Straw & Ellsworth Mfg. Co. v. L.D. Kilbourne Boot & Shoe Co.
| Decision Date | 01 June 1900 |
| Docket Number | 12,034 - (53) |
| Parties | STRAW & ELLSWORTH MANUFACTURING COMPANY v. L. D. KILBOURNE BOOT & SHOE COMPANY |
| Court | Minnesota Supreme Court |
Action in the district court for Hennepin county by a judgment creditor of defendant corporation for sequestration of its property. Horace R. Robinson, having been appointed receiver of defendant, filed a petition, pursuant to Laws 1899, c 272, for an assessment of the stockholders. From an order Brooks, J., directing such assessment, Louis D. Kilbourne and other stockholders appealed. Affirmed.
Laws 1899, c. 272 -- Assessment of Stockholders of Insolvent Corporation.
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.
Jurisdiction over Absent Stockholders.
Held, that in a proceeding in accordance with sections 2 and 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.
Order of Assessment -- How Far Conclusive.
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.
Collection of Assessment.
And collection of such amount can be enforced wherever the stockholders are found.
Sections 2, 3, 4, 5, not Unconstitutional.
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.
No Vested Right to Particular Remedy.
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.
Findings of Fact.
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.
When the stockholders subscribed the law was, and consequently it was a term in their contract, that in the event of insolvency of the corporation their liability for its debts should be ascertained in an equitable action brought by and on behalf of all creditors and against the corporation and all stockholders of whom the court had jurisdiction, to determine the amount remaining due to such creditors respectively after the assets of the corporation had been exhausted; thereby providing a basis for determining the extent of the liability of the respective stockholders. G.S. 1894, c. 76, prescribes an exclusive remedy, and that the rules of equity are to be followed. Hanson v. Davison, 73 Minn. 454. These rights, as well as liabilities, were contractual, and, consequently, were vested property rights. A right of defense is as much a remedy within the constitution as a right of action. Board v. Blodgett, 155 Ill. 441. The statute does not in terms deny an appeal from the assessment, but it is the evident intention to preclude appeal, -- first, by making the order conclusive and, second, by giving it the form of an interlocutory order. Where an act declares that the finding or adjudication shall be conclusive, no appeal lies therefrom though an appeal would lie under the general provisions of law. King v. Mayor, 36 N.Y. 182; New York v. Marvin, 1 Kern. 276. While the procedure may be changed, there should be preserved ample opportunity to make, and be heard as to, all defenses. Hill v. Merchants Mut. Ins. Co., 134 U.S. 515; Com. v. President, 3 Allen, 42.
If our construction is correct, practically all safeguards for protection by a stockholder are broken down, and his rights are substantially impaired. The remedy and procedure existing when a contract is made are part of its obligation, and any subsequent law which so affects it as substantially to impair a right thereunder is unconstitutional. Edwards v. Kearzey, 6 Otto, 595; Bronson v. Kinzie, 1 How. 311; People v. Common Council, 140 N.Y. 300; Peninsular v. Union, 100 Wis. 488; Swinburne v. Mills, 17 Wash. 611.
The service and procedure provided for is not due process of law. In so far as it permits service by publication on a resident, assuming, of course, that the hearing involves a substantial right, it is unconstitutional. Bardwell v. Collins, 44 Minn. 97; State v. Guilbert, 56 Oh. St. 575; Brown v. Board, 50 Miss. 468. The right to notice is constitutional. 1 Elliott, Gen. Pr. § 342. To render the jurisdiction of the court effectual the thing in controversy, or the parties interested, must be subjected to the process of the court. Cooley, Const. Lim. 497; Stuart v. Palmer, 74 N.Y. 183; Ireland v. City, 51 Barb. 414; Seifert v. Brooks, 34 Wis. 443; Louisville v. Nash, 118 Ala. 477. It is true that the law contemplates further proceedings for the rendition of final judgment. If in that proceeding all matters affecting the liability of stockholders could be inquired into and all defenses interposed, the law might not be subject to the objection under consideration. Kizer v. Town, 141 Ind. 694; Scott v. City of Toledo (C.C.) 36 F. 385; State v. Common, 42 Wis. 287; Kennard v. Louisiana, 2 Otto, 480. But the cases so hold only on the theory and ground that in the subsequent action all defenses are available. In Hawkins v. Glenn, 131 U.S. 319, Glenn v. Liggett, 135 U.S. 533, and Great Western Tel. Co. v. Purdy, 162 U.S. 329, the assessment was for unpaid subscriptions. Assessment on unpaid subscriptions is very different from assessment on statutory superadded liability. Minneapolis Baseball Co. v. City Bank, 66 Minn. 441, 444.
Stiles W. Burr, for respondent.
Except that the act of 1899 is more liberal to stockholders in respect to notice and hearing, the practice it prescribes is the same as that considered in the following cases, in each of which the same conclusions are reached in respect to the character, scope, and purpose of the inquiry preliminary to the assessment, and the nature, limitations, and effect of the order or decree of assessment, the extent to which it is conclusive, and the defenses which it leaves open to the stockholder. They are of various kinds: Assessments on stockholders on account of unpaid subscriptions: Sanger v. Upton, 91 U.S. 56; Hawkins v. Glenn, 131 U.S. 319; Glenn v. Liggett, 135 U.S. 533; Great Western Tel. Co. v. Purdy, 162 U.S. 329; Glenn v Williams, 60 Md. 93; Vanderwerken v. Glenn, 85 Va. 9; Howard v. Glenn, 85 Ga. 238; Priest v. Glenn, 4 U.S. App. 478; Marson v. Deither, 49 Minn. 423; In re Minnehaha D.P. Assn., 53 Minn. 423. Assessments on members of mutual fire insurance companies, after...
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