Source: https://openjurist.org/13/f1d/415
Timestamp: 2019-04-23 00:02:39+00:00

Document:
EQUITY-SUIT ON BEHALF OF CREDITORS AND STOCKHOLDERS.
Creditors and stockholders of an insolvent non-l'esident corporation may unite in a suit in behalf of themselves and other creditors and stockholders, to enforce the liability of holders of unpaid shares of the capital stock of such corporation without making the non-resident corporation a party.
Where stockholders are indebted to the corporation on stock subscriptions, the sum due may be reached by a creditor's and where, by any dealings between the corporation and its stockholders the capital'stock which is a furtd for the payment of its debts is wrongfully diverted, a creditor can reach U.. The court of equity assists him, not In the exerci£!'ll'ofits jurisdiction over but in the exercise of its auxilial'y jurisliiction in behalf of creditors.
It is only when the remedy lit law has been exhausted that a creditor acquires the right to follow the property of a debtor in the ,hands of his trustee, and· a relaxation of the strict rule requiring a creditor to exhaust his legal remedy 'before resorting to a creditor's bill will not be justified by the fact of the insolvency of the debtor, or that the debtor has no leviable property.
.Judgments obtained in another state are in this state only contract debts, and do not authorize the exercise of auxiliary jurisdiction. .They do not have the force and operation of domestic judgments, except for purposes evidence.
U6 an interest in the subject of the suit that 110 decree without prejudice to its rights cannot be made. Sufficient reasons for not making it a party are found in the fact that it is beyond the jurisdiction of this court, a.nd also in the fact that it is practically defunct. And it is only because the corporation is practically defunct and insolvent that any doubt arises upon the turning point in the case. Although the stockholders may have been properly joined with the creditors, complainants as proper parties to the suit, the suit is nevertheless a creditor's suit to reach assets of the corporation. Where stockholders are indebted to the corporation for stock subscribed for and not paid in, the sum due may be reached by a creditor's bill, as debts due an ordinary debtor may be reached. Where, .by any dealings between the corporation and its stockholders, the oapital stock, which is a fund for the payment of its debts, is wrongfully diverted, a creditor can reach it upon the same theory that he can pursue the property of an ordinary 'debtor transferred in fraud of creditors. A court of equity assists him, not in the exercise of its jurisdiction over trusts, but in the exercise of its auxiliary jurisdiction in behalf of creditors. Such assets as a1'e pursued here are commonly spoken of in the books as a trust fund for the creditors of the corporation, and they are such in the sense that a court of equity will lay hold of them and impress them with a trust in favor of creditors. So the property of copartnership is, in equity, a trust fund for the payment of the creditors, but it has never been supposed that the creditors could resort to equity to reach the property when there has been a wrongful disposition of the assets, until the remedy at law has been exhausted. Egberta v. Wood, 3 Paige, 517; Dunlevy v. Tallmadge, 32 N. Y: 457. It is only when the remedy at law has been exhausted that a creditor acquires a right to follow the property of a debtor in the hands of his trustee. McDermutt v. Stron,g, 4 Johns. Ch. 687; Spader v. Davis, 5 Johns. Ch. 280; Jones v. Green, 1 Wall. 330. In all the adjudicated cases which have met my observation, except two,-and the books abound with precedents,-suits like the present have been founded upon judgments at law and unsatisfied executions. In Wood v. Dummer, 3 Mason, 308, the action was sustained in favor of creditors at large, but the point was not considered; and in that case the corporation debtor had ceased to exist by the expiration of its charter. In Bank of St. Marya 'V. St. John, 25 Ala. 566, jurisdiction was asserted upon the ground of trust; but the peculiar facts were such that it was not necessary to place the decision on this ground.
(Oircuit Oourt, W. D. Penn31/lfJania.
Complainants, as heirs of Howd, deceased, filed an amended bill, alleging that said Clarissa and herdecellsed husband, before their marriage, agreed that each" should have nO,thing to do with the other's property; that his should go to his children, and hers to her heirs and relatives ;" that upon the death of said <.Jlarissaher husband had asserted his exclusive ownership to ail of her property, and devised the same to his two children, against whom and . the execut.or this bill is filed. Held, upon a consideration of the facts, that there was nothing in this case to give an equity court jurisdiction ; that the· only effect of such an agreement would, b.e to estop the devisees and executor of the deceased husband from to the property; that the parties must proceed at law; and, the reM estate'having been converted into personal, the administrator of said marissa wasthe proper party to sue at law, and that the legal representatives of said could only acquire title through administration on her estate. "

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