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Keywords

liabilitybankruptcycorporationgood faith
contractdefendantliabilitystatutehearingcorporation

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Selig v. Hamilton, 234 U.S. 652, 34 S.Ct. 926, 58 L.Ed. 1518, Am.Ann.Cas. 1917A, 104

Facts

The Evans, Munzer, Pickering Company was incorporated in Minnesota in 1902 and later changed its name. Arthur L. Selig owned 50 shares of preferred stock until he transferred them in 1904, shortly before the company filed for bankruptcy in 1905. A sequestration suit was initiated to enforce stockholder liability, leading to an assessment against Selig for the debts incurred while he held the stock. The court found that Selig's transfer did not absolve him of liability for debts incurred prior to the transfer.

In 1902 the Evans, Munzer, Pickering Company was incorporated under the laws of Minnesota for the purpose of transacting a mercantile business. In 1904 its name was changed to the Evans, johnson, Sloane Company. Its capital stock consisted of 1,500 shares of common and 1,000 shares of preferred stock of the par value of $100 each.

Issue

Whether a stockholder can be held liable for corporate debts incurred prior to the transfer of their shares, despite the transfer being made in good faith.

Whether a stockholder can, even by a bona fide transfer of his stock, escape liability for the debts of the corporation theretofore incurred.

Rule

Under Minnesota law, a stockholder remains liable for corporate debts incurred while they held their shares, even after transferring those shares, as the transfer does not exempt them from liabilities created prior to the transfer.

The Minnesota statute provides that a transfer of shares ‘shall not in any way exempt the person making such transfer from any liabilities of said corporation which were created prior to such transfer.’

Analysis

The court applied Minnesota's statutory provisions regarding stockholder liability, affirming that Selig, despite transferring his shares, remained liable for debts incurred while he was a stockholder. The court noted that the assessment made by the Minnesota court was conclusive and that Selig was represented in the proceedings by virtue of his relationship with the corporation. The court found no evidence to dispute the validity of the assessment or the debts owed.

Inasmuch as the transfer was proved to have been made in September, 1904, and no evidence was introduced to discredit the transaction, it must be assumed, for the present purpose, that the defendant's stock ownership then ceased, and that he was not liable for the payment of debts subsequently contracted by the corporation.

Conclusion

The court affirmed the lower court's judgment, holding Selig liable for the assessment based on the debts incurred prior to his transfer of stock.

The judgment is affirmed.

Who won?

Charles E. Hamilton, the receiver, prevailed because the court upheld the assessment against Selig, confirming that he remained liable for debts incurred while he was a stockholder.

The court set a date for hearing and directed notice to be given by publication and mailing.

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