218 N.W. 885 | Minn. | 1928
The purpose of the Granite City Investing Corporation, organized under the laws of this state in 1919, was to erect and manage hotels. Its capital was $300,000, and the limit of its indebtedness was the same. Two receivers were appointed for the corporation November 17, 1921. Petitioner, being a creditor, instituted this proceeding.
1. There were 275 stockholders. The court directed service of the notice of hearing on the petition as required by G. S. 1923, § 8025, as amended by L. 1925, p. 323, c. 273. Service upon nonresidents was to be by publication. The order prescribed that the return of the sheriff of "not found" should be prima facie evidence, as to which the petitioner should file an affidavit, prior to publication, that the place of residence of such stockholders was unknown to him or his attorneys. An attempt was made to serve on John Hesse, a stockholder, by publication. The sheriff made the necessary return. The necessary affidavit was not filed. It was apparently overlooked through inadvertence. The omission was not intentional. Since the commencement of this action the statute of limitation has run on the liability of stockholders.
Appellants question the jurisdiction of the court because of failure to reach John Hesse, who did not appear specially or otherwise to have the service of the notice by publication set aside. How can the failure properly to serve upon the one stockholder affect appellants?
The order is conclusive as to the amount, propriety and necessity of the assessment against all parties involved, whether they had *168
notice thereof or not. G. S. 1923, § 8027. The main issue on such hearing is as to the necessity for an assessment. Straw
Ellsworth Mfg. Co. v. L. D. Kilbourne B. S. Co.
2. Appellants assert that on February 1, 1921, the charter limit was exceeded and that the corporation then owed $302,988.20. They add to this $15,000 as estimated expense of administration. Then they say all this indebtedness has been paid by foreclosure and otherwise except $53,605.69, which they say is the full amount for which the assessment may be made. If the assessment may be made for debts accruing after the charter limit is reached, the total debts for which the assessment may be made seem to be about $158,000. Appellants contend that all debts exceeding the charter limit are ultra vires and that all debts contracted after the limited peak has once been reached are a complete nullity as to them.
We think however that appellants' theory is not sound. Are such subsequent creditors to be so ignored? It is not suggested that they are not real or that they have not contributed to the corporation in money or property the amount of their claims. Ultra vires contracts are not void. They are sometimes unenforceable because *169
of public policy. They are usually enforceable when executed on one side. Under such conditions the public policy of justice prevails over the public policy of keeping the corporation within the limits of its charter. 2 Dunnell, Minn. Dig. (2 ed.) § 2026. We now have a long list of authorities holding that the defense of ultra vires cannot prevail where it would defeat justice or work a legal wrong. State ex rel. Hilton v. Mortgage Sec. Co.
When the corporation itself cannot escape liability on an ultra vires contract, it is only under unusual circumstances that its stockholders should be permitted to do so and thereby avoid their constitutional liability. This liability is contractual. State ex rel. Hilton v. Mortgage Sec. Co.
Stockholders are personally liable up to the par value of their stock for the full amount of the existing corporate indebtedness, unless it exceeds the limitation fixed in the corporate charter, beyond which limitation they are not liable. They are entitled to have the assets of the corporation first applied to the corporate indebtedness. The remaining indebtedness is what is to be considered in deciding the propriety and amount of an assessment. The court is interested in the amount and character of the indebtedness at the time of the making of the assessment. The liability of the stockholder cannot be measured by taking the amount of indebtedness *170
when the charter maximum has been reached and deduct that portion of the then existing indebtedness which has been paid and disregard all debts which have subsequently accrued. No stockholder can complain of the corporate assets being applied to the payment of debts. Nor can he complain of an assessment as long as there are unpaid debts, though the court cannot exceed the charter debt limit. Maclaren v. Wold,
The stockholder cannot resist an assessment pro tanto because the assets of the corporation have been used to pay an indebtedness incurred in excess of the charter maximum. Nor is the existence alone of excess indebtedness important. In re Dissolution of Owatonna Merc. Co.
Assuming, without deciding, that the charter limit was reached on February 1, 1921, the situation does not afford any relief to appellants or offer any legal reason why the order for the assessment was erroneous.
3. Every contract of a corporation is presumed to be within the charter limit; and the burden of proving a contract ultra vires in an action of this character is upon the stockholder. Dana White v. Bank of St. Paul,
The stockholder would not only have to establish it to be in excess of the charter limit, but he would have to show such contracts to be executory or that the corporation had not been enriched thereby. Kraniger v. People's Bldg. Society,
Affirmed. *171
