# First National Bank of Ottawa v. Converse

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United States Supreme Court
200 U.S. 425
First National Bank of Ottawa v. Converse
Argued: January 25, 26, 1906. --- Decided: February 19, 1906
For brevity, the plaintiff in error will be hereafter referred to as the bank and the defendant in error as the receiver.
The receiver commenced this action against the bank in the circuit court of the United States for the northern district of Illinois. The object of the action was to recover from the bank, as the owner of 274 shares of preferred stock in the Minnesota Thresher Manufacturing Company, the amount of an assessment of $18 per share, levied upon said stock for the payment of the debts of the thresher company. A demurrer to an amended declaration having been overruled, and the bank electing not to plead further, judgment was entered for the receiver, and, on account of constitutional questions raised by the demurrer, the case was brought directly to this court.
The averments of the amended declaration may be summarized as follows: In May, 1884, the Northwestern Manufacturing & Car Company was a corporation engaged in the manufacturing business at Stillwater, Minnesota. At the date mentioned the car company owed a large amount which it was unable to pay, among which was a sum due to the bank for money lent. In that month a receiver was appointed for the car company by a court of the state of Minnesota having jurisdiction. Some time afterwards, in November, 1884, the bank with other creditors, and some of the stockholders of the car company, organized, under the laws of Minnesota, a new corporation, styled the Minnesota Thresher Manufacturing Company. The articles of incorporation of the new company provided 'that the objects for which said corporation was formed were the purchase of the capital stock, evidences of indebtedness issued by and the assets of the Northwestern Manufacturing & Car Company, a corporation existing under the laws of the state of Minnesota, or any portion of said capital stock, evidences of indebtedness or assets, and the manufacture and sale of steam engines of all kinds, farm implements and machinery of all kinds, and the manufacture and sale of all articles, implements, and machinery of which wood and iron or either of them form the principal component parts, and the manufacture of the materials therein used.'
The thresher company exchanged its preferred stock at par for the debts of the car company and issued common stock in exchange for the preferred stock of the car company. Subsequently, at a judicial sale, the new company acquired all the assets of the car company, and paid for the same with the claims which it had acquired for issuing its preferred stock as above stated. The stock held by the bank upon which the assessment was sought to be enforced was alleged to have been acquired by the bank in the manner above stated; that is, by an exchange of its claim against the car company for the preferred stock of the new corporation. The declaration alleged that at the time of the acquisition of the stock by the bank, as above stated, under the Constitution and laws of Minnesota, there was a double liability imposed upon the stockholders to pay the debts of the corporation in the event of its insolvency.
After the organization of the thresher company and the purchase of the assets of the car company, as above stated, the thresher company carried on the manufacturing business authorized by its charter. In 1901 it became insolvent. A creditor having sued and obtained judgment, and an execution having been issued and returned unsatisfied, the creditor procured, under the provisions of chapter 76 of the General Statutes of Minnesota and the amendments thereto, the appointment of a receiver of the property of the thresher company, who duly qualified and entered upon the discharge of his duties. In the proceeding in which the receiver was appointed, creditors exhibited claims and demands against the thresher company, aggregating $443,752.17, but no property or assets of the corporation existed available to pay this indebtedness or any portion thereof.
Thereafter, upon petition of the receiver, pursuant to the provisions of chapter 272 of the General Laws of Minnesota for 1899, copied in the margin, steps were taken to provide a fund for the payment of the debts of the corporation, by enforcing contribution from its stockholders upon the double liability alleged to result from the ownership of its stock. The bank did not appear in the proceeding.
General Laws of Minnesota for 1899.
Chapter 272.
'An Act to Provide for the Better Enforcement of the Liability of Stockholders of Corporations.
'Sec. 1. Whenever any corporation created or existing by or under the laws of the state of Minnesota, whose stockholders, or any of them, are liable to it or to its creditors, or for the benefit of its creditors, upon or on account of any liability for, or upon, or growing out of, or in respect to, the stock or shares at any time held or owned by such stockholders, respectively, whether under or by virtue of the Constitution and laws of said state of Minnesota, or any statute of said state, or otherwise, has heretofore made, or shall hereafter make, an assignment for the benefit of its creditors, under the insolvency laws of this state; or whenever a receiver for any such corporation has heretofore been or shall hereafter be appointed by any district court of this state, whether under or pursuant to any of the provisions of chapter seventy-six (76) of the General Statutes of eighteen hundred and ninety-four (1894) of Minnesota, and the acts amendatory thereof, or under or pursuant to any other statute of this state, or under the general equity powers and practice of such court, the district court appointing such receiver, or having jurisdiction of the matter of said assignment, may proceed as in this act provided.
'Sec. 2. Under the petition of the assignee or the receiver of any such corporation, or of any creditor of such corporation, who has filed his claim in such assignment or receivership proceedings, the said district court shall, by order, appoint a time for hearing not less than thirty (30) nor more than sixty (60) days from the time of filing said petition with the clerk of said court, and shall direct such notice of such hearing to be given to the party presenting said petition, by publication or otherwise, as the court, in its discretion, may deem proper; but if said petition be filed by a creditor, other than the assignee or receiver of said corcoration, the court shall direct that notice of such hearing be personally served on such assignee or receiver.
'Sec. 3. At such hearing the court shall consider such proofs, by affidavit or otherwise, as may then be offered by the assignee or receiver, or by any creditor or officer or stockholder of said corporation, who may appear in person or by attorney, as to the probable indebtedness of said corporation, and the expenses of said assignment or receivership, and the probable amount of assets available for the payment of such indebtedness and exAfter compliance with the requirements of the act of 1899 the court made an assessment of $18 upon each of the shares of the stock of the thresher company, and the receiver was authorized and directed, in the event of the failure of a stockholder to pay, after due notice by mail, 'to forthwith institute and prosecute such action or actions or other proceedings against such person, persons, corporation, or party liable in any court having jurisdiction, whether in this state or elsewhere, which said receiver may deem necessary or proper for the recovery of the amount due from such person, persons, corporation, or party under the terms of this order.' After alleging the default of the bank to pay the assessment, the amended declaration prayed for a judgment against the bank for the sum of the assessment, that is, $18 per share on the 274 shares of stock of the thresher company, which stood on the books of that company in the name of the bank.
As stated at the outset, the bank demurred to the amended declaration, and, on the demurrer being overruled, stood upon the demurrer, and judgment was entered against it as prayed for. The grounds upon which the amended declaration was demurred to were as follows:
'(1) It does not state facts sufficient to constitute a cause of action against the defendant.
'(2) It does not show that plaintiff has legal capacity to institute and maintain the present action.
'(3) It shows that said supposed Laws of Minnesota for 1899 are in contravention of clause 1 of § 10 of article 1 of the Constitution of the United States.
'(4) It shows that said supposed Laws of Minnesota for 1899 are in contravention of the 14th Amendment of the Constitution of the United States.
'(5) It shows that said supposed Laws of Minnesota for 1899, being 'An Act to Provide for the Better Enforcement of the Liability of Stockholders of Corporations,' are in contravention of the Constitution of the United States.
'(6) It shows that said supposed Laws of Minnesota for 1899 unjustly discriminate against nonresident stockholders, and are such as will not be enforced in this jurisdiction.
'(7) It shows that the supposed order of the court levied an assessment on stockholders that is excessive and beyond reason.
'(8) It does not show that the supposed corporate indebtedness is contractual, or that is has been judicially determined as against this defendant.
'(9) It does not show that all the necessary steps prescribed by the supposed laws of Minnesota have been taken.
'(10) It shows, as a basis of liability, supposed acts of the defendant which are ultra vires and void under the national bank act.
'(11) It states conclusions of the pleader instead of facts.
'(12) It does not allege a case within the jurisdiction of this court.
'(13) It is, in other respects, uncertain, informal, and insufficient.'
Messrs. Lester H. Strawn, Laurence Arnold Tanzer, and Winston, Payne, & Strawn for plaintiff in error.
Messrs. C. A. Severance, Frank B. Kellogg, Robert E. Olds, and J. H. Chandler for defendant in error.
Mr. Justice White, after making the foregoing statement, delivered the opinion of the court:

## Notes

This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
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