The state creating a corporation may determine how transfers of
its stock shall be made and evidenced, and a change in the law
imposing no restraint upon the transfer, but only affecting the
method of procedure, does not impair the obligation of the charter
contract within the meaning of the contract clause of the federal
Constitution, and so held that the corporation law of Kansas of
1899 is not void as to stockholders who purchased stock prior
thereto and sold it thereafter, because it required a statement of
the transfer of stock to be filed in the office of the Secretary of
State in order to relieve the transferor of stockholder's
liability, the act not depriving him of any defense that might be
made at the time the stock was acquired.
Methods of procedure in actions on contract that do not affect
substantial rights of parties are within the control of the state,
and the obligation of a stockholder's contract is not impaired
within the meaning of the contract clause of the federal
Constitution by substituting for individual actions for statutory
liability a suit in equity by the receiver of the insolvent
corporation, and so held as to the corporation law of Kansas of
1899 amending prior laws to that effect.
In becoming a stockholder of a corporation, one does not acquire
as against the state a vested right in any particular mode of
procedure for enforcement of liability, but it is assumed that
parties make their contracts with reference to the existence of the
power in the state to regulate such procedure.
The facts are stated in the opinion.
Page 215 U. S. 378
MR. JUSTICE HARLAN delivered the opinion of the Court.
The federal question to be disposed of on this writ of error
arises under the contract clause of the Constitution. The facts
upon which this decision depends are not in dispute and may be thus
summarized:
On the third day of August, 1887, the plaintiffs in error became
respectively subscribers to and owners of capital stock in the
Consolidated Barbed Wire Company, a Kansas corporation, engaged in
the business of manufacturing wire. But, on the fifteenth day of
January, 1899, they sold and transferred their stock, worth par, in
good faith, to responsible parties, and thereafter had no interest
in the company. The fact of such transfer was made to appear on the
books of the company. On the same date, the company sold all its
property and the good will of its business, the proceeds of the
sale being distributed among the defendants as stockholders in the
proportion of the stock held by each. And on the day last named,
the company suspended and did not thereafter resume business.
In 1900, W. H. Stevenson obtained a judgment against the company
upon which execution was issued and returned "no property found."
In 1903, two other judgments -- each of which, it is admitted,
being based upon a cause of action sounding in tort -- were
recovered against the company, one by Briggs, administrator, and
one by Maxwell. No execution was issued on either of those
judgments.
In 1903, Myers, the defendant in error, was appointed receiver
of the wire company. As such receiver, and by authority of existing
statutes, he brought an action in one of the Kansas courts against
the present plaintiffs in error as stockholders, to recover the
amount of the above judgments. Upon final hearing, the trial court
gave judgments against the defendants, respectively, in certain
amounts, to be paid by them in proportion to the stock owned by
each. The case was carried to the Supreme Court of Kansas, and
the
Page 215 U. S. 379
judgment was affirmed. A rehearing was granted, but the judgment
was again affirmed.
Henley v. Myers, 76 Kan. 736.
At the time the defendants became stockholders in the wire
company certain constitutional and statutory provisions relating to
corporations were in force in Kansas. Those referred to by counsel
are given, for convenience, in the margin.
* From an
examination of those provisions it will be
Page 215 U. S. 380
seen that, when the defendants became the owners of stock in the
company it was the law of Kansas: 1. That a
Page 215 U. S. 381
stockholder in any corporation other than one for railroad,
religious, or charitable purposes, should be liable for the dues of
the
Page 215 U. S. 382
corporation to the extent of every unpaid subscription, and for
an additional amount equal to the par value of the stock owned by
him. 2. That if an execution against a corporation was returned "no
property found," then execution could go, on the order of court and
after written notice, against any stockholder, to the extent equal
in amount to his stock, together with the amount, if any, unpaid
thereon. 3. That when a corporation became insolvent a receiver
could be appointed on application to the proper court, to close its
affairs, and it was made the duty of such receiver to immediately
institute proceedings against all stockholders to collect unpaid
subscriptions, together with the additional liability of such
stockholders, equal to the par value of the stock held by each; all
such collections to be for the benefit of creditors. 4. That the
stock of the corporation should be transferable only
on the
books of the corporation in such manner as the law
prescribed.
By an act passed in 1899, and which went into effect January
11th, 1899,
before the defendants sold their stock, the
previous statute (Gen.Stat. 1868, c. 23, § 24) was so amended as to
make it the duty of the president and secretary or the managing
officer of each corporation for profit doing business in the state
(other than banking, insurance, and railroad corporations), as soon
as any transfer, sale, or change of ownership of stock is made, as
shown on its books,
"to at once
file with the Secretary of State a
statement of such change of ownership, giving the name and address
of the new stockholder or stockholders, the number of shares so
transferred, and the par value and the amount paid on such
stock."
The same statute provided that "no transfer of such stock shall
be legal or binding until such statement is made as provided." Laws
of Kans. Special Sess. 1898, c. 10, § 12, p. 33. It is not claimed
that the above statement had been made or filed with the company
prior to the sale by the defendants of their stock, or that it was
ever filed, and the result is that the transfer made by the
defendants of their stock (although the
Page 215 U. S. 383
fact of such transfer may have been shown on the books of the
wire company) was not legal or binding, if the statute was
valid.
But the defendants insist that, as the statutes of Kansas did
not, at the time they acquired their stock, require as a condition
of its legal or binding transfer that a statement of such transfer
should be filed with the secretary of state, by the president,
secretary, or managing officer of the corporation, the subsequent
statute imposing a condition of that kind impaired the obligation
of the contract under which stockholders acquired their stock, in
violation of the Constitution of the United States. The Supreme
Court of Kansas rejected this view, and they were right.
In what way the transfer of the stock of a corporation shall be
made and evidenced is a matter entirely within the governmental
power of the state that creates the corporation, the state taking
care that such power be not so exerted as to violate any right
secured by the supreme law of the land. It was never contemplated
by the framers of the Constitution that the national authorities
should supervise the action of a state upon such a subject, so long
as the state did not transgress that instrument, but kept within
the limits of its reserved power to enact such reasonable laws or
regulations as, in its judgment, were necessary or conducive to the
general good. We can well understand how the state might have
concluded that the statutory requirement in force when the
defendants acquired their stock, to the effect that transfers of
the stock of corporations created by the state (except certain
corporations) should be transferable only on the books of the
corporation, was not effective or sufficient, particularly, because
such books might not be easily or at all accessible. And we can
also well understand how the state might have reasonably concluded,
in the interest of the public, particularly of purchasers of stock,
and of stockholders as well, that the evidence of such transfers
should appear from the records of some public office, like that of
the secretary of state. Hence,
Page 215 U. S. 384
perhaps, the enactment of the statute which went into effect
January 11th, 1899. Such a requirement as that in the act of 1899
did not increase, in any degree whatever, the liability of
stockholders as agreed to by them when becoming stockholders. On
the contrary, it was in the interest of stockholders, as
determining the fact of their ceasing to be stockholders on and
after a particular date. Further, the statute did not forbid a sale
of the stock upon such terms as might be agreed upon between a
stockholder and any purchaser, the transfer, pursuant to such sale,
being evidenced as prescribed by the statute. Nor, if sued as
stockholders, did the act deprive defendants of any valid defense
which they were entitled to make at the time they acquired their
stock. It did nothing more than to prescribe, presumably in the
interest of the parties immediately concerned and of the public, a
rule under which a person owning and selling his stock in a
corporation should be regarded as a stockholder, unless and until
its sale and transfer were manifested by a statement of a
particular kind, filed in a named public office. If it be said that
the officers charged with the duty of making and filing that
statement might fail or refuse to discharge the duty imposed upon
them, the answer is that, if injury thereby came to the
stockholder, those officers would be liable to him for such injury
arising from neglect of duty. Besides, those officers could be
compelled by proper proceedings to perform the duty put upon them
by the statute. We hold that the defendants acquired their stock
subject, necessarily, to the power of the state, having due regard
to the legal rights of parties, to regulate the transfer of stocks
in its own corporations. In its first opinion in this case, the
Supreme Court of Kansas well said (p. 735):
"Before the act [of 1899] was passed, one who had sold stock of
a corporation, in order to relieve himself from liability for its
debts, was obliged to see that the transfer was noted by its
officer upon its books; the enactment merely imposed an additional
duty to see that a similar notation was made upon a public record.
The change
Page 215 U. S. 385
imposed no restraint upon the transfer of the stock, but related
only to the means by which it should be accomplished and the manner
in which it might be evidenced. It is essentially a matter of
method, of procedure, rather than of ultimate substantial
rights."
Equally without merit is the contention that the statute of 1899
impaired the obligations of the stockholder's contract in that it
substituted for individual actions against them a suit in equity by
a receiver appointed after judgment against the corporation. In
becoming stockholders, the defendants did not acquire a vested
right in any particular mode of procedure adopted for the purpose
of enforcing their liability as stockholders. It is a well
established doctrine that mere methods of procedure in actions on
contract, that do not affect the substantial rights of parties, are
always within the control of the state. It is to be assumed that
parties make their contracts with reference to the existence of
such power in the state.
Without expressing any opinion as to questions of a local
character, we hold, for the reasons stated, that the statute of
1899 furnishes no valid basis for the contention that it impaired
the obligation of the contract by which defendants acquired their
stock. This is the only federal question of a substantial character
presented on this writ of error, and the judgment of the Supreme
Court of Kansas must be affirmed.
It is so ordered.
*
"Dues from corporations shall be secured by individual liability
of the stockholders to an additional amount equal to the stock
owned by each stockholder, and such other means as shall be
provided by law; but such individual liabilities shall not apply to
railroad corporations, nor corporations for religious or charitable
purposes."
Const.Kansas, Art. 12, § 2.
"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 proceedings 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."
Kan.Gen.Stat. 1868, c. 23, § 32;
id., 1889, par.
1192.
"A corporation is dissolved, first, by the expiration of the
time limited in its charter; second, by a judgment of dissolution,
rendered by a court of competent jurisdiction; but any such
corporation shall be deemed dissolved for the purpose of enabling
any creditors of such corporation to prosecute suits against the
stockholders thereof to enforce their individual liability, if it
be shown that such corporation has suspended business for more than
one year, or that any corporation now so suspended from business
shall, for three months after the passage of this act, fail to
resume its usual and ordinary business."
Gen.Stat.Kans. 1868, c. 23, § 40, as amended by laws 1883, c.
46, § 1, March 7;
id., 1889, par. 1200.
"If any corporation created under this or any general statute of
this state, except railway or charitable or religious corporations,
be dissolved leaving debts unpaid, suits may be brought against any
person or persons who were stockholders at the time of such
dissolution, without joining the corporation in such suit, and if
judgment be rendered, and execution satisfied, the defendant or
defendants may sue all who were stockholders at the time of
dissolution, for the recovery of the portion of such debt for which
they were liable, and the execution upon the judgment shall direct
the collection to be made from property of each stockholder
respectively, and if any number of stockholders (defendants in the
case) shall not have property enough to satisfy his or their
portion of the execution, then the amount of deficiency shall be
divided equally among all the remaining stockholders, and
collections made accordingly, deducting from the amount a sum in
proportion to the amount of stock owned by the plaintiff at the
time the company dissolved."
Gen.Stat.Kans., 1868, c. 23, § 44, Oct. 31;
id., 1889,
par. 1204.
"No stockholder shall be liable to pay debts of the corporation,
beyond the amount due on his stock, and an additional amount equal
to the stock owned by him."
Gen.Stat.Kans., c. 23, § 46;
Id., 1889, par. 1206.
By a statute passed in 1898, which took effect January 11th,
1899, the following section took the place of the above § 32:
"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 upon
which to levy such execution, such corporation shall be deemed to
be insolvent, and upon application to the court from which said
execution was issued, or to the judge thereof, a receiver shall be
appointed, to close up the affairs of said corporation. Such
receiver shall immediately institute proceedings against all
stockholders to collect unpaid subscriptions to the stock of such
corporation, together with the additional liability of such
stockholders, equal to the par value of the stock held by each. All
collections made by the receiver shall be held for the benefit of
all creditors, and shall be disbursed in such manner and at such
times as the court may direct. Should the collections made by the
receiver exceed the amount necessary to pay all claims against such
corporation, together with all costs and expenses of the
receivership, the remainder shall be distributed among the
stockholders from whom collections have been made, as the court may
direct, and in the event any stockholder has not paid the amount
due from him, the stockholders making payment shall be entitled to
an assignment of any judgment or judgments obtained by the receiver
against such stockholder, and may enforce the same to the extent of
his proportion of claims paid by them."
Gen.Stat.Kans. 1868, c. 23, § 32, as amended by Laws 1898, c.
10, § 14;
id., Gen.Stat. 1901, par. 1302.
"The stockholders of every corporation, except railroad
corporations or corporations for religious or charitable purposes,
shall be liable to the creditors thereof for any unpaid
subscriptions, and, in addition thereto, for an amount equal to the
par value of the stock owned by them, such liability to be
considered an asset of the corporation in the event of insolvency,
and to be collected by a receiver for the benefit of all
creditors."
Gen.Stat.Kans. 1868, c. 23, § 46, as amended in 1898, c. 10, §
15.
When the defendants acquired their stock, the statute that
governed the transfer of stock in corporations was as follows:
"The stock of any corporation created under this act shall be
deemed personal estate, and
shall be transferable only on the
books of the corporation, in such manner as the bylaws may
prescribe; and no person shall at any election, be entitled to
vote on any stock, unless the same shall have been standing in the
name of the person so claiming to vote, upon the books of the
corporation at least thirty days prior to such election; but no
shares shall be transferred until all previous assessments thereon
shall be fully paid."
Gen.Stat.Kans. 1868, c. 23 § 27, as amended by Laws 1879, c. 88,
§ 1;
id., 1889, par. 1184.
The above statute, which was in force on and after January 11th,
1899:
". . . It shall also be the duty of the president and secretary
of any such corporation,
as soon as any transfer, sale, or
change of ownership of any such stock is made, as shown upon the
books of the company, to at once file with the secretary of state a
statement of the new stockholder or stockholders, the number of
shares so transferred, and the par value and the amount paid on
such stock. No transfer of such stock shall be legal or binding
until such statement is made as provided for in this act;
provided, however, that no transfers of stock shall release the
party so transferring from the liability of the laws of this state
as to stockholders of corporations for profit, for ninety days
after such transfer and the filing and recording thereof in the
office of the Secretary of State."
Laws of Kansas, Special Session 1898, p. 33, § 12.