Willis v. Mabon

^/Mitchell, J.

1. This was an action brought by a creditor of an insolvent corporation to recover from certain of its' stockholders on their individual liability for the corporate debts, under what is commonly called “the double liability clause” of the constitution, which provides that “each stockholder in any corporation (excepting those organized for the purpose of carrying on any kind of manufacturing or mechanical business) shall be liable to the amount of stock held or owned by him.” Article ten, (10) section three, (3.) The principal question in the case is whether this provision of the constitution is self-executing, or whether it requires legislation to carry it into effect. The same question is also involved in the two cases of McKusick v. Seymour, Sabin & Co., post, pp. 158, 172, 50 N. W. Rep. 1114, 1116,) — submitted at a later day of the present term, — and has been exhaustively argued in both cases. Some points were made by counsel in one case that were not urged in the other; but as the question is common to both cases, and as there was an understanding among counsel that all arguments presented in either should be considered in both, we shall endeavor to fully determine the question in the present opinion. In addition to this main question, counsel for the appellants in the first case, infra, urged that this constitutional provision is not intended to impose any “double liability” upon stockholders, but simply means that they shall be bound to pay for their stock once its “face amount,” any device or agreement to the contrary notwithstanding, and that, having once paid for their stock in full, they are not further liable. Except for the eminence of the counsel who have advanced this view, we would not deem it entitled to serious consideration. While no fixed form of words has been adopted to express the idea, yet provisions couched in more or less similar language have been frequently incorporated into constitutions and statutes, and have been uniformly understood and construed as providing for an individual liability of stockholders for corporate debts in addition to this risk of losing the amount of their stock. This is the meaning which has been invariably attached to this provision of our constitution. It is the one attributed to it by this court in numerous eases, although never in the form of a direct and authoritative decision; and we do not believe that the construction now sought to be placed upon it ever occurred to, or was ever advanced by, any one, until suggested by counsel in the present case. Any such construction would render the provision meaningless and useless, for all that would be accomplished by it was already fully covered by the law. If a person, had subscribed for stock, and had not paid for it the amount agreed, of course he was liable to the corporation, and, through it, to its creditors; and if the stock had been issued to him as paid-up stock, when not in fact paid for, under such circumstances as to operate as a fraud upon creditors, he was, upon well-settled principles, liable to them as for unpaid stock subscriptions. The construction contended for would give the public no security beyond what they already had under the existing law. Its absurdity is rendered apparent when considered in connection with the amendment of November 5, 1872, inclosed in parentheses; for then the whole section would mean that, while the stockholders in all other corporations should be liable to pay once for their stock at its face amount, yet stockholders in manufacturing corporations need not be required to do so. The obvious intention of the provision was to add to the ordinary liability of a corporation, for its debts, the individual liability of the stockholders, to a limited amount, and that the measure of that liability should be a sum equal to the amount of stock owned or held by them. This stock is not the subject of the liability, but the measure of it; in other words, the stockholders are liable, not for the stock, but, in addition thereto, for a sum measured by the amount of the stock.

2. This brings us to the main question, viz., whether this provision of the constitution is self-executing. That such has been the general understanding of the bench, bar, and business men in this state is conceded. This court has, in a long line of cases, assumed that such was the fact. Dodge v. Minnesota Plastic Slate Roofing Co., 16 Minn. 368, (Gil. 327;) Allen v. Walsh, 25 Minn. 543; State v. Minnesota Thresher Mfg. Co., 40 Minn. 213, (41 N. W. Rep. 1020;) Mohr v. Minnesota Elevator Co., 40 Minn. 343, (41 N. W. Rep. 1074;) Arthur v. Willius, 44 Minn. 409, (46 N. W. Rep. 851;) Densmore v. Shepard, 46 Minn. 54, (48 N. W. Rep. 528, 681.) And, so far as we are aware, the correctness of this view has never been questioned or doubted in any court, until one of the counsel in this case interposed a brief in Arthur v. Willius, supra, in which he took the position for which he now contends. Of course it is true, as counsel suggests, that this court has never before been called on to decide the question, and that mere assumption on the part of either bench or bar does not make a thing law; but, on the other hand, it is also true that a construction which has for a third of a century been accepted by every one as so obviously correct as never to have been questioned or doubted is much more likely to be right than a newly-discovered one, suggested at this late day by the emergencies of present litigation. The fact that no such view ever before suggested itself to the minds of court or counsel in the numerous eases where the point might have been made, and where it was to the interest of counsel on one side or the other to make it, certainly raises a strong presumption against it. Moreover, as the generally accepted view has doubtless long been the basis of the credit of corporations, it ought not now to be disturbed, unless clearly wrong. But, if the question was entirely one of first impression, we have no doubt as to how it should be determined. A constitution is but a higher form of statutory law, and it is entirely competent for the people, if they so desire, to incorporate into it self-executing enactments. These are much more common than formerly, the object being to put it beyond the power of the legislature to render them nugatory by refusing to enact legislation to carry them into effect. Prohibitory provisions in a constitution are usually self-executing to the extent that anything done in violation of them is void. But instances of affirmative self-executing provisions are numerous in almost every modern constitution. For instances of this, see State v. Weston, 4 Neb. 216; Thomas v. Owens, 4 Md. 189; Reynolds v. Taylor, 43 Ala. 420; Miller v. Marx, 55 Ala. 322; People v. Hoge, 55 Cal. 612.

Without stopping to specify, it will be found on examination that our own constitution abounds in provisions that are unquestionably self-executing, and require no legislation to put them into operation. The question in every case is whether the language of a constitutional provision is addressed to the courts .or the legislature, — does it indicate that it was intended as a present enactment, complete in itself as definitive legislation, or does it contemplate subsequent legislation to carry it into effect? This is to be determined from a consideration both of the language used and of the intrinsic nature of the provision itself. If the nature and extent of the right conferred and of the liability imposed is fixed by the provision itself, so that they can be determined by the examination and construction of its own terms, and there is no language used indicating that the subject is referred to the legislature for action, then the provision should be construed' as self-executing, and its language as addressed to the courts. In almost every case cited by appellants in which a constitutional provision has been held not self-executing, it will be found either that its language indicated an intention that legislation should be had to carry it into effect, or that the nature of the provision itself was' such as to render such legislation necessary. To the first class ihtay be referred the provision in the constitution of Missouri (quite different from that in ours) considered in the case of Morley v. Thayer, 3 Fed. Rep. 737, although that case really only decided that the plaintiff could not recover because he had not followed the remedy provided by statute. To the same class belongs the case of Jerman v. Benton, 79 Mo. 148, although it seems to have been assumed, without argument or consideration, that the constitutional provision there considered required legislation to carry it into effect. To the second class belongs Bowie v. Lott, 24 La. Ann. 214, in which it was held that a constitutional provision that “all lands sold in pursuance of decrees of courts shall be divided into tracts of from 10 to 50 acres,” required legislation to carry it into effect. This is plain from the very nature of the provision. It furnishes no modus operandi, and does not provide how or by whom the land was to be divided, nor determine the exact size of the tracts. It was evidently a mere general direction to the legislature. To the same class may be referred the case of Missouri, K. & T. Ry. Co. v. Texas & St. L. Ry. Co., 10 Fed. Rep. 497, involving a provision in the constitution of Texas that “every railroad company shall have the right with its road to intersect, connect with, or cross any other railroad,” although all that was decided in that case was that the defendant railway company could not, on its own motion, make the crossing without the consent of the defendant, or without resort to legal proceedings in which the conditions and limitations under which such right should be exercised should be judicially fixed and determined. Groves v. Slaughter, 15 Pet. 449, 499, cited by appellant, perhaps goes further than any other case in holding a constitutional provision not self-executing; but its weight as an authority is much weakened from the facts that it was not considered by a full bench, and was decided by a divided court, Justice Story being one of the dissenters. Moreover, it seems difficult to reconcile the decision in that ease with the rule that prohibitory constitutional provisions are self-executing to the extent that anything done in violation of them is void; or the further rule, which that court has always professed to follow, that it would adopt the construction given to the constitution and laws of a state, not conflicting with those of the Union, by the highest court of that state.

Of all the cases cited by appellant, the one .most relied on is that of French v. Teschemaker, 24 Cal. 518. The constitution of California provided: “Sec. 32. Dues from corporations shall be secured by such individual liability of the corporators and other means as may be prescribed by law.” “Sec. 36. Bach stockholder of a corporation or joint-stock association shall be individually and personally liable for his proportion of all it's debts and liabilities.” The court held that section thirty-six (36) was not self-executing. But the decision was mainly based upon two considerations. The first was that, while this section provided that each stockholder should be liable for his proportion of the corporate debts, yet it did not determine what that proportion should be, nor prescribe any rule by which it should be ascertained. The second was that section thirty-six (36) was to be read in connection with section thirty-two, (32,) which was evidently addressed to the legislature. No such considerations exist here, and hence we do not think that the case is in point. The language used in our constitution is positive and mandatory. There is nothing in it indicative of an intention that ancillary legislation should be had to carry it into effect; neither is there anything in the nature of the liability imposed, such as to render any such legislation necessary. It is in the form of a present, complete enactment, which, although elliptical in form, definitely fixes the nature and amount of the liability, and to whom the liability is incurred. As remarked in Allen v. Walsh, supra, “it declares the creation of a liability to the extent named in the cases referred to.” It is true that a question might arise as to whether it is the person who holds the stock when a debt is contracted, or the one who holds it when the action is brought, or any one who held it at any time while the debt existed, that is liable. But this is a mere question of construction, which would exist if the same or similar language were used in a statute, as has sometimes been the case. But questions of construction, whether of a constitution or a statute, are for the courts, and not for the legislature. In fact, all the criticisms of the appellant upon this article of the constitution refer merely to supposed obscurities in its meaning, or doubts as to its construction; and the logic of his argument is that it is for the legislature to construe it, and determine its true meaning. According to his view, it means anything or nothing, according as the legislature see fit to construe it. But the people meant something by this provision, and, when that meaning is judicially determined by legitimate rules of construction, it is as obligatory on the legislature as on any one else.

Much stress is laid upon the fact that this provision contains no remedy for enforcing the liability, as indicating that it was not intended to be self-executing. We fail to perceive any force whatever in this line of argument. The maxim, ubi jus ibi remedium, is as old as the law itself. As was said by Lord Holt: “If a man has a right, he must have a means to vindicate and maintain it, and a remedy, if he is injured in the exercise and enjoyment of it; and, indeed, it is a vain thing to imagine a right without a remedy, for want of right and want of remedy are reciprocal.” The maxim referred to gave occasion for the invention of that form of action called “an action on the case.” The principle adopted by the courts accordingly was that the novelty of the particular complaint in an action on the case was no objection, provided an injury cognizable by law be shown to have been inflicted on the plaintiff. Every statute made against an injury, mischief, or grievance impliedly gives a remedy, for, if no remedy be expressly given, a party has his action upon the statute. Eor example, “if a penalty be given by statute, but no action for the recovery thereof be named, an action of debt for the penalty will lie.” 2 Dwar. St. 677. So where a statute requires an act to be done for the benefit of another, or forbids the doing of an act which may be to his injury, though no action be given in express terms by the statute for the omission or commission, the general rule of law is that the party injured shall have an action; for, where a statute gives a right, there, although in express terms it has not given a remedy, the remedy which by law is properly applicable to that right follows as an incident. Ashby v. White, 2 Ld. Raym. 938. Hence in the present case it was not necessary that the constitution should have expressly given a remedy by which a creditor of the corporation might enforce the liability of a stockholder. If it in fact created such a liability of the latter in favor of the former, there would not be the least trouble in framing a proper complaint in an action to enforce it. Of course, the remedy is always within the control of the legislature, and may be changed as they see fit, provided only it remains adequate. ■ It is entirely competent for them to provide a new and statutory remedy, and make it exclusive, if they see fit. An inference in favor of appellant’s contention is sought to be drawn from the history of this provision in the constitutional convention. In •the form in which it is now found, this provision was the one adopted by the Democratic wing of the convention. The provision first adopted was that “provision shall be made making each stockholder individually liable to the amount of stock held or owned by him.” Counsel say, and doubtless correctly, that this would not have been self-executing, as its language was directed to the legislature, and evidently contemplated legislation to carry it into effect. In this form it was adopted by the committee of the whole, and then referred to the committee on phraseology and revision, who reported it back in its present form, (“every stockholder shall be liable,” etc.,) when it was adopted by the convention. To our minds, the material change which that committee made in the language indicates very strongly that the purpose of the change was to put the provision in the form of a self-executing enactment, and thus place it beyond the power of ■the legislature to defeat the object sought to be accomplished.

An argument is also sought to be drawn from subsequent legislative construction. We attach little or no importance to this. An argument either way might be made, for the legislation upon the subject of the individual .liability of stockholders has been variable, and not uniformly consistent either with the theory that the constitution itself created such a liability or that it did not. Upon the theory that it did, it must be confessed that some of this legislation was superfluous, and its repeal unavailing. On the other hand, it may be said that, in passing Laws 1878, ch. 56, making stockholders in manufacturing or mechanical corporations liable for corporate -debts to the amount of stock held or owned by them, the legislature must have assumed that the constitution itself created such a liability in the case of other corporations, for it is not to be supposed that they would have singled out manufacturing corporations as the only ones where such a liability should exist. Moreover, the legislature in submitting, and the people in adopting,'the amendment of 1872, excepting corporations organized for a manufacturing or mechanical business from the operation of article ten, (10,) •section three, (3,) of the constitution, must have supposed that this •section ex propria vigore created an individual liability on the part ■of stockholders, for otherwise the amendment was useless and unnecessary, unless it was to relieve the legislature from a sort of moral •obligation to legislate on the subject^^

3. The answer in this case alleges that in July, 1889, the defendant corporation was, upon petition of creditors under the insolvent law of 1881, adjudged insolvent, and a receiver of its property appointed by the court, who had fully administered the corporate assets, and distributed the proceeds among those creditors who executed releases to the corporation as required by statute; that plaintiff in January, 1890, executed and filed such a release, and accepted her dividend from the receiver. It is claimed, under the doctrine of Mohr v. Minnesota Elevator Co., 10 Minn. 343, (11 N. W. Rep. 1074,) that this release of the corporation had the effect of also releasing the stockholders. The plaintiff, on the other hand, claims that the rule of that case was changed by Laws 1889, ch. 30, entitled “ An ■act to amend an act entitled ‘ An act to prevent debtors from giving preference to creditors, and to secure the equal distribution of the property of debtors among their creditors, and for the release of debts against debtors;’” section one (l)of the amendatory act providing “that the release of any debtor under this act shall not operate to discharge any other party liable as surety, guarantor, or othenoise for the same debt.” The point is made that this amendatory act is invalid, because the subject is not sufficiently expressed in its title. There is nothing in this. It recites verbatim the title of the original act, which sufficiently expresses the subject of that act. It is true that the title of the amendatory act does not refer to the chapter, or year when the original act was passed, but this is unimportant, especially as there was no other act of the same title. Similar titles have been invariably sustained in this and other jurisdictions having the same constitutional provision. The title of this act is not materially different from that sustained by this court in City of Winona v. School Dist., 40 Minn. 13, (41 N. W. Rep. 539.)

It is further claimed that the amendment is inapplicable, because its terms will not include the liability of stockholders for corporate debts; the argument being that, where words of specific import are followed by a general term, the general term is to be taken to apply only to persons or things ejusdem generis with the specific terms; that the words “or otherwise” must therefore be limited to those whose liability for the debt is of the same kind as that of surety or guarantor; and that the liability of a stockholder for the debts of a corporation is different from that of either a surety or a guarantor, and therefore not within the terms of the act. The act of 1889 was passed about two weeks after the decision of the Mohr Case, and the proviso referred to was doubtless enacted for the very purpose of changing the rule laid down in that case. That it had that effect was assumed in Tripp v. Northwestern Nat. Bank, 41 Minn. 400, (43 N. W. Rep. 60; decided August 12, 1889.) Even under the strict doctrine of ejusdem generis, we have no doubt that the term “or otherwise” would embrace those liable as stockholders for corporate debts; for, while that liability is sui generis, yet it is in many respects-sufficiently analogous to that of surety or guarantor to fall within the same general class. But the doctrine of ejusdem generis is but a rule of construction to aid in ascertaining the, meaning of the legislature, and does not warrant a court in confining the operation of a statute within narrower limits than intended by the lawmakers. The general object of an act sometimes requires that the final general term shall not be restricted in meaning by its more specific predecessors; Thus the expression, “any bond or other specialty,” has been held to comprehend every kind of specialty, including a statute. The evident- intention was that this amendment should embrace all cases where some one else was liable, in whatever capacity, for the same debt with the insolvent debtor. The insolvency proceedings against the corporation were instituted and its discharge granted after the passage of the act of 1889, but the debt for which plaintiff sues was contracted prior to that date; and it is claimed that the act is, as to stockholders whose liability had been already incurred, unconstitutional, because impairing the obligation of contracts. We confess our inability to appreciate the force of this argument. The liability of a stockholder is fixed and measured by the constitution alone. The insolvent law neither increases nor affects that liability, but has reference solely to the remedy of the creditor against the insolvent debtor. An existing creditor would have as much right to object to the passage of a bankrupt act, or a debtor to its subsequent repeal, as would this • appellant to object to the amendment of this insolvent law. Bankrupt laws, either by express provision or by construction, generally provide that the discharge of the bankrupt shall not release another person who is liable for tjie same debt. This has been held indiscriminately in cases where the debt was contracted before, as well as where it was contracted after, the passage of the bankrupt act, and it was never suggested that as to such other person the act was invalid, as impairing the obligation of his contract. The discharge of the insolvent or bankrupt in such cases, as we have repeatedly held, is not the voluntary act of the creditor, but purely by operation of .law, which, like the act of God, hurts nobody.

Order affirmed.

(Opinion published 50 N. W. Rep. 1110.)

Case Details

Case Name: Willis v. Mabon

Court Name: Supreme Court of Minnesota

Date Published: Jan 18, 1892

Citation: 50 N.W. 1110

Court Abbreviation: Minn.