Wyman v. Bowman

• Decision Date: 11 January 1904
• Docket Number: 1,935.
• Citation: 127 F. 257
• Parties: WYMAN v. BOWMAN et al.
• Court: U.S. Court of Appeals — Eighth Circuit

127 F. 257

WYMAN v. BOWMAN et al.

No. 1,935.

United States Court of Appeals, Eighth Circuit.

January 11, 1904

Syllabus by the Court

The liability of the original subscribers for stock under section 4, art 11b, of the Constitution of Nebraska, which provides that the original subscribers shall be individually liable for claims against the corporation to the extent of their unpaid subscriptions after the corporate property has been exhausted, arises from the agreement of subscription, and is contractual.

1. Stockholders' liability to creditors in equity, see note to Rickerson Roller Mill Co. v. Farrell Foundry & Machine Co., 23 C.C.A. 315; Scott v. Latimer, 33 C.C.A 23.

The effect of this provision is not to create a new obligation or liability, but, in case of a sale of the stock by the subscriber, to modify his old contract to pay on the call of the board of directors into a guaranty to pay the debts of the corporation, to the amount of the unpaid subscription after the corporate property has been exhausted.

This guaranty, like the original contract, is an agreement with and the property of, the corporation-- held by it to pay its debts. It passes to a receiver of its property, or other proper representative of the corporation, and may be enforced by him.

The surrender by the original subscriber of his certificates of stock, the issue of new certificates to a purchaser, and the substitution of the secured notes of the latter for the unpaid part of the subscription in place of the notes of the former, do not evidence a rescission of the contract, or relieve the original subscriber from the effect of the constitutional provision.

The avoidance of releases of obligations and of assignments of choses in action for fraud is a subject of jurisdiction in equity.

A bill to enforce payment of subscription for stock, a chief part of the relief sought in which is the avoidance, as a fraudulent preference, of releases and assignments of a large part of the subscriptions, evidenced by the records of the board of directors of the corporation, upon which the defendants rely to establish their defense of payment, presents a subject of equitable cognizance.

There is no hard and fast rule by which jurisdiction in equity on the ground of the avoidance of a multiplicity of suits may be determined.

But whenever there is a common and decisive point of litigation between a complainant and several defendants separately liable either at law or in equity, the complainant's remedy at law is not as prompt, practical, and efficient to attain the ends of justice as the suit in equity, the convenience of the complainant is not overcome by the greater inconvenience to the defendants of a single suit, and a suit in equity against all the defendants will avoid several actions at law or suits in equity involving similar questions, the jurisdiction of a court of equity may be successfully invoked.

A bill to collect unpaid subscriptions of nine defendants separately liable at law may be maintained on the ground that it avoids a multiplicity of actions at law, where the defendants have a community of interest in the questions of law and fact presented by the controversies, and the convenience of all parties will be better subserved by determining these questions in a single suit in equity than by deciding them in nine actions at law.

One who on a condition subscribes for stock of a corporation or purchases property waives compliance with, and estops himself from asserting the condition, by executing the contract, accepting, using and selling the stock or property, without requiring the condition to be fulfilled.

8. See Corporations, vol. 12, Cent. Dig. Sec. 276.

Issues involving the merits of a controversy, which were presented by the pleadings, but were not litigable in a former suit between the same parties, are not concluded by a judgment or decree therein.

The cause of action to enforce the liability of an original subscriber under section 4, art. 11b, of the Constitution of Nebraska, does not accrue until the claims against the corporation are judicially ascertained, and the corporate property is exhausted. An action commenced August 7, 1902 on an original subscription made in 1883, when the corporate property was first exhausted in 1901, was not barred by the limitation of five or ten years contained in section 3447 of the Code of Civil Practice of Iowa of 1897.

Under ordinary circumstances, a suit in equity will not be stayed for laches before, and will be stayed after, the time fixed by the analogous limitation at law. But if unusual conditions or extraordinary circumstances make it inequitable to allow the prosecution of a suit after a briefer period, or to forbid its maintenance after a longer period, than that fixed at law, the chancellor will not be bound thereby, but will determine the extraordinary case in accordance with the equities which condition it.

When a suit is brought within the time fixed by the analogous statute, the burden is on the defendant to show, either from the face of the bill, or by his answer, that extraordinary circumstances exist which require the application of the doctrine of laches. And when the suit is brought after the statutory time, the burden is on the complainant to show in his bill that it would be inequitable to apply it to his case.

A contract between a corporation and a majority of its directors, whereby the latter advances or loans money to the former to pay its debts, some of which are owing to the latter, and whereby the former gives the latter a preference over other creditors, is not void, but voidable at the option of the creditors or stockholders of the corporation.

A court of equity will not, at the suit of a receiver of a corporation, rescind or avoid a transaction between the corporation and four of its directors whereby the former and its creditors received the amount of an assessment upon its stock, and proceed to enforce the collection of the amount of this assessment again from the original subscriber to the stock, while the corporation and its creditors retain the first payment and all its benefits. He who seeks equity must do equity.

Contracts and transactions between individuals and corporations of which they are directors or officers, which are fair and are made in good faith, which do not secure to the individual an undue or unjust benefit or advantage, and in which the interest of the individuals and the duty of the officers work in unison for the welfare of the corporation, are valid and enforceable in law and in equity.

Contracts and transactions between individuals and corporations of which they are directors or officers which are unfair, in which the individuals have secured an undue or unjust advantage, in which an antagonism between the interest of the individuals and the duty of the officials has resulted in the triumph of the former, are voidable at the option of the corporation, its creditors or stockholders.

A solvent corporation may lawfully prefer one creditor to others.

Such a preference may be lawfully made by a corporation, although its liabilities exceed its assets, if it is made in good faith, and its officers are not aware, and would not be aware by the exercise of reasonable prudence and diligence, that its continuance as a going concern must soon cease, or that its liquidation is imminent.

A preference by an insolvent corporation of one creditor to others is voidable by its creditors or stockholders if it was made in bad faith, to give the preferred creditor an undue advantage over others, at a time when the officers of the corporation were aware, or by the exercise of reasonable prudence or diligence would have been aware, that the liquidation of the corporation was imminent, or that it probably could not continue its active existence for any considerable time.

This is an appeal from a decree which dismissed a bill in equity exhibited by Albert U. Wyman, as receiver of the property of the Nebraska Fire Insurance Company, against Thomas Bowman, Millard F. Rohrer, Fayette O. Gleason, Eli L. Shugart, Henry C. Laub, John M. Campbell, John Y. Stone, and George W. Kingsnorth, who were once stockholders of the insurance company, to compel them to pay the unpaid part of their subscriptions to the stock of that corporation, which was alleged to be 50 per cent. thereof. When the decree was rendered, the suit against Kingsnorth stood upon demurrer to the bill, while the other defendants had answered, a replication had been filed, testimony had been taken, and there had been a final hearing. The case will be considered upon the evidence, which disclosed these facts:

The Nebraska Fire Insurance Company, which prior to 1890 was the Nebraska & Iowa Insurance Company, was a corporation of the state of Nebraska, organized in 1883. In March of that year each of the defendants subscribed for certain shares of its stock, paid 50 per cent. of the amount of his subscription and gave to the corporation his promissory note for the unpaid portion thereof, payable on demand, as and when the board of directors should designate. In 1887 each of the defendants sold his stock to a solvent purchaser, who substituted his promissory note for that of his vendor, the original certificates of stock were surrendered and canceled, and new certificates were issued to the purchasers. In 1890, and in the early part of 1891, L. B. Williams, S. R. Johnson, George F. Wright, and M. J. Burns were the directors of the insurance company, and owned more than 600 shares of its stock, which consisted of 1,000 shares. The company was insolvent. On April 13, 1891, the indebtedness of the company then due was about $41,625, and the board of directors made an assessment...