Western Nat. Bank of New York v. Lawrence

• Decision Date: 18 July 1898
• Citation: 117 Mich. 669,76 N.W. 105
• Court: Michigan Supreme Court
• Parties: WESTERN NAT. BANK OF NEW YORK v. LAWRENCE.

76 N.W. 105

117 Mich. 669

WESTERN NAT. BANK OF NEW YORK v. LAWRENCE.

Supreme Court of Michigan

July 18, 1898

Error to circuit court, Kent county; William E. Grove, Judge.

Action by the Western National Bank of New York against John S Lawrence on his liability as a stockholder in a Kansas corporation. There was a judgment sustaining a demurrer to the declaration, and plaintiff brings error. Reversed.

C. O. Smedley (John W. Powers, of counsel), for appellant.

Fletcher & Wanty, for appellee.

LONG J.

The declaration in this cause states that the plaintiff is a corporation under the national banking act, having its place of business in the city of New York, and, as such corporation, loaned the Western Farm Mortgage Trust Company a Kansas corporation, $20,000, and on the 2d day of July 1892, obtained a judgment against the Kansas corporation for $22,911.35, on which there has been issued an execution which has been returned unsatisfied, and since that time the plaintiff has credited on said judgment $7,094.60, the balance being wholly unpaid; that the Western Farm Mortgage Trust Company is insolvent, and has no property of any kind or description in Kansas or elsewhere; that defendant is a stockholder owning 10 shares, of $100 each, in said company and became liable to the plaintiff for the amount of said stock. The declaration sets forth the provisions of the constitution and statute of Kansas under which it is claimed the defendant became liable. The defendant demurred to the declaration, and the demurrer was sustained in the court below.

The constitution of Kansas, by section 2, art. 12, provides: "Dues from corporations shall be secured by individual liability of the stockholders to an additional amount equal to the stock owned by such stockholders; and such other means as shall be provided by law; but such individual liabilities shall not apply to railroad corporations, nor corporations for religious and charitable purposes." It is contended by counsel for defendant that no right of action against a stockholder of a corporation existed at common law, and that the above-quoted provision of the Kansas constitution created no liability, and is only a provision enabling the legislature of the state to pass statutes making stockholders liable for debts of corporations in conformity therewith; that is, that the constitution creates no liability of itself, and is not self-executing. This view, it is claimed, was taken by the court below; and counsel for plaintiff concedes that view to be correct. The only liability, if any, arises from the Kansas statutes (Gen. St.� 1192) which provides: "If any execution shall have been issued against the property or effects of a corporation, except a railway or a religious or charitable corporation, and there cannot be found any property whereon to levy such execution, then execution may be issued against any of the stockholders, to an extent equal in amount to the amount of stock by him or her owned, together with any amount unpaid thereon; but no execution shall issue against any stockholder, except upon an order of the court in which the action, suit or other proceeding shall have been brought or instituted, made upon motion in open court, after reasonable notice in writing to the person or persons sought to be charged; and, upon such motion, such court may order execution to issue accordingly; or the plaintiff in the execution may proceed by action to charge the stockholders with the amount of his judgment." It is conceded by counsel for plaintiff that the first of these remedies provided by this statute could be enforced only in the state of Kansas; but it is contended that the other may be enforced in this state by an action, as no particular procedure is prescribed by the act, and therefore the form of procedure prescribed by the laws of the state where the stockholder resides can be resorted to just as though the action were on a promissory note or other obligation of the defendant. In Howell v. Manglesdorf, 33 Kan. 194, 5 P. 759, speaking of this statute, the court said: "It will be observed that two remedies of enforcing the individual liability of stockholders are prescribed in the statute above quoted. In the one case the judgment creditor of an insolvent corporation may proceed by a summary action on a motion in the court where the judgment was rendered against the corporation; in the other, by an ordinary action to be instituted wherever personal jurisdiction of the stockholders can be acquired. This ruling does not deprive a creditor of the insolvent corporation of a remedy against the stockholders residing in another state, and upon whom service cannot be obtained here. While the liability is statutory, it is one which arises upon contract of subscription to the capital stock of the corporation; and an action to enforce the same is transitory and may be brought in any court of general jurisdiction in the state where personal service can be made upon the stockholders."

It will be noticed that the statute, in providing for the recovery against the stockholder by action, empowers the plaintiff whenever his execution is returned nulla bona against the corporation, to charge the stockholders with the amount of his judgment; but the constitution of Kansas provides that a stockholder's personal liability cannot be more than the amount of the stock owned by him, so that the language of the act must be limited to...