No. 1,400 | U.S. Circuit Court for the District of Southern California | Jan 9, 1909
Conclusions of the Court on Demurrer to Complaint.
Defendant’s contention that the doctrine of representation does not apply .to this case, because, under the decisions of the Supreme Court of Ohio, the individual, or, as otherwise called, superadded liability of the stockholder, is not an asset of the corporation, -but a security provided by law for the exclusive benefit of creditors, over which the corporate authorities have no control, and which contention is the groundwork of defendant’s argument in support of his demurrer, it seems to me, is disposed of by the following language of the Supreme Court in Bernheimer v. Converse, 206 U.S. 516" court="SCOTUS" date_filed="1907-05-27" href="https://app.midpage.ai/document/bernheimer-v-converse-96701?utm_source=webapp" opinion_id="96701">206 U. S. 516, 27 Sup. Ct. 755, 51 L. Ed. 1163" court="SCOTUS" date_filed="1907-05-27" href="https://app.midpage.ai/document/bernheimer-v-converse-96701?utm_source=webapp" opinion_id="96701">51 L. Ed. 1163:
“And It has been held in eases 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" court="SCOTUS" date_filed="1889-05-13" href="https://app.midpage.ai/document/hawkins-v-glenn-92546?utm_source=webapp" opinion_id="92546">131 U. S. 319, 9 Sup. Ct. 739, 33 L. Ed. 184" court="SCOTUS" date_filed="1889-05-13" href="https://app.midpage.ai/document/hawkins-v-glenn-92546?utm_source=webapp" opinion_id="92546">33 L. Ed. 184; Great Western Tel. Co. v. Purdy, 162 U.S. 329" court="SCOTUS" date_filed="1896-04-13" href="https://app.midpage.ai/document/great-western-telegraph-co-v-purdy-94428?utm_source=webapp" opinion_id="94428">162 U. S. 329, 336, 16 Sup. Ct. 810, 40 L. Ed. 986" court="SCOTUS" date_filed="1896-04-13" href="https://app.midpage.ai/document/great-western-telegraph-co-v-purdy-94428?utm_source=webapp" opinion_id="94428">40 L. Ed. 986.
“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 through the purchase of stock whereby a contract is imjjlied in favor of creditors. The object of the enforcement of both liabilities is for tlie benefit of creditors, and while it is true that one promise is directly to the corporation, and the other does not belong to the corporation but is for the benefit of its creditors, either liability may be enforced under the orders of a court in winding up the corporation in case of its insolvency.”
While one object of the Ohio statute is to enforce the stockholder’s individual liability, yet sections 3260c-3260f also contemplate and provide for the winding up of the affairs of the corporation.
Section 3260c directs that, if the property of the corporation is insufficient to discharge its debts, the court shall, in the first place, collect unpaid subscriptions, “or so much thereof as is necessary to satisfy the debts of the company.” The particular method of collecting these subscriptions is not prescribed, but manifestly it is by assessments.
The next section, 3260d, provides that, if the unpaid subscriptions are not sufficient to pay off the debts of the corporation, the court shall ascertain and adjudge the individual liabilities of the stockholders, and and may authorize and direct its receiver to enforce such liabilities in other jurisdictions.
The next section, 3260e, provides for the bringing into the action of all the creditors of the corporation, which would be wholly unnecessary if the act did not look to a full settlement of corporate affairs.
The last section, 3260f, directs that:
“Upon a final judgment in any such action against an insolvent corporation, the court shall cause a just and fair distribution of the property and assets of such corporation, or the proceeds thereof to be made among its creditors.”
Furthermore, one of the grounds, and a ground sufficient in itself, to support the doctrine of representation, is that, by becoming a stockholder, a person contracts with reference to the remedies which are or may be provided for the enforcement of individual liabilities, ■ as well as the collection of unpaid subscriptions, or, quoting from the fourth paragraph of the syllabus in Bernheimer v. Converse, supra,
“One who becomes a member of a corporation assumes the liability attaching to such membership,, and becomes subject to such regulations as the state may lawfully make to render the liability effectual.”
The contract, therefore, by which the defendant in the case at bar acquired his stock was made with reference to the statute of Ohio above referred to, and said statute becomes a part of his contract of membership in the corporation, and its provisions as to the enforcement of individual liability are as binding upon the defendant as those relating to the collection of unpaid subscriptions.
Besides, if there were any difficulty growing out of the fact that in Ohio the individual liability is not, strictly speaking, a corporate asset, it would be purely technical, and to withhold the doctrine of representation in cases of individual liability, and yet apply it to unpaid subscriptions, because of such difficulty, would be in direct conflict with the spirit of the enunciation of the Supreme Court in Bernheimer v. Converse, supra, as follows, quoting from the third paragraph of the syllabus (underscoring mine):
"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. * * * ”
The action is not barred by the statute of limitations. Goss v. Carter, 156 F. 746" court="5th Cir." date_filed="1907-10-28" href="https://app.midpage.ai/document/goss-v-carter-8765237?utm_source=webapp" opinion_id="8765237">156 Fed. 746, 84 C. C. A. 202, in my opinion, correctly interprets and applies Bernheimer v. Converse, supra, and it is sufficient to say that, on the authority of these two cases, without reviewing here in detail the large number of other cases cited in the respective briefs of the parties, the demurrer must be overruled.