Court Opinion

ID: 7122358
Source: CourtListenerOpinion
Date Created: 2022-07-24 12:54:18.970329+00
Date Added: 2024-06-11T16:14:09.139644
License: Public Domain

Mahan, P. J.
(dissenting). I regret that I am unable to agree with my brethren in their decision in this case. The point decided by them, as I understand it, is, that in a case where a creditor seeks to enforce the constitutional and statutory liability of a stockholder, under the statutory provisions therefor, such stockholder may set off any claim that is due him from his associates in the corporation; and not only that such stockholder may have the right to set-off, but in this case it was given to a stockholder who was likewise a director of the corporation.
The constitutional provision in relation to the matter is as follows :
“Dues from corporations shall be secured by individual liability of the stockholders in an additional amount equal to the stock owned by each stockholder, and such other amounts as shall be provided by law; but such individual liability shall not apply to railroad corporations nor corporations for charitable or religious purposes.”
It applies to all private corporations for profit, except railroads. The provisions of the statute for carrying these sections of the Constitution into effect are paragraphs 1.192 and 1204, General Statutes of 1889.
By paragraph 1192 it is provided that an execution shall be awarded against the stockholder and in favor *404of a judgment creditor of the corporation, when an execution against the corporation itself shall have been returned unsatisfied. Paragraph 1204 provides for an action at law against the stockholders of corporations who were such at the time of the dissolution of the corporation, and for contribution among the stockholders themselves. This right, both by the Constitution and statute, is given to creditors of the corporation against individual stockholders. A cause of action is given by statute against the individual stockholder, to recover from him, by a creditor of the corporation, an amount equal to the stockholder's subscription, if so much is required to satisfy the credit- or's claim. The two classes, creditors and stockholders, are enumerated by the statute.
Let us inquire, first, what is a set-off. It is a demand which the defendant has against- the plaintiff and which he desires to use for liquidating the whole or a part of the plaintiff’s claim. In some instances the demand may be the property, in effect, of a co-defendant, but it must be against the plaintiff.
A corporation is an association of men for the purpose of carrying on their business. Before.any law authorizing the formation of these commercial co-partnerships, if two or more persons desired to associate themselves together for the purpose of carrying on any kind of business, they were either denominated partners, or they were engaged in a joint enterprise, as a single maritime venture.
It is needless to say that it requires no statute to make one man — to the full amount of his fortune if need be — liable to another upon his contracts for debts which he owes the other. But men desiring to seek fortunes without hazarding all their property— fortunes already accumulated — invented the scheme *405of incorporation, whereby they were not curtailed in any of their advantages but were relieved of part of their liabilities; that is, the law authorizing their incorporation conferred upon them certain special privileges and immunities not enjoyed by others engaged in business ; for instance, continuity of existence, regardless of death or failure of one of its members. So, also, change of ownership of interest is permitted without the consent of the other members of the association; their liabilities for their debts are limited, provided they conform to the law under which they incorporate. When men associated together as copartners, each member of the firm was the agent of all of the other members within the scope of the business of the firm. When men organize themselves into a corporation, they choose from among their own members their agents, to have charge of their business and to bind them respecting the business of the corporation. A partner was bound by all debts contracted by his copartner in the line of their business. But the corporation which is composed of the stockholders — members of the corporation —are liable for the amount provided by the constitution and statute of the state under which they are incorporated, to the amount thereby fixed and no more. One is simply an association without limit as to the liability of the associate. The other is an association of men for a private gain, with a limited liability.
Now, as to compensation for this limited liability, the Constitution and the statutes of the State of Kansas provided that each individual member of an association called a corporation, shall be liable to the individual creditors of the corporation to an amount, equal to his subscription and in addition to his subscription. The association, as an association, has *406nothing to do with it; it is entirely between individuals ; it is an individual liability. But, says the majority of the court, a stockholder, a member of the association, may be a creditor of the association. True, he may; so may a member of a copartnership be a creditor of the copartnership. Yet, I have never heard it asserted that, in an action against an individual member of a copartnership, for the purpose of recovering upon an obligation of the copartnership, that such individual member had a right to set off that which his associates owed to him against the debt of the creditor of the copartnership, and this is just what is done in this case. It is the association or corporation that owes the stockholder, and not the creditor of the association. The purpose of the statute was to create a liability to which creditors might look, for the liquidation of their demands. It is not the policy of the law to permit the members of the association or the association itself, through its chosen agents, its board of directors, by contract with each other during the active existence of the corporation, to absorb or destroy these resources of the creditor.
I am well aware that courts have said that a stockholder has a right to this set-off and that the text writers referred to by the court so say. The same authorities say, however, that one stockholder cannot maintain this action against another stockholder for his debt against the corporation. It is said again that a stockholder cannot maintain the action, under the statute and constitution, until he shall have discharged his constitutional liability by the payment, either voluntary or by compulson, to some creditor of the corporation. The decisions are very uniform to this effect. And it is said that in no event shall a director or officer of a corporation maintain, the action *407against a fellow stockholder. Why not? If the creditor has a right to set it off against his liability, why not maintain the action against his associates? There can be only one answer to it, and that is that it is against the policy of the law to permit the members of the association by treating with their agents, the board of directors, to absorb this fund provided specially for creditors and not for members. The liability accrues to the creditor only ; it accrues only after insolvency, and not before. And if the members of the corporation itself may destroy it by their relation with it and each other, then they render the statute and Constitution nugatory.
Many of the courts, by a process of refinement upon the law of corporations, seem to have lost sight entirely of the substance — that is, the men associated together which form the corporation — and treat entirely of some intangible, unreal figment of the imagination, and call it the corporation — apparently nothing but the name and shadow of the thing itself. I take it that the corporation is substantially tangible, is composed of men', and that the only intangible, unreal thing about it is the name ; unless, perchance, it shall prove to be the constitutional liability of the stockholder to discharge the obligations of the corporation. The statutes, in providing for the creation of a corporation, say that a certain number of men may associate themselves together and form a corporation; recognizing that it is the men that form the corporation. Without the men, there could be no corporation.
My view is that the law intended to give this remedy, this right, this cause of action, to creditors, properly speaking, of the corporation, and against the individual stockholders ; and that if it had intended any modification by way of setting off any obligation *408of the corporation itself to any member, it would have so said. But it is the policy of the law to create a fund, a right to which 'the creditors oh the corporation may resort after insolvency, and that neither the corporation" nor its members can destroy or abridge this constitutional and statutory right, by contract with each other during the actual existence of the corporation.