Source: https://supreme.justia.com/cases/federal/us/234/652/case.html
Timestamp: 2017-02-25 00:30:29
Document Index: 241230625

Matched Legal Cases: ['§ 3184', '§ 3', '§ 3184', '§ 11', '§ 3190', '§ 394', '§ 382', '§ 394']

Selig v. Hamilton (full text) :: 234 U.S. 652 (1914) :: Justia U.S. Supreme Court Center Log In
› Selig v. Hamilton
Selig v. Hamilton 234 U.S. 652 (1914)
U.S. Supreme CourtSelig v. Hamilton, 234 U.S. 652 (1914)Selig v. HamiltonNo. 361Argued May 6, 1914Decided June 22, 1914234 U.S. 652ERROR TO THE DISTRICT COURT OF THE UNITED STATES
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
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
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
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.
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.
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
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.
"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."
(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
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
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.
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.