Williams' Ex'r v. Chamberlain

• Decision Date: 07 June 1906
• Parties: WILLIAMS' EX'R v. CHAMBERLAIN.
• Court: Kentucky Court of Appeals

94 S.W. 29

123 Ky. 150

WILLIAMS' EX'R v. CHAMBERLAIN.

Court of Appeals of Kentucky.

June 7, 1906

Appeal from Circuit Court, Jefferson County, Chancery Branch, First Division.

"To be officially reported."

Action by T. W. Chamberlain against J. T. Williams' executor. From a judgment for plaintiff, defendant appeals. Affirmed.

Gibson Marshall & Gibson, for appellant.

Percy N. Booth, for appellee.

CARROLL C.

This action was instituted in the chancery branch of the Jefferson circuit court by appellees, who are creditors of the Gold Lode Company, an Arizona corporation, to recover from the estate of John T. Williams, deceased, the amount of their debts, on the ground that Williams was a stockholder in the corporation and had failed to pay for the amount of his stock, and they seek to subject to the payment of their debts his unpaid subscription. The action was originally brought by persons who had obtained judgments and returns of no property in Arizona against the corporation, and, pending the litigation between these judgment creditors and the executor other Arizona creditors of the corporation, who had not obtained judgment for their debts, were made parties, and on a hearing of the case the chancellor rendered a judgment against the estate of Williams in favor of all the creditors and from that judgment this appeal is prosecuted.

A number of interesting questions are presented for our decision, and we will endeavor to dispose of them separately. The petition alleged that Williams subscribed for and purchased 5,000 shares of stock of the par value of $1 per share, and that a certificate of stock for this number of shares was issued to him by the corporation, but that he only paid the sum of 10 cents for each share of stock, or a total of $500, and thereupon became liable under the laws of Arizona to creditors of the corporation for the unpaid part of his subscription, amounting to $4,500; that the laws of Arizona provide that "nothing herein shall exempt the stockholders of any corporation from individual liability to the amount of unpaid installment on the stock owned by them or transferred to them for the purpose of defrauding creditors, and an execution against the corporation to that extent may be levied on the private property of such individual." They further alleged that the corporation was insolvent and had ceased to do business, and that it had no property or assets of any kind. The charter of the corporation, a copy of which is filed with the record, shows that the capital stock of the corporation was $500,000, divided into 500,000 shares of the par value of $1 each, and provides that "none of the stock shall be issued by said corporation, except upon a cash payment or its equivalent to the amount of at least 10 per cent. of its par value"; and that "the stock of this corporation shall be nonassessable to the stockholders of this corporation, and their private property shall be exempt from the corporation's debts." Appellant, in the first paragraph of its amended answer, traversed generally the averments of the petition, but said: "it is true that a certificate for 5,000 shares of said stock was issued to the testator and was held by him at the time of his death and is now held by this defendant, and it is true, as it is advised, that the said Williams paid therefor only the sum of 10 cents per share." In other paragraphs of the answer to which demurrers were sustained, it set up that the corporation had a right under its charter to issue full paid and nonassessable stock upon the payment of 10 per cent. of its value, without any further liability on the part of the shareholder to the corporation or its creditors, and that the stock issued to Williams was bought by him in good faith and under this belief; that it did not know whether he was an original subscriber or had bought the stock by transfer from a subscriber, but believed that he purchased the stock from a prior holder thereof without notice that the same was not fully paid up; that in any event he had paid all that the articles of the corporation required to relieve him from further liability.

Counsel say that the judgment in favor of the creditors who had not obtained a judgment and return of no property against the corporation was unauthorized, because a creditor of a corporation cannot proceed against a shareholder until he has exhausted his remedies against the corporation. To this contention we cannot agree, as it is not necessary, before suing a shareholder, to exact from him his unpaid subscription, that the creditor shall have prosecuted the corporation to insolvency by judgment and execution, as, if the corporation has become wholly insolvent, has ceased to do business, or is in the hands of a receiver, a return of nulla bona is not necessary; but in this case there was a judgment and a return of no property by some of the creditors in this action, and, as the insolvency of the corporation was established in this way, it was not necessary for each creditor to go to the useless expense of reducing his claim to judgment and having an execution returned. Clark & Marshall on Private Corporations, p. 2459; Barrick v. Gifford (Ohio) 24 N.E. 259, 21 Am.St.Rep. 798; Cyclopedia of Law and Procedure, vol. 10, p. 723. We do not think that the case of Dudley v. Price's Adm'r, 10 B. Mon. 84, when fairly considered, is at all in conflict with this view.

It is also urged that it is not alleged or proven that the other stockholders of the corporation are insolvent, and that an allegation of this character is necessary in a suit against a single shareholder when it is sought to recover from him, as in this case, debts due creditors of the corporation. It is however, the settled law that the creditor of an insolvent corporation may proceed against one or more delinquent stockholders to recover the amount of his debt without an account being taken of the other indebtedness, and without bringing in other...