The legislation of Minnesota with respect to the liability of
stockholders, as construed by the courts of that state, has
heretofore been reviewed and its constitutional validity upheld by
this Court in
Bernheimer v. Converse, 206 U.
S. 516, and
Converse v. Hamilton, 224 U.
S. 243.
A stockholder cannot, under the statutes of Minnesota, even by a
bona fide transfer of his stock, escape liability for
debts of the corporation theretofore incurred.
Bankruptcy proceedings against a Minnesota corporation do not
stand in the way of a resort to the statutory method of enforcing
the liability of a stockholder which is not a corporate asset.
Congress has not yet undertaken to provide that a discharge in
bankruptcy of a corporation shall release the stockholders from
liability.
Page 234 U. S. 653
A foreign stockholder of a Minnesota corporation is not
concluded by an order of the state court in sequestration
proceedings under the statute, and in which he was served only by
publication without the state, as to any matter relating to his
being a stockholder or as to other personal defense.
When his ownership of the stock ceases, a stockholder in a
Minnesota corporation ceases to be liable for debts of the
corporation thereafter incurred, although liable for debts
previously incurred.
Under the state statute, the Minnesota court, in a proceeding to
assess stockholders for liability, may assess persons who
previously were stockholders for liability for debts incurred
during the period they owned the stock.
While a stockholder not personally served may urge his personal
defenses in a suit to recover the assessment made in sequestration
proceedings of an insolvent Minnesota corporation, he may not
reopen the amount of the assessment or the question of the
necessity therefor.
What the Minnesota court determines as to the nature of the
assessment and its application to present and former stockholders
must be ascertained from the order itself.
Whether a former stockholder is ratably or otherwise liable with
present stockholders is not a question which goes to the
jurisdiction of the Minnesota court making the order, but a
question to be submitted for correction, if any, to the court
making the order, and not to another court in a collateral
attack.
In a proper judicial proceeding to determine the amount of
indebtedness of an insolvent corporation and the dates of origin of
such indebtedness, the individual stockholders are sufficiently
represented by the presence of the corporation itself, and the
decree establishing such indebtedness is admissible as evidence
thereof in a suit against a stockholder.
Bernheimer v. Converse, 206 U.
S. 516, followed to the effect that § 394, New York Code
of Civil Procedure, does not apply where the corporation is not a
moneyed one or a banking association and that the six-year period
does apply under § 382 to the claim of a receiver of a foreign
business corporation for personal liability of a stockholder
assessed under the state statute.
The facts, which involve the validity of a judgment of the
District Court of the United States for the Southern District of
New York enforcing the liability of a stockholder
Page 234 U. S. 654
of an insolvent Minnesota corporation, are stated in the
opinion.
Page 234 U. S. 655
MR. JUSTICE HUGHES 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.
Page 234 U. S. 656
In 1902, the Evans, Munzer, Pickering Company was incorporated
under the laws of Minnesota for the purpose of transacting a
mercantile business. In 1904 its name was changed to the Evans,
Johnson, Sloane Company. Its capital stock consisted of 1,500
shares of common and 1,000 shares of preferred stock of the par
value of $100 each. The plaintiff in error, Arthur L. Selig, became
the owner of 50 shares of preferred stock in 1902, and held the
same until September 5, 1904, when they were transferred on the
books of the company to Max Mayer. On September 25, 1905, a
petition in bankruptcy was filed against the company in the United
States District Court for the District of Minnesota; adjudication
followed on October 13, 1905, and trustees in bankruptcy were
appointed.
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 anyone liable as a stockholder in any court having
jurisdiction, whether in the State of Minnesota or elsewhere. On
April 23, 1907,
Page 234 U. S. 657
the court entered a decree in the sequestration suit allowing
the claims against the company as set forth in an annexed schedule,
which showed the nature of each claim, its amount, and when it
arose. A further decree allowing an additional claim was entered on
February 13, 1908. It appeared from these decrees and the schedules
to which they referred that of the claims thus allowed, upwards of
$11,000 wholly arose prior to September, 1904, and, in addition,
over $20,000 in part arose prior to that date.
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 Selig and their transfer, together with
the original certificate as cancelled, was introduced. Aside from
what was contended to be the effect of the proceedings in the
sequestration suit, there
Page 234 U. S. 658
was no evidence impeaching the transfer. This being the state of
the proof, the plaintiff rested and the defendant moved to dismiss
the complaint upon the grounds that the plaintiff had failed to
prove facts sufficient to constitute a cause of action, that the
suit should have been brought in equity, and not at law, and that
the cause of action had accrued more than three years prior to the
commencement of the action, and hence was barred by the statute of
limitations of the State of New York. Each party also moved for a
direction of a verdict. The district judge directed a verdict in
favor of the receiver for the sum of $5,000 with interest, and in
the view that, in sustaining and enforcing the order of assessment,
a question arose involving the application of the federal
Constitution, this writ of error has been sued out.
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 restating 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 Minn. 140;
McKusick v.
Seymour, 48 Minn. 158;
Minneapolis Baseball Co. v. City
Bank, 66 Minn. 441;
Hanson v. Davison, 73 Minn. 454;
Straw & Ellsworth Co. v. Kilbourne Co., 80 Minn. 125;
London & Northwest Co. v. St. Paul Co.,
Page 234 U. S. 659
84 Minn. 144;
Way v. Barney, 116 Minn. 285. Under the
statute of 1894 (c. 76), this liability was enforceable exclusively
by means of a single suit in equity in a court of the state which
was brought for the benefit of all the creditors against all the
stockholders, or as many as could be served with process within the
state.
Hale v. Allinson, 188 U. S. 56;
Finney v. Guy, 189 U. S. 335. To
make the remedy more effective, the Act of 1899 (c. 272) was
passed, and under the provisions of this statute as continued in
substance (
Way v. Barney, supra p. 294), in the Revised
Laws of 1905, §§ 3184-3190, the proceedings here in question were
had. Provision was made -- upon hearing at the time appointed, and
after notice by publication or otherwise, as directed by the court
-- for receiving evidence as to the probable indebtedness of the
corporation, the expenses of the receivership, the amount of
available assets, the parties liable as stockholders, and the
nature and extent of such liability, and thereupon the court was
authorized to levy a ratable assessment "upon all parties liable as
stockholders, or upon or on account of any stock or shares of such
corporation, for such amount," proportion, or percentage of the
liability as the court in its discretion might "deem proper, taking
into account the probable solvency or insolvency of stockholders
and the probable expenses of collecting the assessment." The order
and the assessment thereby levied was made
"conclusive upon and against all parties liable upon or on
account of any stock or shares of said corporation, whether
appearing or represented at said hearing or having notice thereof
or not, as to all matters relating to the amount of and the
propriety of and necessity for the said assessment.."
After the expiration of the time fixed for payment of the amount
assessed, the receiver was authorized to bring actions against
every person failing to pay, wherever he might be found, whether in
Minnesota or elsewhere.
See c. 272, Laws of 1899,
Page 234 U. S. 660
§§ 3-6; Rev.Laws 1905, §§ 3184-3187. The constitutional validity
of these provisions was sustained upon the ground that the statute
is a reasonable regulation for enforcing the liability assumed by
those who become stockholders in corporations organized under the
laws of Minnesota; that, while the order levying the assessment is
made conclusive as to all matters relating to the amount and
propriety thereof, and the necessity therefor, one against whom it
is sought to be enforced is not precluded from showing that he is
not a stockholder, or is not the holder of as many shares as is
alleged, or has a claim against the corporation which in law or in
equity he is entitled to set off against the assessment, or has any
other defense personal to himself, and that, while the order is
conclusive against the stockholder as to the matters stated,
although he may not have been a party to the suit in which it was
made, or notified that an assessment was contemplated, this is not
a tenable objection, as the order is not in the nature of a
personal judgment against him, and he must be deemed, by virtue of
his relation to the corporation and the obligation assumed with
respect to its debts, to be represented by it in the proceeding.
Straw & Ellsworth Co. v. Kilbourne Co., supra; Bernheimer
v. Converse, supra, pp.
206 U. S. 528,
206 U. S. 532;
Converse v. Hamilton, supra, p.
224 U. S.
256.
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 Minn. 292, the court said that
"by virtue of the statute a stockholder cannot relieve himself
from the liability for the prior
Page 234 U. S. 661
debts of the corporation by a
bona fide sale and
transfer of his stock on the books of the corporation, whatever the
rule may be in the absence of the statute."
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 Congress 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 stockholding, 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,
so 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, 1904, 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.
Page 234 U. S. 662
(3) But, despite the transfer, Selig remained liable for the
corporate debts previously incurred. Moreover, it cannot be doubted
that the authority of the Minnesota court under the statute was not
confined to proceedings to assess existing stockholders. The Act of
1899, by its express terms, applied in cases of liability arising
upon shares "at any time held or owned by such stockholders," and
provided for the making of an assessment against "all parties
liable as stockholders." Laws 1899, c. 272, §§ 1, 3; Rev.Laws 1905,
§ 3185. This obviously included former stockholders in relation to
debts antedating their transfers, and the constitutional validity
of the act in this aspect is as clear as is its validity with
respect to the authorization of an assessment against existing
stockholders. So far as the jurisdiction of the court to levy the
assessment is concerned, no distinction can be maintained. The
basis of jurisdiction is the same in each case; it is found in the
contractual obligation assumed in becoming a member of a Minnesota
corporation, and in the consequent submission to the reasonable
regulations of the state for the purpose of making the liability
effectual.
Bernheimer v. Converse, supra.
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 marshaling of the amounts recovered from stockholders
is also the appropriate subject for the consideration of the court
which,
Page 234 U. S. 663
under the statute, collects and distributes the fund. It is
quite obvious that another court, in an action by the receiver
against the stockholder, could not undertake to fix the amount
required to pay the debts for which the stockholder is liable
unless it virtually assumed the duty imposed by the statute of
determining what a ratable assessment should be, and thus denied
due credit to the determination already made in a court of
competent jurisdiction.
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 transferrors 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.
Page 234 U. S. 664
What the court did determine must be ascertained from the order
of assessment. This order, after reciting that the matter came on
to be heard at the time appointed, pursuant to the petition, and
that the court had "received and duly considered all the evidence
presented," provided for an assessment of an amount equal to the
par value "on each and every share of the capital stock," and
"against the persons or parties liable as stockholders . . . for,
upon, or on account of such shares of stock." It further provided
that "each and every person or party liable as such stockholder"
should pay to the receiver the amount assessed, and the receiver
was authorized to collect "the several amounts due from the several
persons or parties liable as stockholders," and to bring suit in
case of the failure of "any person . . . liable as a stockholder"
to pay as required. These provisions are certainly broad enough to
include all stockholders who were actually liable, and we should
not be justified in treating the order as expressing less than its
terms stated.
In
Tiffany v. Giesen, 96 Minn. 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 liable, the action could not be maintained against the
transferror, 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
Page 234 U. S. 665
of the jurisdiction to make the order of assessment, or to the
scope of the order as it was actually made, but rather to the
question whether the court committed error in the exercise of the
authority which it unquestionably possessed. If it did, the remedy
lay in an application to the Minnesota court for the correction
deemed to be necessary, and not in a collateral attack. The order
in question does not provide for the distribution of the amount to
be paid by the plaintiff in error, but that all moneys collected
from the stockholders by the receiver should be held until the
further order of the court. It is not to be assumed that these
moneys will be applied to any indebtedness as to which the
stockholders contributing respectively are not liable. We cannot
doubt that the plaintiff in error, if he so desires, will have
suitable opportunity to be heard as to the application of the
amount which he may pay to the receiver, that it will be used only
in the discharge of his obligation, and that any surplus to which
he may be entitled will be duly returned. Laws 1899, c. 272, § 11.
See Rev.Laws 1905, § 3190. The statute further provides
that any stockholder who has paid his assessment shall be entitled
to force contribution from any stockholder who has not paid, and
for that purpose shall be subrogated to the rights of the creditors
or the receiver of the corporation against every such delinquent
stockholder in such manner and to such extent as may be just and
equitable.
Ibid.
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
Page 234 U. S. 666
judgment of the court upon the evidence before it as to the
amount of the assessment required. That assessment was leviable
upon every share and against all persons liable as stockholders. If
the plaintiff in error was among this number, he was not entitled
to resist the recovery by reason of the nature or amount of the
assessment, which was levied in conformity with the statute, but he
was properly remitted to the Minnesota court for the adjustment of
such equities as he might have.
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.
206 U. S.
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.
206 U. S.
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
Page 234 U. S. 667
Mr. Justice Peckham, the history of § 394 is reviewed.) We
adhere to this view, and the action must be regarded as brought in
time.
The judgment is affirmed.
Judgment affirmed.