Theodore Converse v. Caroline Hamilton No 42 Theodore Converse v. Jeneva Cauley No 43

• Decision Date: 01 April 1912
• Docket Number: Nos. 42 and 43,s. 42 and 43
• Citation: 32 S.Ct. 415,224 U.S. 243,56 L.Ed. 749
• Parties: THEODORE R. CONVERSE, Receiver, Plff. in Err., v. CAROLINE A. HAMILTON. NO 42. THEODORE R. CONVERSE, Receiver, Plff. in Err., v. JENEVA S. McCAULEY. NO 43
• Court: U.S. Supreme Court

224 U.S. 243

32 S.Ct. 415

56 L.Ed. 749

THEODORE R. CONVERSE, Receiver, Plff. in Err.,

v CAROLINE A. HAMILTON.

NO 42.

THEODORE R. CONVERSE, Receiver, Plff. in Err.,

v. JENEVA S. McCAULEY.

NO 43.

Nos. 42 and 43.

Argued November 7, 1911.

Decided April 1, 1912.

[Syllabus from pages 243-245 intentionally omitted] Messrs. Cordenio A. Severance, Burr W. Jones, E. J. B. Schubring, Frank B. Kellogg, and Robert E. Olds for plaintiff in error.

[Argument of Counsel from pages 245-247 intentionally omitted]Messrs. Charles E. Buell, John B. Sanborn, and Chauncey E. Blake for defendants in error.

[Argument of Counsel from pages 247-251 intentionally omitted]Mr. Justice Van Devanter delivered the opinion of the court:

These were actions at law, brought in the circuit court of Dane County, Wisconsin, by a receiver of an insolvent Minnesota corporation, the Minnesota Thresher Manufacturing Company, to enforce an asserted double liability of two of its stockholders.The facts stated in the complaints, which were substantially alike, were these: A judgment creditor, upon whose judgment an execution had been issued and returned nulla bona, commenced a suit against the company in the district court of Washington county, Minnesota, for the sequestration of its property and effects and for the appointment of a receiver of the same.The company appeared in the suit, a receiver was appointed, and such further proceedings were had therein, conformably to the statutes of the state, as resulted in the appearance of the creditors of the company, in the presentation and adjudication of their claims, aggregating many thousands of dollars, in an ascertainment of the complete insolvency of the company, and of the necessity of resorting to the double liability of its stockholders for the payment of its creditors, and in orders levying upon its stockholders two successive assessments of 36 and 64 per cent of the par value of their respective shares, requiring that these assessments be paid to the receiver within stated periods, and directing the receiver, in case any of the stockholders should fail to pay either assessment within the time prescribed, to institute and prosecute all such actions, whether within or without the state, as should be necessary to enforce the assessments.Some of the stockholders intervened in the suit and appealed from the order levying the first assessment, and the order was affirmed by the supreme court of the state.90 Minn. 144, 95 N. W. 767.

The defendants here were stockholders in the company, and failed and refused to pay either assessment, although payment was duly demanded of them.But they were not made parties to the sequestration suit, and were not notified, otherwise than by publication or by mail, of the applications for the orders levying the assessments.Upon the expiration of the times prescribed in the orders, the receiver brought the present actions to enforce them.The complaints set forth the proceedings in the sequestration suit and the provisions of the Minnesota Constitution and statutes relating to the double liability of stockholders and its enforcement, with the interpretation placed upon those provisions by the supreme court of that state, and also made the claim that § 1, article 4, of the Constitution of the United States, and § 905, Rev. Stat.(U. S. Comp. Stat. 1901, p. 677), required the courts of Wisconsin to give such faith and credit to those proceedings and provisions as they have by law or usage in the courts of Minnesota.

Demurrers to the complaints were sustained upon the ground that to permit the actions to be maintained in the Wisconsin courts would be contrary to the settled policy of that state in respect of the enforcement of the like liability of stockholders in its own corporations, and judgments of dismissal were entered, accordingly.The judgments were affirmed by the supreme court of the state(136 Wis. 589 and 594, 118 N. W. 190, 192), and the receiver sued out these writs of error, alleging that he had been denied a right asserted, as before indicated, under the Constitution and laws of the United States.

Of course, we must look to the Minnesota Constitution, statutes, and decisions to determine the nature and extent of the liability in question, and the effect given in that state to the laws and judicial proceedings therein looking to its enforcement, and when this is done we find that the situation, as applied to the cases now before us, is as follows:

1.Section 3, article 10, of the Minnesota Constitution, provides: 'Each stockholder in any corporation (excepting those organized for the purpose of carrying on any kind of manufacturing or mechanical business), shall be liable to the amount of stock held or owned by him.'The insolvent company, before mentioned, is within the general terms of this provision, not the excepting clause.Merchants' Nat. Bank v. Minnesota Thresher Mfg. Co.90 Minn. 144; 95 N. W. 767;Bernheimer v. Converse, 206 U. S. 516, 524, 51 L. ed. 1163, 1172, 27 Sup. Ct. Rep. 755.The provision is self-executing, and under it each stockholder becomes liable for the debts of the corporation in an amount measured by the par value of his stock.This liability is not to the corporation, but to the creditors collectively; is not penal, but contractual; is not joint, but several; and the mode and means of its enforcement are subject to legislative regulation.Willis v. Mabon(Willis v. St. Paul Sanitation Co.), 48 Minn. 140, 16 L.R.A. 281, 31 Am. St. Rep. 626, 50 N. W. 1110;Minneapolis Baseball Co. v. City Bank, 66 Minn. 441, 446, 38 L.R.A. 415, 69 N. W. 331;Hanson v. Davison, 73 Minn. 454, 76 N. W. 254;Straw & E. Mfg. Co. v. L. D. Kilbourne Boot & Shoe Co.80 Minn. 125, 83 N. W. 36;London & N. W. American Mortg. Co. v. St. Paul Park Improv. Co.84 Minn. 144, 86 N. W. 872;Bernheimer v. Converse, supra.

2.The proceedings in the sequestration suit, looking to the enforcement of this liability, were had under chapter 272, Laws of 1899, and§§ 3184-3190, Revised Laws of 1905, the latter being a continuation of the former, with changes not here material.An earlier statute prescribed a mode of enforcement by a single suit in equity in a home court, which was to be prosecuted by all the creditors jointly, or by some for the benefit of all, against all the stockholders, or as many as could be served with process in the state, and all the rights of the different parties were to be finally adjusted therein.That mode was exclusive.A receiver could not sue on behalf of the creditors in a home court or elsewhere.A single creditor could not sue in his own behalf, and, if all united, or one sued for the benefit of all, it was essential that the suit be in a home court.The statute was so interpreted by the supreme court of the state.SeeHale v. Allinson, 188 U. S. 56, 47 L. ed. 380, 23 Sup. Ct. Rep. 244, andFinney v. Guy, 189 U. S. 335, 47 L. ed. 839, 23 Sup. Ct. Rep. 558, where the cases were carefully reviewed.In one of them, Minneapolis Baseball Co. v. City Bank, 66 Minn. 441, 446, 38 L.R.A. 415, 69 N. W. 331, that court, after holding that the liability could not then be enforced through a suit by a receiver, added: 'If it be desirable, in order to secure a speedy, ecomonical, and practical method of enforcing the liability, to invest the receiver with such power, it must be done by statute.'Doubtless, responding, to this suggestion, the legislature enacted chapter 272, Laws of 1899.It expressly prescribed the mode of enforcement pursued in the present instance; that is to say, it made provision for bringing all the creditors into the sequestration suit, for the presentation and adjudication of their claims, for ascertaining the relation of the corporate debts and the expenses of the receivership to the available assets, and whether and to what extent it was necessary to resort to the stockholders' double liability, for levying such assessments upon the stockholders according to their respective holdings as should be necessary to pay the debts, and for investing the receiver with authority to collect the assessments on behalf of the creditors.And it also contained the following provisions respecting the effect to be given to the orders levying assessments, and respecting the authority and duties of the receiver:

'Sec. 5.Said order and the assessment thereby levied shall be conclusive upon and against all parties liable upon or on account of any stock or shares of said corporation, whether appearing or represented at said hearing, or having notice thereof or not, as to all matters relating to the amount of and the propriety of and necessity for the said assessment.This provision shall also apply to any subsequent assessment levied by said court as hereinafter provided.

'Sec. 6.It shall be the duty of such assignee or receiver to, and he may, immediately after the expiration of the time specified in said order for the payment of the amount so assessed by the parties liable therefor, institute and maintain an action or actions against any and every party liable upon or on account of any share or shares of such stock who has failed to pay the amount so assessed against the same, for the amount for which such party is so liable.Said actions may be maintained against each stockholder, severally, in this state or in any other state or country where such stockholder, or any property subject to attachment, garnishment, or other process in an action against such stockholder, may be found. . . .'

3.Under this statute, as interpreted by the supreme court of the state, as also by this court, the receiver is not an ordinary chancery receiver or arm of the court appointing him, but a quasi assignee and representative of the creditors; and when the order levying the assessment is made he becomes invested with the creditors' rights of action against the stockholders, and with full authority to enforce the same in any court of competent ...