Court Opinion

ID: 7897512
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:53:23.85628+00
Date Added: 2024-06-11T16:32:08.336859
License: Public Domain

OPINION ON REHEARING.
3. -Liability of Stockholders. Said section imposed upon the stockholder a liability for the payment of corporate obligations, including those founded upon tort, to the extent of the stock owned.
4. Constitutional Law — Appointment of Receiver for a Corporation — Obligation of Contract. Section 1302 of the General Statutes of 1901 (repealed by chapter 152, Laws of 1903), which substituted for all other methods of enforcing the individual liability of stockholders an action to be brought by a receiver, was available against stockholders who became such prior to its enactment. Its application- to them did not constitute an impairment of the obligation of the contract arising out of their membership in the corporation, even although the new remedy might be more efficient than the old and might incidentally under some circumstances prove somewhat more burdensome, so long as it involved no actual increase in their liability.
The opinion of the court was delivered by
Mason, J.:
In the original opinion in this case, in holding that the plaintiffs in error, as stockholders, could be held upon their double liability for the payment of a judgment against the corporation founded upon a tort, some stress was placed upon the fact that the statute of January 11, 1899, provided that such liability should be considered an asset of the corporation in the event of insolvency. (Gen. Stat. 1901, § 1315.) The court overlooked the consideration, which seems sufficiently obvious, that to base the decision upon the language of that statute would involve an assumption that the legislature could change the essential character of the liability of one who had already become a stockholder. Upon this phase of the matter being suggested a rehearing was granted, with special reference to this question: Under the constitution and *738statutes of Kansas as they existed prior to January 11, 1899, could a stockholder ever be held liable beyond the amount of his subscription for the payment of a corporate obligation which originated in tort?
The affirmance of the judgment of the trial court was based, as the opinion showed, upon an approval of the reasoning of the Ohio court in giving a broad meaning to the word'“dues” as used in the constitution. The language of the statute of 1899 expressly providing that the stockholders’ liability should be deemed a corporate asset was. referred to as affording a special ground for applying the arguments quoted from Rider v. Fritchey, Adm’r, 49 Ohio St. 285, 30 N. E. 692, 15 L. R. A. 513, and also as a basis for distinguishing the present case from Ward v. Joslin, 100 Fed. 676, 105 Fed. 224, 44 C. C. A. 456, 186 U. S. 142, 22 Sup. Ct. 807, 46 L. Ed. 1093. The effect of the decision in that case, however, was somewhat overstated. The precise matter there determined was that a stockholder could not be compelled to contribute to the payment of a judgment against the corporation founded upon a contract which the corporation had no power to make, but against’ which it was estopped to defend. Such a liability was said not to be one of those the risk of which was assumed by the contract of membership in the corporation. And while the argument employed might be thought to apply as well to the case of a corporate liability based upon tort, that question was not involved or directly discussed.
Upon the grounds indicated in the original decision this court is of the opinion that the word “dues” as used in the constitution was not intended to be limited to contractual obligations. Granting that no liability could be fastened upon the plaintiffs in error by the act of 1899, the question remains whether they were liable under the statute which that act superseded. So far as here important it reads:
“If any execution shall have been issued against the property or effects of a corporation, . . . and *739there cannot be found any property whereon to levy such execution, then execution may be issued against any of the stockholders, to an extent equal in amount to the amount of stock by him or her owned, together with any amount unpaid thereon; but no execution shall issue against any stockholder, except upon an order of the court in which the action, suit or other proceeding shall have been brought or instituted, made upon motion in open court, after reasonable notice in writing to the person or persons sought to be charged; and, upon such motion, such court may order execution to issue accordingly; or the plaintiff in the execution may proceed by action to charge the stockholders with the amount of his judgment.” . (Gen. Stat. 1889, § 1192.)
“If any corporation, created under this or any general statute of this state, ... be dissolved, leaving debts unpaid, suits may be- brought against any person or persons who were stockholders at the time of such dissolution, without joining the corporation in such suit.” (Gen. Stat. 1889, § 1204.)
“Any . . . corporation shall be deemed to be-dissolved for the purpose of enabling any creditors of such corporation to prosecute suits against the stockholders thereof to enforce their individual liability if it be shown that such corporation has suspended business for more than one year.” (Gen. Stat. 1889, § 1200.)
“No stockholder shall be liable to pay debts of the corporation, beyond the amount due on his stock, and an additional amount equal to the stock owned by him,” (Gen. Stat. 1889, § 1206.)
The language of section 1192 in terms covers an execution in any case, regardless of the character of the claim out of which the judgment grew. Two of the other three sections refer to “debts” in describing the' obligations for which stockholders shall be held, and the third refers to the claimants as “creditors.” As all are parts of the same chapter, doubtless the subsequent ’sections should be looked to in interpreting the first one. Therefore, although that purports to be complete in itself, perhaps it should be interpreted as *740though it, too, described the remedy it provided as one for the enforcement of corporate debts. Even so, in view of the meaning already assigned to the constitutional provision, the word “debts” must be deemed to have been used in a broad sense, so as to include judgments founded upon torts.
Upon the rehearing the plaintiffs in error seek to press the argument with regard to the impairment of the obligation of their contract one point further. They not only maintain that the legislation of 1899 could not make them liable for the tofts of the corporation if they had previously been liable only for its contracts, but they also contend that the procedure it provided for the enforcement of whatever liability did exist is not available against them because it is more burdensome than that of the earlier statute, which was in effect when they acquired their stock. This exact contention was upheld in Evans v. Nellis, 101 Fed. 920, decided by the United States circuit court for the northern district of New York. It ,was there held that the later law visited additional hardships upon the stockholder, first, in depriving him of the right to avail himself of any defense he might have against the particular creditor pursuing him; second, in subjecting him to an action for the full amount of his stock, whether the corporate indebtedness was large enough to require so large a payment or not; and, third, in compelling him to pay a part of the expenses of the receivership. That case having been taken by writ of error to the circuit court of appeals, the questions involved were from there certified to the supreme court, where the matter was disposed of by answering only one question — whether the receiver was entitled to maintain the action, the court saying, upon the authority of Waller v. Hamer, 65 Kan. 168, 69 Pac. 185, that he could not do so, because no action had been brought against all the stockholders. The court expressed no opinion regarding the validity of the statute as applied to conditions existing at the *741time of its enactment. (Evans v. Nellis, 187 U. S. 271, 23 Sup. Ct. 74, 47 L. Ed. 173.)
It is settled that a corporate creditor who became such while the earlier statute was in force could not be deprived of his right to proceed thereunder by the enactment of the new law. (Woodworth v. Bowles, 61 Kan. 569, 60 Pac. 331.) But it does not follow that one who became a stockholder prior to 1899 is exempt from being proceeded against under the later act. The constitutional prohibition against legislation impairing the obligation of a contract protects a creditor from a change of procedure that makes his remedy substantially less effective, but does not protect a debtor against a change that merely affords better facilities for compelling him to, perform his engagement. (Phelps v. Trust Co., 62 Kan. 529, 64 Pac. 63; Trust Co. v. Phelps, 66 Kan. 775, 71 Pac. 1129; 8 Cyc. 995, note 15.) The state constitution, prior to its amendment in 1906, contained this provision:
“Dues from corporations shall be secured by individual liability of the stockholders to an additional amount equal to the stock owned by each stockholder, and such other means as shall be provided by law.” (Gen. Stat. 1901, § 211.)
At the time the plaintiffs in error became members of the corporation a statute had been passed in pursuance of this provision fixing the individual liability of stockholders at double the amount of their stock. The act of 1899 did not affect the measure or character of their liability but merely changed the manner of its enforcement. The change, did not make their contract more burdensome, except as any change of remedy might incidentally do so. In a particular case some possible hardship might result, but in its general application the new procedure was obviously more equitable than the old, and better adapted to protect the rights of the stockholders.
Substantially the question here presented has been considered in a series of cases arising upon a change in *742the Minnesota statute providing remedies for the enforcement of the stockholders’ liability for debts of the corporation. Of this question it was said in Straw & E. Mnfg. Co. v. L. D. Kilbourne B. & S. Co., 80 Minn. 125, 83 N. W. 36 (adhered to after reargument in London & N. W. A. M. Co. v. St. Paul P. I. Co., 84 Minn. 144, 86 N. W. 872):
“There is no merit in the claim of counsel that the statute of 1899 impairs the obligation of a contract because, as to' stockholders who became such prior to its passage, it makes a radical and unwarranted change from the former practice of an action in equity to enforce the shareholder’s double liability. The power of the legislature to modify or change a remedy, provided no substantial right is impaired, cannot be questioned. And there is no such thing as a vested right to a particular remedy. The legislature may always alter the form of administering right and justice. No substantial right is affected by the law in question, for in no manner does it increase the liability of the stockholder. It may afford a new remedy — a different course of procedure — but this fact does not make it obnoxious to the fundamental law which forbids the impairment of contracts.” (Page 136.)
The court then quoted from Commonwealth v. Cochituate Bank, 85 Mass. 42:
“It will at once be perceived that no objection to a change of remedy can be successfully urged, on account of its being more speedy and effectual. That objection might be urged as to all changes in the forms of proceeding, or the organization of the legal tribunals to act thereon. Every statute extending the equity powers of this court would be obnoxious to objections of this character. The objection, to be tenable, must go beyond this, and show that the statute increased the actual liabilities of the stockholder, and was something more than a change in the mode of enforcing a preexisting liability. . . . The proceedings under the late statute may require the action of the court upon an estimated value of such assets, rather than an absolute ascertainment of the amount; but the principle to be applied is the same, varying only in the mode of arriving at the result as to the deficiency chargeable upon the stockholders.” (Pages 44, 46.)
*743The same statute was involved in Converse, Receiver, v. Aetna National Bank, 79 Conn. 163, 64 Atl. 341. The court there said:
“It [the stockholder, itself a corporation] therefore incurred, by becoming a shareholder in a Minnesota corporation, a liability to perform such contractual obligations as were attached by the laws of Minnesota to the ownership of its capital stock. . . . One of these obligations was to be answerable for the debts of the corporation, in case of a deficiency of corporate assets, to the extent of the par value of its shares of stock. . . . The amount of this liability could not be thereafter increased by subsequent legislation; the mode of enforcing it could be varied within reasonable limits. ... To enlarge the remedies of its creditors, whether against the corporation or its shareholders, impairs the obligation of no contract.” (Page 169.)
A part of the new statute, however, was held to be inoperative, upon the theory that it added to the liability of the stockholder by compelling him to respond to an assessment the amount of which was increased by an estimate of expenses to be incurred in prosecuting future actions. But in Bernheimer v. Converse, 206 U. S. 516, 27 Sup. Ct. 755, 51 L. Ed. 1163, the supreme court of the United States upheld even this portion of the later act, saying:
“By becoming a member of a Minnesota corporation, and assuming the liability attaching to such membership, he [the stockholder] became subject to such regulations as the state might lawfully make to render the liability effectual. •
“It is further urged that in imposing upon the stockholder the additional expense in a proceeding where the expenses incident to the enforcement of the liability in other states, and against other parties,'are taken into consideration and included in the estimate, there is an unwarranted increase in the amount which could be recovered against the stockholder under the former statute. But remembering at all times that the obligation of the shareholder was the creature of the constitution of Minnesota, we think the fact that the additional expenses were included in the assessment *744cannot operate to defeat it. Such expenses are incident to the ascertainment of the trust fund, which it is necessary to realize from the liability of stockholders, and as long as these expenses are kept within the amount of the original liability no legal right is violated.” (Page 533.)
A special consideration, based upon the history of-this litigation, would of itself compel a denial of the contention of plaintiffs in error that the procedure of the act of 1899 cannot be invoked against them. Stevenson, the judgment creditor, originally attempted to reach them under the provisions of the repealed statute, claiming, under the authority of Woodworth v. Bowles, 61 Kan. 569, 60 Pac. 331, that the repeal was not effective as to him. But this court held that as he had not shown that his judgment was founded upon a contract he was not within the rule there declared and denied him relief, saying that the only remedy open to him was that given by the new law. (Henley v. Stevenson, 67 Kan. 4, 72 Pac. 518.) Pursuant to this ruling he instituted the present proceeding. Under these circumstances the question of his right to do so-cannot be regarded as still open.
In the original opinion it was said that sections 1200 and 1204 of the General Statutes of 1889 were repealed by the act of 1899. Upon the rehearing attention was called to the fact that section 1200 has never been repealed. The statement referred to was technically inaccurate, but substantially correct so far as affects the present case. Section 1204 provided that if a corporation .should be dissolved, leaving debts unpaid, suits might be brought thereon directly against the stockholders. Section 1200 in its original form (Gen. Stat. 1868, ch. 23, § 40) undertook to tell how a corporation might be dissolved, mentioning but two ways — by the expiration of the time limited in its charter, and by a decree of a court. In 1883 it was amended by adding a provision that for the purpose of enabling a creditor to prosecute suits against the stockholders to enforce *745their individual liability a corporation should be deemed to be dissolved whenever it had suspended business for more than one year. This addition manifestly referred to suits brought under the provisions of section 1204, and when- that section was repealed the new part of section 1200 necessarily became entirely inoperative, there being nothing left to- which it could apply. The section itself was not repealed, but appears as section 1810 of the General Statutes of 1901. That portion of it which defines generally the methods by which a corporation may become extinct is still in force. But the rest of it, which merely fixed a time when a cause of action should arise under section 1204, for all practical purposes disappeared when that section-was wiped out.
In the course of the first opinion it was remarked that as the judgment was not based upon a contract the legislature doubtless had power by changing the law to deprive the creditor of the means of enforcing its payment, citing Louisiana v. Mayor of New Orleans, 109 U. S. 285, 3 Sup. Ct. 211, 27 L. Ed. 936. The court held that the legislature had not attempted this; therefore the question whether such an attempt co'uld have been successful was of course outside of the case. The expression could not have amounted to a decision, and was intended rather as a concession for the purpose of the argument than as even an intimation of opinion. As it has been brought in question in the reargument it may be regarded as withdrawn.
The judgment is reaffirmed.