Case Name: Peter v. The Farrel Foundry & Machine Co.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1895-12-17
Citations: 53 Ohio St. 534
Docket Number: 
Parties: Peter v. The Farrel Foundry & Machine Co.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 53
Pages: 534–557

Head Matter:
Peter v. The Farrel Foundry & Machine Co.
Insolvent Corporation — Procedure to distribute assets — Petition in ■ civil action — Answer and cross-petition' by stockholder — De■rmirrér — Enforcement of stockholder's, statutory liability by creditor.,
1. Where the petition in a civil action purports to seek a distribution of the assets of an insolvent corporation among its creditors, the assets of the corporation are the subject of the action; and an answer, in the nature of a, cross-petition, which discloses assets of'the concern,.in addition to those ' disclosed by the petition, or shows a title in the party filing such answer to share ‘in the distribution of' such assets, sets forth matters- connected with the subje'ct of the aetion. In ., ■ such case the answer, or'cross-petitio.n; is not subject to a demurrer, although it fails to disclose a cause,of action “in favor of the defendant and against a plaintiff between whom a several judgment might be had in an action.”
2. In such an.action, a-defendant may .join in his cross-petition, a cause .of. action for money payable to. the insolvent corporation by a stockholder thereof on account of stock issued to ' him, with a cause of action against all the -stockholders of the concern upon their statutory liability as such stockholders.
3. If the corporation is insolvent and its assets in the hands of a receiver, a creditor'may, by a cross-petition, seek the en- . forcement of the statutory liability óf: the' stockholders, although his claim has not been reduced .to judgment.
(Decided December 17, 1895.)
Error to the Circuit Court of Lu«as county.
On the. 23d day of January, A. D. 1890, the plaintiff, in error, William Peter, together with Sarah E. -Peter, Horace S. Walbridge, S.' Cornell Walbridge, Michael J. Cooney and Charles R. Faben, Jr-., filed -in the court of common pleas of Lucas county, a petition ■ in the words and figures following.:- ■ ■
“William Peter, Sarah E. Peter, Horace-S..Walbridge, So Cornell .Walbridge, Michael J. Cooney and Charles R. Faben, Jr., plaintiffs, v. The Union Manufacturing Company, defendant. — Petition.
‘ ‘Plaintiffs say that the defendant is a corporation duly organized and existing'under the laws of the state of - Ohio; that said corporation was organized for manufacturing and is carrying on the business of manufacturing and selling sewing machines, washing boards of various kinds, churns and flour mill machinery, and that its principal place of business is in the city of Toledo, Lucas county, Ohio; that these plaintiffs are all stockholders of said- defendant corporation; that the amount of the paid up capital stock of; said corporation is seven hundred and twenty-four thousand and five hundred ($724,500.00) dollars and is divided into seven thousand two' hundred and forty-fivé (7245) shares of one hundred ($100.00) dollars each; that plaintiffs are the owners of three hundred and forty-five thousand ($345,000.00) dollars of said paid up capital stock, and' are the owners of three- thousand four hundred and fifty (3,450) shares thereof.
“Plaintiffs further say that fo'r no one of the three iast preceding- years have the net earnings, of the said defendant corporation been sufficient tó pay, in good faith, an annual dividend of six per centum upon the paid up capital stock of the said corporation, over and above the salaries and expenses authorized by the by-laws and regulations of the said corporation.
“Plaintiffs further say that the bonded debt of said defendant1 corporation is one hundred thousand ($100,000.00) dollars; that said defendant corporation has, in addition, an unsecured indebtedness of about one hundred and sixty thousand ($160,000.00) dollars;' that the said1 corporation is indebted to these plaintiffs in the sum of not less than fifty thousand ($50,000.00) dollars in the aggregate; that a large part of said unsecured indebtedness, to-wit: thesum of not less than five thousand ($5,000.00) dollars is now due and unpaid and the entire balance of said unsecured indebtedness will become due within a period of four months from this date and at least two-thirds thereof will become due within a period of sixty (60) days from this date.
“Plaintiffs further say that the said defendant corporation is wholly unable to pay the portion of said indebtedness now past düe and that it will not be able to pay the balance of said indebtedness as the same matures and that said corporation is insolvent ; that said corporation has a large plant situated in Toledo, Ohio, consisting of an interest in real estate factories, machinery, tools and implements ; that it has been and now is engaged in its said business of manufacturing’ sewing machines, Washboards of various kinds, churns and flour mill machinery and .selling the same in said city of Toledo and elsewhere; that it has branch offices in different states and a large force of workmen engaged in said business in various capacities, that it has a large number of unfinished machines, machinery, washboards and churns on hand and also a large number of finished machines, machinery, washboards and churns on hand; that it has a considerable amount of material on hand to be used in the manufacture of such machines, machinery, washboards and churns, and in finishing said articles now unfinished, and said corporation is unable to meet its liabilities and current obligations.
“Plaintiffs further say that by reason of the insolvent condition of said corporation, and by further reason of the liability of suits, the defendant corporation’s property is in imminent danger of being sacrificed and its business brought to a standstill at a great and irreparable loss to these plaintiffs and all other creditors and stockholders of the defendant corporation.
“Plaintiffs further say that if said business should be suddenly suspended it would unavoidably result in a very great loss to all the creditors and stockholders of the said defendant; the finished machines, machinery, washboards and churns could not be disposed of except at great sacrifice; the unfinished machines, machinery, washboards and churns would be an almost total loss, and there would also result great loss from inability to carry out subsisting contracts for material prepared expressly for the business of said defendant and which would have practically no value if thrown upon the general market.
“Plaintiffs further say that a very large part of the assets of said defendant corporation, to wit: about sixty thousand ($60,000.00) dollars consist of amounts due or to become due for machines sold on the installment plan, that is to say, machines sold to be paid for, in small weekly or monthly installments, the corporation retaining title to said machines until the purchase price is fully paid; that said accounts could not be sold unless at a vefy small per centum of the face value thereof, and all the outstanding accounts due or to become due to said corporation are of such a character that if the business of said corporation should be at once suspended, there would be a very great loss on said accounts result to said corporation and all if its creditors and stockholders, growing out of the inability to collect said accounts, or the great and disproportionate expense it would be necessary to ineur in collecting the same or any part thereof.
“Plaintiffs further say. that 'the said defendant corporation has and is possessed of a good will in its said business which is of a very great value to the said defendant, its stockholders and creditors, unless the same shall be destroyed in consequence of said defendant being "compelled to cease business, but that if said defendant should be compelled to cease business, the said good-will would be a total loss to said defendant corporation, its stockholders and creditors.
“Plaintiffs further say that the said defendant corporation owns and- holds valuable rights, titles' and interest in various letters patent of the United States especially necessary and valuable in the manufacture of 'said sewing machines.
“Plaintiffs further say that unless receiver be forthwith appointed for the defendant corporation its property will be sacrificed, its factory will have to be immediately closed and its business, immediately closed and its business be immediately suspended, to the great and irreparable injury of ’ these plaintiffs- and all other creditors and stockholders of the said defendant corporation.
“Wherefore plaintiff s ask that a receiver for the said defendant corporation may be appointed to take charge of its real and personal property of all kinds and descriptions, and wheresoever situated, including choses in action, with authority to continue the business of said corporation for the time being, under the • direction and subject to the of: ders of this' court, pending the final winding up and settlement of the affairs of said corporation; that he may be authorized by order of this court from timé to time to borrow such sums of money for the purpose aforesaid, as to this court may seem necessary and proper, and issue his obliga tions therefor, that he- may ascertain the indebtedness of said corporation and report the same to this court, that the said defendant corporation may be ordered to convey or transfer all its. property,. both real and personal, including ch'oses in action and letters patent, wheresoever the same may be situated, whether within this state or any other state or country, to the said receiver to be appointed in this action, that the business and affairs of said defendant corporation may be- ultimately wound up, all its property of all kinds and descriptions sold, and the proceeds thereof equitably distributed under and in accordance with the orders of this court, and - plaintiffs pray for all such other ■ and further relief as they may be entitled to, whether at law or in equity.”,
■ The court of common pleas,- pursuant to the prayer of the petition, forthwith appointed a receiver who at once went into the possession of the property and assets -of the defendant corporation', the- Union Manufacturing Company, and entered upon the management of its business -under the direction of the court; continued such possession and management until November 13,1890, when on leave of the court the defendant in error, The Farrell -Foundry and Machine Company, filed its answer and cross-petition in the action, and- for aught disclosed by the record such possession and management still continues.
The answer and cross-petition of the Farrell Foundry and Machine Company was in the following terms :
■ “1. For ' first cause of action it says that it is a corporation organized under the laws of the state of Connecticut for the manufacture and sale of chilled rolls and other machinery, located and having its principal place of business at the town of Ansonia, in said state. Defendant, The Union Manufacturing Company, is a corporation organized under the laws of the state of Ohio for the manufacture and sale of iron and wooden ware; and was until the date of the commencement of this action engaged in carrying on the business for which it was incorporated, as set forth in plaintiff’s petition.
“ During the months of October, November and December, 1889, this cross-petitioner, at the request of said defendant, shipped from Ansonia to Toledo, and delivered to defendant, fifty-six chilled rolls, grooved. In consideration of such sale and delivery, said defendant at said dates promised to pay this cross-petitioner sixteen dollars for each of said rolls, in the aggregate eight hundred and ninety-six dollars, forthwith thereafter. Said defendant has not paid any part of said moneys, although requested by this cross-petitioner so to do.
“Defendant is entitled to a credit of two 23-100 dollars for an overcharge of freight upon a shipment of eight of said rolls made on the 28th of October, 1889, and by said defendant paid to the carrier on the 9th day of November, 1889. It is entitled to no other credit nor offset.
“The respective dates at which said rolls were so sold, shipped and delivered were as follows;
1889. 6x18 Chilled rolls,
Oct. 1— 8 grooved, $16..........$128 00
“ 28— 8 u 16........... 128 00
Nov. 2— 8 a 16........... 128 00
“ .14 — 14 a 16.......... 192 00
“ 27— 4 a 16........... 64 00
“ 30— 4 u 16........... 64 00
Dec. 4— 8 grooved, 16........... 128 00
“ 14— 4 “ 16........... 64 00
$896 00
Or. *'
Nov. 9— By excess of freight paid.................... 2 23
• Balance due..................................................................$893 77
“Said rolls were purchased by said defendant, to be by it used for the manufacture of the articles in which it dealt, and were by it applied to such purpose. ■
“Wherefore said defendant is indebted to this cross-petitioner in the sum of eight hundred and ninety-three 77-100 dollars, with interest thereon from the fourteenth day of December, 1889.
“This cross-petitioner has never owned any of the stock of said defendant.
“ When said goods were by this cross-petitioner sold and delivered as aforesaid, said defendant was by cross-petitioner believed to be in good credit and perfectly solvent. But in fact said defendant then was, and long theretofore had been and still is insolvent. It then owed, and still owes, more money than all of its assets were or are of value sufficient to pay. Nearly the entire indebtedness foresaid was by defendant then owed, and is still owed to its stockholders. The amount by it owed to this cross-petitioner and other persons not stockholders was and is, in the aggregate, small. .Said amount was and is much less than the value of the tangible assets then owned by said defendant corporation, now in the possession of Alvin Peter as its receiver in this action.
“On the 22d day of January, 1890, the board of directors of said defendant was composed of seven of its stockholders, to wit: Plaintiffs William Peter, Horace S. Walbridge, S. Cornell Walbridge and Michael J. Cooney, together with Alphonso E. Rood, Salmon H. Keeler and Isaac N. Poe. No change has since been made in the composition of said board.
“Said defendant corporation was organized in 1872, with an authorized capital stock of fifty thousand dollars. " Said ■ authorized capital stock has been by the stockholders of defendant successively increased: April 12, 1873, to one hundred thousand dollars; September 19, > 1881, to three hundred thousand dollars; and July 30, 1886, to one million dollars, all of said stock being divided into shares of one hundred each. Of said stock at least seven hundred and twenty-four thousand five hundred dollars have been by said corporation issued- to its stockholders. A very small portion thereof is fully paid up stock. On the contrary, nearly the entire amount of said stock has been by • defendant issued to its shareholders in exchange for moneys by said respective stockholders paid to defendant therefor, ranging respectively from twenty to seventy-five cents for each dollar of the nominal amount of said respective shares so issued, and for moneys by said respective stockholders paid to said defendant corporation much less in amount than the amount of the respective shares issued to them in consideration therefor.
“Plaintiffs own jointly no stock of said defendant corporation. Plaintiffs individually own stock of the aggregate amount in their petition stated. It is not true that they individually own any large amount of paid up stock. Nearly the entire amount of stock by said individual plaintiffs held was by defendant issued to them respectively paid to defendant therefor, much less in amount than the amount of the respective shares so issued.
“Plaintiff, Sarah E. Peter, is a relative of plaintiff, William Peter, and holds a certain amount of the last aforesaid described stock by said defendant corporation, issued to said William Peter, which stock was by him thereafter transferred to her without consideration, and is by her held, in trust for his benefit.
“Said defendant corporation, in the respective months of April and August, 1883, executed two trust deeds in the pature of mortgages to plaintiff, Horace S. Walbridge, as trustee, conveying to him the real estate upon which the factories of said de-. fendant are located, to wit: the westerly- twenty feet of lot numbered fourteen and the whole of lots numbered fifteen to fifty, inclusive, all in Texas addition to the city of. Toledo in this county, together with all the machinery and' appliances used in and necessary for. the carrying -on the business of said defendant, in .trust for securing the payment of, one hundred thousand dollars of the bonds of said defendant corporation issued or to be issued, each bond being for the sum of one thousand dollars, payable to the holder thereof on the first day of April, 1893, with interest thereon payable semi-annually, on the respective first days of October and April in each year after their execution.
“Said bonds were for the most part .issued to stockholders and directors .of said defendant corporation for seventy-five cents by them paid to said defendant for each dollar by said bonds prom ised to be paid, and for sums much less than the respective amounts by said bonds purporting to be due. Interest has been paid by said defendant to the first day of October, 1889, upon the full amount to that date purporting to be due upon the principal indebtedness described in said bonds, and in excess of the interest legally payable upon the moneys paid by the parties to whom said bonds were respectively issued, and by said defendant received therefor. Said bonds are still in great measure held and owned by the parties to whom they were originally issued. Said trust deeds were duly recorded, and the indebtedness evidenced by said bonds is the bonded debt of said defendant mentioned in plaintiff’s petition.
“The unsecured debt owed by said defendant as aforesaid is at least one hundred and sixty thousand dollars. Of this amount James Secor, of Toledo, aforesaid, holds two thousand dollars, with interest from July 3, 1889, at eight per cent, per annum, evidenced by the promissory note of said corporation for that amount payable to his order.
“Said defendant corporation has been at no.time indebted to plaintiffs in any amount jointly. It was at the date of the commencement of this action, and is still, indebted to plaintiffs, William Peter and Horace S. Walbridge, respectively, in amounts which aggregate at least fifty thousand dollars.
“ This cross-petitioner has no knowledge of the property, stockholders or liabilities of said defendant which will enable cross-petitioner to make its statements relative thereto more specific than is herein set forth. But plaintiffs, comprising the majority of the board of directors of said defendant, and owning more than one-third of the stock by said corporation issued, were at the date of the commencement of this action, and have at all times since,- been able to inform this court of the specific property, real and personal, both legal and equitable, of said defendant, and of all the books, vouchers and securities relating thereto, as well as to give a full, .just and true account of the capital stock of defendant, the names and residences of the stockholders, the number of shares belonging to each, the amount paid in upon such shares respectively, and the amount still due thereon, and plaintiffs were and have been able to give to this court a specific statement of the aforesaid incumbrance upon the property of said defendant, and-of each of its existing liabilities, specifying the name and residence of each creditor, and nature to each debt, and the true consideration received by defendant therefor. Plaintiffs were at the date of the commencement of this action,, and at all- times since have been able to perform their obligations to apply to this court for a dissolution of said defendant corporation and to make all the ' parties and prosecute every measure required for the winding up of the affairs of said defendant, and the disposal and distribution of its assets by chapter-five of division seven of the first title of the Revised Statutes of Ohio. Plaintiffs have failed to request such dissolution, and furnish the court said information, and make any creditor or stockholder of defendant party to this proceeding’ other than plaintiffs themselves, and have procured the order of this court that said defendant convey its entire property, including choses in action, to Alvin Peter as its receiver, and have in behalf of said corporation placed Alvin Peter as such receiver in possession and control of the entire as sets of said corporation, and have in every respect instituted and prosecuted this action with intent thereby to delay and hinder and defraud this cross-petitioner and every other creditor of said defendant other than plaintiffs, in the collection of their respective indebtedness'due from said defendant by appropriate process of law, and with intent, in view of the insolvency of the defendant, to prefer plaintiffs as creditors of said defendant in the disposal and distribution of the assets of said defendant, and the proceeds thereof by them proposed to be made in this action.
“ Said Alvin Peter, receiver, is the son of plaintiff, William Peter, who is the largest individual creditor and stockholder of said defendant, and since the date of the commencement of this action, said Alvin Peter has been in the possession of the entire property of said defendant, and has claimed the right to control its entire choses in action, asserting such possession and claim as being rightfully made as receiver by virtue of the order of the court in this action. And since the date of the commencement of this action said defendant has transacted no business, and has had no property not in the possession and control of the said Alvin Peter as receiver, and has neither money, credit nor materials with which to transact any business, in the future.
“The facts relative to the expediency of selling the entire assets and property of said defendant, other than the unpaid amounts due from its stockholders upon their capital stock, but including in said sale the good will of its business, as an establishment in active operation, are as in plaintiff’s petition set forth. But said sale should be made forthwith. The value of the good-will aforesaid has deteriorated, and must continue to deteriorate, if the business formerly carried on by said defendant corporation shall long continue to be prosecuted by this court through the intervention of any receiver or trustee.
“2. For second cause of action this cross-petitioner repeats the statements of its first cause of action, as though the same were here again set. forth, and says further that the entire indebtedness of said defendant corporation to this cross-petitioner and all its other creditors exceeds the value of its entire assets, including therein the amount of the unpaid moneys due from its stock-. holders upon their stock aforesaid from said stockholders collectible.
“3. For third cause of action this cross- , petitioner repeats the statements of its first and second causes of action, as though the same were here again set forth, and says further, that in order to fully pay the indebtedness due to this cross-petitioner and all other creditors of said defendant corporation, it will be necessary that each of its stockholders contribute a further amount in proportion to the amount of the stock by him or her owned or held, but not exceeding the amount of said stock.
“Wherefore this cross-petitioner, in behalf of itself and all other creditors of said corporation, prays that the court ascertain the entire indebtedness of said defendant corporation, the respective parties to whom the same is due, the respective amounts thereof due to each party respectively, and the respective consideration received by said defendant corporation therefor ; and that each said respective creditor by appropriate service of process or publication of notice, be made party to this action, and proceeding; that the court ascertain the names and residence of the past and present stockholders of said defendant, the number of shares issued or belonging to each, the amount paid to said defendant corporation for each said share, respectively, and the amount still due thereon; and that each said stockholder by appropriate service of process or publication of notice be made party to this action and proceeding; that the court ascertain the total amount of the assets and dioses in action of said defendant now in the possession and control of Alvin Peter as receiver; and order all the same other than said moneys unpaid by said stockholders upon their capital stock to be sold as an entirety, including the good-will of defendant’s former business ; or in such other manner as shall ensure the best price for said assets and good-will; that the court order that each stockholder liable for said unpaid amounts due upon his capital stock pay the amount so due to such receiver or officer as the court shall direct; and in default thereof that execution shall issue therefor; that the court .ascertain the further amount due from each stockholder of defendant necessary for the payment to this cross-petitioner and every other creditor of defendant of the full amount of the indebtedness from defendant due, including the costs and expenses of this action and proceeding, with the reasonable counsel fees of the attorneys of this cross-petitioner and 'of such other creditors of defendant as shall in good faith endeavor to procure an equitable distribution of its assets and the moneys due from its stockholders for the benefit of all of its creditors; but not exceeding the amount of the stock by each respective stockholder owned or held ; that each said stockholder be ordered to pay the further amount due from him or her hs aforesaid to such receiver or other officer as the court shall appoint; and in default thereof that execution issue therefor; that if, in consequence of non-residence or insolvency the amount due from any particular stockholder cannot be collected, then that each solvent stockholder within the jurisdiction of the court be ordered to pay as aforesaid all unpaid moneys due upon his stock and such further moneys, not exceeding the amount of his stock, as shall be necessary to pay the costs, expenses and counsel fees aforesaid and all creditors of defendant, with right thereafter to enforce contribution from any other stockholder in case as between said stockholders the party making such payment has paid more than his appropriate share; that all the moneys realized and collected as aforesaid be distributed first to the payment of the costs, expenses and counsel fees aforesaid-; and next to the payment of the entire indebtedness of said defendant corporation ; giving the preference, if necessary, to such creditors of defendant as shall in good faith co-operate with this cross-petitioner in its efforts to secure an equitable distribution of the moneys due from said defendant- and its stockholders among all the creditors of defendant; and shall with this cross-petitioner become responsible for the costs, expenses and counsel fees aforesaid.
“This cross-petition in behalf of itself and all other creditors of said defendant, prays that this-court grant to it and them all such other and further relief as it and they may legally and equitably claim.
“But should this court refuse to permit this cross-petitioner to intervene in behalf of any other creditor of said defendant than itself, and should refuse to this cross-petitioner the relief herein before prayed, then in such event this cross-petitioner prays that the court render judgment in its favor, that it recover from defendant, [The Union Manufacturing Company, eight hundred and ninety-three 77-100 dollars, with interest thereon from the fourteenth day of December, 1889; that execution issue therefor ; that the order directing said defendant to convey its property to Alvin Peter, receiver, be rescinded and held for naught, and that this cross-petitioner have leave to cause said execution to be levied upon all property of said defendant now in the possession of Alvin Peter as such receiver.”
To this cross-petition a demurrer was interposed and sustained by the court of common pleas, and the cross-petition dismissed on the ground that it did not set forth a counterclaim “in favor of the defendant and against a plaintiff between whom a several judgment might be had in an action. ’ ’ The cross-petitioner carried the case to the circuit court on error where the holding of the court of common pleas was reversed. Thereupon the plaintiff in error, one of the plaintiffs in the court of common pleas, brought the cause to this court to obtain the reversal of the judgment of the circuit court.
Kumey db Neioton, for plaintiffs in error.
Bissell db Gorrill,' for defendant in error.

Opinion:
Bradbury, J.
The petition contains averments tending to show a purpose on a part of the plaintiff below to proceed under chapter 5, title. 1, division 7 of the Revised Statutes, providing for the dissolution of corporations.. The subsequent proceeding, however, did not accord with those prescribed by the statute so that the inference to be drawn from the whole record is that those plaintiffs sought to invoke not the provision of that statute, but the powers of a court of equity as prescribed and regulated by the general principles of equity jurisprudence. What their ultimate purpose was is not entirely clear; but'the petition itself, together with the relations that the plaintiffs below bore to the. corporation and the proceedings had subsequently, strongly suggest that instead of intending to procure a dissolution of the corporation and the distribution of its assets to those entitled to receive them, the real purpose of the plaintiffs was to continue the business of the concern indefinitely, freed from annoyance by creditors, in the hope of retrieving its broken fortune. And by the appointment of a receiver they did in fact succeed in withdrawing the entire assets of the corporation from seizure at the hands of its creditors.
While the appointment of a receiver for an insolvent private corporation, may be and, doubtless, often is a beneficent remedy for all interested parties, where a tona fide winding up of affairs, and distribution of its assets to those who show a right to them, is the object sought and steadily kept in view, yet, on the other hand, to employ that extraordinary remedy as a means by which to indefinitely prolong by aid of a friendly receiver, the substantial control of the managing body of an insolvent private corporation over its assets and business, can be justified, in the absence of statutory authority, by circumstances, only, if there can be any, that most unequivocally demand such action, or by- the consent of all parties in interest.
In the case under consideration the business and assets of the corporation were given' over to a receiver, chosen by its board of directors, on the 23rd day of January, 1890, and the business continued under his ostensible management, subject to the direction of the court, until the 14th day of the following October. Whether this policy should be continued indefinitely, or whether the affairs of the concern should be brought to a termination within a reasonable time, and its assets distributed, was a question affecting each of its creditors and stockholders. A system of jurisprudence which would deny a hearing- to a party so'interested might justly be branded as arbitrary if not oppressive. The defendant in error is a creditor of the corporation and waited nearly nine months after the assets of the concern ' and the management of its business had passed into the hands of the receiver, when becoming- dissatisfied with the methods pursued in ostensibly closing up its affairs it applied to the court in which the proceedings were pending for leave to be made a party thereto and to file an answer therein, which leave being granted it did on the 13th day of November, 1890, file the answer, or cross-petition herein before -set forth in full.. A demurrer was interposed to this cross-petition, one ground of which was that, it did not set forth a counterclaim of the character specified in section 5Ó72, Revised Statutes.
That section (5072) provides that "a counterclaim" must be one existing in favor of a defendant and against a plaintiff, between whom a several judgment might be had in the action, and arising1 out of the contract or transaction set forth in the petition as the foundation of the plaintiffs' claim, or connected with'the .subject of the action."
The first count of the answer sets forth facts which show among other things that the insolvent corporation is indebted to the cross petitioner. That some of the plaintiffs below, who held stock and bonds of the concern, were liable to it for considerable sums of money on account of the methods by which such stock and bonds had been sold or issued to them, and that the real purpose of the plaintiffs below was to delay and hinder the creditors of the .corporation in the collection of their debts. The second count shows that the liabilities of the corporation exceed its assets; while the third count specifically asserts the necessity of resorting to the statutory liability of the stockholders for the payment of the corporate debts.
That the matter thus set forth, in the first count of the cross petition is connected with "the subject of the action,- is we think indisputable. That subject, is the corporate property. The whole of it, .not merely such parts thereof as had been pointed out by the petition, nor is it material in this respect whether the mode by which plaintiffs below sought to procure its application to the corporate liabilities, was one which a court of equity should adopt or not. It was enough if the petition gave the court jurisdiction over the property; if it accomplished thite end then the court should administer it according to the rights of those who might show title to share in its distribution. The pleading in controversy, after showing the party who filed it to be a creditor of the corporation disclosed assets of that concern, not mentioned in the petition.
Now, the subject matter of the action being the entire assets of the insolvent corporation, it follows that a pleading which brings into the cause any part of those assets, of necessity is connected with such subject. It is true that the cross-petition does not disclose a cause of action upon which it could recover a several judgment against all or any one of the plaintiffs below. Section 5072, Revised Statutes, in defining a counterclaim seems to make the right of the defendant to recover a several judgment against the plaintiff, an essential characteristic thereof. Upon the peculiar languageemployed by that section to define a "counterclaim, ' ' an argument is founded in support of the contention of the plaintiff in error, which would narrow the equity powers of the courts of common pleas of the state to a degree seriously embarrassing their efficiency. If the position taken by plaintiff in error is well founded, the courts of the state would be precluded from listening to any claim asserted by a defendant, unless its character was such that the claimant would be entitled to a '£ several judgment ' ' against the plaintiff.
Section 5070, Revised Statutes, declares that an answer shall contain "2 a statement of any new matter constituting a defense, counterclaim, or set off. ' ' Section 5072 Revised Statutes, declares that a counterclaim must be one "in favor of a defendant and against a plaintiff between whom a several judgment might be had in an action. " Prom the language of these two sections, alone, the contention of plaintiff in error is fairly plausible. But even if these two* sections stood alone, it is doubtful if such contention should prevail. It would defeat one well understood purpose of the code of civil'procedure, which was to prevent multiplicity of actions, and would absolutely abrogate the former jurisdiction in equity by which those courts administered complete justice between all the parties to an action, defendants as well as plaintiffs, respecting the subject matter thereof. These two sections, however, do not stand alone. Section 5071, Revised Statutes, provides that "The defendant may set forth in his answer as many grounds of defense, counterclaims and set offs as he has, whether they are such as have been heretofore denominated legal or equitable, or both." But it does not stop here; instead, it proceeds "he may claim therein, relief touching the matters in question in the petition against the plaintiff or any other defendants in the same action." "May claim therein relief." What is meant by "therein?" Manifestly his answer. Section 5311, Revised Statutes, provides that "judgment may be given for or against one or more of several plaintiffs, and for or against one or -more of several defendants; and by the judgment the court may determine the ultimate rights of the parties on either side as between themselves, and grant to the defendant any affirmative relief to which he is entitled." These two sections, 5071 and 5311, Revised Statutes, are sufficient to show the broad principles upon which the code of civil procedure administers remedial justice; but there are many other provisions of this code scarcely less important in this connection. When all the provisions of the code of civil procedure are brought into view they clearly demonstrate a purpose to broaden the practice pertaining to the administration of justice as it existed before the code was adopted. Anterior to the adoption of the code of civil procedure, the practice in equity was to set- tie and adjust the claims and rights of all parties before it, respecting the subject matter of an action. The practice in equity before code was adopted being more rational than that at law, may not have required the reforming hand of the codifiers to the extent that the latter did, and therefore may not have been so greatly affected by its provisions; but those provisions disclose no purpose to narrow the practice in the one class of proceedings, while it enlarged the practice respecting the other. And if some single provision of the code seems to produce that result it should yield to the other provisions that are found in accord with its manifest spirit- and purpose. We find nothing in the' code of civil procedure when considered as an entirety, that narrows the former power of a court of equity to fully adjudicate every question legitimately arising between the parties before it, respecting the subject matter of the action. The answer of the Farrell Foundry and Machine Company, in so far as it brought to the attention of the court, assets of the . corporation not before brought in was dealing with a matter clearly connected with the subject of the action. Further still, if the cross-petition disclosed no additional assets, but simply asserted a right in the cross-petitioner to participate in the distribution of assets already in court, it showed a connection with the subject of the action. Whenever a party shows even a contingent right to property or a fund, which is the subject of an equitable action, he should be accorded a hearing for its protection. An unyielding principle of natural justice accords him this right.
The third cause of action in the cross petition invokes the action of the court respecting the stat utory liability of stockholders of the corporation. While this statutory liability is not an asset of the corporation, it, nevertheless, is a fund provided by law for the payment of its debts. The court already has, or if not, may bring' before it, the parties necessary to a complete adjustment of all rig'hts and liabilities g'rowing' out of the transactions of the insolvent concern. It would be a g'rave reproach to the jurisprudence of the ag'e if under such circumstances, a court after exhausting' the assets of the corporation, would decline to proceed further, and turn the parties out of court, only to gather them in again in a new action to determine questions so closely related to those it had already adjusted. The question, however, we think was settled in the case of Warner v. Callender, 20 Ohio St., 190, where this court held that, "A judgment creditor of an insolvent railroad corporation may join, in the same action, a claim to compel payment of unpaid subscriptions for stock, and a claim to enforce the individual liability of stockholders, for the satisfaction of his judgment." If the plaintiff in an action may join these two causes of action in his petition, why may not a defendant do likewise in a cross-petition ? Where the substantial rights of parties are alike, their remedial rights should be equal without regard to their repective positions as plaintiff or defendant in the action. Nor was it necessary for the cross-petitioner to first recover a judgment against the corporation, for it had become insolvent and its assets seized by virtue of legal proceedings and in the custody of the court where they could be administered according to the respective rights of all parties in interest. Younglove v. Lime Co., 49 Ohio St., 663.
Judgment affirmed.