Case: BERNHEIMER v. CONVERSE; DREY AND BERNHEIMER v. CONVERSE
Abbreviation: Bernheimer v. Converse
Decision Date: 1907-05-27
Docket Number: Nos. 278, 279
Citation: 206 U.S. 516
Volume: 206
Reporter: United States Reports
Court: Supreme Court of the United States
Jurisdiction: United States
Parties: BERNHEIMER v. CONVERSE. DREY AND BERNHEIMER v. CONVERSE.
Judges: 
Pages: 516–535

Head Matter:
BERNHEIMER v. CONVERSE. DREY AND BERNHEIMER v. CONVERSE.
IN ERROR TO THE CIRCUIT COURT OE THE UJSTÍTED STATES FOR . THE .SOUTHERN DISTRICT OF NEW YORK.
Nos. 278, 279.
Argued April 25, 26, 1907.
Decided May 27, 1907.
This court in this case followed the. judgment -of the highest court of the State in. determining that a corporation'was not'within the exception, constitutional and statutory /as to stockholders’ liability in favor of certain classes of .corporations. Where, as in Minnesota', stockholders’ liability is fixed and measure! by the-Constitution, a stockholder upon acquiring his stock incurs 'an obligation arising froha the constitutional provisions, and as such capable of being enforced in the courts not only of that State but of another State and of the United States.
There is a broad distinction between laws impairing the obligation of contracts and those which simply give a more efficient remedy to enforce a contract already given, and the statute of Minnesota of 1899 -for the enforcement of stockholders’ liability, under which- the constitutional liability can be enforced by thg receiver without the State, is not void under the impair: ment of obligation clause of the Constitution of the United States because . it repealed a prior act under which the stockholders’ liability could not be . so enforced.
An act intended to make effectual a liability which is incurred by stockholders under the constitution of the State and which operates equally upon all stockholders and assesses all by a uniform, rule should not, in the absence of substantial reasons, be rendered nugatory, and the Minnesota act of 1899 will not be declared void as violating the' constitutional rights of stockholders either because it provides for fixing thé liability in a proceeding within 'the State to which non-resident stockholders are not parties, or because it changes the.procedure for collecting the assessment, and gives the receiver the right to maintain actions without the State.
One who becomes a member of a corporation assumes the liability attaching to such membership and becomes1 subject' to such regulations as the State may lawfully make to render the liability effectual.
While a chancery receiver, -having no authority other than that arising from his appointment, may not maintain an action in another jurisdiction, a receiver may sue in a foreign jurisdiction to collect statutory liability'of stockholders where the statute confers the right upon the receiver as quad- • assignee. _ , '
Section 66 of ch. 588, N. Y. Laws óf 1892, limiting- the. time within which to' bring an action against-a stockholder for a debt of the corporation does not apply to an action brought by a receiver to enforce statutory liability of stockholder of a foreign corporation. :
These are writs-of error to the Circuit Court of the United States for the Southern District, óf New York.
The actions .were brought (January 28, 29, 1904) by Theodore R. Converse as receiver of the Minnesota-Thresher Manufacturing Company, a corporation Of' the' State of Minnesota, to enforce an alleged stockholders’ liability under the constitution, and laws , of the State of Minnesota. . The court below held the executors of Simón. Bernheimer and Isaac ' Bern* heimer, both having died before the. suits were brought, liable as such stockholders.
The. record, discloses that the. Minnesota Thresher Manufacturing Company was incorporated under the laws of the ■State of Minnesota on the fifth of December, 1884, the objects for which the corporation was formed being the purchase of the capital stock, evidences' 'pf indebtedness and assets of the Northwestern Manufacturing' and Car Company, also a corporation under the laws- of the State • of Minnesota,' and for the further purpose of manufacturing and selling steam engines, 'farm implements,- machinery, etc., and the mánüfacture and sale ’ of articles, implements and machinery of which wood and iron form the principal parts.
The Northwestern Manufacturing and • Car- Company washy.the hands of. a'receivér, carrying on its business under the orders of a court, and, on October 27,1887, the property, and plant of that company, including all its bills receivable, farmers’ notes and assets'were-sold, under decree and purchased by the Minnesota 'Threshe! Manufacturing Company. The last-. named company continued in.business until December, 1900. On December 14 of that • year. the property arid busiriess of. • the thresher company were .placed in the hands of a' receiver by- the. order of the Circuit Court of the JJnited States -for' the District of Minnesota,-in a spit for ,the' foreclosure of a mortgage upon its property, and this receiver -'carried on the business' until" the mortgaged property was sold under- a decree'-of fóre-..closure .ón' May ,25, ■ 190L •
On May.-6, 1901, the Merchants’ National-Bank of. St:-Paul obtained'a-judgnient in'-the District Court of-Ramsey,County, Minnesota, against: the thresher company,, 'and .executions, thereon- having, been . returned', unsatisfied;, ' the judgment creditor brought suit'against the tliresher. coriipany for the appointment -of á jeceiyer and the. enforcement of- the "indi--. - vidual liability of its stockholders in 'the: District', Court of. Washington County,- Minnesota. •-Iri that-suit Theodore R.... ' Con vérse, -defendant ;iri error in these cases, was. appointed' receiver. On the petition of the. receiver,-, for the, purpose/-of • i.providirig funds for the,payment of the expenses of thereceiver-'"; ship in the enforcement of the stock liability and payment of indebtedness, an order was made, December 22, 1902, reciting, among other things, that copies of an order of April 16, 1902 (not in the record), had been published, mailed and served as therein required, and that due notice of the hearing had been given to the defendant company and to each stockholder of record as directed by the order, and, on a hearing duly had, an order of assessment of thirty-six per cent, of the par value of each share of the capital stock of the thresher company, to wit, eighteen dollars per share, was assessed against each and every share of the capital stock 'and against each and every person, corporation or party liable as such stockholder, and each- such person, corporation or party, was directed to pay to the said receiver, at his office in the city of Stillwater, Minnesota, within thirty days after the date of the order, the said sum of eighteen dollars a share; and, further, upon failure to pay said sums, the receiver was authorized to prosecute actions or proceedings against the persons liable.in any court having jurisdiction in the State of Minnesota or elsewhere. On appeal to the Supreme Court of the State of Minnesota this order was affirmed. 90 Minnesota, 144. Subsequently, as stated, these actions were brought and judgment rendered against the executors of the Bernheimers.
Mr. Lawrence Arnold Tanzer for plaintiffs in error:.
The statute of 1899, under which the proceedings for the assessment were taken, impairs the pbligatiqn of the contract bétween the stockholders and the creditors.
'The liability is a contractual-liability.’' Hanson v. Davison, 73 Minnesota, 454, 460; Flash v. Conn, 109 U. S. 371, 377; Hawthorne v. Calef, 2 Wall. 10; Whitman v. Oxford National Bank, 176 U. S. 559, 563; Knickerbocker Trust Co. v. Myers, 133 Fed. Rep. 764, affirmed Myers v. Knickerbocker Trust Co.,' 139 Fed. Rep. Ill, 112, 114; Carroll v. Green, 92 U. S. 509, 513.
The terms of the stockholders’ contract are embodied in' the constitution and statutes in -force at the time when he ac quired his stock. Von Hoffman v. City of Quincy, 4 Wall. 535, 550; Webster v; Bowers, 104 Fed. Rep. 627.
The constitution and the statute are to be construed together. Allen v. Walsh, 25 Minnesota, 543, 551; Whitmans. Oxford National Bank, 176 U. S. 559, 563; Middletown National Bank v. Toledo &c. Ry. Co., 197 U. S. 394, 405.
The provisions .creating the liability are to be strictly construed, and, cannot be extended beyond the words used.. Brunswick Terminal Co. v. National Bank of Baltimore, 192 U. S. 386,' 390; Converse v. ¿Etna National Bank, 64 Atl. Rep. 341, 344.
The act' of 1899 deprives stockholders of property without due process of law, by, authorizing a conclusive judgment against non-resident stockholders who have not been served with process.' '
The only notice to stockholders provided for by the act is that on the petition being filed the court “shall direct such notice of such, hearing to be given by the party presenting said petition, b^ publication or otherwise, as the court in its discretion .may deem. proper.” ■ Section 6 provides that it shall be the duty of the assignee or receiver to bring an action against every stockholder for the amount' so assessed against him.
In the case at bar, the defendants were not parties to the assessment proceedings, and had no knowledge in fact, of them. They contend -that the statute, permitting a conclusive assessment against them without service of process upon /them, deprives them of their property without due process of law.
Due process of law requires personal service of process, or a voluntary appearance. Mason v. -Eldred, 6 Wall. 231, 239; Pennoyer y. Neff, 95 U. S. 714, 733,734; Haddock v. Haddock, 201 U. S. 562, 567; Clark v. Wells, 203 U,S. 164,170. .'
The Minnesota court was- without jurisdiction to. make the order of assessment.
These actions were .brought upon the assessment order, as on a judicial determination binding upon the defendants. Whether the District Court of Washington County, Minnesota, had jurisdiction to make that determination is a proper subject of inquiry, for if that court acted without jurisdiction, its determination is a nullity, and no recovery can be based on it. Williamson v. Berry, 8 How. 495, 540; Thompson v. Whitman, 18 Wall. 457, 468; Old Wayne Life Assn. v.. McDonough, 204 IT. S. 8,15-17.
That court had no jurisdiction of the subject-matter, because no state of facts existed under which it was authorised to appoint a receiver and make an assessment. The statute of 1899 authorizes the District Court to proceed in the manner .therein prescribed, in certain cases. Unless:one of those cases or states of fact existed, the court had no jurisdiction to proceed. Thatcher v. Powell, 6 Wheat. 1Í9, 127; East Tennessee, Va. '& Ga. B. B.-Co. v. Southern Telegraph Co., 112 U; S. 306, 310; Griffith v. Frazier, 8 Cranchy9, 23; Hatch v. Ferguson, 68 Fed. Hep. 43, 45; Murray v-.' American Surety Co., -70 Fed. Rep. 341, 346. > -
• The’District.Court had no jurisdiction of the persons of the defendants, because’ it failed to give thém the notice required by the statute. Even if compliance with this requirement would constitute due process of law, the burden of proof was upon plaintiff to show such, compliance; in default of which he has failed to show jurisdiction over the. persons of the defendants, and the assessment order is a nullty.’ Galpin v. Page,. 18 Wall. 350; Windsor v. McVeigh, 93 U. S. 274, 283, 284; Old Wayne Life Assn. v. McDonough, 204. U. S. 8, 18.
’’The actions were barred by limitation, because not'brought within two years after the. defendants • ceased to be stockholders in the thresher .company, within the meaning of §55 of the Stock Corporation Law of New York which provides that .“ no action shall be brought against, a stockholder after he shall have ceased to be a stqckholder, for any debt of the .corporation, unless brought within two years from the time he shall have' ceased to be -a stockholder.”
. The provision- cited is a statute of limitations relating to the. liability of Stockholders in all stock corporations, and is applicable not only to an action against a single stockholder on a single debt, but also to liabilities of all the stockholders to contribute ratably to a deficiency. Adams v. Wallace, 82 App. Div. 117; Adams v. Slingerland, 89 App. Div. 312; Sanford v. Rhoads, 113 App. Div. 782.
The .limitation is applicable to actions against stockholders, in all corporations, foreign as well as domestic.
General Corporation Law of New York (Laws of 1892, Chapter 687), §§ 2, 3, subd. 5,- §-33.' Platt v. Wilmot, 193.U. S. 602; Hóbbs V. National Bank vf Commerce, 96 Fed. Rep. 396.
.When the defendants 'ceased to be stockholders within the ’meaning of this statute is a question of local law, upon which the decisions of the'state courts áre controlling. Great'Westem Telegraph'Co. v. Purdy, 162 U. S: 329, 339.
The question has been decisively settled in Hollingshead v. Woodward, .107 N. Y. 96.
Mr. William G. Wilson,' with whom' Mr. C. A. Severance was on the brief, for defendant in error:
The plaintiff, as receiver, is .entitled to maintain actions in New York and elsewhere to enforce the-individual liabilities of the defendant's testators, and other stockholders, inasmuch as those liabilities are made assets for the payment' of corporate obligations and are vested in the receiver.
- 'The constitution of Minnesota imposed upon stockholders of the Mifinesota Thresher Company a general and several liability for all legal obligations of the corporation to an-amount equal to the par value of the stock respectively owned or held by them.
The act of 1899, in legal effect,’ vested the title to • these individual liabilities in the receiver, as a trustee for creditors, and directly authorized, the receiver .to maintain-actions for their collection .wherever the stockholder should be found.
. The receiver thereby became a statutory, assignee. - See - Kennedy v. Gibson, 8 Wall: 498; Relfe v. Bundle, 103 U. S. 222;' tíowarth cases. . '
The right of a Minnesota receiver appointed and proceeding under the act of 1899 is recognized and, in legal effect, approved by this court in the Burget case, 188 U. S. 739, when it reversed the judgment in Hale v. Allinson, 188 U. S. 56, where the. receiver had been appointed before the act of 1899 was passed and refused to entertain the Burget case, although its attention, was explicitly drawn to the claim that the two cases presented thefidentical-question. And this, also, although this court had in the meanwhile held in Finney v. Guy, 189 TJ. S. 335, that a Minnesota receiver appointed before the act of 1899 could not maintain súch action. .
The right of the present receiver, Converse, to- maintain these.present actions in the Federal court in New York, is no't open to question. , Willis v. Mahon, 48- Minnesota, 140; Whitman v.. Oxford Bank, 176 TJ. S. 559; State v-. Threshkr Co., 40 Minnesota, 213; 'Merchants’ Bank v. Thresher Co.,,90 Minnesota, 144; Bank v. ’ Winona Plow Co., 58 Minnesota, 167; Forsyth v. Hammond, 166 TJ. S. 506; Bank v. Converse, 200' TJ. S. 425; Hále v. Hardon, 89 Fed. Rep. 283; Howarth v. Angle, 162 N. Y. 179, 187; Howarth v. Lombard, 175 Massachusetts, 570, 574, 579; Hale v. Allinson, 188 TJ. S. 56; Relfe v.'Bundle, 103 TJ. S. 222; Burget v. Robinson, 123 Fed. Rep. 262; Finney v. '-Guy, 189 U. Si 335,
The obligations and liabilities ‘ of the stockholders of the . thresher company rest upon a contract by which they have submitted themselves to the jurisdiction and control of the State ■of-Minnesota. Bank v. Deuveaux, 5- Cranch, 61; Marshall v: B. & O. R: R. Co., 16 .How. 314; Muller v: Dows, 94 TJ. S. 444.
.The legislation of Minnesota in providing an adequate and effectual ■ remedy for enforcing the obligations and liabilities of stockholders does not impair any obligation of-their contracts. Stuvges y. Crowinshield, 4 Wheat. 122, 197; Bank v. Francklyn, 120 TJ.'S. 747,'. 755; Evans v. Nellis, ‘187 TJ. S. 271; Bank v. Reckless, 96. Fed. Rep.' 70; Commonwealth v. Bank, 3 Allen (Mass.), 42; Story v. Furman, 25 N. Y. 214; Bronson v. Kinzie, 1 How. 315; Railroad Co. v. New Orleans, 157 TJ. S. 224.

Opinion:
Mr. Justice Day,
after making the foregoing statement, delivered the opinion of the court.
Before entering upon a discussion of the objections urged against the validity of ' the assessment upon stockholders which is the subject of controversy here, we may say wé find no reason to disagree with the judgment of the Supreme Court of Minnesota In holding the Minnesota Thresher Manufacturing Company to be a corporation organized for other than the purpose of." carrying on any kind of manufacturing or mechanical business, and therefore not within the exception as to stockholders' liability-in favor of corporations of that kind. State v. Minnesota Thresher Man. Co., 40 Minnesota, 215; Merchants Bank v. Minnesota Thresher Man. Co., 90 Minnesota, 144.
, The questions made in these cases involve the right to -recover upon a stockholder's liability in a Federal court in a State: o.ther than the one in-which 'the original proceedings in liquidation were had, and under whose laws the corporation was formed and wherein it carried on business, against Stock-holdérs in such corporate companies as the thresher company, .where the stock had been acquired before the passage of the statute of 1899. General-Laws of Minnesota, chgp. 272, being "An act to provide for the better enforcement of the liability of-stockholders of corporations;" '
A former statute had been for some years in force in Minnesota and was the statute law of the State when the stock, which concerns the controversy here was -acquired by the Bernheimers. This statute was before this court in the cases of Hale v. Allinson, 188 U. S. 56, and Finney v. Guy, 189 U. S. 335. It Was the act of 1894, General Statutes of Minnesota of that year, chap. 76, p. 1595, and is set forth in full in the margin, 188 U. S. p. 60.
. Under' that act it was held, in a series of decisions in. the. State of Minnesota, which were reviewed in Hale v. Allinson, that an;action could only-be maintained under, the laws of Minnesota when brought by a creditor or creditors for the benefit of all creditors of the corporation, and the recovery was had for the purpose of making good any deficiency in the corporate assets for the payment of corporate debts; that the receiver could not maintain such an action outside of the jurisdiction of the court appointing him, and that the only remedy was, as stated, in a creditor's action, bringing in all the stockholders, for the realization of a fund to be proportionately distributed among the creditors in one suit.
The principal contentions in these cases are that the act of 1899, above referred to, works such a change in the contract theretofore existing by virtue of the acquisition of stock in a. Minnesota corporation as to impair the obligation thereof, and, in ways to be hereafter noticed, undertakes to hold a stockholder by judgment rendered without due process of law.
The act of 1899 was before this court in the case of the First National Bank v. Converse, 200 U. S. 425, and its principal parts are set forth in the margin of the report of that case on page 428. The act', for our purposes, may be summarized as follows:.
"Sec. 1. Whenever any corporation created or existing, under the laws of the State of Minnesota, whose stockholders or any of them are hable to it or to its creditors . . . • . upon or on account of any liability for. . . . the stock or shares at any time held or owned by such stockholders, respectively, whether under or by virtue of the constitution and laws of said State of Minnesota, or any statute of said State or otherwise, has heretofore made or shall hereafter make any assignment for the benefit of its creditors under the insolvency laws of this State; or whenever a receiver for any such corporation has heretofore been or shall hereafter be appointed by any. district court of this State, whether under or. pursuant to . . . any statute of this State or under the general equity powers and practice of such court, the district court appointing such receiver or having jurisdiction of the matter of said assignment may proceed as in this act provided."
. Section 2 provides that, upon the petition of. the assignee or receiver, or- any creditor of the- corporation who has filed .'his, claim,-the-District Court shall-appoint á time for hearing not less'.than thirty days nor more., than sixty days from the time.of filing said petition, and direct notice of the hearing to be given by publication or otherwise, in the discretion of the court, but if the petition bé. filed by a creditor, other than the assignee or receiver, the court shall direct- notice of the hearing' to be personally served on the assignee or receiver.
Section 3'-provides that the court shall consider the proofs ; offered by the assignee or receiver, or-by aiiy creditor or stockholder- who may-appear- in person .or by attorney, as to 'the probable indebtedness of .the corporation and the. expenses'óf •the assignment or'receivership and. the probable amount, of assets . available, for the'payment"-of. such indebtedness and expenses;, also .as to what parties are or maybe liable'as. stockholders and the nature and extent of such liability. And .if it shall appear to the satisfaction of such court that the. ordinary .assets, or such amount as-may be realized. -therefrom in a reasonable time"' will not be sufficient to pay the expenses, of'such assignment or'receivership and the indebtedness, and it is necessary to resort to the liability of stockholders,, the court, shall,-by-order, direct and levy a..ratable-assessment .upon all parties-liable as stockholders,-' or upon or, on. accoimt , of any stock or- shares of such-corporation for such- amount- as''the Court''-in.-its. discretion-may,deem proper, taking into, account' the- probable solvency- or -insolvency of stockholders ' and the probable expenses of collecting the' assessment, .'and ' shall .direct the payment, óf. the amount'.so assessed-to the . assignee or receiver within,súch-'time as the court may specify in said' order-: . ' ' '
Section 4'provides for an order to the assignee or receiver to proceed- to collect -the amount so assessed, unless it be paid within the time-specified in the. order, and.in' default of payment the receiver is to bring suit. . '• ',
Section:5 provides that ,the. assessment, levied.shall be-.con- elusive upon and against all parties liable upon or on account of any shares of said stock of such corporation, whether appearing or having notice thereof or not, as to all matters relating to the amount of and the necessity for said assessment, which provision shall also apply to. any subsequent assessment levied by order of the court.
Section 6 makes it the duty of the assignee or receiver, upon failure to pay as required by the order, to institute and maintain an action against any party.liable upon or on account of any such shares of stock, and that actions may be maintained against each stockholder in Minnesota'or in any other State or country, where such stockholder, or any property subject to attachment, garnishment, or other process may be. found, and. provides that if the assignee' or receiver shall believe any such stockholder to be insolvent, or that the expense of prosecuting such action will work to the disadvantage of the estate, he shall not be required to prosecute the same,, unless specifically directed so to do by the court.
Section ,7 provides for further ássessments in case the first proves inadequate.
Section 8 extends the provisions of the act to such subsequent assessments.
Section 9 provides where two or more, assessments are levied. or directed,' the assignee or' receiver may join the causes of action against' any stockholder on two or mofe such assessments.
Section -10 provides that if the assignee' or receiver fails to institute or prosecute the action,; the creditors may petition the court to compel him to proceed, under certain- conditions.
Section \11. provides for the return of the surplus, if any remain,, in the hands of the assignee or receiver after paying the expenses of the .assignment or receivership and the claims of. the creditors,- and that stockholders who have paid assessments shall, in addition to the remedy provided in the statute, be entitled to enforce contributions from stockholders who have not .paid assessments.
Section 12 provides for additional judgments in case of the inadequacy of former assessments. '
Section 13 excludes certain stockholders in pending actions from the.operation of the act.
This statute came before the Supreme Court of Minnesota in Straw & Ellsworth Company v. Kilbourne Boot & Shoe Manufacturing Company, 80 Minnesota, 125. In that case it was given'full consideration and its constitutionality sustained,' and it was held that while the assessments upon the outstanding' shares of stock in an amount necessary -to meet •the deficiency in the assets of 'the corporation was conclusive upon- the stockholders as. members' of the corporation, yet the statute, properly construed; did not have the effect to deprive a person, when sued for the amount assessed on shares of stock under the provisions of the act, from showing that he was not a stockholder, or that he was not.the holder of so large an amount of-stock as was' alleged,.or that he had a claim against the corporation which in law or equity he might be enabled ;to set off as against a claim for assessments, or from making any other defense personal to himself; and that the order of assessment was conclusive upon stockholders only in so far as it decided the amount of assets or liabilities of th,e insolvent corporation and' the necessity of making an assessment upon the stock to the extent, and in the.amount ordered.
The constitutionality of the act was again affirmed in the. same court in the later case of The London &c. Mortgage Co. v. St. Paul Park & Improvement Co., 84 Minnesota, 144.
The' stockholders' liability in Minnesota, as in some, other States, has. its origin fin a constitutional' provision, and arises under'section .3, article X, of the. constitution of that State. The language'is:
"UabiMties of stockholders.
" Each stockholder ip . any corporation (excepting those organized for the piirpqse of carrying on any kind of manufacturing or' mechanical business) shall be liable to the amount ' of stock.held or owned by him."
The' courts of Minnesota have held that a stockholder's . liability is, therefore, fixed and-measured by the constitution. Willis v. Mabon, 48 Minnesota, 140; McKusick v. Seymour, Sabin & Co., 48 Minnesota, 158. It is apparent from a consideration of this constitutional provision that its purpose was to make a stockholder hable to the Creditors of the corporation in an amount not exceeding the par value of . the stock held by him, and thus secure for the benefit of such creditors, in addition to the assets and property which the corporation-might possess, the liability of those who hold its stock in a sum necessary to make good any deficiency between the amount' of the assets and the debts within the limitation stated. It is .evident from the general language used in this constitutional provision that while a remedy might have been worked out in the courts of equity in the State, it was proper if not necessary that a statute should be passed to make more effectual the liability thus secured by the constitution.
In pursuance of that power the legislature passed the act' of 1894, which remained in force until the passage of the act' of 1899.
The fundamental contention upon which the argument of the plaintiff in error against the constitutionality of this subsequent act rests is that the statute created a contract into which the stockholder entered upon subscribing to or obtaining his stock, which the legislature had no power to change without running counter to the constitutional requirement invalidating laws impairing the obligation of contracts. Constitution, Art. 1, § 10.
It may be regarded as settled that upon acquiring stock the stockholder incurred an obligation arising from the constitutional provision, contractual in its nature and, as such, capable of being enforced in the courts not only of that State, but of another State and of the United States, Whitman &c. v. Bank, 176 U. S. 559, although the obligation is not entirely contractual and springs primarily from the law creating the obligation. Christopher v. Norvell, 201 U. S. 216.
Is there anything in the obligation of this contract which is impaired by subsequent legislation as to the remedy enacting new means of making the liability more effectual? The obligation .of this contract <-binds the stockholder to pay to the creditors of the corporation an amount sufficient to pay the' debts of the corporation .which its assets will not pay, up to an amount-equal to the stock held by each shareholder. That is his contract, and the duty which the statute imposes, and that is his obligation. Any statute which took away the benefit of such contract or obligation would be . void as to the creditor, and any attempt to increase the obligation be-, yond that incurred by the stockholder would fall within the prohibition of the Constitution. But there was nothing in the láws of Minnesota undertaking to make effectual the constitutional provision to which we have referred, preventing the legislature .from giving additional remedies to make the obligation of the stockholder effectual, so long as his original undertaking was not enlarged. There is a broad distinction between laws impairing the obligation of contracts and those which simply undertake to give a more efficient remedy to enforce a contract already made.
This principle was stated by Mr. Chief Justice Marshall in Sturges v. Crowinshield, 4 Wheat. 122, as follows: -
"The distinction between the obligation of a contract and a remedy given by the legislature to enforce that obligation exists in the nature of things, and, without impairing the obligation of the contract, the remedy may certainly be modified as the wisdom of the Nation may direct."
The same rule is recognized in Hill v. Merchants' Ins. Co., 134 U. S. 515, wherein a statute was sustained changing the character of the remedy against stockholders in common to one giving a direct remedy against an individual, stockholder. The principle was clearly enunciated in. Wagoner v. Flack, 188 U. S. 595-603, in which Mr. Justice Peckham, speaking for the court, said:
"To enact laws providing remedies for-a violation of con tracts, to alter or enlarge those remedies from time to time as to the legislature may. seem appropriate, is an exercise of sovereignty, and it cannot be supposed that the State in a case like thi§, contracts in a public act of its legislature to limit its ppwer in the future, even if it could do so, with or. without consideration, unless the. language of • the act is so absolutely .'plain and unambiguous as to leave, no room for-doubt that its true . meaning amounts to. a contract by it to part with its power to increase the effectiveness of existing remedies.''
See, also, Wilson v. Standefer, 184 U. S. 399; New Orleans City &c. Railroad Co. v. New Orleans, 157 U. S. 219.
The liability arising under the constitution of 'Minnesota was such that'legislation was appropriate to make it effectual. We can find nothing in the fact that one legislature has- passed an act which would conclude a subsequent law-making body of equal power fr.om passing hew and additional measures, to make the remedy more effectual. That the first act "did not accomplish its purpose is evident. Under it stockholders in another State,'who could not be reached'by-personal service, were immune from liability and the entire burden was cast" upon local stockholders. , There was no provision for a receiver or assignee beginning action outside the State, and it was held -by this court in Hale v. Allinson, supra, that a chancery receiver was powerless to enforce the rights of creditors beyond the borders of the State. In this condition of affairs the State of Minnesota has undertaken to provide a proceeding for the settlement of insolvent corporations which shall ascertain the assets of the corporation, the extent of the indebtedness of the corporation? the amount to which it is necessary, if at all, to call upon the stockholders' liability. • It is obviously an act intended to make effectual the liability which is incurred by stockholders under the constitution of the State, and it ought not to be rendered nugatory unless substantial objection exists against its enforcement. It operates equally upon all stockholders at home and abroad and assesses all by a uniform rule.
We shall proceed to notice some of the specific objections which are urged against the validity of this legislation by stockholders who acquired stock before the act of. 1899 went into effect.
It is said that the stockholder is held liable in a proceeding to which he is not a party. Under the prior act he could only be held where service could be had upon him personally, but if we are right in the proposition just announced, that additional remedies may be provided by legislation, then the validity of such additional enactments depends not necessarily upon the personal service upon the stockholder, but upon the fact whether the remedy provided is a well-recognized means of enforcing such obligations and not in violation of constitutional rights. It is true that the stockholder is not necessarily served with process in the action wherein the assessment is made under the act of 1899, but no personal judgment is rendered against him in that proceeding, and it has reference to a corporation of which he is a member by virtue of his holding stock therein, and the proceeding has for its purpose the liquidation of the affairs of the corporation, the collection and application of its assets and of other liabilities which-may be administered for the benefit of creditors. In such case it has been frequently held that the representation which a stockholder has by virtue of his membership in the corporation is all that he is entitled to. It was so held in a well-considered case in Massachusetts, Howarth v. Lombard, 175 Massachusetts, 570. And it has been held in cases in this court that when an assessment is necessary to be made upon unpaid stock subscriptions for the benefit of creditors, the court may make the assessment without the presence or personal service of stockholders. Hawkins v. Glenn, 131 U. S. 319; Great Western Tel. Co. v. Purdy, 162 U. S. 329, 336.
• Nor can we see any substantial difference in this respect between a liability to be ascertained for the benefit of creditors upon a stock subscription and the liability for the same purpose which is entailed by becoming a member of a corporation throúgh the purchase of stock whereby a contract is implied in favor of creditors. The object of the enforcement of both liabilities is for the benefit of creditors, and while it is true that one promise is directly to the Corporation and the othfer does not belong to the corporation but is for the benefit of-its creditors, either liability may be enforced through a receiver acting for the benefit of creditors under the orders of a court in winding up the corporation in case of its insolvency.
It is sought to distinguish between the Massachusetts-case of Howarth v. Lombard, 175 Massachusetts, supra, and kindred cases, and the one at bar, in the fact that when the stock was acquired in that case a statutory provision was already in existence which made the stockholder liable to an assessment in a proceeding in which the stockholder was represented by the corporation. But, as we have said, keeping within the constitutional measure of liability, it was within the power of • the • legislature of Minnesota to., make provisions, within the limits of due process of law, for the- liquidation of the affairs of the corporation in a proceeding in the State of its origin, wherein members of .the corporation should be sufficiently represented by the' presence of the corporation itself. This practice has the sanction of the courts, as we have already shown. It is substantially the procedure authorized by the national banking act, except that the Comptroller of the Currency takes the place of the court, and, without the presence of the stockholders, makes a conclusive assessment. We cannot find any constitutional right belonging to the stockholder which is violated by this change in the character and nature of the remedy against him.
By becoming a member of a Minnesota corporation, and assuming the liability attaching to such membership, he 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 cannot 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. League v. Texas, 184 U. S. 156; Richmond v. Irons, 121 U. S. 27; King v. Pomeroy, 121 Fed; Rep. 287.
It is objected that the receiver cannot bring this action, and Booth v. Clark, 17 How. 322; Hale v. Allinson, 188 U. S. 56, and Great Western Mining Co. v. Harris, 198 U. S. 561, are cited and relied upon. But in each and all of these cases it was held that a chancery receiver, having no other authority than that which would arise from his appointment as such, could not maintain an action in another jurisdiction. In this case the statute confers the right upon the receiver, as a quasi assignee, and representative of the creditors, and as such vested with the authority to maintain an action. In such case we think the receiver may sue in a foreign jurisdiction. Relfe v. Rundle, 103 U. S. 222, 226; Howarth v. Lombard, 175 Massachusetts, 570; Howarth v. Angle, 162 N. Y. 179, 182.
It is also contended that the action .is barred by the statute of the State of New York limiting tp two years, the right' to. bring an-action for a debt of a corporation after the de-.. fendant ' ceased to be. a-stockholder. We do not .think the provision of the statute (.§ 55, ch. 588, N. Y. "Laws, 1892) relied upon covers these cases. It evidently refers to domestic 'corporations provided for in reference to the stockholder's" liability created by the preceding section of the same chapter. The cause of action did not accrue until the receiver could sue upon the assessment after- the stockholder had failed to pay, as required by the order of the Minnesota court of December 22, 1602. King v. Pomeroy, 121 Fed. Rep. 287. Under the New York statute of limitations there was six years in which, to bring the action after it accrued, under § 382 of the code, the Minnesota Thresher Manufacturing -Company not being a "moneyed corporation or banking association" within § 394. Platt v. Wilmot, 193 U. S. 603.
The present suits were brought a little more than one year after the causes of action accrued.
Other, objéctions are urged as to the nature of the proceedings in the court of Washington- County, Minnesota, in which the original order was made. We have examined them and think none of them go to the jurisdiction and authority of the court, or are such as would invalidate the order of assessment made therein when sued upon in another jurisdiction.
In what we have said we have noticed the principal objections made to the enforcement of the order of the Minnesota court in another jurisdiction, and, finding no error in the judgment of the court below, it is
Affirmed.
Mr. Justice Holmes;
I regret, that the court has thought it unnecessary to state specifically what contract the stockholder is supposed to have made, as' different difficulties beset the different views that might be taken. It seems to me hard to- reconcile the construction adopted with that given to the stronger words of § 5151 of the national bank act in McClaine v. Rankin, 197 U. S. 154, 161. But under the circumstances I shall say no more than that I doubt the result.