Court Opinion

ID: 7973524
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:57:26.993292+00
Date Added: 2024-06-11T16:34:50.595406
License: Public Domain

LEWIS, J.
This action was brought under chapter 272, p. 315, Daws 1899, for the purpose of recovering from defendant the amount of his liability as a stockholder in the Capital City Real Estate & Improvement Company, an insolvent corporation. The complaint set out the fact that July 12, 1887, respondent owned one hundred three shares of the capital stock of the Capital City Company; that July 7, 1899, the company then being insolvent, defendant transferred his stock to one Edward Borsch; that such transfer was made for the purpose of avoiding his liability as a stockholder for the indebtedness of the company; that the transfer was not made in good faith and was without consideration. The complaint further contained the statement that defendant was liable for the debts of the Capital City Company to an amount equal to the par value of the stock owned by. him at the time of the transfer, and that by virtue of an order of assessment duly made defendant was within thirty days required to pay to plaintiff, as receiver, $5,150, the amount of the assessment.
The answer alleged that prior to 1899 defendant for a valuable consideration transferred all of his stock to Edward Borsch, who is now the owner and holder thereof; that such shares of stock were duly transferred on the books of the company; and that at the time of such transfer defendant was not aware of any existing indebtedness of the Capital City Company. The cause went to trial, and at the close of plaintiff’s case, on motion of defendant, the court dismissed the action upon the ground that plaintiff failed to establish a cause of action, and upon the ground that counsel for defendant had been misled in preparing for the trial, assuming that the only issue was the validity of the transfer of the stock.
The complaint states a cause of action, based upon the fact that defendant was the owner of the stock at the time of the indebtedness of the company. In Gunnison v. United States Inv. Co., 70 Minn. 292, 73 N. W. 149, the nature of such liability was thoroughly expounded, *491and it was clearly held that a shareholder in a corporation cannot affect his constitutional liability for the prior debts of the corporation by a bona fide sale of his stock to a solvent party and a transfer thereof on the books of the corporation. Such was the issue tendered by the complaint, and, although it was additionally alleged that the stock had been transferred to Borsch without a valuable consideration and not in good faith, there is nothing appearing from the complaint itself which warranted the court, or defendant, in assuming that plaintiff intended to abandon it, and rely for ground of relief upon the mere fact that the stock had been transferred without consideration. The answer did not deny the constitutional liability of defendant, but as an affirmative defense alleged that prior to 1899 the stock had been sold and assigned for a valuable consideration and in good faith, and that a transfer had been effected upon the books of the company.
At the trial plaintiff proceeded to introduce evidence sufficient to establish defendant’s constitutional liability as a stockholder, and proved that during the existence of the indebtedness of the company defendant was the owner of the stock mentioned. If defendant was misled by the allegations of the complaint, and inadvertently assumed that the only issue tendered was as to the validity of the transfer of the stock, and that he had a good and substantial defense to the claim that he was constitutionally liable, it was incumbent upon him to apply to the court for a continuance of the case, in order to secure time to prepare the defense; but he was not entitled to a dismissal of the action at the close of plaintiff’s case upon that ground, or upon the ground that the evidence was insufficient.
Defendant contends that under the rule in Harper v. Carroll, 66 Minn. 487, 69 N. W. 610, 1069, an independent action did not lie against defendant; that the transferee, Borsch, was a necessary party and primarily liable; and that defendant was only secondarily liable, and therefore the action was properly dismissed at the close of plaintiff’s case. Conceding the proposition to be true, the question would arise whether defendant should not have raised it by demurrer or answer. But the rule in Harper v. Carroll has no application to this case, as it is presented on this appeal. There all the parties, transferrors and transferees of the stock, were before the court in assessment proceedings, and, judgment having been entered against them all, the court, as an *492incident to the enforcement'of the liability, directed that execution issue in the first instance against the transferees in the order of transfer. There is nothing in that case to indicate that it was the intention to lay down the rule that in a case like this a separate action will not lie against the original holder. It might have been more convenient for respondent if Borsch were a party to the action, in order that execution-might be ordered to issue first against the party primarily liable, and doubtless the trial court, on proper application would cause such action to be taken; but it was not incumbent upon plaintiff, in the first instance, to make him a party.
Order reversed.