Willis v. Mabon

• Decision Date: 18 January 1892
• Citation: 50 N.W. 1110,48 Minn. 140
• Parties: Elizabeth L. Willis v. E. L. Mabon, St. Paul Sanitation Co., et al
• Court: Minnesota Supreme Court

50 N.W. 1110

48 Minn. 140

Elizabeth L. Willis v. E. L. Mabon, St. Paul Sanitation Co., et al

Supreme Court of Minnesota

January 18, 1892

Argued November 5, 1891

Appeal by defendant E. L. Mabon from an order of the district court Ramsey county, Brill, J., made January 6, 1891, sustaining plaintiff's demurrer to his answer.

The St Paul Sanitation Company, a trading or business corporation created under 1878 G. S. ch. 34, § 109, was on July 17, 1889, on petition of creditors, adjudged insolvent, and a receiver of its property appointed, pursuant to Laws 1881, ch. 148, as amended by Laws 1889, ch. 30. The receiver converted its assets into money, and paid a dividend to those of its creditors who proved their claims and filed releases. The plaintiff proved her claim, and filed her release of the corporation, and received her dividend, and judgment was entered in the insolvency proceedings in January, 1890, discharging the corporation from all claims and debts held by her.

The defendants E. L. Mabon, Gilbert Donaldson, and B. F. Ellison were each holders of stock of this corporation. After it was discharged, the plaintiff brought this action, September 22, 1890, against these stockholders, to recover the balance of her claim, $ 1,073.08, and interest, under 1878 G. S. ch. 76, § 17 et seq.

The defendant Mabon answered, and set forth the discharge of the corporation in the insolvency proceedings. The plaintiff demurred to this answer, that it did not state facts sufficient to constitute a defense. The district court sustained the demurrer, on the ground that the proviso at the end of section one (1) of chapter thirty, (30,) Laws 1889, was intended to change the rule laid down in Mohr v. Minnesota Elevator Co., 40 Minn. 343.

Order affirmed.

James H. Foote, for appellant.

First. Resting on the principle that a demurrer reaches back to the first pleading, the appellant contends that this action cannot be maintained against him as a stockholder, for the following reasons: Under the law there can be no double liability of stockholders in corporations of this character for the reason that article ten, (10,) section three, (3,) of the state constitution, is not self-executing, and there is no statute imposing such a liability. In considering this question it will be instructive to glance first at the constitutional and legislative history of this state in the matter of the liability of stockholders. 1851 R. S. ch. 40, §§ 11, 12, 16; Const. art. 10, § 3; Amend. Laws 1872, ch. 12; 1858 P. S. ch. 17, §§ 299, 300, 315, 318, 321; 1866 G. S. ch. 34, § 9; Laws 1876, ch. 2; Laws 1878, ch. 56; Laws 1881, (Ex. Sess.) ch. 73.

The attention of the court is now invited to a consideration of the decisions of various courts on the question of self-executing constitutional provisions, for the purpose of getting at the principles on which the question has been decided. Morley v. Thayer, 3 F. 737; Groves v. Slaughter, 15 Pet. 449; Missouri, K. & T. Ry. Co. v. Texas & St. L. Ry. Co., 10 F. 497, 503; Brown v. Hitchcock, 36 Ohio St. 667; Bowie v. Lott, 24 La. Ann. 214; Fusz v. Spaunhorst, 67 Mo. 256; French v. Teschemaker, 24 Cal. 518; Larrabee v. Baldwin, 35 Cal. 155; Lehigh Iron Co. v. Lower Macungie Tp., 81 Pa. St. 482; Coatesville Gas Co. v. Chester Co., 97 Pa. St. 476.

A consideration of the foregoing cases shows that the following fundamental principles have been recognized by the courts as controlling: Constitutional provisions may be considered as self-executing: (1) When the object is to suppress an existing evil. (2) When the purpose is to prohibit or restrain action. (3) When they specify the powers of some branch of the government or of some officer. (4) When they are full and explicit, both as to subject-matter and to the manner in which they shall be enforced.

Constitutional provisions are not to be considered as self-executing: (1) When the provision points to something more to be done, and looks to some future time for the accomplishment of what is required. (2) When they fail to show that the framers regarded them as sufficient to accomplish the end in view, and when no attempt is made to provide any modus operandi for its accomplishment. (3) When they can operate only by affirmative action of private parties, and come in conflict with other private interests. (4) When no penalty or nullity is provided. (5) When they are in the nature of general directions addressed to the legislature, announcing a new policy.

In 1866 G. S. ch. 34, § 9, the legislature for the first time accorded a slight recognization to the constitutional provision regarding the personal liability of stockholders, but the chapter was, by its terms, applicable only to certain specified kinds of corporations. And even this lasted only until 1875, when the section imposing the liability on such corporations in the terms of the constitution was repealed. Laws 1875, ch. 15. This left the law as it stands to-day, expressed in 1878 G. S. ch. 34, § 9. By this there are three classes of cases in which stockholders can be held liable for corporate debts: (1) For unpaid installments. (2) For failure of the corporation to comply substantially with the statutory provisions as to organization and publicity. (3) For personal violation of any of the provisions of the statute in the transaction of any business of the corporation, as officer, director, or member thereof, or fraud, unfaithfulness, or dishonesty in the discharge of official duty. Such, and such only, are the cases in which a stockholder can be held liable.

Up to the present time, this question of the double liability of stockholders has never before been squarely brought before this court. There are several cases in which the constitutional provision has been to some extent considered by the court; but an examination of them discloses the fact that either the question was not involved in the case, or else the liability has been assumed to exist, both by the court and by counsel. Dodge v. Minnesota Plastic Slate Roofing Co., 16 Minn. 368, (Gil. 327;) Allen v. Walsh, 25 Minn. 543; Mohr v. Minnesota Elevator Co., 40 Minn. 343; Arthur v. Willius, 44 Minn. 409; Densmore v. Shepard, 46 Minn. 54.

Second. Does the proviso at the end of section one, (1,) chapter thirty, (30,) Laws 1889, apply to the liability of stockholders to creditors for the debts of the corporation? The appellant claims that it does not. The nature of the liability of the stockholders of a corporation to its creditors was a principal one, and not as a surety for the corporation. The debt is not entered into by the stockholders directly or in a personal capacity, either as principals, sureties, or guarantors. It is the almost universal rule that the liability of stockholders is an original one, and is ex contractu, and in the nature of that of general partners. Corning v. McCullough, 1 N.Y. 47; Story v. Furman, 25 N.Y. 214; Norris v. Wrenschall, 34 Md. 492; Conant v. Van Schaick, 24 Barb. 87; Fuller v. Ledden, 87 Ill. 310; Schalucky v. Field, 124 Ill. 617.

It being established, then, that the stockholder is not to be regarded as belonging to the same class of debtors as sureties or guarantors, it necessarily follows, under the universal rule of statutory construction adopted by the courts, that the words, "or otherwise for the same debt," in this proviso, do not refer to the liability of the stockholder. The well-settled rule of construction is that, where particular words are followed by general words, the latter must be considered as ejusdem generis with the former, and confined to things of the same kind. Gunnestad v. Price, L. R. 10 Exch. 65, 70; Ex parte Spackman, 1 Macn. & G. 170; Scaggs v. Baltimore & W. R. Co., 10 Md. 268; Hawkins v. Great Western Ry. Co., 17 Mich. 57; Chegaray v. Mayor, etc., 13 N.Y. 220; Brooks v. Cook, 44 Mich. 617; Thames & M. Marine Ins. Co. v. Hamilton, L. R. 12 App. Cas. 484; Rex v. Wallis, 5 Term R. 375; State v. McCrum, 38 Minn. 154; Berg v. Baldwin, 31 Minn. 541; Kitchen v. Shaw, 6 Adol. & E. 729; Peate v. Dicken, 1 Cromp. M. & R. 422; Evans v. Stevens, 4 Term R. 459; Reg. v. Mayor, 2 Q. B. 693.

Third. But if it be held that the proviso contained in the law of 1889 was intended to and does apply to the liability of the stockholders, nevertheless it cannot be held to apply to obligations of stockholders, which, like that of the appellant, were entered into prior to the passage of the amendment. Otherwise the law would be unconstitutional and void, as impairing the obligation of contracts.

Fourth. The appellant further claims that Laws 1889, ch. 30, is unconstitutional, for the reason that its subject is not expressed in its title, and does not comply with Const. art. 4, § 27.

J. C. & W. H. Michael, for respondent.

First. Article ten, (10,) section three, (3,) of our state constitution, imposing a personal liability on stockholders of certain kinds of corporations, is self-executing and operative without supplemental legislation. A re-enactment by the legislature of the language of the constitution would have been a useless formality, and would have added no strength whatever to it. The language in the constitution itself is as strong as could have been used, and per se imposes the liability, and all that remained for the legislature to do was to provide a method of procedure for the enforcement of the liability. This it has done in 1878 G. S. ch. 76, which this court has held to provide the exclusive remedy, by reason of the fact that the legislature has pointed out the manner of its enforcement, with which any one seeking the remedy must comply. Johnson v. Fischer, 30 Minn. 173.

For more than 20 years this court in its decisions has uniformly held such liability to exist by virtue of the self-executing...