was unnecessary or excessive, or upon the ground that the defendant was not actually a party to, or personally notified of, the hearing upon which the assessment was made. And, as before suggested, this was the construction given those sections by the court below. If the scope and effect of the act, and particularly of those sections, are as urged by counsel for appella...