Court Opinion

ID: 3316797
Source: CourtListenerOpinion
Date Created: 2016-07-05 17:34:20.793973+00
Date Added: 2024-06-11T12:38:56.531991
License: Public Domain

This action is brought to enforce a duty resting on the defendant, as a member of a Minnesota corporation, by force of the Minnesota Constitution. The substantial defense is based upon the claim that the statute of Minnesota which authorizes the procedure for the enforcement of this duty is void, because it enlarges the prescribed duty and impairs the obligation of a contract within the meaning of § 10, Article I, of the United States Constitution.
The Superior Court sustained the validity of the Minnesota statute. A majority of this court hold that the statute is void, and, if I rightly apprehend the essential basis of the views expressed, upon the following ground: The liability of a stockholder imposed by the Minnesota Constitution depends upon the individual contract made by him by force of the contractual obligations he assumes in becoming a stockholder, and the extent of his liability may be determined by the statutes regulating procedure which happen to be in force at the time of his becoming a stockholder; the contract made by this defendant in becoming a stockholder included a promise to pay (within the limit of the prescribed amount), in the event of the corporation's insolvency, a sum sufficient to satisfy all claims allowed in the insolvency proceedings, including the expenses of the assignee, receiver, or other officer appointed to wind up its affairs, when that officer is charged with the collection of all the corporation's resources except that of its stockholders' constitutional liability, and did not include a promise to pay such sufficient sum when that officer is charged with the collection of all the corporation's resources for the benefit of creditors, including that of its stockholders' liability; *Page 179 
the Act of 1899, in authorizing the appointment of a receiver charged with the collection of all the corporation's resources, including that of its stockholders' liability, with the necessary consequence of charging the whole fund with the expenses of administration, substantially alters the contract made by the defendant in becoming a stockholder, by adding to his liability as fixed by its terms, and is therefore void.
Neither upon this ground, nor upon any of the main grounds urged by the defendant in argument, does it seem to me that the Act of 1899 alters or impairs the obligation of any contract, whether of stockholder or creditor, or takes any property without due process of law.
At the admission of Minnesota as a State of the Union in 1858, its Constitution in establishing a legislative department authorized the legislature to create corporations, and in Articles IX and X limited this power, defining the meaning of "corporations" and fixing the essentials to the existence of certain corporations. "No corporations shall be formed under special acts, except for municipal purposes." "Each stockholder in any corporation, [except those organized for the purpose of carrying on any kind of manufacturing or mechanical business] shall be liable to the amount of stock held or owned by him." "All corporations shall have the right to sue, and shall be liable to be sued, in all courts in like manner as natural persons." Art. X, §§ 1, 2, 3. As to the corporations indicated, corporate existence and stockholders' liability are inseparable. Without the liability as a corporate resource there can be no corporate existence. The liability of its members or stockholders is as truly a corporate incident as its right to sue or liability to be sued.
It is suggested that the burden thus imposed on each stockholder is of a contractual nature. The duty necessarily follows the voluntary act of becoming a member of the corporation. Such assent has been treated as so far characterizing the obligation as contractual rather than penal in its nature, that although imposed by a State constitution *Page 180 
or statute it may be properly enforced in other States. Whitman v. Oxford National Bank, 176 U.S. 559,20 Sup. Ct. Rep. 477. But it does not necessarily follow that the act of becoming a member is the execution of a contract to obey the mandate of the Constitution, within the meaning of "contract" as protected by the United States Constitution. It was held in the recent case ofChristopher v. Norvell, 201 U.S. 216,26 Sup. Ct. Rep. 502, that the double liability imposed upon shareholders in national banks is imposed by force of the statute, and that a person upon becoming a shareholder, although in a limited sense there is an element of contract in having become a shareholder, makes strictly no contract with any one. And so a person capable of owning the stock, although legally incapable of making a contract, may, notwithstanding an incapacity to contract, be sued for the enforcement of the statutory duty upon failure to pay the assessment made by the receiver. The Constitution of Minnesota does not direct the legislature to enact laws providing for a stockholder's liability, but as to the corporations indicated affirms the liability and fixes its extent; in this respect it seems to differ essentially from that of certain other States having somewhat similar provisions. A statute changing the extent of liability as fixed by the Constitution would be void, and the decisions of the Minnesota courts as to its validity on this ground should be held conclusive, at least as to the decision of the question — What is the extent of liability imposed by the Constitution?
The Minnesota Constitution, reading Articles IX and X in their relation to the whole instrument and in view of existing territorial legislation, fastens upon corporate existence the essential incident of shareholder's liability for all lawful claims against the corporation and corporate resources, based on corporate contracts or torts incurred through its officers in the exercise of corporate powers before it may be adjudged insolvent, or through officers of the law charged with the collection and administration of *Page 181 
its funds and resources when it has become insolvent. A stockholder's liability is therefore primary and secondary. The primary liability extends to the whole amount invested or agreed to be invested in the capital stock by each stockholder, and as upon the organization of the corporation the funds or obligations necessary to meet the liability are given to the corporation, the shareholder's liability becomes in the first instance a corporate liability enforcible as against the shareholder through the corporation or its successor. The secondary liability, while as essentially and inherently a corporate resource as the first, is in the first instance in the nature of a guaranty fund which, in the event of insolvency, becomes an actual present corporate resource to be applied to the full satisfaction of all claims in accordance with any procedure for that purpose authorized by law. This secondary liability is common to all stockholders as composing the corporation, is inherent to corporate existence, and is only limited as to each stockholder in amount by the amount of stock owned by him.
While no one of the Minnesota decisions deals squarely with the full question of interpretation, and for this and other obvious reasons some seeming inconsistencies may be suggested, yet these decisions do indicate that the Minnesota courts have practically recognized the view above expressed as covering in substance the true meaning of the provisions of the Constitution in respect to the nature and extent of the constitutional liability of stockholders.Gebhard v. Eastman, 7 Minn. 56; Dodge v. MinnesotaPlastic Slate Roofing Co., 16 Minn. 368; Allen v.Walsh, 25 Minn. 543, 551; Arthur v. Willius, 44 Minn. 409,46 N.W. 851; Willis v. Mabon (St. Paul Sanitation Co.),48 Minn. 140, 154, 157, 50 N.W. 1110; St. Louis Car Co.
v. Stillwater Street Ry. Co., 53 Minn. 129, 132,54 N.W. 1064; In re People's L. S. I. Co., 56 Minn. 180,57 N.W. 468 (Spilman v. Mendenhall); First National Bank v.Winona Plow Co., 58 Minn. 167, 173, 59 N.W. 997;Holland v. Duluth I. M.  D. Co., 65 Minn. 324, 331, *Page 182 68 N.W. 50; Harper v. Carroll, 66 Minn. 487, 508,69 N.W. 610, 1069; Hanson v. Davison, 73 Minn. 454, 462,76 N.W. 254; Straw  Ellsworth Mfg. Co. v. Kilbourne B.  S.Co., 80 Minn. 125, 83 N.W. 36; London  N.W. A. M.Co. v. St. Paul P. I. Co., 84 Minn. 144, 86 N.W. 872.
A law extending this constitutional liability is void because forbidden by the Minnesota Constitution, and it is practically immaterial, unless as affecting the question of State or Federal jurisdiction, whether it can also be regarded as obnoxious to § 10 of Article I of the United States Constitution. In this case it is wholly immaterial whether the burden resting upon the defendant stockholder is regarded as purely a duty imposed by positive law, or as one arising from some contractual relation; for whether regarded as such duty or contract, its extent is fixed by the Minnesota Constitution. If regarded as a duty independent of contract, it is a duty to answer, in common with all other stockholders, for the liabilities of the corporation, being insolvent, in any proceeding authorized for that purpose by the laws of Minnesota, to the amount of the stock owned by him. If regarded as a contract, it is a contract to make good the liability of the corporation, being insolvent, on any proceeding for that purpose authorized by the laws of Minnesota, to the amount of the stock owned by him.
The Act of 1899 does not extend the liability of the defendant under such duty or contract as defined by the Constitution. It merely authorizes a process adapted to the purpose and known to the law, as incident to the insolvent proceeding in which the liability of each stockholder has become an absolute one, whereby that liability may be enforced to an amount not exceeding the amount of stock owned by him; a process fully adequate in respect to creditors, and beneficial in respect to stockholders, in that it is adapted to protect, inter se, the mutual obligations involved in their common subjection as integral parts of the corporation to this corporate burden. Act of 1899, §§ 7-13. The duty, or the contract if it may be so called, imposed and defined by the Constitution binds him to obey *Page 183 
this process. The Constitution of Minnesota at its adoption — and in this particular it has since remained unchanged — fixed and defined the obligation imposed upon or assumed by every person becoming a stockholder from the date of its adoption to the present time, and that obligation subjects every such person to the process that may be authorized by the State for the purpose of enforcing his liability as therein defined, to the amount of the stock owned by him.
It is suggested that the Act of 1899, although not invalid as impairing the obligation of any contract made by the defendant stockholder, is nevertheless invalid as impairing the obligation of contracts made by others with the corporation in which the defendant is a stockholder. Assuming that the defendant stockholder may in this action properly challenge the validity of the Act on such ground, the claim of invalidity cannot be maintained. Any person lawfully contracting with a corporation becomes entitled to the performance of that contract according to its terms; and the obligation of the contract, that is, the law by which the rights acquired and duties imposed are made legal and enforcible, cannot be subsequently changed so as to deprive him of the substantial rights secured to him by the contract. Subsequent legislation cannot alter existing contracts; a State may alter a remedial law at pleasure, but not so as to destroy the obligation of existing contracts. There is no substantial difference between declaring a contract void, and taking away all remedy to enforce it. Green v. Biddle, 8 Wheat. (U.S.) 1; Bronson v. Kinzie, 1 How. (U.S.) 311; Seibert v. Lewis, 122 U.S. 284, 289,7 Sup. Ct. Rep. 1190. This rule as first established has been illustrated and enforced in a great number of cases. The test of its application to legislation purporting to be remedial has always been the question — Does the new or changed remedy render it impracticable to enforce some substantial right secured by the terms of the contract? Whatever difficulty may arise in the reasonable application of the rule in some cases, no such difficulty is presented in this case. The Act of *Page 184 
1899 affects in no way the obligation of a creditor's contract as against a solvent corporation. The only substantial right which can be said to be secured to him by the contract (as related to this law) is the right, in the event of the corporation's insolvency, to have by some adequate process the property of its stockholders, to an amount not exceeding in the case of any one stockholder the amount of stock owned by him, subjected to the satisfaction of all claims against the corporation. The Act of 1899 provides such a process, which is plainly an adequate and efficacious one. The Act purports by its title to provide, and does in fact "provide for the better enforcement of the liability of stockholders of insolvent corporations." It would be difficult to suggest a remedy on the whole more efficacious, giving to the owners of this class of contracts an adequate enforcement of every substantial right secured to them by the contracts, even if some different remedy, on the whole less efficacious, might in exceptional cases seem more desirable to some particular creditor. It is idle to contend that an Act providing a remedy so full and adequate as that prescribed by the Act of 1899 is not remedial legislation subject to the pleasure of the legislature, but is in substance and effect a denial of remedy to the owners of contracts within its operation, by which the obligations of their contracts are impaired.
A further claim is urged, that the plaintiff's right to maintain this action is authorized only by a judgment of a Minnesota court against the corporation in which the defendant is a stockholder; that the defendant was not personally a party to that action, was not personally served with any writ of summons and did not appear therein, and that therefore the judgment of the court in so far as it authorized this action against the defendant was void.
The action referred to is entitled "The Merchants National Bank of St. Paul, Minnesota, against The Minnesota Thresher Manufacturing Company of Stillwater, Minnesota." The plaintiff is a judgment creditor of the defendant *Page 185 
after execution issued and returned unsatisfied, and the action is brought in pursuance of Minnesota statutes respecting actions against corporations, for the purpose of sequestrating the stock, etc., of the defendant corporation, of securing the appointment of a receiver, the distribution of its property, and the winding up of its affairs. Minnesota Statutes (1894), §§ 5897, 5898. In this action judgment was duly rendered adjudging that the stock, property, things in action and effects of the company, be sequestrated and a receiver therefore appointed, and the plaintiff in the present case was duly appointed receiver. Subsequently in said action the claims of creditors were duly presented, proved, and allowed to the amount of over $400,000. Subsequently said receiver presented to the court, according to law, a petition praying that the court might by its order levy an assessment upon that the owners of stock for such percentage of the liability on account of each share as the court should deem proper. The court, in pursuance of the statute, ordered that a hearing be had on said petition, and notice thereof was given as prescribed in said order. After said hearing the court duly made its order directing an assessment of 36 per cent. of the par value of each share of capital stock, upon and against each of said shares, and upon and against the party liable as a stockholder on account of said shares, directing the receiver to collect the several amounts due under said assessment, and hold the amounts thus collected subject to the further order of the court, prescribing the time said assessment should be paid to the receiver, and directing the receiver to commence actions against parties liable who failed to pay in the prescribed time. The present action is brought by the plaintiff receiver against the defendant stockholder in said Thresher Company, to recover 36 per cent. of the stock owned by it, and the precise claim made by the present defendant is, that the notice of the hearing upon the petition for an order of assessment was given by publication, or by mailing a copy of the order of notice, and that this defendant was not personally served within the State of Minnesota with summons to appear and *Page 186 
did not appear at said hearing; and therefore as to this defendant said order is void.
It is too well settled to be now questioned, that a corporation such as the Thresher Company, in actions against it concerning corporate matters, represents each of the stockholders of whom it is composed, who are an integral part of the corporation and who are bound by the judgment in such actions in respect to all corporate matters, whether personally parties to the action or not. This is especially true in actions instituted for the purpose of winding up insolvent corporations, and in respect to the interlocutory judgments or orders not involving the distinctive and separate rights of a particular stockholder, which may be made as incident to the final settlement of corporate affairs. Fish
v. Smith, 73 Conn. 377, 382, 47 A. 711; Great WesternTel. Co. v. Purdy, 162 U.S. 329, 16 Sup. Ct. Rep. 810;Hale v. Hardon, 95 F. 747; Sanger v. Upton,91 U.S. 56, 59; Hawkins v. Glenn, 131 U.S. 319, 329,9 Sup. Ct. Rep. 739.
The court's order of assessment is an interlocutory order touching the winding up of the corporation, and not affecting the separate and distinctive rights of any particular stockholder. It is specially authorized by the Act of 1899, chapter 272, of the Minnesota Laws. The Act provides that in proceedings for winding up corporations under existing statutes, when the insolvent corporation shall be one whose stockholders are liable by the Constitution of Minnesota, the court before which such proceedings, are had shall have power, upon petition of the assignee or receiver, or of any creditor filing a claim in such proceedings, and upon being satisfied that it is necessary or proper that resort should be had to the liability of stockholders, to order an assessment for that purpose against all persons who may be stockholders, for such proportion of the liability on account of each share of stock as the court in its discretion may deem proper. Such an order is one touching the corporation and all its stockholders in common as members of the corporation. It is not a personal judgment against any *Page 187 
particular stockholder, and does not call for the personal service requisite to such judgment. It is conclusive as to the necessity for and amount of an assessment, because the statute vests in the court the power of determining these questions in the manner prescribed; and is not conclusive in matters personal to a particular stockholder, nor against a person claiming not to be a stockholder. The Act of 1899, in conferring the discretionary power of determining the amount of the assessment, is somewhat analogous to provisions of the National Banking Act, under which that power is given in some cases to the court and in some cases to the comptroller of the currency. It is a power neither purely ministerial nor purely judicial, and its exercise, whether by court or comptroller, is conclusive. King v.Pomeroy, 121 F. 287, 291, 294; Concord First Nat.Bank v. Hawkins, 174 U.S. 364, 373, 19 Sup. Ct. Rep. 739;Bushnell v. Leland, 164 U.S. 684, 17 Sup. Ct. Rep. 209;Kennedy v. Gibson, 8 Wall. (U.S.) 498; Richmond v.Irons, 121 U.S. 27, 65, 7 Sup. Ct. Rep. 788. The fact that the secondary corporate resource or trust fund, consisting of stockholder's liability as fixed and defined by the Constitution, when that fund is collected by a receiver made a statutory trustee for that purpose, is by force of a well-settled principle of law charged with the expenses of the receivership, including those of collection, and therefore the court or officer vested with the discretionary power of determining the amount of an assessment must take into consideration, among other things, the probable expenses of collection, is a fact which has no legal significance as bearing upon the material questions in this case.League v. Texas, 184 U.S. 156, 22 Sup. Ct. Rep. 475, and cases above cited, especially Richmond v. Irons, p. 65, and King v. Pomeroy, p. 291.
The other errors claimed by the defendant, in so far as they raise substantial questions of law not settled by recent decisions, are controlled by the principles involved in the disposition of the errors discussed.
If the foregoing considerations are sound it follows: — *Page 188 
1. If the contractual relation arising upon the defendant's becoming a stockholder in the Thresher Company can be regarded as a contract within the meaning of § 10 of Article I of the United States Constitution, it is a contract whose terms are defined by the Minnesota Constitution, and includes the promise of subjection to any appropriate process established by the legislature for the enforcement of its stockholders' liability as defined by the Constitution, and the Act of 1899 clearly does not alter the terms nor impair the obligation of such a contract.
2. The obligation of contracts between the Thresher Company and its creditors is only affected by the Act of 1899 through the establishment of an adequate and more efficacious remedy for the enforcement of every substantial right secured to them by their contracts.
3. The order of the Minnesota court directing an assessment against the stockholders of the Thresher Company and determining its amount, was an interlocutory order incident to the winding up of the corporation, not affecting the separate and distinctive rights of any stockholder, and was not a personal judgment against this defendant requiring for its validity the voluntary appearance of the defendant or personal service upon it within the State of Minnesota.
4. The judgment of the trial court cannot be reversed without denying to the plaintiff the protection of § 1, Article 4, of the United States Constitution, which he has invoked in this case.
5. There is no error in the judgment of the Superior Court.
In this opinion CASE, J., concurred. *Page 189