188 Iowa 916 | Iowa | 1920
Plaintiff further alleged that Section 441 of the Civil Code of South Dakota, copy of which is set out in the petition, makes each stockholder of a corporation individually and personally liable for the debts of the corporation, to the extent of the amount unpaid upon the stock held by such stockholder. Other provisions of the Code are also set out in plaintiff’s petition, which will be referred to hereafter. The Maytags and Fantle filed separate answers, in both of which it is alleged that Section 441 contravenes the provisions of- Section 8, Article 17, of the Constitution of South Dakota, and that same is, therefore, void, and of no effect. Other constitutional provisions are pleaded, which it is unnecessary to set out at this time. Defendants also set up the statute of limitation; and the Maytags, that they obtained the stock without notice or knowledge that same had not been paid for in full. Other material-issues and facts will be referred to in the course of the opinion. The trial resulted in a judgment against F. L. Maytag and Sam Fan-tie for the full amount of plaintiff’s claim, and against E. H. Maytag for $4,719, and against L. B. Maytag for $21,780.
I. The defendant Fantle, at the time the services were rendered by plaintiff, was a resident of Sioux Falls, South Dakota, where he has continued to reside. His plea of the statute of limitations is bottomed upon the thought that a cause of action in favor of the corporation for the unpaid portion of the purchase price of the stock arose immediately upon the sale thereof, and, under Section 60 of the
On the other hand, counsel for appellee asserts that the statute did not commence to run until plaintiff’s cause of action against the corporation matured. There may be some lack of harmony in the decisions upon this question, but the general rule undoubtedly is that the statute commences to run in favor of the stockholders from the time claims of creditors against the corporation mature. Under the law of South Dakota, the liability of the holder of corporate stock to creditors of the corporation for the difference between the .par value thereof and the amount actually paid thereon is primary, and a creditor is not required to first proceed against the corporation. It is stated in Cook on Corporations (7th Ed.), Section 225, that:
“Where the liability of the stockholder is immediate and primary, and not contingent on the obtaining of a judgment against the corporation, it is clear that the statute of limitations begins to run in favor of the stockholder when the debt matures against the corporation.”
We find, upon examination of the authorities cited, that much of the apparent lack of harmony appearing therein is due to the dissimilarity of the various statutory provisions considered. In some jurisdictions, the statute does not commence to run against creditors until the insolvency of the corporation; but it makes no difference in this case whether the statute commenced to run from the maturity of plaintiff’s claim against the railway company, or its insol
II. Section 441 of the Civil Code of South Dakota is as follows:
The provisions of the above • section are assailed by counsel for appellant, upon- the ground that same contravenes the provisions of Section 8, Article 17, of the Constitution of South Dakota, which is as follows:
“No corporation shall issue stocks or bonds except for money, labor done, or money or property actually received; and all fictitious increase of stock or indebtedness shall be' void. The stock and indebtedness of corporations shall not be increased except in pursuance of general law, nor without the .consent of the persons holding the larger amount in value of the stock first obtained, at a meeting to be held after sixty days’ notice given in pursuance of law.”
They also state that it contravenes the provisions of the Fourteenth Amendment to the Constitution of the United States, and is, therefore, void. Section 423 of the Civil Code of South Dakota provides that:
“Whenever the capital stock of any corporation is divided into shares and certificates thereof are issued, such shares of stock are personal property, and may be transferred by endorsement by the signature of the proprietor or his attorney or legal representative and delivery of the certificate, but such transfer is not valid except between the
We have been unable to find any decision of the Supreme Court of South Dakota wherein the constitutionality of Section 441 has been passed upon or discussed; but counsel for appellee have cited numerous cases from other jurisdictions, construing similar constitutional provisions, to which attention will be directed presently. However, the decision of the Supreme Court of South Dakota in Schiller Piano Co. v. Hyde, 39 S. D. 74 (162 N. W. 937), is based upon a related proposition. In that case, the United Mercantile Agency, a South Dakota corporation, received $20,-000 in notes, in payment of the purchase price for certain shares of stock sold to the defendant. Certificates were issued and delivered to him. Thereafter, defendant gave the notes in suit, aggregating $10,000, in renewal of that much of his previous obligations. The notes were transferred to plaintiff, with notice of the consideration therefor, and, upon the refusal of defendant to pay the same, suit was brought thereon. The trial court directed a verdict in favor of the defendant, upon the ground that the original notes were void, because the transaction out of which their execution arose, was in violation of Section 8, Article 17, of the Constitution of that state. Upon appeal, the ruling of the trial court was reversed. In the course of the opinion, the court said:
“It seems to us that the decision of the trial court was wrong for either of three reasons: First, a promissory note is property, within the meaning of the constitutional provision; second, even though a promissory note is not property, within the meaning of such provision, the taking of a note for shares of stock is not unlawful, — it is the
The court did not conclude its opinion with the finding that promissory notes, within the meaning of the constitutional provision, are property, but proceeded further, upon the assumption that they could not be so considered. The conclusion reached upon this assumption was that the original subscription for the stock was not unlawful; that, at most, the delivery of the certificates of stock was illegal; that the obligation of the subscriber was in no wise affected by the premature or illegal surrender of the certificates; and that the giving of promissory notes merely changed the form of defendant’s obligation. It is true that the constitutionality of Section 441 was not involved in this case, but an obligation arising out of a subscription for shares of capital stock to a corporation, followed by a delivery of the stock before full payment, is therein held to be not invalid, under the constitutional provision quoted; that indebtedness created in this manner is bona fide, and the subscriber liable to the holder of his obligation given' therefor. Section 441 goes no further than the holding of the court in the above case. The former creates a liability against the shareholder, in favor of creditors of the corporation, for the amount of the unpaid portion of the purchase price of the stock; whereas, the decision of the court goes to the extent of holding that a subscription and mere promise to pay for stock create a valid obligation. This conclusion has ample support in the decisions of other courts, dealing with similar constitutional provisions. Washer v. Smyer, (Tex.) 211 S. W. 985; Olson v. State Bank, 67 Minn. 267 (69 N. W. 904) ; Dilzell Eng. & Const. Co. v. Lehmann, 120 La. 273 (45 So. 138) ; California Trona Co. v. Wilkinson, 20 Cal. App. 694 (130 Pac. 190) ; McWhirter v. First St. Bank, (Tex.) 182 S. W. 682; Herron Co.
We are not inclined, in view of what is said in Schiller Piano Co. v. Hyde, supra, and numerous other cases cited above, to hold that Section 441 of the Civil Code of South Dakota contravenes Section 8, Article 17, of the Constitution of that state. It is true that the Constitution of South Dakota makes the issuance of certain stock void, but we think this provision relates only to fictitious increases of stock, and not to stock issued for a vaiid consideration. Such is the conclusion announced in several of the cases cited supra, wherein practically the identical provision was discussed. No claim was made in the court below that Section 441 is in violation of the provisions of the Fourteenth Amendment to the Constitution of the United States; hence, the contention of counsel upon this point cannot be considered upon this appeal. Hass v. Leverton, 128 Iowa 79.
“It is a maxim of jurisprudence that no man can take advantage of his own wrong. If the delivery of the certificate of stock to defendant, at the time it was delivered, was wrong, the defendant was a party to the wrong. ‘He who consents to an act is not wronged by it.’ In German Merc. Co. v. Wanner, 25 N. D. 479 (142 N. W. 463), we find the following:
The stock held by defendants was not fictitious, nor was it issued as a bonus, but for a valid consideration, and it is contended by counsel for the Maytags that it was paid in full, in cash and labor. The original subscribers were engaged in the promotion of a railroad enterprise, the building of which was either at the time under way, or begun shortly thereafter, as several miles of railroad were constructed, and are now in operation. Without reviewing in •detail the many authorities cited by counsel, attention is called to the following, which support the doctrine of estoppel. Washer v. Smyer, supra; Dilzell Eng. & Const. Co. v. Lehmann, supra; Vermont Marble Co. v. Declez Gran. Co., supra; McWhirter v. First St. Bank, supra; California Trona Co. v. Wilkinson, supra; Perkins v. Cowles, 157 Cal. 625 (137 Am. St. 158) ; Vaughn v. Alabama Nat. Bank, 143 Ala. 572 (42 So. 64) ; Building & Loan Assn. v. Chamberlain, 4 S. D. 271 (56 N. W. 897) ; Lilylands Canal & Res. Co. v. Wood, 56 Colo. 130 (136 Pac. 1026) ; Shaw v. Staight, 107 Minn. 152 (119 N. W. 951); Olson v. State Bank, 67 Minn. 267 (69 N. W. 904). It should be said in this connection that none of the stock held by Fantle was purchased' from the corporation, although a few shares were issued to him direct thereby.
“The term ‘stockholder’ as used in this section shall apply not only to such persons as appear by the books of the corporation to be such, but also to every equitable owner of stock, although the same appears upon the books in the name of another.”
Under the above statutes, appellant was a stockholder. According to the undisputed evidence, same had been issued upon the payment of a small percentage of the par value thereof. The language of Section 441 is, “each stockholder.” No limitation is placed thereon, nor do we find anything in the language of said section from which the inference may be drawn that it was the intention of the legislature to exempt subsequent purchasers of stock, even without notice, from liability for the unpaid portion of the purchase price. It is urged by counsel that to so hold will seriously interfere with the sale of stock, but this affords little reason for giving a forced or strained construction to the statute. The means of knowing whether the stock has been paid for is certainly available to a person desiring to purchase stock in any reputable concern, and the burden
Counsel for appellant lays much stress upon the holding of the North Dakota court in LaVell v. Bullock, (N. D.) 174 N. W. 764. That was an action by the trustee in bankruptcy of a corporation known as “Everybody’s Store,” having its place of business at Fargo, against the holder of 14 shares of its common stock. The court, in the opinion written by Mr. Justice Robinson, holds that there was nothing due the corporation on the stock, and that, consequently, no cause of action existed in favor of the plaintiff as the representative thereof. Mr. Justice Birdzell, specially concurring in the result reached by the majority, held that the stock in question was issued as a bonus, and was, therefore, void, under Section 138 of the Constitution of that state. What is said thereafter by him is in response to the argument of counsel for respondent that the defendant was an innocent purchaser of the stock, which was sold to him as fully paid, and is concurred in by but one other member of the court, and a district judge, sitting in place of a member of the court disqualified, and possibly should be treated as dictum; but, if the conclusion announced represents
Section 423 of the Civil Code of South Dakota provides:
“Whenever the capital- stock of any corporation is divided into shares and certificates thereof are issued, such shares of stock are personal property, and may be transferred by endorsement by the signature, of the proprietor or his attorney or legal representative, on delivery of the certificate; but such transfer is not valid except between the parties thereto, until the same is so entered upon the books of the corporation as to show the names of the parties, by and to whom transferred, the number or designation of shares, and the date of the transfer.”
The exhaustive research of counsel has resulted in bringing to our attention but one decision of the Dakota court in which the above portion of Section 423 has been given construction: State Bank & Trust Co. v. Taylor, 25 S. D. 577 (127 N. W. 590, 594). This was a case in which one creditor of the holder of certain shares of corporate stock attached the certificates in the possession of another creditor of said stockholder, who held the same under a written assignment, as collateral security. The court sustained the assignment; but it will be observed that the controversy here was not between the corporation and a creditor of the corporation, who sought to recover, under Section 441 of the Civil Code, for the difference between the par value' of the stock and the amount actually paid by the stockholder, but involved the claim of a creditor having nothing to do with the corporation issuing the stock. The
“Holding, as we do, that Section 445, Rev. Civ. Code, is not a public registration act, the following words from the Lipscomb case (Lipscomb’s Admr. v. Condon, 56 W. Va. 416 [49 S. E. 392]), become applicable to the case at bar: ‘It is obvious that, unless Section 36 or some other provision of the statute is to be regarded as a registration law for the protection of the public, who have no access to the books of the company, these sections are intended only to protect the corporation and those who claim under the certificates of stock.’ ”
The decision is not, therefore, conclusive, if, indeed, it is in point. The statute specifically makes transfer of cor
Tt is contended by counsel for appellant that he should not have been held liable on account of this stock; but it stood upon the books of the corporation in his name, and we fail to see wherein the manner by which he acquired ownership thereof is material. The services were rendered by plaintiff without knowledge of the financial condition of the corporation, and his claim is undisputed. After a careful review of the record and many authorities cited by counsel upon both sides, we are satisfied that the judgment and decree of the court below is right, and must be — Affirmed.