Case Name: Senn, &c., v. Levy
Court: Kentucky Court of Appeals
Jurisdiction: Kentucky
Decision Date: 1901-06-14
Citations: 111 Ky. 318
Docket Number: 
Parties: Senn, &c., v. Levy.
Judges: Judge Hobson concurs in the dissent.
Reporter: Kentucky Reports
Volume: 111
Pages: 318–332

Head Matter:
Case 36 — Action to Enforce Payment of Stockholders’ Double Liability to Creditors of the Corporation
June 14.
Senn, &c., v. Levy.
APPEAL FROM JEFFERSON CIRCUIT COURT, CHANCERY DIVISION.
Judgment for Plaintiff and Defendants Appeal.
Affirmed.
Corporations — Double Liability of Stockholders — Effect of Amendment of Articles Under New Law to Impose Liability Created by that Law.
Held: 1. Where a corporation created after the adoption of the present Constitution, but prior to the enactment of the corporation law of April 5, 1893, amended its .articles of incorporation with the consent of the owners of two-thirds of its capital stock, as authorized by that law, so as to change its corporate name and the number and qualifications of its directors, it thereby became a corporation under that law, and its stockholders subject to the double liability to creditors provided for therein; the amendment of the articles of incorporation under the new law ■being, in effect, a reorganization under that law.
2. A corporation created after the present Constitution was adopted, .hut prior to the enactment of Acts April 5, 1893, relating to private corporations, was not required to accept the provisions of the new Constitution to entitle it to amend its articles by the written consent of the owners of two-thirds of its capital stock, as provided by the new law.
3. A judgment in favor of creditors against the stockholders of a corporation for double the amount of their stock was properly made to bear interest from the date of the institution of the action to enforce the liability.
O. A. WEHLE, attorney for appellant.
The German-Real-Estate and Investment Company was incorporated in January, 1893, long after the present Constitution Had gone into effect by the filing of articles of incorporation under the provisions of chapter 56 of the General Statutes.
On February 1, 1894, it filed in the Jefferson county clerk’s office by consent of holders of two-thirds of its stock, amendments to its articles changing its name to German-American Title Company. It did this without having first formally accepted the Constitution of Kentucky ,as section 574, Kentucky Statutes, requires. The company failed in May, 1896, and made an assignment for the benefit of its creditors, from which nothing can be realized for its general creditors. The appellee, Sol Levy, sued on an unsecured debt and sought to render the stockholders of the corporation liable for all the debts of the corporation.
The appellant as a defense contends:
1. A corporation organized before the act of April 5, 1893, had under that act (section 574, Kentucky Statutes) the right to amend its articles without making thereby its stockholders individually liable for debts contracted before September 28, 1897.
2. That statute intended that it should apply to “old corporations” only after September 28, 1897, unless they reorganized under it (section 554) by filing new articles of incorporation, signed and acknowledged by all stockholders (as provided by sections 539 and 540); but that they might after accepting the Constitution amend their articles without coming otherwise under the act.
The Constitution (sections 190-208) contains no section providing for the liability of stockholders for corporate debts, and to accept -the Constitution, therefore, does neither expressly nor .by implication, accept any provision concerning such liability.
AUTHORITIES CITED.
Ky. Stats., sees. 539, 540, 554, 559, 573, 574; Megargee v. Wakefield, and in petition for rehearing; Endlich on Statutes, secs. 4, 17; Harrington v. Smith, 28 Wis., 43; In re First Presbyterian Church, 107 Pa. St., 543; County of Erie v. Comr. of Water Works, 113 Pa. St., 372; Pittsburg v. Kalchthaler, 114 Pa. St, 552; Hoge v. R. R. Co., 99 U. S., 348; Keokuk R. R. Co. v. Mo., 152 U. S., 301; Maine R. R. Co. v. Maine, 96 U. S., ■499; Phil. & W. R. R. Co. v. Maryland, 10 Howard, 376; Memphis City Bank v. Tennessee, 161 U. S., 186; Mercantile Bank v. Tennessee, 161 U. S., 161; Phoenix F. & M. Ins. Co. v. Tennessee, 161 U. 'S., 174; Cin., Ham. & Day. R. R. Co. v. Cole, 29 Ohio St, 126; Tibballs v. Libby, 87 111., 142; Buffalo R. Co. v. Dudley, 14 N. Y., 336; Town of Reading v. AVedder, 66 111., 80; Bucksport v. Buck, 68 Me., 81; Milwaukee Co. v. Field, 12 Wis., 340; Howard v. Glenn, 85 Ga., 238; Cin. Coop. 'Co. v. Bate, 96 Ky., 356; Austin v. Winchester Tel. Co., 28 N. Y., 77; Thomas v. Dakin, 22 Wend., 9.
C. B. SEYMOUR, as amicus curiae.
While my clients are not parties to this appeal I represent sev eral parties who are deeply interested in the question involved. I desire therefore to file a -brief as amicus curiae.
(а) We submit that as the corporation was organized after the adoption of the fourth Constitution a formal acceptance of the Constitution was not necessary.
(б) We further submit that the awarding of interest on the face of the stock is error. The stockholder was in no default . until the amount to be paid by him was ascertained.
SYNOPSIS.
1. This corporation was created before April 5, 1893; but after the adoption of the Fourth Constitution.
2. The immunity provided for was valid.
3. That immunity, by section 573, continued until September 28, 1897.
4. The debt sued on and all other debts were contracted before September 28, 1897.
5. The corporation might have accepted the provisions of the statute by reorganizing under section 554; this it did not do.
6. The corporation, without reorganizing, had the right to amend its articles by accepting the provisions of -the Constitution (Kentucky Statutes, section 570).
7. An acceptance of the Constitution would have been nugatory; as the Constitution was binding on all concerned without an acceptance.
8. The double liability is not a matter of constitutional source; but the same is altogether statutory; and it was not required to be accepted, and was not accepted.
9. There is no estoppel here; no one has been misled or prejudiced. The corporation had a right to accept the provisions of the Constitution without accepting the provisions of the statute; it availed itself of the right.
10. It was error to allow interest in' the judgment. Sackett’s Harbour Bank v. Blake, 3 Rich. Eq., 225; Munger v. Jacobson, 99 111., 350; Cole v. Butler, 43 Me., 405; Casey v. Galli, 94 U. S., 680; Cleveland v. Burnham, 64 Wis., 361.
D. W. SANDERS, W. W. THUM and S. E. SLOSS, eor appellee. (No brief in the record for .appellee.)

Opinion:
Opinion of the court by
JUDGE BURNAM
Affirming.
The appellee, Sol Levy, brought this suit as a creditor of the Ge-rman-American Title Company, to- enforce the payment of its stockholder's -double liability to creditors of the corporation, under section 547 of the act of April 5,, 1893. The German-American Real-Estate & Investment Company was incorporated in January, 1893, under the provisions of chapter 56 of the General Statutes. By this charter it had power to deal in real estate', to buy and sell securities, and to lend money on them. In March, 1893, it amended its charter, and by the- amendment the powers of the corporations were greatly enlarged, and the company was authorized to conduct a general title-insurance business. On the 5th of April, 1893,. the general act relating to private corporations1, found in chapter thirty-two of the Kentucky Statutes, became a law. On t'he 1st day of February, 1894, by the consent in writing of the owners of two-thirds of its capital stock, its articles of incorporation were amended by changing .the name of the corporation to the German-American Title Company, and its board of directors, which formerly consisted of from three to seven members, to from three to fifteen, and each was required to own forty shares of capital stock instead of twenty, as under the original charter, and the president was authorized to appoint an executive committee, with such powers as the by-laws might give. The company did business under the name of the German-American Title Company until the 5th day of May, 1896, when it made a general deed of assignment for the benefit of its creditors'. On the 22d of January, 1896, while the company was a going concern, it sold to appellee five $500 first mortgage real-estate bonds, on which it guarantied payment of principal .and interest, which had' been executed to the company on the 14th day of January, 1896, by one Turner and his wife. These bonds turned out to be second mortgage bonds, and worthless, as a sale of the property under decree of court failed to pay the first mort gage, and an execution against the maker of the bonds was returned, "No property found." Thereupon appellee instituted this suit against the stockholders of the company on his own behalf, and on behalf of all the other creditors, to enforce the payment of all subscriptions to the capital stock, and to compel the various stockholders to pay an additional sum equal to the face' value of their holdings of stock for the purpose of paying the debts of the- company. It is conceded that, if the stockholders are liable at all, an assessment for the full amount of thie stock held by them will be necessary to pay the debts of the corporation.
The stockholders claim that, as the German-American Real-Estate & Investment Company was incorporated under the provisions of chapter 56 of the General Statutes, and before the enactment of the private corporation act of April 5, 1893, now chapter 32 of the Kentucky Statutes, and they have not accepted the provisions of that act in the manner pointed out by section 554, by a reacknowledgment of their articles of incorporation, they are not liable, under section 547, for double the amount of their stock to creditors of the corporation; while the appellee claims for the creditors that, as the corporation was -organized after the present Constitution went into effect, no acceptance of its provisions was necessary, and, as its articles of incorporation ,hiad been acknowledged by each stockholder after its organization, it was not necessary that they should again do s-o, and that by amending its charter of the 1st of February, 1894, in accordance with the provisions of section 559 of the act of 1893, and operating under this -amendment, -by changing their corporate name, and making other material and important'alterations in its government, the reorgan ization of the company was effected under the new law, and they were thenceforth bound by all of its provisions. The controversy must be determined from the spirit of the act itself.
Section 554 of chapter 32 of the Kentucky Statutes provides that all the corporations then existing under the laws of this State may be reorganized by executing and recording articles of incorporation as provided by that act, and that after they have done so, and complied with the other laws relating thereto, the- assets of such old corporation shall be vested in, and become the property of, the new corporation, without deed or transfer, and they then become a corporation under the new law, with all the powers and liabilities conferred and imposed by the act. Section 570 provides that no old corporation shall avail itself of any of the provisions of the act until it shall have accepted the provisions of the new Constitution. -Section 574 provides that charters of an old corporation may be amended in the manner provided by the statutes, after its acceptance of the provisions of the new Constitution» Section 559 provides for the amendment of the charters of any corporation by the consent in writing of at least two-thirds of its capital stock, after such amendment shall be signed and acknowledged by a majority of the directors, -and filed and recorded as articles of incorporation are required to be; and section 573 of the act says that all charters which are inconsistent with the provisions of the act concerning other similar corporations shall stand repealed, and on the 28th of September, 1897, to th-e extent of such conflict.
When we consider these sections together, it is clear that the General Assembly intended to put private corporations in this State upon the same footing, and to force all existing corporations to surrender, as far as possible, special or exclusive rights and privileges held by them, by the acceptance of the new Constitution; and, to effectuate this plain and settled purpose, it was expressly provided that, until the old corporations accepted the new Constitution, no law should be passed for their benefit, nor should they be permitted to avail themselves of any of the provisions of the new act. They were rigidly limited to the rights and powers then held by them. Perhaps the most valuable and necessary right secured to corporations by the act of 1893, which they had not previously enjoyed, was the right of amending their articles of incorporations by the written consent of two-thirds of its capital stock. Experience had demonstrated that it was well-nigh impossible to secure the consent of all the stockholders in any corporation to make any change in its articles of incorporation, however beneficial -such change might appear to be to the- company. After the amendment of 1894, changing the name of the company, it called in all of its old .certificates of stock, and issued new certificates in the new name, and' the name itself was -an advertisement to the public of the new business in which the corporation had embarked. It held itself out to the public, under its new name, as having amended its charter under the act of 1893, as there was no other law under which they could have amended but the act of April, 1893, and that law imposed the- double liability sought to be enforced here. The old law had been,absolutely repealed. The change made by the amendment was a radical one. A corporation exists only in its corporate name, -and a change of name- was an abandonment, not only of the corporate name, but of the corporation itself. The old creature was destroyed, and a new one sprang into existence, clothed with all the new powers, and. charged with all the new responsibilities imposed by the statutes which gaye it birth. See Cooperage Co. v. Bate, 96 Ky., 360 (16 R., 626) (26 S. W., 538); Beach, Priv. Corp., section 275. When the stockholders of the old corporation accepted certificates of stock in the new concern, they assented to, and acquiesced in, the amendment, and were thenceforth bound for all 'the liabilities of the new concern imposed upon it by law. Necessarily the liabilities and burdens are co-existent with the benefits. And there is no difference in principle between a reorganization and an amendment which accomplishes the same purpose. In both a new corporation is created, which is subject to laws in force at the date of its birth. In Hoge v. Railroad Co., 99 U. S., 348 (25 L. Ed., 33), an amendment to a charter of a railroad company was held to bring the corporation under the law in force at the date of the amendment. The opinion in that case by Justice Field is an interesting one, and seems to substantially decide the question we have here. The cases of Keokuk & W. R. Co. v. Missouri, 152 U. S., 301 (14 Sup Ct., 592), (38 L. Ed., 450); Mercantile Bank v. Tennessee, 161 U. S., 162, 17 Sup., Ct., 461), (40 L. Ed., 656); and Phoenix Fire & Marine Ins. Co. v. Tennessee, 161 U. S., 172; (16 Sup. Ct, 471), (40 L. Ed., 660), — in rolye questions similar to the one at bar, and the judgment of the supreme court in these oases is in line with the conclusion reached in this case.
It is claimed by counsel that the judgment is erroneous in awarding interest from the date of the institution of the suit, instead of from the 26th of February, 1901, when the agreement waiving a reference to the commissioner was filed. W.e think not. If necessary to pay the debts of the company, appellants were liable to pay interest from the time when the creditors demanded that they should comply with the provisions of the statute as to their liabilities. Judgment affirmed.