Aultman v. Waddle

1. Cobbobation — Inability of Stockholders. Stockholders who organize themselves as a corporation, transact business, and hold themselves out to the world as such corporation, cannot, when proceeded against by creditors, set up as a defense that the preliminary steps of the organization were irregular; nor can they deny their liability as stockholders therein. 2. Agbeemeht, not Cham/pertous. Certain j udgment creditors assigned judgments which they had obtained against a party to an attorney, and contemporaneously with the assignment it was agreed that the attorney should proceed to collect the judgments in his own name, and should pay to the creditors fifty per cent, of the amount realized, they to assume the burden of the costs. Held, That as the agreement did not relieve the creditors from the payment of the costs of the proceedings, it was not champertous.

Error from Franklin District Court. ActioN by F. A. Waddle to enforce the individual liability of the defendants as stockholders of the Pomona Creamery Company. At the April term, 1887, the trial was had without a jury, and the court at the request of the parties made the following findings of fact and conclusions of law: “1. On October 24,1883, the several defendants in this action, together with several other citizens of this county, signed a written contract or proposition with John W. Hall & Co., whereby said Hall & Co. proposed to erect and put in operation a creamery, at Pomona, of a certain capacity, and said subscribers agreed to pay therefor the sums set opposite their names; and when $5,800 should be subscribed, the creamery to be erected in 120 days thereafter, and the subscribers then to incorporate under the laws of Kansas, fixing the capital stock at $6,800, to be divided into 136 shares of $50 each, Hall & Co. to have $5,800 in money for the creamery, and 20 shares of stock therein, to be issued to them for superintending the work. Said writing further provided that ‘in the articles of incorporation, and in the by-laws thereof, no assessment shall be made upon the stockholders for the indebtedness of the same except to pay Hall & Co. as above specified, neither shall the private property of said stockholders be liable for such subsequent indebtedness/ It was further provided iu said writing, ‘that after said organization is completed, and said amount paid to Hall & Co., said corporation shall issue stock to each of the above-mentioned subscribers to the amount of his subscription hereto annexed; also issue 20 shares of stock to said Hall & Co., as full payment for superintending the manufacturing and marketing of the butter above mentioned.’ The defendants subscribed said paper as follows : £>. O. ADDRESS. AMT SÜBSC. L. Aultman. Ottawa. $100 J. 3?. Patton. Pomona. 100 E. A. Bice. Bansomville.. 300 J. H. Seoville_ Pomona. 100 A. H. Sellers. Pomona. 100 Philip Bledsoe... Pomona. 100 Morg. Wickham. Pomona. 200 ¿T. J. Whetstone.. Pomona. 200 J. H. Whetstone. (Per orders). 750 “The paper was similarly subscribed by several others, who are not made parties. “2. In pursuance of said contract and proposition, Jno. W. Hall & Co. erected and put in operation said creamery about March 1, 1884, and about the same time said subscriptions were collected to the amount of $5,800, and paid over to Hall & Co., except $250, which was never collected, being part of the $750 subscribed by J. H. Whetstone, ‘per orders,’ which is hereafter again referred to. “3. On January 1, 1884, ten «£ said subscribers executed and acknowledged a charter for said ‘Pomona Creamery Company,’ and caused the same to be filed in the office of the secretary of state as provided by law, whereby they undertook to and did become incorporated by said name under the laws of Kansas, as contemplated in said contract or proposition referred to in the first finding. A copy of said charter, marked ‘A’, is attached to the answer hereifi. “4. After the filing of said charter, certificates of stock were duly issued to said defendants and other subscribers thereto, as provided in said original contract for the amounts so subscribed, except said J. H. Whetstone, which was duly paid in full by said defendants, and thereupon they became and were stockholders therein, holding paid-up stock for the amount specified in their subscriptions as stated in the first finding, and have ever since continued to and still do hold said stock. “ 5. The subscription of J. H. Whetstone for $750 was made by him and understood by the other subscribers to be for other parties, and afterward $500 of said amount was taken by and stock therefor issued to C. W. and O. L. Parkinson; but the balance thereof, to wit, $250, was never taken by anyone, and never issued. l£6. Regular books were kept, showing the transactions of said corporation and its board of directors, and the names of its stockholders, and amounts of stock held. The corporation engaged in the business named in its charter and proposed in said original agreement, and continued therein from the spring of 1884 down to October 1, 1885, when it suspended business, and since that time has failed to resume its usual and ordinary business, and had wholly suspended business for more than one year prior to the commencement of this action. “7. One week prior to June 1, 1885, the secretary of said corporation, by order of its president, and as provided by the by-laws, gave to each stockholder therein, including the defendants, a notice of a special meeting to be held at the creamery office in Pomona on June 1, 1885, for the purpose of changing the articles of incorporation. This notice was given by mail to each stockholder, by posting in three public places in Franklin county, and by advertisement in the Pomona Enterprise, a newspaper published at Pomona, and was in conformity to a by-law of the corporation providing for special meetings and the notice therefor. Stockholders were present and acting at such meeting representing 79 shares of the capital stock. None of these defendants were present at such meeting. Prior to the call for this meeting, the 20 shares issued to Hall & Co. had been surrendered to the corporation and canceled, and the certificates burned. This was done in pursuance to a resolution of the stockholders at a stockholders’ meeting authorizing any holder of stock to so surrender the same and have it canceled. The stock outstanding, excluding said Hall stock, on June 1, 1885, was $5,350. “ 8. At said special meeting of June 1, 1885, it was voted to adopt the second or amended charter which had been executed May 18, 1885, by six of the original corporators, and thereupon it was duly filed with the secretary of state. A copy of this amended charter is attached to the answer herein, marked ‘B.’ This was adopted in pursuance to the advice of counsel for the reason specified in the preamble thereto, and was intended as an amended charter for the same corporation, and was not intended to be the charter of a new corporation. The corporation continued to transact the same business with the same property, using the same books and records under the direction of the same officers, and with the same objects and purposes, and pursuing the same methods as before. On the day such amended charter was adopted it was voted to execute a mortgage upon the creamery to certain stockholders to secure them for liabilities assumed as indorsers of the corporation paper, which mortgage was accordingly executed and afterward foreclosed in this court. “ 9. The defendants Patton, Scoville, Wickham and J. J. Whetstone traded with said corporation, delivered milk at the creamery, and accepted checks therefor drawn by its treasurer after the change in said charter had been made, but none of the defendants had any actual knowledge of said change after it had been made until this suit was brought. “10. In January, 1886, 'the several judgment creditors mentioned in the petition duly recovered a judgment before a justice of the peace of this county for the several sums, with costs, specified in the petition, whereof abstracts were duly filed and judgments docketed thereon in this court as provided by law, and as alleged in the petition. Afterward, and on August 16, 1886, said judgments were by the judgment creditors therein severally duly assigned in writing, absolute in form, to the plaintiff. Contemporaneous with such written assignments, it was agreed between the plaintiff (who is an attorney at law of this court) that he should proceed to collect said judgments in his own name, and when collected pay to said several judgment creditors 50 per cent, of the amount collected on each judgment; they, the judgment creditors, then advancing to plaintiff $30 as indemnity against costs. All the claims upon which said judgments were rendered accrued after said amended charter was adopted and filed. “11. There is now due to the plaintiff'on the several judgments, so assigned to him, the sum of $477.25, debt, and $329.95, costs accrued upon said judgments, amounting altogether to the sum of $807.20. “12. None of the defendants have paid into the corporation, or for its use, anything more than the amount of their said stock subscriptions. Said J. J. Whetstone has, however, purchased several open accounts against the corporation, and holds the same by assignment, amounting to the sum of $110. He has also since the commencement of this action had assigned to him a judgment against the corporation for $200, rendered in the foreclosure suit upon the mortgage referred to in the eighth finding. The corporation also owes the defendants, Scoville $15, and Morg. Wickham $24, balance due for milk furnished by them since June 1, 1885.” As its conclusions of law upon the foregoing facts, the court finds that— “1. The plaintiff may maintain this action, as he has undertaken to do, and the defense of champerty cannot be sustained. “2. The corporation as organized under said charter ‘A’ is the same corporation afterward continuing business under charter ‘B,’ the last-named charter being an amendment merely of the former, and the liability of the stockholders remains the same. “ 3. By the provisions of § 40 of the aet concerning private corporations as amended in 1883, the said corporation must be deemed dissolved at the commencement of this action, for the purpose of enabling creditors to enforce the individual liability of stockholders therein. “4. The said defendants named below are liable herein to an amount equal to the capital stock held by them respectively, to wit: L. Aultman to the amount of $100, J. E. Patton to the amount of $100, E. A. Rice to the amount of $300, J. H. Scoville to the amount of $100, A. H. Sellers to the amount of $100, P. Bledsoe to the amount of $100, Morg. Wickham to the amount of $200, J. J. Whetstone to the amount of $200, and the defendant J. H. Whetstone is not liable. “5. The plaintiff is entitled to judgment for said sum of $807.20 due upon said judgments. The several defendants to be released upon paying the amount of their respective individual liability, and when sufficient is paid to satisfy the amount so due the plaintiff, with interest from this date, and costs of this action, the judgment will be released.” Judgment was rendered against the defendant stockholders in accordance with the conclusions of law. The plaintiff and the defendants both complain of the judgment rendered, and bring the case here for review.