Selig v. Hamilton

delivered the opinion of the court.

This action was brought in the District Court of the United States, for the Southern District of New York, to enforce the liability of a stockholder of an insolvent Minnesota corporation.

On May 28, 1906, a creditor of the Company, on behalf of itself and all other creditors, brought a sequestration suit in the District Court of Ramsey County, Minnesota, for the purpose of enforcing the liability of the stockholders of the Company. In that suit, on June 25, 1906, Charles E. Hamilton (the defendant in error here) was appointed receiver. Further order was made on June 28, 1906, requiring creditors to exhibit their claims, and become parties to the suit, within six months from the date of the first publication of the order. On July 6, 1906, in the same suit, the receiver filed a petition for an assessment upon the stockholders. The court set a date for hearing and directed notice to be given by publication and mailing. Thereupon, on September 4, 1906, the court entered its order assessing the sum of $100 against each share of the capital stock and against those liable as stockholders on account of such shares; the latter were directed to pay to the receiver the amount of the assessment within thirty days, and the receiver was authorized in default of payment to institute an action against any one liable as a stockholder, in any court having jurisdiction, whether in the State of Minnesota or elsewhere. On April 23,1907,

Pursuant to the order of September 4, 1906, the present action was brought in December, 1909, to recover from Selig the amount assessed on 50 shares. The complaint set forth the proceedings in the sequestration suit, the statutes under which they were instituted and the order of assessment. It was also alleged that Selig, on or about September 5, 1904, had transferred his stock, when the Company was in an unsound financial condition, for the purpose of concealing his ownership, but that he remained the owner of the entire beneficial interest in the shares in question and that the transfer was fraudulent as against the creditors; and also that, under the law of Minnesota, a stockholder in a corporation could not avoid his liability for prior debts by a bona fide sale of his shares to a solvent person and a recorded transfer. In his answer, Selig admitted the transfer of the shares at the time mentioned, alleged that- it was duly made and entered on the corporate books, and denied the .other allegations pertinent to- his liability.

Upon the trial the record of the proceedings in the' sequestration suit, including the order of assessment and the decrees allowing the claims of creditors, were received in evidence. • The entry in the stock-book showing the record of the issuance of 50 shares to Sélig and its transfer, together with the original certificate as canceled, was introduced. Aside from what was contended to be the effect of the proceedings in the sequestration suit, there

The legislation of Minnesota with respect to the liability of stockholders, as construed by the state court, was reviewed and its constitutional validity was upheld in Bernheimer v. Converse, 206 U. S. 516 . The conclusions there reached, were reaffirmed in Converse v. Hamilton, 224 U. S. 243 . Briefly re-stating them, it may be said: The constitution of Minnesota (Art. 10, § 3) provides: “Each stockholder in any corporation, excepting those organized for the purpose of carrying on any kind of manufacturing or mechanical business, shall be liable to the amount of stock held or owned by him.” The provision is self-executing. The liability of the stockholder, measured by the par value of his stock, ‘is not to the corporation but to the creditors collectively, is not penal but contractual, is not joint but several, and the mode and means of its enforcement are subject to legislative regulation (See Willis v. Mabon, 48 Minnesota, 140; McKusick v. Seymour, 48 Minnesota, 158; Minneapolis Baseball Co. v. City Bank, 66 Minnesota, 441; Hanson v. Davison, 73 Minnesota, 454; Straw & Ellsworth Co. v. Kilbourne Co., 80 Minnesota, 125; London & Northwest Co. v. St. Paul Co.,

Further, it must be assumed that a stockholder cannot, even by a bona fide transfer of his' stock, escape liability for the debts of the corporation theretofore incurred. The Minnesota statute provides that a transfer of shares “shall not in any way exempt the person making such transfer from any liabilities of said corporation which were created prior to such transfer.” Gen. Stat., 1894, § 2599; Rev; Laws, 1905, § 2864. And in Gunnison v. U. S. Investment Company, 70 Minnesota, 292, 295, the court said that “by virtue of the statute a stockholder cannot relieve himself from the liability for the prior

In the light of the principles established by these decisions, it must be concluded:

(1) The bankruptcy proceedings against the corporation did not stand in the way of a resort to the statutory method of enforcing the stockholder’s liability. It was not corporate assets (Minneapolis Baseball Co. v. City Bank, supra, p. 446; Way v. Barney, supra); and Congess had not undertaken to provide that the discharge in bankruptcy of a corporation should release the stockholders. No question as to this is raised by the plaintiff in error.

(2) The defendant Selig, in this action brought by the receiver against him in the District Court in New York to recover the amount assessed, was not concluded with •respect to his personal liability. He was free to deny that he was, or had been, a stockholder in the Company; to dispute the allegation as to the length' of time that he remained a stockholder; in short, to litigate any matter which bore upon the extent or duration of his stock-holding or any-other personal defense. Straw & Ellsworth Co. v. Kilbourne, supra. The order of the Minnesota court in the proceedings for the purpose of the assessment, in which he was represented by the corporation and of which he was notified- only by publication and mailing of notice, did not conclude him with respect to the issue só far as it concerned the transfer of his stock or the good faith with which the transfer was made. Inasmuch as the transfer was proved to have been made in September, 1604, and no evidence was introduced to discredit the transaction, it must be assumed, for the present purpose, that the defendant’s stock ownership then ceased and that he was not liable for the payment of debts subsequently contracted by the corporation.

It follows' that if the court, thus having jurisdiction and acting -upon the evidence before it in the statutory proceeding, assessed former stockholders for the purpose of providing for debts incurred while they held their stock, its determination with respect to the amount of the assessment and the necessity therefor must be deemed conclusive. These questions cannot be reopened in another court when the receiver sues to collect the amount of the assessment. The stockholder in such a suit is free to urge his personal defenses but this does not mean that he may resist the receiver’s demand upon the ground that-the assessment was not needed. The marshalling of the amounts recovered from stockholders is also the appropriate subject for the consideration of the court which

■ It is insisted, however, that no assessment was made against the defendant as a past stockholder; that the order of assessment as made by the Minnesota court was applicable to present stockholders only. It is true that in the receiver’s petition for the levy of an assessment, the persons alleged to be liable were set forth as existing stockholders. Of these, it was averred that some (including the plaintiff in error) had transferred their stock for the purpose of avoiding liability and that others had placed their shares in the names of agents; but as to all, it was asserted that they were, and continued to be, the owners of the entire beneficial interest. But the petition prayed that the probable amount of' the indebtedness and of the costs and expenses of the proceedings, and the probable amount which could be collected “from said stockholders, and all persons or parties liable, as such, on said stock,” should be ascertained, and that the court should levy a ratable assessment upon each share and against each of the stockholders “liable on said stock.” Taking the petition, in the light of the statute, we think that, despite the allegations with respect to the fraudulent character of the transfers mentioned and the continued ownership by the transferors of the shares described, the exercise of the jurisdiction-of the court was invoked for the making of such an assessment as the. court in its discretion might consider necessary in order to enforce the stockholders’ liability, as it actually existed, with respect to the corporate debts remaining unpaid.

In Tiffany v. Giesen, 96 Minnesota, 488, the plaintiff, as receiver, by virtue of an order of assessment under the statute sought to recover against a stockholder in an insolvent corporation who had transferred his shares. It appearing that the defendant was the owner of the stock during the existence of the indebtedness of the company, it was held that the plaintiff had- made out' a cause of action. The objection that, as the transferee was the person primarily hable the action could not be maintained against the transferor, was overruled.

It is urged that the plaintiff in error was bound to contribute only ratably with all other stockholders who were liable-with respect to the debts .which arose prior to September 5, 1904, the date of the transfer, and that no assessment had been made based upon those debts. But this objection, as we view it, does not go to the existence

We cannot regard it as essential to the exercise of the jurisdiction of the Minnesota court that it should be required, in order not to forego recovery from stockholders who had transferred their stock, to make a separate and distinct assessment against all the then stockholders at the date of every transfer appearing upon the books. The plan of the statute was intended to afford a practicable remedy, and the order to be made thereunder was in the nature of things a provisional one representing the best

It is said, however, that on the trial of the present action, there was no evidence that there were debts remaining unpaid, which antedated his transfer of stock. But the decrees, entered in the parent suit in Minnesota, which determined the amount of the outstanding claims and when they arose, were introduced in evidence. These decrees showed that there were debts, in excess of the amount demanded of the plaintiff in error, which arose before his shares were transferred. In the proceedings appropriate to the liquidation, which related to the allowance of these claims, the plaintiff in error by virtue of his connection with the corporation and the obligation he had assumed was sufficiently represented by the presence of the corporation itself (Bernheimer v. Converse, supra, p. 532); and we see no reason to question the admissibility of the evidence. There was no attempt to controvert it.

The remaining question relates to the statute of limitations. It is contended that the action is barred by § 394 of the New York Code of Civil Procedure. In Bernheimer v. Converse, supra (p. 535), the court expressed the opinion that this section did not apply where the corporation was not a “moneyed corporation or banking association” and that the period of limitation under the New York Code was six years (§ 382). (See Platt v. Wilmot, 193 U. S. 602 , where, in the opinion of the court delivered by

The judgment is affirmed.

Judgment affirmed.