Case Name: John Hogue v. Capital National Bank of Lincoln
Court: Nebraska Supreme Court
Jurisdiction: Nebraska
Decision Date: 1896-04-10
Citations: 47 Neb. 929
Docket Number: No. 6339
Parties: John Hogue v. Capital National Bank of Lincoln.
Judges: 
Reporter: Nebraska Reports
Volume: 47
Pages: 929–934

Head Matter:
John Hogue v. Capital National Bank of Lincoln.
Filed April 10, 1896.
No. 6339.
1. Corporations: Corporate Character: Collateral Attack: Liability oe Stockholders. Where a corporation has had a de facto existence for a considerable time, its corporate character cannot be collaterally assailed by persons contracting with it in such capacity, relying upon its corporate credit, in order to hold stockholders thereof individually liable on account of the failure to observe the statutory requirements essential to constitute it a technical de jure corporation.
2. -: Liability oe Stockholders: Statutes: Abatement. The liability imposed by section 139, chapter 16, Compiled Statutes, as originally enacted, was penal in its character, and rights of action thereunder not reduced to judgment, abated with the repeal of said section without a saving clause. (Session Laws, 1891, p. 198, ch. 13.)
Error from the district court of Sherman county. Tried below before Holcomb, J.
E. G. Lane, J. R. Scott, and J. H. Broady, for plaintiff in error.
Nightingale Bros., contra.

Opinion:
Post, O. J.
This was an action by the defendant in error, the Capital National Bank of Lincoln, in the district court for Sherman county to recover from the plaintiff in error Hogue, as a stockholder of the Sherman County Banking Company, the sum' of $10,272.65, being the face value of twenty-four notes sold by said last named corporation. Upon the back of each of the notes so sold appears the following indorsement:
"For valuable consideration we hereby guaranty to the Capital National Bank of Lincoln, Nebraska, or its assignees, the payment of the within note, waiving protest and non-payment of the same.
"Sherman County Banking Company, "By E. E. Whaley, Pi."
The ground of Hogue's alleged liability appears, from the following statement of the petition:
"The said Sherman County Banking.Company,, on October 31,1887, filed its articles of incorporation in the county clerk's office, and on November 1, 1887, commenced to transact business at LoupCity, in said county, as a banking corporation, and continued to transact business as such until December 26, 1888, at which last date said banking-corporation became wholly insolvent and made a pretended assignment for the benefit of creditors, and by assignment duly executed, conveyed all the corporate property of said banking company to Joseph F. Pedler, sheriff of said county. The said Sherman County Banking Company was not a legally incorporated company, but has failed to comply with the provisions of chapter 16, Compiled Statutes, entitled 'Corporations,' in relation to giving notice and other requisites of organization, and thereby subjected its stockholders to the liability imposed by section 139 of said chapter. Such failure to comply substantially with the law affecting and regulating corporations is more specifically as follows: (a.) The said Sherman County Banking Company wholly failed to publish notice-of its incorporation or organization, (b.) The whole of the capital stock of said banking corpo ration was not subscribed at tbe time of commencing business on November 1, 1887, or at any time thereafter, as required, by its articles of incorporation and by the general law. (c.) The whole of the capital stock of said corporation was not paid for at the time of commencing business, nor-at any time thereafter. (e.) The said Sherman County Banking Company wholly failed to post up in a conspicuous place at its place of' business, subject to inspection, a copy of its bylaws and the names of all of its officers appended thereto, and wholly failed to make and govern itself by by-laws, (f.) Said corporation wholly-failed to make and publish a quarterly statement of the assets and liabilities of said banking company, and to make and publish the annual notice-of indebtedness required by law. (g.) Said banking company failed to keep a-record of its corporate proceeding's and its election of officers and. board of directors, failed to open and keep a subscription book, failed to keep a stock ledger or-stock transfer book, or any book in which the-names of the said stockholders were entered and the amount held and owned by each stockholder,, and thereby concealed from the creditors of said, banking corporation, from the patrons of said bank, and from the public in general the fact that a large amount of the capital stock of said corporation was held and owned by insolvents and-persons of doubtful solvency.
"By reason of the aforesaid failure to comply with the provisions of law as to notice and other requisites of organization as herein set forth, the stockholders of said Sherman County-Banking Company became, and are jointly and severally, liable for all the debts of said corporation."
A general demurrer to the petition was overruled and issues joined by answer and reply. A trial was had at a subsequent term, resulting in a verdict and judgment for the plaintiff below in the sum of $14,865.81, and which has by appropriate proceeding been removed into this court for review.
It is unnecessary, in the view we take of the questions presented for determination, to notice the allegations of the answer and reply. Among the facts shown by the petition, proof, and record, and as to which there is no controversy, are the following: (1.) The Sherman County Banking Company had a de facto existence for more than a year, during which time the defendant in error had transactions with it in its corporate capacity amounting to many thousands of dollars, including the indorsements upon which it seeks to recover in this action. (2.) The cause of action alleged and relied upon in the district court is the failure of the banking company to comply substantially with the provisions of the statute in relation to the giving of notice and other requisites of organization, and not Hogue's primary liability as a stockholder of said corporation.
Counsel for the defendant in error, with a candor certainly to be commended, admit that the situation, from their point of view, is complicated by the repeal in 1891, without a saving-clause, of section 139, chapter 16, of the general corporation law of the state, and in a brief of unusual merit insist that the repealing act should be given a prospective effect only, since to hold otherwise is to destroy vested rights, and accordingly violative of section 10, article 1, of the constitution of the United States. But whatever view we might feel constrained to take of that subject as an original proposition, it cannot, we think, be longer regarded as an open question in this jurisdiction. Section 139, as originally enacted, reads as follows: "If any corporation fail to comply substantially with the provisions of this-subdivision in relation to giving notice and other requisites of organization, the property of all the stockholders shall be liable for the corporate debts." By section 2 of the act of 1891 the foregoing provision was amended to read as follows: "If any corporation fail to comply substantially with the provisions of this subdivision in relation to-giving notice and other requisites of organization, after the assets of the corporation are first exhausted, then the property of any stockholder shall be liable for the corporate debts to the extent of the unpaid subscription of any stockholder to the capital stock of such corporation, and in addition thereto, the amount of capital stock owned by such individual." By section 3 the original section was repealed, and by section 4 it is provided that, "Whereas, an emergency exists, this act shall take effect from and after its passage and approval, and shall be held and taken to apply in any case now pending or hereafter brought in any court in this state." In Globe Publishing Co. v. State Bank, 41 Neb., 175, it was held, that where an attempt is in good faith made to organize a valid corporation,, and such body actually exercises corporate functions for a considerable time unchallenged by the state, persons contracting with it in its corporate capacity, and in reliance upon its corporate credit, cannot hold stockholders thereof liable for its debts solely because, by mistake or omission not amounting to fraud, some act is left undone which, is essential to constitute it a de jure corporation. In Kleckner v. Turk, 45 Neb., 176, it was held that the liability imposed by section 139, as originally enacted, was for the omission of acts which are not conditions precedent to the commencement of business by a •corporation, that such liability existed solely by reason of the provisions of said section, that it was in the nature of a punishment, and that the right of action thereby conferred, unless reduced to judgment, did not survive, but was destroyed by its repeal. Those- cases we regard as decisive of the present controversy. It follows that the judgment must be reversed and the cause remanded for further proceedings in the district court.
Reversed.