Corporation, Foreign, Statutory liability of stockholder. Conflict of Laws. Receiver. Judgment. Notice. Constitutional Law.
In an action of contract by a receiver of a Minnesota corporation against a Massachusetts shareholder therein to recover an amount levied upon the defendant's shares as an assessment by a decree of a Minnesota court under a section of the State constitution of Minnesota which provided that "each shareholder in any corporation, except 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," it appeared that the court which decreed the assessment had appointed the plaintiff receiver and that it was a State court of general jurisdiction, that it had empowered the receiver to collect the assessment by proceedings in any court of any State or territory of the United States, that, by the statutes of Minnesota as they existed when the defendant became a shareholder, a receiver had no power to collect such an assessment, but subsequently, and before the decree above mentioned, a statute had been passed specifically authorizing a decree giving a receiver such power. The court of last resort in Minnesota, which had exclusive jurisdiction of the subject matter and of the corporation, on an appeal by certain shareholders other than the defendant from the decree levying the assessment and empowering the receiver to collect it, decided that the corporation was not a corporation organized for the purpose of carrying on any kind of manufacturing or mechanical business, and that the decree levying the assessment was valid. Held, that the questions, whether the corporation was or was not one whose shareholders by the terms of the constitutional provision were subject to the assessment, and whether the enlargement of the remedy against the shareholders by the statute enacted after they became such was within the power of the Legislature, being questions already finally determined by a Minnesota court having exclusive jurisdiction of the subject matter and of the corporation, could not be reinvestigated in the courts of this Commonwealth.
A Legislature may enlarge the remedy provided for the enforcement of an existing substantive right, or may provide a new remedy therefor, provided it neither enlarges nor diminishes the right itself.
A court of Minnesota which had jurisdiction of a corporation incorporated under the laws of that State, in a proceeding instituted under local statutory provisions by a creditor of the corporation, appointed a receiver thereof and later, in the same proceeding, in compliance with further local statutes and constitutional provisions, after a hearing levied an assessment upon the shareholders of the corporation for the purpose of paying the debts of the corporation and the expenses of the receivership and of the collection of the assessment, and authorized the receiver to proceed in any court, local or foreign, to enforce the collection of the assessment. The receiver brought an action in a court of this Commonwealth to enforce the assessment against a Massachusetts shareholder, who had had no notice or knowledge of the proceedings in the Minnesota courts, and the defendant contended that the decree levying the assessment was not valid as to him because he had neither notice nor knowledge thereof. Held, that, as the defendant was a shareholder, service upon the corporation in proceedings to marshal its property for the payment of its debts concluded him; and that, there being no allegation that the decrees of the Minnesota court were procured fraudulently, such decrees could not be reviewed in the action in this Commonwealth.
Where, in an action by a receiver of a Minnesota corporation appointed by a Minnesota court against a shareholder residing in a State other than Minnesota or Massachusetts to enforce an assessment authorized by the State constitution of Minnesota in accordance with a remedy provided by a statute which enlarged the remedy that existed when the defendant became a shareholder, the defendant contended that the statute under which the receiver proceeded was unconstitutional because, in violation of U.S. Const. art. 1, § 10, it changed to his detriment an obligation arising out of his contract as a shareholder, and, the question being carried to the Supreme Court of the United States, the defendant's contention was held to be unfounded, this court, in an action brought here by the same receiver to enforce against a Massachusetts shareholder the same decree of the Minnesota court, in which the defendant makes the same contention as to the unconstitutionality of the Minnesota statute, is bound by the decision of the Supreme Court of the United States on the constitutional question.
By proceedings, properly instituted in a Minnesota court by a Minnesota creditor against a Minnesota corporation, a receiver of the corporation's assets was appointed and, under the State constitution and enabling statutes, the court levied an assessment upon shareholders to pay the debts of the corporation and the expenses of the receivership and of the collecting of the assessment, which was less in amount than the maximum assessment possible under Minnesota law, and empowered the receiver to bring actions for its collection in any State where it was necessary so to do, and, on an appeal by shareholders to the highest court of resort in Minnesota, this decree was held to be valid. In an action against a shareholder in this Commonwealth, to collect the amount of the assessment upon the shares held by him, the defendant contended that the expenses of the receivership and of collecting the assessment from other shareholders should not be included in determining the amount of assessment to be levied on his shares. Held, that the adjudication of the Minnesota court was binding upon the courts of this Commonwealth in an action brought here by the receiver to enforce the assessment, at least so long as the assessment did not exceed the par value of the shares held by the defendant.
BRALEY, J.
This is an action of contract to recover the amount of an assessment levied upon the defendant as a stockholder in the Minnesota Thresher Manufacturing Company, a foreign corporation, by the laws of whose domicil his liability must be determined. New Haven Horse Nail Co. v. Linden Spring Co. 142 Mass. 349, 355. Article 10, § 3, of the constitution of Minnesota, provides: "Each shareholder in any corporation, except 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." If the company comes within the exception, this provision is inapplicable. But, while there is much weight in the defendant's argument that, the mercantile purpose of reorganization having been to take over the assets and to continue the manufacturing business of the old concern, whose creditors were to be paid in preferred stock of the new company, its stockholders are exempt, this question must be considered as no longer open under the adverse decisions of the Supreme Court of Minnesota, in State v. Minnesota Thresher Manuf. Co. 40 Minn. 213, and Merchants' National Bank v. Minnesota Thresher Manuf. Co. 90 Minn. 144 . Inasmuch as that court possessed exclusive jurisdiction of the subject matter and of the corporation, the judicial construction given by it to this section cannot be reinvestigated in our courts, and the judgments therein rendered must be deemed conclusive. Van Norman v. Gordon, 172 Mass. 576. Harding v. Harding, 198 U.S. 317. This provision therefore entered into the corporate organization, constituting a part of the contract between the company and the State, and each member, whether he became such at organization or afterwards, assented to this condition imposed for the benefit of creditors. The obligation, even if created by operation of law, nevertheless was essentially contractual in character, and, if the corporate assets were insufficient to satisfy the debts of creditors, the defendant, while he remained a stockholder, voluntarily had entered into an implied contract to assume the deficiency to the amount of the par value of his holding. Howarth v. Lombard, 175 Mass. 570, 574, 575. Anglo-American Land Co. v. Dyer, 181 Mass. 593, 595. Pulsifer v. Greene, 96 Maine, 438. Olson v. Cook, 57 Minn. 552. First National Bank v. Winona Plow Co. 58 Minn. 167. Whitman v. Oxford National Bank, 176 U.S. 559. Bernheimer v. Converse, 206 U.S. 516. See Cook on Corp. (5th ed.) § 223, n. 2, for a collection of cases. Compare McClaine v. Rankin, 197 U.S. 154. It becomes of no importance to consider the question upon which there is some conflict in the cases, whether the organic law was self-executing without the aid of a specific remedy to enforce it and the defendant who had become bound could have been compelled to perform his promise by suit either at common law or in equity, as a statutory remedy had been provided. Willis v. Mabon, 48 Minn. 140. McKusick v. Seymour Sabin Co. 48 Minn. 158. Marshall v. Sherman, 148 N.Y. 9. Windham Provident Institution v. Sprague, 43 Vt. 502. Gen. Sts. of Minn. c. 76, §§ 5897, 5905, 5911.
But it was decided in the cases of Minneapolis Base Ball Co. v. City Bank, 66 Minn. 441, and Hale v. Allinson, 188 U.S. 56, that, under the equitable remedy provided by this chapter, as the action must be brought in behalf of all creditors against the corporation and delinquent stockholders over whom the court had jurisdiction, the receiver appointed to collect the assessments had no authority by virtue of his office to proceed against non-resident stockholders in the courts of their domicil. It thus being obvious that, as the law stood, while resident stockholders could be made to respond, foreign stockholders escaped, further legislation was enacted to supplement existing statutes by providing a form of procedure which would remove the jurisdictional difficulty. Gen. Laws of Minn. 1899, c. 272. The authority of the Legislature to enlarge the remedy by which non-residents who were stockholders at the date of enactment could be reached and made to respond must be considered as established by the local decisions in which this statute has been construed. Straw Ellsworth Co. v. Kilbourne Co. 80 Minn. 125. London Northwest Mortgage Co. v. St. Paul Park Improvement Co. 84 Minn. 144. It is well settled that the Legislature may enlarge the remedy, if the substantive right is left unimpaired. Danforth v. Groton Water Co. 178 Mass. 472. Dunbar v. Boston Providence Railroad, 181 Mass. 383. Rogers v. Nichols, 186 Mass. 440. Ewell v. Daggs, 108 U.S. 143. Campbell v. Holt, 115 U.S. 620. And the defendant, although a non-resident, had acquired no vested immunity from liability upon an unbarred existing contract, simply because, until suitable legal procedure could be provided, the pursuing creditor must turn back at the State line.
By the provisions of the supplemental act, where a receiver had been appointed, the court was authorized to ascertain the probable indebtedness and the value of corporate assets which could be applied in payment. If found inadequate, authority was conferred to levy upon stockholders for the deficit, including the estimated expenses of the receivership and costs of collection. Gen. Sts. of Minn. c. 76, § 5897. Gen. Laws of Minn. 1899, c. 272, §§ 1, 2. It accordingly follows that the plaintiff's right to maintain this suit depends upon the regularity of the proceedings in which decrees were entered appointing him receiver and levying the assessment. If sustained as valid, then the plaintiff, who had become the representative of the creditors, was empowered to enforce in the courts of the defendant's domicil his obligation as a debtor, which attached to and followed his person. Minnesota Thresher Manuf. Co. v. Langdon, 44 Minn. 37. St. Louis Car Co. v. Stillwater Street Railway, 53 Minn. 129. Howarth v. Lombard, ubi supra; Howarth v. Angle, 162 N.Y. 179. Broadway National Bank v. Baker, 176 Mass. 294. Putnam v. Misochi, 189 Mass. 421. Hancock National Bank v. Farnum, 176 U.S. 640.
We proceed to consider the requirements, a full compliance with which must be shown before the defendant can be concluded by the decrees. A judgment having been obtained, upon which an execution had issued and been returned wholly unsatisfied, the petitioning creditor then became entitled to have a receiver appointed, who not only should sequestrate and marshal any corporate property applicable to the payment of debts, but thereafter, if such action became requisite, could institute further proceedings to reach and apply as assets the secondary liability of stockholders. Gen. Sts. of Minn. c. 76, §§ 5905, 5906, 5911. Gen. Laws of Minn. 1899, c. 272. Minnesota Thresher Manuf. Co. v. Langdon, ubi supra. The judgment against the company and the subsequent decree appointing a receiver cannot be collaterally attacked, as the court had jurisdiction, and there is no suggestion that either was fraudulently procured. Hinckley v. Kettle River Railroad, 80 Minn. 32. Thayer v. New England Lithographic Steam Printing Co. 108 Mass. 523. Old Colony Boot Shoe Co. v. Parker-Sampson-Adams Co. 183 Mass. 557, 566-568. But this decree would have been fruitless, unless the next step could have been taken, as the company appears to have been hopelessly insolvent. By the interlocutory decree which followed upon the receiver's petition, the court granted this further relief, and, being a part of the principal suit, this decree is conclusive, even if entered without affording the defendant an opportunity to be heard personally. He still remained a member, and, in the proceedings to marshal its property and to reach and apply the further security of his liability, the corporation was so far his agent that he must be considered as present by representation for the purposes of the suit. Howarth v. Lombard, ubi supra. Glenn v. Williams, 60 Md. 98. Hawkins v. Glenn, 131 U.S. 319. Hancock National Bank v. Farnum, ubi supra. Bernheimer v. Converse, ubi supra. Hanson v. Davison, 73 Minn. 454, 462. Merchants' National Bank v. Minnesota Thresher Manuf. Co., ubi supra.
The further argument that the enabling statute was in violation of art. 1, § 10, of the Constitution of the United States, because it changed to his detriment the defendant's obligation arising out of his contract, requires no comment, as this question, having been directly involved therein, has been conclusively settled against that contention by the decision in Bernheimer v. Converse, 206 U.S. 516.
But, the decree having included an estimated sum for the probable expenses of the receivership and of collection by suit of the assessment, the defendant argues that this increase forms no part of the amount for which he is answerable. The suit, to which in all its stages he must be considered a party, was set on foot for the sole purpose of liquidating the indebtedness of the company. In order to make the remedy effective, the instrumentality of a receiver was indispensable, and the word "expenses" as used in this statute, besides including his compensation, also comprised the entire disbursements required to maintain the principal suit by which the necessity of a resort to the liability of stockholders had been established, and the suits by which, if necessary, the right could be enforced against delinquents. Gen. Laws of Minn. 1899, c. 272, § 3. If, by the addition of expenses, the maximum liability of the defendant had been exceeded, a more difficult question would be presented, but as yet this limit has not been reached, and the measure of recovery in the present suit is the assessment levied, including interest from the date when it became due and payable by the terms of the decree. Harper v. Carroll, 66 Minn. 487. Wheeler v. Millar, 90 N.Y. 353, 362. Palmer v. Bank of Zumbrota, 72 Minn. 266. Bernheimer v. Converse, ubi supra.
The judgment for the defendant must be reversed, and judgment in favor of the plaintiff as receiver is to be entered in the sum demanded in the declaration, with interest from the date of the writ.
So ordered.