64 Wash. 436 | Wash. | 1911
Lead Opinion
The Yakima Improvement Company is a corporation organized under the laws of the state of Wash
In the meantime, the corporation had been negotiating with the Acetylene Contracting Company of Minneapolis, Minnesota, to install an acetylene gas lighting plant, and had reached an understanding with that company by which the company agreed to install such a plant for a cash consideration of $16,000, the promissory note of the corporation for some $5,300 secured by the corporation’s negotiable bonds, and negotiable bonds themselves to the face value of some $17,000. At this stage of the proceedings, A. B. Graham, the defendant in the present action, was applied to
In March, 1907, the Acetylene Contracting Company began an action in the superior court of Yakima county against the Yakima Improvement Company to recover upon the promissory note given it for installing the gas plant, and judgment was entered in its favor on May 29, 1907. At the time of the commencement of the action by the Acetylene Contracting Company, the Trustee Company also brought an action to foreclose the lien created by the trust deed, making parties defendant the Yakima Improvement Company, A. B. Whitson, and the county of Yakima. In its complaint it prayed for the appointment of a receiver of the property of the Yakima Improvement Company, and for an injunction against the other defendants restraining them from interfering with the property or attempting to sell the same by judicial process or otherwise. Thos. E. Grady was appointed receiver pursuant thereto. Later on the receiver reported that the ordinary assets of the corporation were insufficient to pay its debts, and that there would be a balance of liabilities over assets of approximately $25,000 after all of the property of the corporation had been converted into cash, and petitioned the court for permission to sue the stockholders of the corporation on their unpaid subscriptions to the capital stock of the corporation. No notice was given the stockholders in any manner of the pendency of the petition, but the court nevertheless, on June 29, 1907, made an order authorizing and directing the receiver “to commence
Pursuant to the foregoing order, the receiver brought the present action against Graham to recover $25,000. In his complaint the receiver alleged that the defendant was the owner-and holder of shares of stock in the' corporation of the' face value of $213,200 on which only 5 per cent had been paid, leaving a balance unpaid thereon of $202,540. The defendant answered, denying liability for any of the indebtedness of the corporation,- on the ground that he was not a stockholder therein but held his stock as collateral security for advancements he had made to the corporation, and as a ■ partial defense, denied liability on -the- bonded- indebtedness of the corporation because of the clause of the bond exempting stockholders from liability thereon. He also'set up fraud and collusion between certain of the trustees of the Yakima Imprdvement Company and the corporation- installing the lighting plant, by which exorbitant and grossly excessive prices were paid for the lighting plant, thereby greatly increasing the apparent indebtedness of the first corporation. On the trial, which was had before the court and a jury, a verdict was returned in favor of the receiver for $10,000, and from the judgment entered thereon, both parties appeal.
The receiver contends' that the court erred in refusing to enter a judgment for the full amount demanded in the complaint, notwithstanding the verdict of the jury was for the lesser sum, arguing that the defendant cannot be heard in this action to question the validity of the order made in the receivership proceedings, either as to the necessity for the order or as to the amount thereof, and since the jury found
It is argued, however, that no notice to him was necessary to make the order binding and conclusive upon him, and cases are cited which seemingly maintain this contention, some of which are from the supreme court of the United States. They proceed on the theory that the stockholders are an integral part of the corporation, and in view of the law, the stockholders are before the court in all proceedings “touching the body of the corporation.” But we cannot accept this-doctrine in its entirety. Doubtless the stockholders of an insolvent corporation which is in the hands of the court through its receiver are obligated and bound by all orders of the court affecting the property of such corporation of which the receiver has possession, whether or -not they have received personal notice of such orders; but it is a different matter to say that the court may, on petition of the receiver in an ex parte order, conclusively obligate a stockholder to-turn over to the
There is nothing in the cases of Shuey v. Adair, 24 Wash. 378, 64 Pac. 536, or Bennett v. Thorne, 36 Wash. 253, 78 Pac. 936, 68 L. R. A. 113, that is contrary to the position herein taken. In each of these cases the stockholders were personally served with notice of the intended hearing brought on by the receiver to fix the amount of the unpaid indebtedness of the corporation for which the stockholders were liable, and that because of the notice in the one case, and the notice and participation in the hearing by the stockholders in the other, the orders became conclusive as to the amount of the stockholders’ liability. Here, as we have said, there was no such notice.
On the appeal of the defendant, but one question is suggested. The court charged the jury to the effect that the
“There is no doubt that a creditor may, by express contract with the corporation, waive his constitutional or statutory right to proceed against its shareholders in case of its failure to pay the debts; and it is equally clear that the creditor may waive this right by contract even at the time of making the contract, or subsequently, assuming in the latter case that there is a consideration accruing to the creditor for such a release of his rights.”
This rule is in accord with trend of authority generally.
In 1 Cook on Stock and Stockholders and Corporation Law (3d ed.), § 216, it is said:
“A corporate creditor may, by express contract, when the debt is incurred, waive his right to collect from the stockholder debts which the corporation fails to pay. And the corporation in its contracts with third persons may, it is held in England, lawfully stipulate for the exemption of its members from the liability imposed upon them by statute in the event of the insolvency of the corporation.
“It has been held to be competent for any one dealing with the company to contract to hold the shareholders responsible to only a limited extent, to no extent at all, or to any specified extent mutually agreed upon.”
2 Morawetz on Private Corporations (2d ed.), § 871, announces the rule as follows:
“However, a statutory provision declaring that the shareholders in a corporation shall be individually liable to creditors would not prevent the execution of contracts into which this liability does not enter. If a person contracting with the corporation should expressly agree to accept the obligation of the corporation without the special liability of its shareholders, he would not be able to charge the latter. Such*444 a provision is solely for the benefit of those dealing with the corporation, and may be waived by them.”
See, also, Brown v. Eastern Slate Co., 134 Mass. 590 ; Robinson v. Bidwell, 22 Cal. 379; Callanan v. Windsor, 78 Iowa 193, 42 N. W. 652; Carnahan v. Campbell, 158 Ind. 226, 63 N. E. 384; Bush v. Robinson, 95 Ky. 492, 26 S. W. 178.
It seems to have been the view of the trial judge that this exemption did not apply to the liability of a stockholder to answer for the debts of the corporation to the extent of his unpaid stock subscription. But if this were the rule, the exemption contained in the bonds would be meaningless. Stockholders in a corporation organized in this state, other than banking corporations, who hold stock fully paid up in money or its value in money, are not hable to the corporate creditors whether such creditors be the holders of the bonds of the corporation or its simple contract debts. There is, therefore, no other obligation to which the exemption in this instance could apply, and we think it was meant that the stockholders should not be called upon on their unpaid stock subscriptions to liquidate these bonds.
■It follows that'the judgment must be reversed and remanded for a new trial. It is so ordered.
Dunbar, C. J;, Mount, and Gose, JJ., concur.
Dissenting Opinion
(dissenting)—I am of the opinion that the order of the superior court in the receivership cause, directing suit against the stockholders upon their unpaid stock subscriptions, was conclusive upon the stockholders as' to the total amount fixed by that ■ order, in so far as any defense they may make in such suits is concerned. A stockholder paying his unpaid stock subscription under the circumstances here involved will, of course, be entitled to be heard- upon all questions touching his rights involved in the marshaling of assets and paying of claims in the receivership, as any other stockholder may be who has an interest in a possible surplus after payment .of debts. And if a stockholder is exempt from