Source: https://www.legalcrystal.com/case/87319/swan-land-cattle-co-vs-frank
Timestamp: 2019-04-24 09:08:55+00:00

Document:
Appellant Swan Land and Cattle Co.
against a portion of such stockholders to reach and subject the assets so received by them to the payment and satisfaction of his claim without first reducing such claim to judgment and without making the corporation a defendant and bringing it before the court.
Corporations are indispensable parties to a bill which affects corporate rights or liabilities.
A claim purely legal, involving a trial at law before a jury, cannot, until reduced to judgment at law, be made the basis of relief in equity.
The general practice in this country and in England, when a bill in equity is dismissed without a consideration of the merits, is for the court to express in its decree that the dismissal is without prejudice.
"all and singular the lands and tenements, water rights, improvements upon lands, houses, barns, stables, corrals, and other improvements and grazing privileges; also all livestock, consisting of neat cattle, horses, and mules, belonging to the said three Wyoming corporations, or any or either of them; also all livestock, brands, tools, implements, wagons, harness, ranch, camp, and round-up outfits, and branding irons"
that said first parties [the Wyoming corporations] shall and do hereby agree and guarantee to and with said second party [the British corporation] that the herd books of said first parties, showing the acquisitions, increase, disposition of, and number of cattle now on hand of said first parties, respectively, have been truly and correctly kept,"
a copy of which herd books was required to be furnished to the party of the second part.
at a salary of $10,000 a year, and he and the vendor companies should subscribe for 10,000 shares of stock in the new company, and the vendors then agreed that if the number of calves branded in 1883 belonging to the herds sold should be fewer than 17,868, then they should be jointly and severally bound to pay to the new company $31.68 for each deficiency in that number.
The bill then averred that the vendors represented that it would be impossible to count the cattle upon the ranches, and that the new company would be obliged to take possession of them wherever they might be ranging, without any count's being made, and that, relying upon all these representations made by the vendors and in their behalf as above set forth, the new company received delivery of the property so purchased by it, and paid the purchase price it had agreed to pay in the manner agreed upon, and did and performed all the things it was required to do and perform by the terms of the aforesaid agreements.
The bill then averred that the representations made by the vendors and in their behalf as respects the number of cattle on the ranches, and which were relied upon by the parties forming the new company, were grossly untrue, and known at the time by the vendor companies to be so, and that the number of cattle actually turned over to the new company under the agreement was at least 30,000 less than was represented by the vendors, whereby it had suffered loss and damage in the sum of at least $800,000.
shareholders, and the same were received by said shareholders, and since that time said three corporations have not, nor has either of them, made any use whatever of their franchises, but they have abandoned the same, and neither of said corporations has any officer of agent upon whom process can be served, and they have not, nor has either of them, any assets of any kind out of which any judgment at common law against them, or either of them, could be satisfied. Your orator further showeth that the assets of said corporation were in the hands of said corporations a trust fund, held by said corporations in trust to satisfy the claim of your orator herein set forth, before the shareholders of said corporations were entitled to receive any portion of the same, and said shareholders, in receiving said assets, did take and now hold the same as trustees in place of said corporations, and subject to the lien of your orator's aforesaid claim, and should account for the same to your orator, and apply the same, so far as necessary, in satisfaction of your orator's claim, herein set forth."
"be applied, so far as shall be necessary, in satisfaction of the damages which shall be found due to your orator from the vendors aforesaid upon final hearing hereof,"
and for other and further relief, etc.
to the suit, and (3) that the averments of the bill are too general in their nature to charge the defendants, or either of them, as a trustee of any portion of the assets of any one of the vendor corporations.
The demurrer was sustained by the circuit court, and the bill dismissed, 39 F. 456, and an appeal from that decree brings the case here.
The grounds upon which the court below based its decision and decree were: (1) that the complainant had no standing in a court of equity without first reducing its claim for damages to a judgment, and (2) that even if that position be untenable, still the vendor corporations were necessary and indispensable parties to the suit.
The bill does not seek to hold the defendants below personally liable for the alleged fraud committed by the vendor corporations in which they were stockholders. There is no averment or even intimation in the bill that the defendants in any way participated in the fraudulent misrepresentations of the vendor companies on which it is charged the complainant relied and acted to its injury. They are therefore not personally responsible for any damage resulting to the complainant by reason of the alleged fraud.
court. The stockholder defendants, who have been served with process and entered their appearance, do not undertake to represent, and cannot in any way represent, the corporations against whom the claim for damages is asserted. Bronson v. La Crosse & Milwaukee Railroad, 2 Wall. 283, 69 U. S. 301 -302.
a necessary defendant because it was his debts that were sought to be collected, and his fraudulent conduct that required investigation.
The general rule that suits in equity cannot be entertained and decrees be rendered when necessary or indispensable parties, whether corporations or individuals, are not brought before the court is not affected by section 1 of the Act of February 28, 1839, reenacted in section 737 of the Revised Statutes of the United States, as this Court has repeatedly held. Shields v. Barrow, 17 How. 130, 58 U. S. 141 ; Coiron v. Millaudon, 19 How. 113, 60 U. S. 115 ; Ogilvie v. Knox Ins. Co., 22 How. 380; Barney v. Baltimore, 6 Wall. 280; Davenport v. Dows, 18 Wall. 626. The same rule is applied in respect to averments as to citizenship of necessary parties to confer jurisdiction or the right of removal. Thayer v. Life Association of America, 112 U. S. 717 , 112 U. S. 719 ; St. Louis & San Francisco Railway v. Wilson, 114 U. S. 61 , 114 U. S. 62 .
for damages. Sections 506, 515. The cases cited to the point that when the corporation is dissolved the necessity for making it a party is dispensed with, need not therefore be reviewed. They are not applicable to the present case. It does not help the matter that complainant could not get the vendor corporations before the Circuit Court for the Northern District of Illinois. That fact in no way affects the question of their being necessary parties, without whose presence no decree could be rendered against the appellees. We do not deem it necessary to refer to the Wyoming statutes further than to say we think they provide the means by which the vendor corporations could there have been sued.
We are also clearly of opinion that the court below was correct in sustaining the demurrer to the bill upon the other ground assigned -- that the complainant had not previously reduced its demand against the vendor corporations to judgment. That claim was purely legal, involving a trial at law before a jury. Until reduced to judgment at law, it could not be made the basis of relief in equity. This is well settled by the decisions of this Court in Taylor v. Bowker, 111 U. S. 110 ; National Tube Works Co. v. Ballou, 146 U. S. 517 , 146 U. S. 523 , and Scott v. Neely, 140 U. S. 106 , 140 U. S. 115 . In this latter case, the subject is fully reviewed and the question settled so far as the federal courts are concerned.
Our conclusion is that there is no error in the decree of the circuit court sustaining the demurrer to the bill, but we are of opinion that the bill, instead of being dismissed generally, should have been dismissed without prejudice. In Durant v. Essex Company, 7 Wall. 107, 74 U. S. 113 , it is said that the general practice in this country and in England, when a bill in equity is dismissed without a consideration of the merits, is for the court to express in its decree that the dismissal is without prejudice, and that the omission of that qualification in a proper case will be corrected by this Court on appeal, in support of which numerous authorities are cited. In Kending v. Dean, 97 U. S. 423 , 97 U. S. 426 , the same practice was adopted.
The decree must therefore be modified at appellant's costs, and the cause remanded, with directions to dismiss the bill without prejudice, and it is so ordered.
I concur in the opinion of the court that the question involved in this case needs little more than its bare statement to indicate the answer that should be made to it, but I do not concur in the answer made by the Court. Admitting to the fullest extent the proposition that the mere discontinuance of business by a corporation, the sale of its assets, the failure to reelect officers, and the nonuser of its franchise do not, ipso facto, work a dissolution of the corporation, it seems to me that this is aside from the merits of the case. I agree too that before resorting to the stockholders, a judgment should, if possible, be obtained against the principal debtors, which in this case are the three Wyoming corporations. But the law does not compel that which is impossible, and if the facts alleged in the bill show that no judgment can be obtained against the corporations and that it is useless to pursue them, the bare existence of such corporations ought not to defeat the recovery of a just claim. I do not understand it to be denied that if the corporations had been formally dissolved by the decree of a competent court, the plaintiff might have maintained this bill, and the fact that it had no judgment against the corporations would be no defense.
"A summons against a corporation may be served upon the president, mayor, chairman, or president of the board of directors or trustees, or other chief officer, or, if its chief officer be not found in the county, upon its cashier, treasurer, secretary, clerk, or managing agent; or, if none of the aforesaid officers can be found, by a copy left at the office or other place of business of said corporation, with the person having charge thereof."
price as aforesaid, they had outstanding, except their said three vendors paid whatever liabilities liability to your orator herein set forth, and distributed the money and stock obtained from your orator as the proceeds of said sale, and all their other assets, amongst their respective shareholders, and the same were received by said shareholders, and since that time said three corporations have not, nor has either of them, made any use whatever of their franchises, but they have abandoned the same, and neither of said corporations has any officer or agent upon whom process can be served, and they have not, nor has either of them, any assets of any kind out of which any judgment at common law against them or either of them could be satisfied."
Now if there be no officer or agent of a corporation upon whom process can be served, it follows that there can be no office or other place of business of such corporation within the meaning of section 2431, since the only object of an office or place of business is for the accommodation of an officer or agent. The act does not authorize service upon a trustee, but only upon the President of the board of trustees, who would, of course, be an officer of the corporation. The allegations of the bill in these particulars may be shown to be untrue, but upon demurrer they must be taken as true.
"service by publication may be had . . . in actions against a corporation incorporated under the laws of this territory which has failed to elect officers, or to appoint an agent, upon whom service of summons can be made, . . . and which has no place of doing business in this territory."
But while such service by publication might be effective so far as to charge any property of the corporation within the territory, it would not create a general liability against the corporation which would be available elsewhere. This Court has repeatedly held that a personal judgment is without any validity if it be rendered against a party served only by publication of a summons, but upon whom no personal service of process within the state was made, and who did not appear. Pennoyer v. Neff, 95 U. S. 714 ; Harkness v. Hyde, 98 U. S. 476 ; St. Clair v. Cox, 106 U. S. 350 .
The cases relied upon to sustain this decree do not touch this question, and the authorities which require corporations to be made parties to a bill against the stockholders have no application to cases in which it is only useless, but impossible, to make them parties. I do not think the defendants in this case, who are charged with receiving the proceeds of a gross fraud, should be permitted to take refuge in the shadow of these defunct corporations.

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