McKusick v. Seymour, Sabin & Co.

50 N.W. 1114, 48 Minn. 158, 1892 Minn. LEXIS 388

Opinion

Mitchell, J.

This case comes up on appeal from an order overruling the so-called “supplemental complaint” of the Minnesota Thresher Manufacturing Company, a creditor of Seymour, Sabin & Co., a corporation organized under 1866 G. S. ch. 34, tit. 2. The facts alleged in this complaint are as follows: Upon the complaint of McKusick, a judgment creditor of Seymour, Sabin & Co., after execution issued and returned unsatisfied, a decree or judgment had been rendered sequestrating all the property, things in action, and effects of the corporation, and appointing a receiver of the same. The receiver still continues in the discharge of his duties, but it appears that the corporation is hopelessly insolvent, and has not property or effects sufficient to pay over two (2) per cent, of its debts. The Minnesota Thresher Manufacturing Company, in pursuance of an order of court, exhibited its claims against the corporation, and became a party to the sequestration proceeding. Subsequently, in behalf of itself and all other creditors who had exhibited their claims, it filed its so-called “supplemental complaint” against all the stockholders of the corporation, having first obtained an order of court allowing it to do so, and requiring the stockholders thus impleaded to appear and defend. In obedience to this order the stockholders (appellants here) appeared, and demurred to the complaint. The object of the complaint is to recover in this sequestration proceeding from the stockholders on their individual liability for corporate debts under article ten, (10,) section three, (3,) of the constitution. That this section of the constitution is self-executing, and creates a liability on the part of each stockholder for corporate debts in a sum equal to the amount of stock held or owned by him, has been determined. in the case of Willis v. St. Paul Sanitation Co., ante, p. 140, (50 N. W. Rep. 1110,) just decided. Inasmuch as it appears that these appellants had become stockholders before the indebtedness constituting the claims of the thresher company was incurred, and that they have always since continued to be stockholders, questions as to the amount of their liability that may arise in view of the fact that their holdings of stock have varied in amount at different times during the intervening period are not involved in this appeal.

The only remaining question is merely one of practice, viz., whether this “double liability” of stockholders can be thus enforced in this sequestration proceeding at the instance or upon the complaint of a creditor who has become a party to it. Unless to be overruled, Arthur v. Willius, 44 Minn. 409, (46 N. W. Rep. 851,) is decisive of this question, for, notwithstanding an attempt of counsel to do so, that case cannot be distinguished from the present. To the same effect, by implication at least, is the more recent case of Spooner v. Bay St. Louis Syndicate, 47 Minn. 464, (50 N. W. Rep. 601.) As rules of practice are but a means to an end, and ordinarily, as in this case, do not go to the merits of a controversy, such questions should not, as a general rule, occupy an extensive space in the decisions of courts of last resort; and, if a rule is once established which works well in practice, the mere fact that it may be technically erroneous is not necessarily a sufficient reason for changing it by overruling former decisions. Although counsel for appellants do not entirely agree among themselves in their conclusions as to what is the proper method of enforcing such a liability against stockholders, yet all their arguments against the practice adopted in this case are mainly what may be called “historical,” — that is, based upon the history of 1878 G. S. eh. 76, and the construction put upon it in the state of New York, from which most of its provisions, particularly sections fifteen (15) to twenty-two, (22,) inclusive, were originally borrowed, as part of our 1851 E. S. ch. 77, and which had been construed in Mann v. Pentz, 3 N. Y. 415, as applying only to “moneyed corporations,” referred to in section twelve, (12.)

The burden of the arguments is that, in adopting this statute, we also adopted this construction, although one of the counsel seems to take the ground that only sections fifteen (15) and sixteen (16) apply to actions brought under section twelve, (12,) and that section seventeen (17) and those following refer to an action to be brought by creditors only, and different from that provided for in section nine (9) or in section twelve, (12,) and that only the corporate assets, properly so called, can be sequestered in an action under section nine, (9;) while another counsel, although seeming to claim that all of the sections from fifteen (15) to twenty-two, (22,) inclusive, apply only to actions ■ brought under section twelve, (12,) concedes that a receiver, where one is appointed, may enforce this liability of stockholders, and claims that he alone can do so, and that it cannot be done as attempted in this case, upon the complaint or application of a creditor. It is difficult to perceive any good reason why one method of enforcing the liability of stockholders should obtain in the case of moneyed corporations and another in the case of other corporations; or one method in actions whose primary object is to dissolve the corporation, and another in actions “to sequestrate its stock, property, things in action, and effects,” which almost always results in practical dissolution. But, without stopping to consider what would have been the proper construction of the statute of 1851 as it originally stood, or how far the construction given to it in New York would have been controlling, had the question arisen prior to the adoption of our Eevision of 1866, these considerations have now but little weight. In the Eevision of 1866, chapters 76 and 77 of the Statutes of 1851 were, with certain changes and modifications, consolidated into one, entitled “Actions Eespeeting Corporations.” The first four sections of the new chapter were taken from chapter seventy-six, (76,) and the remainder from chapter seventy-seven, (77;) section twelve (12) of the latter being omitted entirely. The first section of the new chapter declares that "this chapter embraces all corporations, including in such designation all associations having any corporate rights, whether created by special acts or under general laws.” As long ago as Allen v. Walsh, 25 Minn. 543, 555, it was said that “this chapter applies to all corporations and associations having any corporate rights,” from which it is evident that the court construed the first section as making applicable to all corporations all the provisions of that chapter which were not expressly limited in their application. And while it is true that the question in that case was the proper method of enforcing the liability of stockhdlders of a bank, yet there is not a suggestion anywhere in the opinion that any of the provisions on that subject in chapter seventy-six (76) were applicable only to moneyed, corporations, or to actions to dissolve the corporation. It is very evident that the court did not then understand that chapter seventy-six (76) made any such distinctions between different kinds of corporations or different kinds of actions as are now sought to be made. The same thing is true of the cases of Johnson v. Fischer, 30 Minn. 173, (14 N. W. Rep. 799;) Merchants’ Nat. Bank v. Bailey Mfg. Co., 34 Minn. 323, (25 N. W. Rep. 639;) Farmers’ Loan & Trust Co. v. Minneapolis E. & M. Works, 35 Minn. 543, (29 N. W. Rep. 349;) Patterson v. Stewart, 41 Minn. 84, (42 N. W. Rep. 926;) Minnesota Thresher Mfg. Co. v. Langdon, 44 Minn. 37, (46 N. W. Rep. 310;) Densmore v. Shepard, 46 Minn. 54, (48 N. W. Rep. 528, 681,) — and every other case in which the provisions of this chapter have been considered or referred to.

It must be admitted that some of the expressions used in sections fifteen (15) and sixteen (16) seem to indicate that they may refer exclusively to proceedings brought under sections eleven (11) and twelve, (12,) but there is nothing of the kind in section seventeen, (17,) or any of the subsequent sections. They are general enough in their terms to apply to any proceeding brought under this chapter, and are amply sufficient to authorize the present proceeding, even if sections fifteen (15) and sixteen (16) be held inapplicable. It is hardly to be supposed that section seventeen (17) was intended to require a separate and independent action to be brought by creditors to enforce the liability of stockholders when a sequestration proceeding and a receivership against the corporation was already pending. The confusion and conflicts that would arise under any such practice are apparent. If such an action were brought it would, under the doctrine of Allen v. Walsh, supra, and other cases, have to be a suit against all the stockholders and in behalf of all the creditors who might choose to become parties to it. A receiver would have to be appointed, and an account taken of the property and debts due to and from the corporation, all of which has to be done in a sequestration proceeding. The stockholders would only be compelled to contribute the deficiency, which could only be ascertained after the corporate assets were all distributed among the creditors, which has also to be done in the sequestration proceeding, if one is pending. The difficulties in working out equity and equality among stockholders and creditors under any such divided and double procedure are manifest. It would result in very many of the very evils deprecated in Allen v. Walsh. All these difficulties would be entirely obviated by enforcing the liability of stockholders in the same proceeding in which the corporate assets, properly so called, are sequestered. It is entirely consistent with the established equity jurisdiction, and in accordance with established equity practice, to forestall a multiplicity of actions by bringing all the litigation into its grasp in one suit for a general accounting and a complete adjustment of all rights. Nor, in case certain stockholders are liable for some debts and not for others, is there any difficulty in segregating the liability of each stockholder, and devoting the .avails of it to the benefit of the class of creditors who have the right to it. That is what the court would have to do in any event, and what it has to do every time it is called on to marshal assets. In fact, it is only by sequestrating the corporate assets and enforcing this liability of stockholders in the same proceeding that results exactly just and equitable to all parties can be worked out. We have no doubt that in the sequestration proceeding the liability of the stockholder may be enforced on the petition or complaint of the receiver, where be shows that he represents creditors who are entitled to the benefit of it. Ordinarily this would be the most appropriate mode of procedure. But it is not important on whose petition, complaint, or whatever you please to call it, the enforcement of the liability is invoked, provided he is a party to the proceeding, and is himself, or as the representative of others, entitled to ask for it. Some of the counsel •seem to have been misled by the fact that the thresher company is •called an “intervener.” It is not an intervener in the proper sense ■of the word, or in any sense except that it has come in as a party to the proceeding subsequent to its commencement. There also seems to be a serious misapprehension as to the legal status of the thresher •company in this litigation. It is not doing anything to interfere with the sequestration or receivership, nor asking for anything for its own •exclusive benefit. Neither has it any more control over this prosecution than any other creditor who becomes a party to the proceeding. •On the contrary, what it seeks is in furtherance of a complete adjustment, in and through that proceeding, of all rights and liabilities of the corporation, the stockholders, and the creditors. Whatever is .realized belongs to all the creditors of Seymour, Sabin & Co., or at least to all that class of creditors entitled to participate in it, and will be in the custody of the court, and distributed by it, or by the receiver as its officer, and under its direction.

Order affirmed.

G-ileillan, C. J., took no part.

.(Opinion published 60 N. W. Rep. 1114.)