Case Name: MUTUAL FIRE INSURANCE CO. v. PHOENIX FURNITURE CO.
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1895-12-31
Citations: 108 Mich. 170
Docket Number: 
Parties: MUTUAL FIRE INSURANCE CO. v. PHOENIX FURNITURE CO.
Judges: Montgomery and Hooker, JJ., concurred with Grant, J.
Reporter: Michigan Reports
Volume: 108
Pages: 170–184

Head Matter:
MUTUAL FIRE INSURANCE CO. v. PHOENIX FURNITURE CO.
1. Judgments — Conolusiveness.
Judgments and decrees cannot be attacked collaterally because they include items which courts, other than those by whom they were rendered, might hold to be illegal.
2. Same — Foreign Judgment.
A judgment of a court of one State, having jurisdiction of the parties and of the subject-matter, is conclusive in the courts of a sister State, the only remedy being by direct proceedings in the original cause.
3. Corporations — Relation of Stockholders Thereto — Conolusiveness of Judgment.
Each stockholder or member of a corporation is so far an integral part thereof that, in a suit brought to determine the amount of the indebtedness of the corporation preparatory to an assessment upon the stockholders to pay the same, he is represented through the corporation itself, and bound and concluded by the determination therein. McGrath, C. J., and Long, J., dissenting.
4. Same — Foreign Judgment.
Upon the appointment of a receiver for an Illinois mutual fire insurance company in a court of that State, there were turned over to him certain notes given by Michigan policy holders, payable at such times as the directors of the company might order and assess for the losses and expenses of the company. A decree was entered, upon evidence placed before the court, determining the-amount of assets and debts of the company, and the assessment necessary to liquidate said indebtedness, winch, as shown upon the face of the decree, included certain unearned or return premiums, for the payment of which said policy holders, under the decision in Insurance Co. v. Merrill, 101 Mich. 393, were not liable. Held, that' said decree was conclusive upon the policy holders in a suit brought in this State to enforce assessments made by the receiver against them upon said notes. McGrath, G. J., and Long, J., dissenting.
Error to Kent; Grove, J.
Submitted January 31, 1895.
Reargued October 22, 1895.
Decided December 31, 1895.
Assumpsit by tbe Mutual Fire Insurance Company of Chicago against the Phoenix Furniture Company to collect an assessment upon certain premium notes. From a judgment for plaintiff, defendant brings error.
Affirmed.
The facts are stated in the opinion found in the margin, which was filed May 28, 1895, upon the first submission of the case, but which was withheld from publication pending a rehearing.
Fletcher & Wanty, for appellant.
D. J. Schuyler and Mark Norris, for appellee.
This case, and that of Warner v. Delbridge & Cameron Co., decided by this court July 31, 1896, are reported in 34 L. R. A. 694, 701, together with a note collecting the authorities bearing upon the main question.
OPINION PILED ON ORIGINAL HEARING.
McGrath, C. J. The receiver of the Mutual Fire Insurance Company of Chicago, a corporation organized under the statutes of Illinois, brings suit upon certain premium notes, of one of which the following is a copy:
“Chicago, 111., May 1, 1889.
“For value received in Policy No. 5739, dated the 1st day of May, 1889, we promise to pay the Mutual Fire Insurance Company the sum of two hundred and forty dollars, by installments, at such time as the directors of said company may order and assess for the losses and expenses of said company, pursuant to its charter and by-laws. It is hereby expressly understood and agreed that this note is not transferable, and that there is no liability beyond the face amount thereof.
“The secretary is authorized to number and date application and note No. 5739.
“Phcenix Furniture Co.
“R. W. Merrill, Treasurer.”
In October, 1890, the auditor of public accounts of the State of Illinois filed a petition in the circuit court for the county of Cook, in chancery, and procured the appointment of a receiver. After- wards, upon the receiver’s petition, the court determined and decreed the amount of the indebtedness of the company to be §113,125, made up as follows:
“Upon claims for losses which had been admitted by the company, the sum of §62,379.04; upon like claims in dispute, the sum of §27,886.84; premiums due other insurance companies upon their policies placed by the plaintiff, salaries, sundry expenses, attorneys’ fees, advertising, and taxes, the sum of §2,859.12; unearned premiums on cash policies, estimated at §20,000.”
The court further found that the probable expenses of the receivership were §25,000; that the assets of the company consisted of premium notes and membership liabilities to the sum of §198,971.14, and other assets valued at §9,125; that the amount necessary to be assessed upon premium notes in order to pay debts and expenses was §129,000; and authorized and directed the receiver to assess upon each of the members of the said plaintiff 65 per cent, of the amount of the premium note and membership liability of such member. In pursuance of such order, the receiver assessed upon the defendant the sum of §692.49.
The circuit judge for the county of Kent submitted findings setting forth the facts, concluding as follows:
“I find that all these proceedings, from and including the examination made by the auditor of state into the affairs of the plaintiff company and the filing of the petition for an injunction and a receiver, to and including the final decree that was made, authorizing and directing the assessment aforesaid, were regular, and in accordance with the provisions of the statutes of Illinois, and in accordance with the course of procedure and powers of the court.
‘ ‘ I find, as matter of law, that, by the laws of the State of Illinois, the assessment aforesaid is regular and conclusive upon the defendant, and that the proceedings of the circuit court for the county of Cook, in chancery, in case aforesaid, are entitled in this State to receive the same faith and credit as by the laws of the State of Illinois they receive there. It was not necessary by the laws of Illinois that the defendant should have been a party to the proceedings in the circuit court for the county of Cook, in chancery. Being a member of the company proceeded against, the defendant was represented before the court by the company and the officers thereof, and, although not a party individually, is bound by the decree made by that court against the corporation of which it was a member, because the decree is one for the enforcement of a corporate duty neglected by its board of directors; and, being so bound by the laws of Illinois, the defendant is bound thereby in this State.
“The plaintiff is entitled to recover in this action the amount of the assessment aforesaid, 8692.49, with interest thereon from September 1, 1891, amounting to the sum of 8827.11.”
Defendant appeals, contending that the findings of fact do not support the conclusions of law.
It is necessary to consider but one of the questions raised. The decree, upon its face, shows that the assessment included unearned premiums, and claims in dispute, upon which the liability of the company had not been ascertained and determined, and was there-' fore invalid. In Detroit, etc., Ins. Co. v. Merrill, 101 Mich. 393, we held that the maker of such a note could not be held upon an assessment in part for the payment of unearned premiums; nor do we think that he could be held upon “claims in dispute."
But it is insisted by plaintiff that defendant is concluded as to these matters by the decree of the Illinois court. With respect to any determination affecting the rights of the corporation as such, the happening of the contingency empowering the auditor of the State to proceed, the suspension of the company’s right to continue business, the appointment of a receiver, and the dissolution of the corporation, such determination undoubtedly concludes the defendant, and, inasmuch as the necessity for an assessment grows, in part at least, out of the decree of dissolution, the determination of that question is final. But an assessment against a member stands on the same footing as one made by the board of directors, and is not conclusive upon the person assessed, as a judicial determination.
In Bangs v. Duckinfield, 18 N. Y. 592, the court say that—
“The proceedings of the receiver in making an assessment are of no greater force than the same act would have possessed if done by the hoard of directors. It is true that he has made an application to the court, and it has approved of his proposed assessment; * * * but the approval of the court only places his act in the same position as an assessment by the directors would have occupied. .The defendant was not a party to the suit in which the application was made, and had, and could have, no notice of the application. As to him, therefore, in a Ipoint directly involving his supposed liability, the determination of the court approving the assessment is not to be regarded as a judicial decision, concluding him as to the particulars of the assessment.” 2 May, Ins. § 557, and cases cited.
The liability of the defendant is, by the declaration in this cause, predicated upon the notes in question, and does not, therefore, spring from a statute fixing the liability- of the membership, or imposing a liability upon members in case of the insolvency or default of the corporation. The note sued upon is the contract between the parties, and determines and limits the liability of the defendant.
We are cited by the plaintiff’s counsel to the case of Great Western Tel. Co. v. Gray, 122 Ill. 630. Defendant in that case was sued upon his subscription to stock for the balance unpaid, and it was held that the validity of the decree appointing the receiver could not be questioned by the stockholder; in other words, that it was unnecessary to make such stockholder a party in the proceeding to wind up the corporation.
The judgment of the court below is reversed, and judgment entered here for the defendant’s proportion of the other items, with costs of this court to defendant.
Grant, Montgomery, and Hooker, JJ., concurred. Long, J., did not sit.

Opinion:
Grant, J.
After a full argument upon the rehearing of this cause, we are satisfied that we were in error in reversing the judgment. The testimony was not returned, and the case is before us on findings of fact and law, to which no exceptions were taken. The sole question, therefore, is, do the facts found support the judgment ?
We held, in Detroit, etc., Ins. Co. v. Merrill, 101 Mich. 393, that the defendants, under such a note, were not liable to an assessment for unearned or return premiums. That case would, of course, control this, unless the decree of the Illinois court is conclusive upon the courts of this State. The Constitution of the United States declares that "full faith and credit shall be given in each State to the public acts, records, and judicial proceedings of every other State." Article 4, § 1. In the early case of Mills v. Duryee, 7 Cranch, 481, it was held that the decrees and judgments of the courts of one State were conclusive in the courts of sister States. This case has since been uniformly followed. Where a court has jurisdiction of the cause and of the parties, its judgment is conclusive in other courts, and the only remedy is by direct proceeding in the original cause. Hanley v. Donoghue, 116 U. S. 4; Cole v. Cunningham, 133 U. S. 111; Bonesteel v. Todd, 9 Mich. 371. It is conceded that as against the corporation itself, and the directors and officers thereof, the rule applies. It is, however, contended that it does not apply to a stockholder of such corporation who is not made a direct party to the original suit. That is the question in this case.
We are not dealing with a case where a stockholder is interposing the defense of payment, or any other defense which was not passed upon in the original' suit against the corporation. In such a case there is no judgment or decree of the court of a sister State which other courts must recognize. But the very point now urged as a defense was involved and determined by the Illinois court. This was an Illinois contract. These notes were choses in action, were first in possession of the company in Illinois, were turned over by it to the receiver, and were under the direct control of the Illinois court. That court entered a decree, upon evidence placed before it, determining the amount of assets and debts, and the amount of the assessment necessary to liquidate its liabilities. If every stockholder may now contest this decree, the difficulty thus thrown in the way of an orderly and practical settlement of the affairs of the insolvent corporation is apparent. Different courts might adopt different rulings upon the amount of the assessment. We think the better doctrine is that each stockholder or member of the corporation is an integral part thereof, and is represented in such suit through the corporation itself, and that such decree is binding and conclusive upon him. Two courts have so held in regard to the case now under consideration. Rand, McNally & Co. v. Insurance Co., 58 Ill. App. 528; Parker v. Mill Co., 91 Wis. 174.
In the latter case two points "were raised: First, that the receiver in Illinois could not sue in the courts of Wisconsin; and, second, that the assessment was inequitable and unjust, and hence should not be enforced. The distinction between the rights of property situated in other States, and those of choses in action, is there very clearly pointed out. Upon the first point the court say:
! ' There is no question here of a transfer of property in this State. No such transfer was attempted. The property in question — that is, the defendant's note and its liability to pay assessments — was in Illinois, at the office of the company. They were choses in action, and their situs was at the residence of the company."
Upon the second point the court say:
' ' If a judgment is conclusive in the State where rendered, it is conclusive here. The decree by which the assessment in question was made was undoubtedly conclusive on the members or policy holders of the defunct company, unless attacked in a direct proceeding, notwithstanding they were not present when it was rendered. We can come to no other conclusion than that we are bound, under the constitutional requirement of 'full faith and credit,' to hold that the decree making the assessment in question, being conclusive in Illinois upon all members and policy holders, unless attacked by direct proceeding, is conclusive here, and not open to collateral attack."
The point appears to be expressly decided in Hawkins v. Glenn, 131 U. S. 319. The proceedings in that case were substantially the same as in this. The defense was that the stockholder was not a party to the suit, that the cause of action was barred by the statute of limitations, that he was not responsible on 150 shares, and that interest should not have been allowed. The stockholder was sued in North Carolina. A decree had been rendered in a court of chancery in Virginia, which had ascertained the extent of the liabilities and assets of the corporation, and decreed the assessment required to pay its liabilities. The court held the decree conclusive, and, in deciding it, speaking through Chief Justice Fuller, said: "A stockholder is so far an integral part of the corporation that, in view of the law, he is privy to the proceedings touching the body of which he is a member," — citing Sanger v. Upton, 91 U. S. 56. The same question was again before the court in Glenn v. Liggett, 135 U. S. 533, and the same conclusion reached, quoting from Hawkins v. Glenn. The same was held in Lycoming Fire Ins. Co. v. Langley, 62 Md. 211.
The learned counsel for the defendant cite Chandler v. Brown, 77 Ill. 333, and Lamar Ins. Co. v. Gulick, 102 Ill. 41. These cases are distinguished from a case like the present in Great Western Tel. Co. v. Gray, 122 Ill. 630. The two former cases were based upon a statute which provided that stockholders should be made parties to the suit. Rev. Stat. Ill. 1891, chap. 32, § 1-49. The decree of the Illinois court in this case was based upon an act in regard to the dissolution of insurance companies. Rev. Stat. Ill. 1891, chap. 73, § 103-111. This does not provide for any service upon or notice to the stockholders or members, but confers the entire jurisdiction in such cases upon the courts. Upon the question of notice to stockholders, see Wardle v. Cummings, 86 Mich. 400.
Mr. May, in his work on Insurance (vol. 2, § 557), says "the receiver of an insolvent company stands upon no better footing" than would the directors in making an assessment; and cites Jackson v. Roberts, 31 N. Y. 304; Embree v. Shideler, 36 Ind. 423. If these decisions sustain the rule contended for, we could not follow them, as we think they are opposed to the clear weight of authority. The New York statute is clearly different from that in the present case. It reads as follows:
"In case the corporation, in regard to which a receiver has been or shall hereafter be appointed, is or shall be a mutual insurance company, such receiver shall have full power, under the authority and sanction of the court appointing him, to make all such assessments on the premium notes belonging to such corporation as may be necessary to pay the debts of such corporation, as by the charter thereof the directors of such corporation have authority to make; and the notice of such assessment may be given in the same manner as is provided in the charter of said company for the directors of said company to give; and the said receiver shall have the like rights and remedies upon and in consequence of the nonpayment of such assessments as are given to the corporation or the directors thereof, by the charter of such corporation." Laws 1852, chap. 71, § 2.
It thus appears- that the power of the receiver was expressly limited to the power of the board of directors, and to the modus operandi of collecting the assessments.
In Embree v. Shideler, it appeared, upon the face of the complaint, that neither the receiver, nor the court to which he had reported his action, had examined and determined upon the validity of the claims against the company. This was expressly required by the charter of the company. It was therefore said that "the assessment is the act of the receiver, and in and with him is the authority to act in the premises."
The decree in the present case was erroneous only in that it included some items which, under Detroit, etc., Ins. Co. v. Merrill, supra, this court would have excluded. Judgments and decrees cannot be attacked collaterally because they include items which courts, other than those by whom they were rendered, might hold to be illegal. See Mor. Priv. Corp. § 822.
The judgment must be affirmed.
Montgomery and Hooker, JJ., concurred with Grant, J.