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Cases citing this case: Supreme Court
Cases citing this case: Circuit Courts

U.S. Supreme Court


176 U.S. 559

No. 27.

Argued March 8, 9, 1899.
Decided March 5, 1900.

This was an action brought in the circuit court of the United States for the southern district of New York, by the National Bank of Oxford, a national banking association, incorporated and established under the laws of the United States, and doing business at Oxford in the state of Pennsylvania, against George L. Whitman, a citizen of the state of New York, asserting his liability, under the provisions of the Constitution and laws of the state of Kansas, for a debt of more than $2,000 due to the plaintiff from the Arkansas City Investment Company, a corporation of the state of Kansas, in which the defendant was a stockholder. [176 U.S. 559, 560]   The Constitution of the state of Kansas of 1859 provided, in article 12, 2, as follows:

The General Statutes of 1868 of that state, chapter 23, contained the following provisions:

The complaint alleged, and the plaintiff at the trial introduced evidence of, the following facts: The Kansas corporation was duly formed under the general laws of the state of Kansas in 1886, for the purpose of a general banking and real-estate business; had its only place of business at Arkansas City in that state; was not a railway, religious, or charitable corporation; and had a capital of $200,000, divided into 2,000 shares of $100 each, of which the defendant, from the time of the formation of the corporation, and ever after, owned one half. In December, 1890, that corporation made a general assignment for the benefit of its creditors, and from that time wholly suspended business. About four months before its failure, it indorsed and guaranteed for value two promissory notes, together amounting to $4,875, which were discounted by the plaintiff. In 1895 the plaintiff brought an action to recover the unpaid balance of those notes, in a district court of the county of Cowley and state of Kansas, against the corporation, and, after its general appearance and subsequent default, recovered judgment against it for the sum of $3,449; an execution thereon against the corporation was issued to the sheriff of the county, who returned it wholly unsatisfied, because he could not find any property on which to make a [176 U.S. 559, 562]   levy; and the corporation had in fact no assets of any kind.

The defendant moved the circuit court of the United States to direct a verdict in his favor, upon the ground that it had no jurisdiction to enforce a statutory remedy of the state of Kansas. The court denied the motion, directed a verdict for the plaintiff, overruled a motion for a new trial, and entered a final judgment for the plaintiff. 76 Fed. Rep. 697. That judgment was affirmed by the circuit court of appeals. 51 U. S. App. 536, 83 Fed. Rep. 288, 28 C. C. A. 404. The defendant thereupon applied for and obtained this writ of certiorari. 168 U.S. 710 , 18 Sup. Ct. Rep. 950.

Messrs. William G. Choate, Joseph H. Choate, and William G. Wilson for Whitman.

Messrs. Howard A. Taylor and Mr. William B. Hornblower for Bank.

Mr. Justice Brewer delivered the opinion of the court:

By 2 of article 12 of the Constitution of Kansas a certain definite liability is cast upon each stockholder in other than railway, religious, and charitable corporations. This liability is for the dues of the corporation and to an amount equal to the stock owned by him. The word 'dues' is one of general significance, and includes all contractual obligations. Whether broad enough to include liabilities for torts, either before or after judgment, is not a question before us, and upon it we express no opinion. The words, 'shall be secured,' are not merely directory to the legislature to make provision for such liability, but of themselves declare it. To this extent the Constitution is self-executing. Willis v. Mabon, 48 Minn. 140, 16 L. R. A. 281, 50 N. W. 1110. The discretion of the legislature extends beyond this, as indicated by the clause 'and such other means as shall be provided by law.' A failure of the legislature to create courts or prescribe modes of procedure may, it is true, make ineffective this constitutional provision, but does not destroy the liability; nor is it created by the act of the legislature [176 U.S. 559, 563]   prescribing the mode of its enforcement. This is the obvious meaning of the constitutional provision. 'The simplest and most obvious interpretation of a Constitution, if in itself sensible, is the most likely to be that meant by the people in its adoption.' Lamar, Justice, in Lake County v. Rollins, 130 U.S. 662, 671 , 32 S. L. ed. 1060, 1063, 9 Sup. Ct. Rep. 651, 652.

But this constitutional provision does not stand alone. The legislature of Kansas has acted on the subject-matter, and the Constitution and the statutes are to be taken together, as making one body of law; and it serves no good purpose to inquire what rights and remedies a creditor of a corporation might have, or what liabilities would rest upon a stockholder, if either Constitution or statutes stood alone and unaided by the other.

In 32 of chapter 23 of the General Statutes of that state, passed before the organization of the corporation referred to, the legislature prescribed the mode of enforcing this constitutional liability, and if such were needed declared to what extent it could be enforced. It may be either by motion in a case in which judgment has been rendered against the corporation and execution thereon returned unsatisfied, or by a direct action by the plaintiff in such judgment. Neither remedy can be made effectual in the courts of Kansas against a stockholder unless by due service of process he is brought within the jurisdiction of such courts. Wilson v. Seligman, 144 U.S. 41 , 36 L. ed. 338, 12 Sup. Ct. Rep. 541; Howell v. Manglesdorf, 33 Kan. 194, 199, 5 Pac. 759.

Whatever else may be said about the remedy, it is direct, certain, and available to every creditor of a corporation, and leaves to the stockholders the adjustment between themselves of their respective individual shares of the corporate obligations. In view of the present tendency to carry on business through corporate instrumentalities and the freedom from personal liability which attends ordinary corporate action, it cannot be said that this limited additional remedy is open to judicial condemnation.

The liability which by the Constitution and statutes is thus declared to rest upon the stockholder, though statutory in its origin, is contractual in its nature. It would not be doubted that if the stockholders in this corporation had formed a part- [176 U.S. 559, 564]   nership, the obligations of each partner to the others and to creditors would be contractual, and determined by the general common law in respect to partnerships. If Kansas had provided for partnerships with limited liability, and these parties, complying with the provisions of the statute, had formed such a partnership, it would also be true that their obligations to one another and to creditors would be contractual, although only in the statute was to be found the authority for the creation of such obligations. And it is none the less so when these same stockholders organized a corporation under a law of Kansas, which prescribed the nature of the obligations which each thereby assumes to the others and to the creditors. While the statute of Kansas permitted the forming of the corporation under certain conditions, the action of these parties was purely voluntary. In other words, they entered into a contract authorized by statute.

Flash v. Conn, 109 U.S. 371 , 27 L. ed. 966, 3 Sup. Ct. Rep. 263, is much in point. In that case a corporation was organized in the state of New York, under an act of the legislature, which contained this provision:

An action was brought in Florida against one of the stockholders, and on error to this court it was held that the stockholder was liable, the court saying (377, L. ed. 969, Sup. Ct. Rep. 267):

And finally, in reference to the objection that the action was one at law against a single stockholder instead of in equity against all (380, L. ed. 970, Sup. Ct. Rep. 269):

In Richmond v. Irons, 121 U.S. 27 , 30 L. ed. 864, 7 Sup. Ct. Rep. 788, in which the question presented was whether the individual liability of a stockholder in a national bank survived as against an administrator, it was said (p. 55, L. ed. p. 873, Sup. Ct. Rep. p. 801):

In Concord First Nat. Bank v. Hawkins, 174 U.S. 364, 372 , 43 S. L. ed. 1007, 1011, 19 Sup. Ct. Rep. 739, 742, in which one national bank was sought to be charged as stockholder in another national bank, was this declaration:

Similar are the views entertained by the supreme court of Kansas.

In Abbey v. W. B. Grimes Dry Goods Co. 44 Kan. 415, 418, 24 Pac. 426, 427, we find this statement:

And again, in Pumb v. Bank of Enterprise, 48 Kan. 484, 486, 29 Pac. 699, 700:

And again, in Plumb v. Bank of Enterprise, for the corporate liability, and creditors of the corporation are supposed to contract with reference to the individual responsibility of the stockholders.' [176 U.S. 559, 567]   In Achenbach v. Pomeroy Coal Co. 2 Kan. App. 357, 359, 42 Pac. 734, 735, is this language:

And while the word 'statutory' is sometimes found in the opinions of that court as descriptive of the stockholder's liability, evidently the word is so used to indicate the origin rather than the nature of the liability. Thus, in Howell v. Manglesdorf, 33 Kan. 194, 199, 5 Pac. 759, 762, it was said:

Obviously this recognizes the contractual nature of the obligation as well as its statutory origin. Again, in Pierce v. Topeka Commercial Security Co. 60 Kan. 164, 55 Pac. 853, it was held that a stockholder, sued by a judgment creditor of the corporation, might set off against that claim the indebtedness of the corporation to him, accruing before he became liable as stockholder, the court saying (55 Pac. 854):

Thus while the statutory origin of the obligation is asserted, its contractual nature is recognized in that the right of set-off is affirmed.

That an action upon this liability is not one to enforce a penal statute of Kansas, but only to secure a private remedy, is not open to question since the decision in Huntington v. Attrill, 146 U.S. 657 , 36 L. ed. 1123, 13 Sup. Ct. Rep. 224.

And as this liability is one which is contractual in its nature, it is also clear that an action therefor can be maintained in any court of competent jurisdiction. Dennick v. Central R. Co. 103 U.S. 11 , 26 L. ed. 439; Huntington v. Attrill, 146 U.S. 657 , 36 L. ed. 1123, 13 Sup. Ct. Rep. 224. [176 U.S. 559, 568]   Similar views have been expressed by the highest courts of several states in like actions based upon the same Kansas constitutional and statutory provisions. Ferguson v. Sherman, 116 Cal. 169, 37 L. R. A. 622, 47 Pac. 1023; Bell v. Farwell, 176 Ill. 489, 42 L. R. A. 804, 52 N. E. 346; Hancock Nat. Bank v. Ellis, 172 Mass. 39, 42 L. R. A. 396, 51 N. E. 207; Western Nat. Bank v. Lawrence, 117 Mich. 669, 76 N. W. 105; Guerney v. Moore, 131 Mo. 650, 32 S. W. 1132. See also Paine v. Stewart, 33 Conn. 516; Cushing v. Perot, 175 Pa. 66, 34 L. R. A. 737, 34 Atl. 447; Rhodes v. United States Nat. Bank, 24 U. S. App. 607, 66 Fed. Rep. 512, 13 C. C. A. 612, 34 L. R. A. 742; Bank of North America v. Rindge, 57 Fed. Rep. 279; McVickar v. Jones, 70 Fed. Rep. 754; Mechanics' Sav. Bank v. Fidelity Ins. Trust & S. D. Co. 87 Fed Rep. 113; Dexter v. Edmands, 89 Fed. Rep. 467; Brown v. Trail, 89 Fed. Rep. 641.

We see no error in the judgment of the Circuit Court of Appeals, and it is therefore affirmed.

Mr. Justice Peckham dissents.

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