Spense v. Iowa Valley Construction Co.

36 Iowa 407 | Iowa | 1873

Day, J.

— It seems clear to us that the demurrer was improperly sustained. The proceeding of plaintiffs is a scire facias requiring defendants to show cause why they should not be made individually liable for a judgment against the Iowa Yalley Construction Company. Defendants show for cause that said company is duly incorporated; that by the articles of incorporation they were not to be liable beyond the amount of their subscription; that their subscription has been fully paid. It is one of the distinguishing features of incorporations that the individual property of its members may be exempt from liability for corporate debts. Herein consists the great superiority of a corporation over a partnership or an unincorporated joint-stock company. To this property of corpora^ tions the world is principally indebted for those great works of art which distinguish the civilization of the present century, and which have rendered steam and lightning useful servants of commerce.

Our statute authorizing any number of persons to associate themselves together and become incorporated for any lawful business, confers upon such body corporate the power to exempt the private property of its members from liability for corporate debts. Revision, § 1151.

If, as the demurrer seems to assume, the exemption exists only when there is capital stock of the corporation in existence, it is of no practical importance; for to render the stockholder individually liable, it would be necessary only first to exhaust the property of the corporation. Under such a construction the exemption would exist while it was unnecessary, and cease as soon as it became important.

It is claimed that the defendants are liable under the follow ing provisions of the statute:

“ Intentional fraud in failing to comply substantially with the articles of incorporation or in deceiving the public or individuals in relation to their means, or their liabilities shall subject those guilty thereof to fine and imprisonment or both, at the discretion of the conrt. Any person who has sustained injury from such fraud may also recover damages therefor against those guilty of participating in such fraud. The diversion of the funds of the corporation to other objects than those mentioned in their articles, and in the notices published as aforesaid (provided any person be thereby injured), and the payment of dividends which leave insufficient funds to meet the liabilities of the corporation, shall be deemed such frauds as will subject those therein concerned to the penalties of the preceding section, and such dividends or their equivalent in the hands of individual stockholders shall be subject to said liabilities.” Revision, §§ 1163 and 1164. When the above facts exist there can be no doubt that a stockholder may, in a case properly presented, be made liable tu the extent above indicated. But fraud is never presumed. In this case it is not even averred in the petition. It is sought to render the defendants liable simply from the fact that they are members of an impecunious corporation. Such fact alone does not render them liable. Nor are they required in answer to the scire facias proceeding to purge themselves from a fraud with which they are not charged.

When the proper proceeding is instituted to render them liable under the statute, they may be called upon to show how the capital stock of the corporation is held, and to discover the corporate property. For the present it is enough for them to say that they have paid their subscriptions, and that the articles of incorporation exempt them from liability beyond.

Reversed.