Garetson Lumber Co. v. Hinson ( 1914 )

Mr. Justice Moore

delivered the opinion of the court.

1, 2. Is an action at law the proper remedy herein, and is the Garetson-IIilton Lumber Company the proper party plaintiff, are the questions to be considered. As a preliminary matter, it may be stated that in the absence of an enactment by the state in which a person resides, imposing upon him a particular liability as a stockholder in a foreign corporation, the statute of another state giving life to such artificial being, or the articles which it adopts, affords the rule regulating the liability to its creditors when suits are brought to establish a legal responsibility against a resident stockholder: Smith v. Huckabee, 53 Ala. 191; Shaw v. Boylan, 16 Inch 384; Coffin v. Rich, 45 Me. 507 (71 Am. Dec. 559); Seymour v. Sturgess, 26 N. Y. 134; Merrick v. Van Santvoord, 34 N. Y. 208; Ex parte Van Riper, 20 Wend. (N. Y.) 614. The complaint herein does not set forth the provisions of the statute of Missouri under which enactment the plaintiff was organized, nor does the initiatory pleading state any of the clauses of the charter adopted by the corporation respecting the liability of its stockholders, and in default thereof it will be assumed that the articles of incorporation are silent upon this subject, and also presumed that the law of Missouri governing the case is the same as the principles of the common law prevailing in or the statute in recognition thereof enacted by Oregon: Goodwin v. Morris, 9 Or. 322; Cressey v. Tatum, 9 Or. 541; Scott v. Ford, 52 Or. 288 (97 Pac. 99); Young v. Young, 53 Or. 365 (100 Pac. 656); De Vall v. De Vall, 57 Or. 128 (109 Pac. 755, 110 Pac. 705); Long v. Dufer, 58 Or. 162 (113 Pac. 59). No reference will therefore be made to the laws of the state under which the plaintiff was organized, except so far as the allusions to the statute of Missouri are made in decisions of the courts of that state upon the questions herein involved.

3, 4. Whatever opinions may have been originally announced by the federal and state courts of this country, respecting the trust doctrine as applied to a corporation, the legal principle is now established that, until a corporation has either suspended its business or has become insolvent and its assets have been placed in the possession of a court of equity for administration and are in the course of final settlement and distribution, the capital stock of a corporation does not constitute a trust fund upon which general creditors have a lien for the payment of their demands: Thompson, Corporations (2 ed.), § 3421.

The existence of the trust doctrine as applicable to the assets of a corporation which is a “going concern” has been denied by this court: Sabin v. Columbia Fuel Co., 25 Or. 15 (34 Pac. 692, 35 Pac. 854, 42 Am. St. Rep. 756). The rule has been settled by our adjudications that mere insolvency does not of itself convert corporate property into a trust fund; but, when a corporation ceases to transact business and is insolvent, its assets then constitute a trust fund for the payment of the corporate debts without the intervention of a court of equity to administer upon the property for the purpose of a final settlement: Macbeth v. Banfield, 45 Or. 553 (78 Pac. 693, 100 Am. St. Rep. 670); Williams v. Commercial Nat. Bank, 49 Or. 492 (90 Pac. 1012, 91 Pac. 443, 11 L. R. A. (N. S.) 857). In order to subject such assets to the payment of a creditor’s demand, a resort to a court of equity is essential: Ladd & Bush v. Cartwright, 7 Or. 329; Hodges & Wilson v. Silver Hill Min. Co., 9 Or. 200; Aldrich v. Anchor Coal Co., 24 Or. 32 (32 Pac. 756, 41 Am. St. Rep. 831); Hawkins v. Donnerberg, 40 Or. 97 (66 Pac. 691, 908); Macbeth v. Banfield, 45 Or. 553 (78 Pac. 693, 106 Am. St. Rep. 670).

5. The performance of vain things is unnecessary, and hence it is not esséntial that a creditor should secure a judgment against an insolvent corporation establishing his demand, and have an execution issued and returned nulla bona as a condition precedent to invoking equitable intervention to obtain relief against a stockholder: Shipman v. Portland Const. Co., 64 Or 1 (28 Pac. 989).

6. Prom the principle thus established in this state the proper remedy of a creditor of an insolvent corporation to reach the fund alleged to have been paid to a stockholder as a dividend in liquidation is by a suit in equity and not by an action at law as commenced in the case at bar.

7. The remaining question is whether or not the Gfaretson-Hilton Lumber Company is the proper party plaintiff. “Where dividends,” says an author, “were paid to a stockholder at a time when the bank was insolvent, and in disobedience of the banking statute, it was held that the liability to repay was to the corporation and was enforceable by it”: 5 Thompson, Corporations (2 ed.), § 5360. In support of the language thus quoted, the case of Gager v. Paul, 111 Wis. 638 (87 N. W. 875) is cited. The text-writer mentioned further observes: “It has been held that either the corporation or its assignee might recover a dividend paid by mistake”: Thompson, Corporations (2 ed.), § 5363. As upholding the latter excerpt, the case of Skrainka v. Allen, 7 Mo. App. 434, is relied upon inter alia. The decision in Gager v. Paul, 111 Wis. 638 (87 N. W. 875), was evidently predicated upon a statute, construing which the court says:

“Section 1765, which prohibits payment of dividends by insolvent corporations generally, seems to recognize that,” such “liability is to the corporation, by providing that such liability is to restore the full amount, except in certain cases. Restoration can only be made to the source from which the dividends came. ”

In Skrainka v. Allen, 7 Mo. App. 434, 441, the conclusion reached was based upon a clause of the statute of Missouri which is set forth in the opinion. In that case, the plaintiff, having obtained a judgment against a corporation, caused an execution to be issued and returned nulla bona and thereupon moved for leave to issue execution against a stockholder. It would seem that under the statute of Missouri a judgment creditor of a corporation, upon a motion therefor, might obtain the issuance of an execution against a stockholder for an unpaid subscription of stock: Erskine v. Loewenstein, 82 Mo. 301, 305. In referring in that case to such procedure the court remarks:

“This motion takes the place, under the statutory provision, of the suit in equity, at common law, to reach the assets in the hands of the stockholder.”

The rule announced in Missouri and in Wisconsin in construing statutes of the respective states is not controlling in Oregon, where no enactment regulating the procedure exists.

It may be conceded that, when a corporation is a “going concern,” it is a proper party plaintiff to sue for or to prevent a misappropriation of its property; bnt, if it fails or refuses to perform that duty, the person interested in recovering or protecting the corporate assets may institute and maintain the suit: North v. Union S. & L. Assn., 59 Or. 483 (117 Pac. 822). When, however, a corporation has disposed of all its property and ceased to transact any business, thereby necessitating the employment of another corporation to perform the essential clerical work required in the management of its affairs, it is believed that, upon principle, it is in such a comatose state, preceding final dissolution, that without some act of revivification whereby its animation is restored, it has not sufficient vitality to institute or maintain a suit for the recovery of any part of a dividend paid out in liquidation.

Such being the case, the plaintiff is not a proper party plaintiff, and the suit should have been instituted by the G-arets on-Gras on Lumber Company, the corporation which it is alleged rendered such service. The judgment is affirmed, except that the action should be dismissed without prejudice, and it is so ordered.

Affirmed: Dismissed, Without Prejudice.

Mr. Chief Justice McBride, Mr. Justice Burnett and Mr. Justice Ramsey concur.