Markell v. Ray

CANTY, J.

This is an acti'on under G. S. 1894, c. 76, brought on behalf of the plaintiff and all other creditors of the Masonic Temple Association of Duluth, an insolvent corporation, to enforce the double or super-added liability of its stockholders.

1. The action was commenced October 31, 1895. Only a few of the alleged stockholders were then made parties to the action, and among those were Robert C. Ray and Caroline E. Ray. October 23, 1896, the complaint was, on the application of plaintiff, amended by an ex parte order of the court so as to set up a new cause of action against Robert C. Ray and Caroline E. Ray. They moved to set aside the order allowing the amended complaint, and their motion was denied. This they assign as error.

Whether or not the court erred in amending the complaint by this ex parte order, and in denying the motion to set the amendment aside, and whether or not these acts of the court were error without prejudice, it is not necessary to decide, for the reason that on June 26, 1897, the complaint was again amended, on motion made on notice, and, as so amended, contained the amendment allowed ex parte as aforesaid, superseded it, and cured the alleged error. As we shall now proceed to show, the statute of limitations had not, on June 26, 1897, run against said , new cause of action.

2. In the original complaint Robert C. Ray and Caroline E. Ray were charged only as stockholders. The amended complaint alleged: That they and Marion Ray are the devisees of James D. Ray, who at the time of his death, on April 27,1894, was the owner and holder of 1,400 shares of the capital stock of said temple association, of the face value of $25 each. That the debt due from the temple association to plaintiff was incurred prior to that time. That James D. Ray left at his death real and personal property of the value of more than $500,000, which by his last will he devised as follows: One-third to his widow, said Caroline E. Ray; one-half to his son, said Robert C. Ray; and the remaining one-sixth to his daughter, Marion Ray. That the will was duly probated, the estate administered, and on May 1, 1895, all the estate remaining was distributed to said devisees in said proportions, — the value of the estate so distributed being $350,000, — and the executor was then discharged.

On these facts the amended complaint sought to charge the three devisees, under G-. S. 1894, §§ 5918-5929, for the stockholder’s liability of said James D. Ray. The temple association made a general assignment for the benefit of its creditors, under the insolvency law, on October 31, 1895,- — the day that this action was commenced.

Appellant contends that under G. S. 1894, § 5927, the statute of limitations would have run against this claim in one year from that date, were it not for the fact that the complaint was amended ex parte, within the year, so as to set up the cause of action against the devisees as such, and that, therefore, appellant is prejudiced by this amendment. Section 5927 provides:

“No action shall be maintained [against heirs or devisees on such a claim] unless commenced within one year from the time the claim is allowed or established.”

We cannot hold that, as appellants contend, the commencement of this action on October 31, 1895, is equivalent or analogous to the allowing or establishing of this claim against these devisees, within the meaning of this section, so as to start the statute of limitations running. In wha.t court or in what manner this section contemplates that the claim shall be “allowed or established,” we need not consider, but we are strongly of the opinion that appellants’ contention cannot be sustained.

3. At the time said amended complaint was allowed, said Marion Ray, a. minor, was brought in as an additional party defendant, by an order reciting the summons, and requiring her to answer the complaint, as provided in G-. S. 1894, § 5178. There is nothing in the claim that a minor cannot be made a defendant in this manner, and can only be made a defendant in such a case by amending the summons, and serving the same as amended. We see no reason why section 5178 does not apply to minors as well as to persons sui juris.

4. On October 81, 1895, the day of the commencement of this action, and the day the corporation made the assignment and ceased to be a going concern, 774 shares of its capital stock were registered on its books as being held and .owned by “James D. Ray and Robert 0. Ray.” The trial court held the latter liable for the face value of all of this stock, and held the devisees of the former liable for the same amount. It did not appear that James D. and Robert C. were partners, or that they held the stock as partners, and nothing of the kind appeared by the books of the corporation. Under these circumstances, they appeared to be tenants in common, each appearing to be a holder of an undivided half interest in the stock; and we are of the opinion that Robert C. should not be held for more than one-half of the face value of the stock, and the devisees for the other one-half.

5. On October 24, 1889, James D. Ray became the registered holder of 100 shares of said stock, and Robert C. Ray of 40 shares. A part of said 774 shares was issued by the corporation to James D. and Robert C. on the same day, and the other part was transferred to them by a prior holder on June 17, 1890. These parties appeared on the books of the company to be the respective owners of this stock until June 20, 1894. James D., during all of said time up to the time of his death, was in fact the owner of all this stock, but had permitted some of it to be entered on the books as the stock of Robert C. James D. died on April 27, 1894. Robert C. was appointed his executor under his will. On said June 20, 1894, Robert C., with the consent of Caroline E. and Marion, pursuant to an agreement with them, and pursuant to the provisions of the will, caused all of said 914 shares of stock to be transferred on the books of said corporation to himself, as executor >of said estate.

Thereafter, on May 1, 1895, the estate was settled, and the decree of distribution was entered, assigning all of the remaining property of said estate, including said 914 shares of stock, to the three devisees, and discharging the executor. On the same day the three devisees filed in the probate court a refusal to receive the stock, or any part of it. On these facts the court held Robert C. primarily liable for the 774 shares as aforesaid, and also held him liable for said 40 shares so standing in his name at the time of the death of James D.

Counsel contend that Robert C. was only secondarily liable for this stock, and that the estate of James D. is primarily liable, for the reason that all of this stock was transferred to the executor, and stood in his name as executor on the books when the corporation ceased to be a going concern. We agree with appellants that Robert C. is not primarily liable as stockholder on any of this stock, and is only secondarily liable as stockholder on such portion of this stock as stood in his name at the time of the death of James XX

It may be a question whether, on common-law principles, an executor who procures stock to be transferred to himself as executor would not thereby make himself personally liable, especially if before the transfer the stock stood in the name of some one other than the testator. See In re Leeds Banking Co., 1 Ch. App. 231; Spence’s Case, 17 Beav. 203; Jackson v. Turquand, L. R. 4 H. L. 305; Schouler, Exrs. § 380. But G. S. 1894, § 3419, provides:

“Persons holding stock in a corporation as executors, administrators, guardians or trustees shall not be personally subject to any liabilities as stockholders; but the estates and funds in their hands shall be liable in like manner and to the same extent as the testator, intestate, ward or person interested in the trust fund would be, if they were respectively living and competent to act, and held the stock in their own names.”

We are of the opinion that where the executor had authority, under the will, to take stock in his name as executor, this section exempts him from personal liability. It therefore follows that Robert C. was personally liable as stockholder only to this extent: He was secondarily liable on the 40 shares, and on his one-half interest in the 774 shares, and the court erred in holding otherwise. The estate alone was primarily liable on the whole 914 shares, and the three distributees must, to the extent of the assets received by them, answer for this primary liability. If they fail to do so, then Robert C. must respond to such secondary liability.

6. One Bell made an assignment, under the insolvency law of this state, to plaintiff, November 25, 1890, — nearly five years before the commencement of this action. A part of the assets so assigned by Bell was a promissory note held by him against the temple association for the sum of $16,000. Bell at the same time held stock of the association amounting to $10,500, which was also assigned to the plaintiff as a part of such assets. Bell was not made a party to this action, and the court finds that he is a nonresident, so that service could not be had upon him. The court ordered judgment in favor of plaintiff, as assignee of Bell, and against the other stockholders, for the amount of said note, without offsetting against the same the liability on Bell’s stock. This is assigned as error.

The liability on Bell’s stock was contingent. The contingency did not happen and the liability become absolute, until after Bell made the assignment for the benefit of his creditors. This contingent claim is not provable against the insolvent estate of Bell, even though it has become absolute when the attempt is made to prove it. See 3 Am. & Eng. Enc. (2d Ed.) 139; Wilder v. Peabody, 37 Minn. 248, 33 N. W. 852, and cases cited. But it does not follow from this that equity will not set off one of these claims against the other.

Insolvency has long been recognized as a distinct ground on which a court of equity will compel a set-off in many cases where there is no remedy at law, or where the party seeking set-off could not maintain an independent action against the party against whom set-off is sought. See Waterman, Set-Off, §§ 431-441. See also Cosgrove v. McKasy, 65 Minn. 426, 68 N. W. 76; Richardson v. Merritt, 74 Minn. 354, 77 N. W. 234, and cases therein cited. No general rule can be laid down, by which to determine when this equitable right of set-off exists, that will cover all cases. We are of the opinion that it exists in the present case.

Again, if this stockholder’s liability of Bell was, at law, a claim against the assets in the hands of his assignee, then the latter could only recoup against such liability the dividends which would come to him as a creditor in the action, to wit, the dividends to be paid by the receiver herein on said $16,000 note. Harper v. Carroll, 66 Minn. 487, 69 N. W. 610, 1069.

But, as this stockholder’s liability is a claim against the assets in the hands of the assignee only by reason of the doctrine of equitable set-off, the set-off herein must be governed wholly by the rules which a court of equity would apply in the particular case; and, as Bell and the temple association are both insolvent, there is no reason why a court of equity should favor or prefer the creditors of the one to the injury of the creditors of the other. The doctrine that equity is equality should be applied when no other rule intervenes to prevent the application of that doctrine. Therefore the set-off should be of the stockholder’s liability, not against the dividends coming to the creditor, but against the whole claim held by him. The court should set off claim against claim, dollar for dollar. Of course, the claim on the stockholder’s liability may not be $10,500, the face of the stock. Such claim will be the sum of the amounts or assessments for which the court would order execution to issue, as laid down in Harper v. Carroll, supra.

This disposes of all the questions raised having any merit, and the case is remanded to the court below, with directions to modify the judgment in conformity with this opinion.