Wall v. Basin Mining Co., Ltd.

• Decision Date: 19 April 1909
• Parties: THOMAS WALL, Appellant, v. THE BASIN MINING COMPANY, LTD., a Corporation, T. N. BARNARD and A. H. FEATHERSTONE, Respondents
• Court: Idaho Supreme Court

101 P. 733

16 Idaho 313

THOMAS WALL, Appellant, v. THE BASIN MINING COMPANY, LTD., a Corporation, T. N. BARNARD and A. H. FEATHERSTONE, Respondents

Supreme Court of Idaho

April 19, 1909

CONSTITUTION - CORPORATION - ASSESSMENTS - PERSONAL LIABILITY - FULL PAID CAPITAL STOCK-CONTRACTS-NONASSESSABLE STOCK.

1. Sec 17, art. 11 of the constitution of this state, which provides: "Dues from private corporations shall be secured by such means as may be prescribed by law, but in no case shall any stockholder be individually liable in any amount over or above the amount of stock owned by him," relates to and limits the personal liability of a stockholder, but in no way limits the power of the corporation to make assessments upon stock fully paid up, and to subject such stock to sale in default of the payment of such assessment.

2. Rev Codes, sec. 2750, empowers the directors of a corporation to levy and collect assessments upon the subscribed capital stock thereof for the purpose of paying obligations conducting business, or paying debts, after one-fourth of the same has been subscribed.

3. The word "assessment" and the words "call" or "instalments" are used interchangeably in the statute, yet, strictly speaking, the word "assessment" means a demand upon stockholders for payments above the par value of their stock to meet the money demands of creditors of the corporation; while the word "call" or "instalments" means the action of the board of directors of the corporation demanding the payment of all or a portion of unpaid subscriptions.

4. Rev Codes, sec. 2769, grants power to a corporation to admit stockholders or members, and to sell the stock or shares for the payment of assessments or instalments.

5. The word "assessments," as used in this section, is distinguished from "calls" or "instalments," and means assessments upon full paid stock, as distinguished from calls or instalments for portions of unpaid subscriptions.

6. The statutes of this state clearly empower a corporation to levy assessments or calls for instalments for unpaid portions of the subscribed capital stock; and also to levy assessments upon full paid-up stock for the purposes enumerated in the statute.

7. The levy of assessments, under the statutes of this state, against stock fully paid up is a proceeding in rem, by which the stock may be sold, but no personal liability attaches to the stockholder for any deficiency arising from the sale.

8. If, however, the assessment be in the nature of a call for the unpaid portion of the par value, the corporation may elect to waive the sale and proceed by action to recover the amount of the assessment.

9. Where a corporation issues certificates of stock and prints thereon, as a part thereof, the words "nonassessable," such words become matters of agreement and a part of the contract between the corporation and the stockholder, and may be enforced by the stockholder against the corporation's right to assess such stock.

10. There is no provision of law in this state which prohibits a corporation from making a contract with its stockholders, by which it agrees that the stock issued is nonassessable, so as to preclude the stockholder from enforcing such contract against the corporation's right to assess such stock.

(Syllabus by the court.)

APPEAL from the District Court of the First Judicial District, for the County of Shoshone. Hon. W. W. Woods, Judge.

An action to establish the plaintiff's right as a stockholder in the defendant corporation. Judgment for defendant. Plaintiff appeals. Reversed.

Reversed and remanded, with directions. Costs awarded to appellant.

Myron A. Folsom and Henry P. Knight, for Appellant.

The only state constitution which has a provision concerning the liability of stockholders exactly like that of Idaho is that of Missouri, as amended in 1870. As our court has never construed the constitution of Idaho, it becomes of prime importance to examine the construction given the Missouri constitution by the courts of that state. (Schricker v. Ridings, 65 Mo. 208; Ochiltree v. Iowa Ry. Co., 21 Wall. 249, 22 L.Ed. 546.)

The statute which is claimed by the respondent to authorize the assessment of paid-up stock was found in Rev. Stat. of 1887, sec. 2614, etc., and in our new Civil Code, sec. 2750. That statute was adopted by the territorial legislature from California. The California supreme court had construed the statute as providing for unlimited liability to assessment. (Santa Cruz R. Co. v. Spreckles, 65 Cal. 193, 3 P. 661.) A similar statute was adopted in Utah. But the constitution of California provided an unlimited liability of stockholders, and the Utah constitution contains no provision whatever upon the subject. The supreme court of this state in Sparks v. Lower Payette Co., 3 Idaho 306, 29 P. 134, construed the statute above referred to and held it authorized assessments beyond the par value of the stock. In this the court adopted the California construction. The controversy arose before the constitution took effect, and therefore the court was not called upon to construe the constitution, and was fully authorized to adopt the California construction of the territorial statute. Neither did the later case of Hall v. Eagle Rock Co., 5 Idaho 551, 51 P. 110, require the application of the constitutional provision because the complaining stockholders became such prior to the adoption of the constitution. In our constitution, we find an express declaration that the dues shall not be called upon stock which has been paid for in full. This constitutional provision cannot be added to by statute. (Van Pelt v. Gardner, 54 Neb. 701, 75 N.W. 874.) It follows that since the adoption of the constitution of Idaho fully paid stock cannot be assessed for any purpose, and the territorial statute on that subject is superseded.

It is therefore entirely proper for a corporation to issue nonassessable stock provided it has been fully paid. As between the corporation and its stockholders, even if the stock had not been fully paid, the corporation would have the right to issue stock which is nonassessable. (Dickerman v. Northern Trust Co., 176 U.S. 181, 20 S.Ct. 311, 42 L.Ed. 423; Scoville v. Thayer, 105 U.S. 143, 26 L.Ed. 968; First Nat. Bank v. Gustin etc. Min. Co., 42 Minn. 327, 18 Am. St. 510, 44 N.W. 198, 6 L. R. A. 676; Cook on Corporations, secs. 241, 242; Price's Appeal, 106 Pa. 421.) As between a corporation and its stockholders, the corporation may waive its right to assess stock, and such waiver is binding, and this is so whether the stock has been fully paid or not. (Scovill v. Thayer, supra; Dickerman v. Northern Trust Co., supra; First National Bank v. Gustin, supra; Enterprise Ditch Co. v. Moffitt, 58 Neb. 642, 76 Am. St. 122, 79 N.W. 560, 45 L. R. A. 647; Bent v. Underdown, 156 Ind. 516, 60 N.E. 307; Brant v. Ehlen, 59 Md. 1; Price's Appeal, supra; Gary v. York Min. Co., 9 Utah 464, 35 P. 494; Garey v. St. Joe Co., 32 Utah 497, 91 P. 369, 12 L. R. A., N. S., 554.)

The mere fact that a certificate says upon its face that it is nonassessable makes it so, as against the company.

John P. Gray, Featherstone & Fox, and Therrett Towles, for Respondents.

This court in Hall v. Eagle Rock etc., 5 Idaho 556, 51 P. 110, draws the distinction which counsel for the appellant has entirely disregarded. Referring to the act of 1891 amending sec. 2609, Rev. Stat., it says: "That act refers to the personal liability of stockholders and not to the liability of stock to assessments made, and necessary only to carry out the purpose for which the corporation was created or to preserve its property."

In Willis v. Mabon, 48 Minn. 140, 31 Am. St. 626, 50 N.W. 1110, 16 L. R. A. 281, in construing the constitution of Minnesota, somewhat similar to our own constitution, the supreme court of that state holds the provision imposes a personal liability over and above the loss of the stock, but draws the distinction which is controlling in this case. (See, also, Delano v. Butler, 118 U.S. 634, 7 S.Ct. 39, 30 L.Ed. 260; Hulitt v. Bell, 85 F. 98.)

For almost nineteen years the constitution of Idaho has been in force, and never before has the right to levy such an assessment been questioned. Hundreds of corporations have levied similar assessments and have sold the delinquent stock, and the bench, the bar and the citizenship of the state have countenanced and upheld their right to do so during all these years. The decisions of this court in both the Sparks and the Hall cases, and particularly the latter, announce the doctrine that such assessments do not come within the provisions governing the personal liability of stockholders, but are assessments upon the stock itself, which may be levied and collected by the sale of the stock for the purpose pointed out in the statute, and, like assessments under the national bank act, they do not in anywise affect, and are not referable to, the personal liability of the stockholder. The supreme court of California has repeatedly held that assessments upon fully paid stock under similar statutory provisions may be levied and collected. (Santa Cruz R. Co. v. Spreckles, 65 Cal. 193, 3 P. 661; Green v. Abietine Medical Co., 96 Cal. 322, 31 P. 100; Alta Silver Mining Co. v. Alta Placer M. Co., 78 Cal. 629, 21 P. 373.)

There is no statute of Idaho fixing the liability of stockholders of corporations which do not attach the word "limited" to their corporate names; therefore their liability is governed by the common-law rule, which common-law rule is that after the stock of the corporation was fully paid it was not liable to further assessment. (Cook on Corporations, 4th ed., 242; 10 Cyc. 649.)

The policy of the law is to prevent a corporation or its stockholders from...