Williams' Exr. v. Chamberlain

94 S.W. 29, 123 Ky. 150, 1906 Ky. LEXIS 136

• Court: Court of Appeals of Kentucky
• Decided: June 7, 1906
• Status: Published

Opinion

Opinion by

John D. Carroll, Commissioner. — -

Affirming.

This action was instituted in the chancery branch of the Jefferson circuit court by appellees, who are creditors of the Gold Lode Company, an Arizona corporation, to recover from the-estate of John T. Williams, deceased, the amount' of their debts, on the ground that Williams was a stockholder in the corporation and had failed to pay for the amount of his. stock, and they seek to subject to the payment of their debts his unpaid subscription. The action was originally brought by persons who had obtained judgments and returns of no property in Arizona against the corporation, and, pending the litigation between these judgment creditors and the executor, other Arizona creditors of the corporation, who had not obtained judgment for their debts, were made parties, on hearing the case the chancellor rendered a judgment against the estate of Williams in favor of all of the creditors, and from that judgment this appeal is prosecuted.

A number of interesting questions are presented for our decision, and we will endeavor to dispose of them separately. The petition alleged that Williams subscribed for and purchased 5,000 shares of stock of the par value of $1 per share, and that a certificate of stock for this number of shares was issued to him by the corporation, but that he only paid the sum of 10 cents for each share of stock, or a total of $500, and thereupon became liable under the laws of Arizona to creditors of the corporation for the unpaid part of his subscription, amounting to $4,500; that the laws of Arizona provide that “nothing herein shall exempt the stockholders of any corporation from, individual liability to the amount of unpaid installment, on the stock owned by them or transferred to them for the purpose of defrauding creditors, and an execution against the corporation to that extent may be levied on the private property of such individual.” They further alleged that the corporation was insolvent and had ceased to do business,and that it had no property or assets of any kind. The charter of the corporation, a copy of which is filed with the record, shows that the capital stock of the corporation was $500,000, divided into 500,000 shares of the par value of $1 each, and provides that “none of the stock shall be issued by said corporation, except upon a cash payment or its equivalent to the amount of at least 10 per cent, of its par value; ’ ’ and that ‘ ‘ the stock of this corporation shall be non-assessable to the stockholders of this corporation, and their private property shall be exempt from the corporation’s debts.”' Appellant, in the first paragraph of its amended answer, traversed generally the averments of the petition, but said: “It is true that a' certificate for 5,000 shares of'said stock was issued to the testator and was held by him at the time of his death and is now held by this defendant, and it is true, as it is advised, that the said Williams paid therefor only the sum of 10 cents per share.” In other paragraphs of the answer to which demurrers were sustained, it set up that the corporation had a right under its charter to issue full paid and non-assessable stock upon the payment of 10 per cent of its value, without any further liability on the part of the shareholder to the corporation or its creditors, and that the stock issued to Williams was bought by him in good faith and under this belief; that it did not know whether he was an original subscriber or had bought the stock by transfer from a subscriber, but believed that he purchased the stock from a prior holder thereof without notice that the same was not fully paid up; that in any event he had paid all that the articles of the corporation required to relieve him from further liability.

Counsel say that the judgment in favor of the creditors who had not obtained a judgment and return of no property against the corporation was unauthorized, because a creditor of a corporation cannot proceed against a shareholder until he has exhausted his remedies against the corporation.. To this contention we cannot agree, as it is not necesary, "before suing a shareholder, to exact from him his unpaid subscription, that the creditor shall have prosecuted the corporation to insolvency by judgment and execution, as, if the eoi-poration has become wholly insolvent, has ceased to do business, or is in the hands of a receiver, a return of nulla bona is not necessary; but in this case there was a judgment and a return of no property by some of the creditors in this action, and, as the insolvency of the corporation was established in this way, it was not necessary for each creditor to go to the useless expense of reducing his claim to judgment and having an execution returned. Clark & Marshall on Private Corporations, p. 2459; Barrick v. Gifford (Ohio) 24 N. E. 259, 21 Am. St. Rep. 798; Cyclopedia of Law and Procedure, vol. 10, p. 723. We do not think that the case of Dudley v. Price’s Adm’r, 10 B. Mon. 84, when fairly considered, is at all in conflict with this view.

It'is also urged that it is not alleged or proven that the other stockholders of the corporation are insolvent, and that an allegation of this character is necessary in a suit against a single shareholder when it is sought to recover from him, as in this case, debts due creditors- of the corporation. It is, however, the settled law that the creditor of an insolvent corporation may proceed against one or more delinquent stockholders to recover the amount of his debt without an account being taken of the other indebtedness, and without bringing in other stockholders for contribution or making them parties. The liability of each stockholder is several and is fixed by the amount of his unpaid subscription. To this extent he is liable, and no further, and, if compelled to pay more than his share of the debts, he may sue the others for contribution or have them made parties in a proper case, so that the rights of all parties may be adjusted, but with this the creditors have no concern. The disposition of it rests entirely with the stockholder who is sued. Hatch v. Dana, 101 U. S. 205, 25 L. Ed. 885; Ogilvie v. Knox Ins. Co., 22 How (U. S. ) 380, 16 L. Ed. 349; Gamewell Fire-Alarm Co., v. Fire & Police Tel. Co., 116 Ky. 759, 76 S. W. 862, 25 Ky. Law Rep. 1010; Hyatt v. Anderson’s Trustee, 74 S. W. 1094, 25 Ky. Law Rep. 132.

It is further arg’ued that as the answer denied that Williams subscribed and purchased the stock, thereby putting in issue this fact, it was incumbent on the plaintiff to establish it by evidence, and that the evidence, if any, introduced upon this question was incompetent. The answer, however, admits that a certificate for 5,000 shares was issued to Williams and was held by him at his 'death, and afterwards by his executor. This admission supplies the failure on the part of appellees to introduce any evidence on this question, because, if a person accepts and holds a certificate of stock in a corporation, the law assumes that he is the owner of the stock and implies a promise on his part to pay any unpaid installments. Webster v. Upton, 91 U. S. 66, 23 L. Ed. 384; Upton v. Tribilcock, 91 U. S. 47, 23 L. Ed. 203; Ky. Mutual Invest. Co.’s assignee v. Schaefer, 120 Ky. 227; 85 S. W. 1098; 27 Ky. Law Rep. 657; Chubb v. Upton, 95 U. S. 665, 24 L. Ed. 523.

Counsel further insists that the petition pleads and relies on the common law of Arizona to enable the creditors to prosecute this action, and that it was therefore necessary for creditors to prove what the common law of that territory was. It is true that, where a party relies on the laws of another State, he must prove those laws in a manner provided in section 1641 of the Kentucky Statutes of 1903; but we .find in the record an agreement of counsel that all the laws relating to the territory of Arizona may be considered as evidence in this case both in the lower court and in this court, and there are very full extracts from the laws of that territory in the record. Therefore we do not consider this point well taken.

Some of the claims upon which a judgment was rendered in the lower court were not large enough to give that court jurisdiction of them, in the first instance, and it is contended that the circuit court did not have jurisdiction to render a judgment on these claims. As a general proposition this contention is correct, but we do not think it applicable to a case of this character. Here a suit was instituted by persons whose claims were large enough to give the court jurisdiction; the fund they sought to subject was really a trust fund held and due by this stockholder for the benefit of creditors of the corporation, and any and all creditors had the right to subject if to the payment of their debts and to join in the same suit for that purpose. It would impose a heavy burden upon the shareholder if each creditor was required to institute a separate action against him, and, if creditors whose claims were not large enough to bring them in the circuit court were required to proceed in the inferior courts, it would result in subjecting not only themselves but the shareholder to unnecessary and useless expense. When this suit was brought in the chancery court for distribution of this trust fund, the chancellor had jurisdiction of,the claims of all creditors having an interest in it and the right to adjudge them as seemed right and proper. It is not material whether creditors of the corporation know the amount of the stock actually subscribed or the amount actually paid on stock subscribed by shareholders. They have a right to deal with the corporation in good faith and to assume that all shareholders who have subscribed for stock have either paid, or will pay, the amount of their subscription, and, in the absence of any agreement or understanding between the creditor and the corporation or shareholders as to the amount of the liability of the latter, the question as to the creditors ’ knowledge or lack of knowledge as to the amount the stockholder has paid or subscribed to pay is not material. The liability of a stockholder to the creditor for the balance due on his subscription rests in contract and may be enforced in any State where jurisdiction of the stockholder can be obtained. The creditor is not limited to the courts of the.State where the corporation was organized. Fish v. Smith (Conn.) 47 Atl. 711, 84 Am. St. Rep. 161; Flash v. Conn., 109 U. S. 371, 3 Sup. Ct. 263, 27 L. Ed. 966; Concord Bank v. Wawkins, 174 U. S. 364, 19 Sup. Ct. 739, 43 L. Ed. 1007; Tabler v. Anglo-Amercian Ass ’n, 32 S. W. 602, 17 Ky. Law Rep. 815. The liability of the shareholders of this corporation is to be measured and determined by the laws of the State where it was organized, and the laws of Arizona provide that stockholders shall be liable for the amount of unpaid subscriptions on stock owned by them, and the right to enforce the collection of this unpaid subscription is not in conflict with the laws of this State, but, on the contrary, is expressly authorized both by statute and decisions. Ky. St. 1903, § 547; Haldeman v. Ainslie, 82 Ky. 395; 6 Ky. L. R. 397; Lou. Banking Co. v. Tisenman, 94 Ky. 83; 14 Ky. L. R. 705; 21 S. W. 531, 1049; 19 L. R. A. 684; 42 Am. St. Rep. 335.

Appellant filed exceptions to practically all of the depositions taken by appellees, and earnestly insist that these exceptions should have been sustained because the evidence was incompetent against the estate of a deceased person. The only fact about which these witnesses testified at all material to the case was as to the justness of the claims asserted by the creditors who had not reduced them to judgments, and in respect to these claims the original papers showing iheir correctness are filed as exhibits in the case, and we know of no rule of law that forbids a creditor of a corporation who performs labor or service for it from testifying as to the validity of his claim in an action against a deceased shareholder in the corporation. Our attention is called to the case of Storey v. First National Bank, 72 S. W. 318, 24 Ky. Law Rep. 1799, in which the court held that a stockholder in a corporation could not testify for the corporation as to conversations with the deceased in support of a claim of the corporation against the estate of the decedent upon, the ground that he has a pecuniary interest in the corporation and would be testifying in his own interest as much so as a member of a partnership- This' rule, however, has no application to this case. Here the creditors did not testify as to any transaction or conversation with the deceased. They merely established the correctness of their claim against the corporation, and in doing this were not directly giving evidence against the deceased. It was necessary that they should have valid claims against the corporation before they could recover from, the decedent’s estate, and their evidence was competent for the purpose of showing the justness of their claim against the corporation. If the deceased was affected by this testimony, it was because he was indebted to the corporation. A creditor who has a claim against A. and seeks to recover it in an action against the estate of B., a deceased debtor of A., may testify as to transactions with A. showing that his claim is just.

Perceiving no error in the judgment, it is affirmed.

Petition for rehearing by appellants overruled.