Bagley v. Tyler

Gill, J. In the year 1882 a corporation was organized under the laws of the state of Kansas, with its home office in Cherokee county, Kansas; said corporation was known by the name of the ‘ ‘ Cherokee Brilliant Coal & Mining Company, of Cherokee county, Kansas.' ’ In 1883, plaintiff Bagley became the owner of a number of shares — 200 — of stock in the corporation, and for a time acted as the company’s bookkeeper. But in December, 1885, plaintiff sold the stock to some parties in Chicago, and the same was transferred on the books of the corporation. These purchasers, being elected to the offices of the company, thereafter had the complete management of' its business. During the conduct of the business, and, while Bagley was the holder of these shares of stock, to-wit, in the year 1884, the corporation became indebted to Bagley in about the sum of $2,000, and this remained unpaid when Bagley sold his ¿hares to the Chicago parties. In October, 1886, about a year after Bagley had parted with all interest in the corporation, he, Bagley, recovered a judgment on account of this claim against-the Mining Company, in Cherokee county, Kansas, and had an execution issued thereon against the company which was in due time returned unsatisfied. Shortly thereafter plaintiff began this action in the circuit court of Jackson county, Missouri. In the petition, in addition to the facts hereinbefore stated, it is alleged, and shown by the evidence, that on April 1, 1885, defendant Tyler became the legal owner and holder of ten shares. (amounting to $1,000) of the stock in said corporation, which he has continued ever since to hold. The laws of Kansas- are then pleaded (and shown at the trial). whereby what is known as the stockholders’ “double liability” is created, and by reason thereof judgment was prayed against defendant Tyler for the amount of his stock, to-wit, $1,000. The answer, in addition to specific denials' of quite all the allegations of the petition, charged that plaintiff was still the owner of a large number of shares of stock in the corporation — that if assigned to others it was transferred to insolvent parties, and for the purpose, on plaintiff’s part, of evading liability,, etc. ; and the further defense was set up, that the stock, so issued to the defendant, was simply held by him as collateral security for a debt owing defendant by an original stockholder. The cause was tried by — 201 — tlie court without the aid of a jury, plaintiff had judgment, and defendant appealed. I. Something is said in defendant’s brief as to whether or not an action at law is maintainable against him for this liability on his stock in the Kansas corporation. It seems to be contended that a suit in equity is the proper remedy. This position, whether rightly or wrongfully taken, is of no consequence in this particular case. It does not relieve defendant of the judgment here rendered against him ; for, as the record shows, this suit was tried by the court or tribunal authorized to try equity cases, and on a petition, in all substantial requirements, a good and sufficient bill in equity ; and on this the court (or chancellor .) found the issues for the plaintiff. So even measured by the remark made in the case relied on of Shickle v. Watts, 94 Mo., there is no substantial objection to this proceeding. However, we regard an action at law as the proper remedy. 2 Morawetz on Corp., sec. 895, et seq.; Perry v. Turner, 55 Mo. 426; Hodgson v. Cheever, 8 Mo. App. 323, and cases there oited. In becoming a subscriber for his ten shares of stock in the Kansas corporation, the defendant assumed a personal, individual liability to its creditors of double the face value thereof, having paid the amoimt called for on the face of the certificate, the holder occupied the attitude of a- promisor to the creditor (promisee) to pay, in case of default by the corporation, an additional $1,000, the equal of the stock by him held. Kansas Const., sec. 2, art. 12; Compiled Laws of Kansas, 1881, sec. 32, art. 4, chap. 23. This action was brought to enforce the payment of this contractual obligation, and is a suit at law. But, as already said, it is immaterial what the pleader may call the action, whether a proceeding in .equity or an action at law. The facts are set out which ■constitute a good petition' (,whether in law or equity), .and the cause was by consent of parties tried by the — 202 — judge, who was at all events the proper tribunal to settle the controversy. II. The next contention on defendant’s part is still more barren of merit. The claim is made, that this action in Missouri is for the recovery of a mere penalty fixed by the laws of Kansas, and the rule is invoked that the courts of this state will not lend their aid to the recovery of mere statutory penalties of other states. What we have said under the last head applies here. The defendant’s liability grows out of his contract to pay the unsatisfied creditor of the corporation a sum equal to the amount of stock owned. “The line of demarcation,” says the St. Louis Court of Appeals- in Hodgson v. Cheever, supra, “between the provisions of law here dealt with and those imposing penalties for misconduct on the part of officers or others connected with the corporation, in cases like these cited by defendant, is too obvious for comment. Where there is only a failure on the part of the corporation to pay its legal debts, and in that contingency a liability of • stockholders, the creditors’ rights arise out of contract, and the obligationis of a corresponding nature,” — citing numerous authorities. The stockholder of the foreign corporation is, by virtue of his subscription, a contract.ing party with the creditors thereof. The laws of its corporate organization, as contained in its special charter, or as set out in the general statutory provision under which said foreign corporation is organized, enter into and make the terms of the stockholder’s engagement. This contract, so made, will (when not immoral or ppposed to the public policy of the forum) be enforced everywhere, not ex proprio vigore but only ex comitate. Thompson on Liability of Stockholders, sec. 80; 2 Mor. on Corp., secs. 872-877. III. Now the next matter of defense comes from this state of facts : The ten shares of stock, upon which it is now sought to charge defendant Tyler, were formerly owned by one Parker. About eighteen months — 203 — before the failure of the Mining Company, Parker, being indebted to Tyler, assigned the stock to Tyler who took the certificate and surrendered it to the .company, and in lieu thereof there was issued to Tyler a new- certificate for said ten shares, and from this date (April 1, 1885) the stock stood in the name of defendant Tyler. It is claimed, and defendant so testifies, that he took the stock and held the same as collateral security for his claim against Parker, and for no other purpose. Under this state of facts defendant claims exemption from liability as a stockholder, and asserts the proposition that, “ one holding shares of stock in this state as collateral security is not liable as a shareholder to the corporation or its creditors.” In other words, although defendant Tyler may have the legal title to this stock, as shown by the certificate of stock and as appears on the books of the corporation, yet, if by a secrét trust it should appear that the equitable title is in another, and that Tyler holds the shares of stock as security for the debt of that other person, the defendant is not liable as a stockholder to the creditors of the corporation. Except where modified by the statute, the rule is the reverse of defendant’s contention. The courts have uniformly held, in the absence of an express statute to the contrary, that the liability to pay calls and to respond to creditors in the -event of insolvency of the corporation, attaches to the holder of the legal title of the stock. “The courts,” it is said, “will not look beyond the registered shareholder, nor inquire under what equity he holds.” Thompson on Liability Stockholders, secs. 177-178 ; 2 Mor. Corp., secs. 852-853 ; Pullman v. Upton, 96 U. S. 330; National Bank v. Case, 99 U. S. 631; In re Empire Bank, 18 N. Y. 200; Simmons v. Hill, 96 Mo. 685. The reasons for this rule are well expressed in Bank v. Case, supra, page 631: “ One reason is that he (the stockholder) is estopped from denying his liability by .voluntarily holding himself out to the public as the owner of the — 204 — stock, and1 Ms denial of ownership is inconsistent with the representations he has made; and another is that, by taking the legal title, he has released the former owner; and a third reason is that, after having taken the apparent ownership, and thus becoming entitled to receive dividends, vote at elections and enjoy all the-privileges of ownership, it would be inequitable to allow him to refuse the responsibility.of a stockholder.” The two cases cited by defendant’s counsel in support of their position (107 U. S. 20, and 92 Mo. 635) in no way conflict with the holding of the foregoing authorities, since in both instances the statute expressly provided that no person holding stock as collateral security should be subject to a liability for the company’s debts ^ but that the persons pledging the stock should be'considered as holding the same, and liable as stockholders to the creditors. IY. Plaintiff’s claim against the corporation is by virtue of a debt created and existing before the transfer of stock to defendant, and because thereof counsel contends that the statutory liability does not attach to the shareholder in respect of debts contracted before he-became, a member of the corporation. This position, too, is equally faulty. The owner of the stock, at the return of the execution against the corporation, is liable for all debts of the insolvent corporation, to the extent of his stock, regardless of the time such debts accrued. Skrainka v. Allen, 76 Mo. 384; McClaren v. Franciscus, 43 Mo. 452; Miller v. Manion, 50 Mo. 55. Y. -What may be .termed the home office of this Kansas corporation was at Cherokee county, in said state, although by the terms of its charter W yandotte, Kansas, and Kansas City, Missouri, are named likewise as places for the transaction of its business. Plaintiff sue'd the company in Cherokee county, Kansas, recovered judgment, there, and had execution issued, which was returned by the sheriff of said county ; no property — 205 — found. Now the point is made, that this was not sufficient, under the laws of Kansas, to warrant this action against the defendant stockholder. We are of the opinion that this was all that is required to justify the demand on the defendant stockholder. The statute which we are called upon to enforce provides: “If any execution shall have been issued against the property or effects of a corporation * * * and there cannot be found any property whereon to levy such execution * * * then the plaintiff in the execution may proceed by action to charge the stockholders with the amount of this judgment.” Laws of Kansas, 1881, sec. 32, art. 4, ch. 23. Here a judgment was rendered against the corporation at the place, or home, of its organization, and there an execution had been issued, and a return thereon by the proper officer of nulla bona. The words of the statute are : “If any execution shall have been issued ” against the corporation and no property found, then the contingency has arisen whereby the stockholder may be charged. It is not surely required that the creditor, before resorting to the stockholder’s liability, should take a roving execution and go about the country, wherever the corporation may have had business, and should, too, go into the courts of other states and secure judgment against the corporation with executions in all and returns of no property found. The stockholder contracted in view of this law, and he agreed that, if a judgment should be rendered against the corporation and an execution returned thereon of no property found, then he would pay the debt to the extent of this double liability. VI. In the oral argument defendant’s counsel made the claim that, when plaintiff Bagley sold his stock to the Chicago parties, he took from them an obligation to pay his claim so held against the corporation, and to secure performance of this obligation a lien or charge on the stock was retained, etc.; and, in view of — 206 — this contract and so-called pledge, it is insisted that, in equity and good conscience, plaintiff should first require said Chicago purchasers to pay his claim before resorting to any suit against defendant. As to this contention, we have to say, after a careful reading of the entire record, we do not find the facts as stated by defendant’s counsel. The only obligation assumed by these Chicago purchasers, in their purchase of Bagley’s stock, was that of-other stockholders, — nothing further. After acquiring the Bagley shares ( and perhaps others) and coming .into the control and management of the company’s affairs, these parties did, doubtless, assure Bagley that in a short time they (the corporation) would liquidate his claim against the company. There was no individual, personal undertaking on their part to pay Bagley’s debt, and, hence, no pledge of stock to secure any such agreement. We discover no reason for disturbing the judgment of the circuit court. The same is, therefore, affirmed. The other judges concur.