Court Opinion

ID: 7938116
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:11:48.604453+00
Date Added: 2024-06-11T16:33:36.999963
License: Public Domain

McGrath, O. J.
(dissenting). After reargument of this cause, I see no good reason for a change of opinion upon the main issue involved. The case presents two questions: First, whether the decree of the Illinois court is res judicata as to the amount of the assessment directed; and, second, whether we are bound, under the constitutional requirement of “full faith and credit,” to regard that decree as conclusive. •
1. There are a number of authorities which hold that, in a proceeding against a stockholder under a statute which makes him liable to creditors, and based upon a judgment against the corporation, such judgment is prima facie evidence of the indebtedness of the corporation. Grand Rapids Sav. Bank v. Warren, 52 Mich. 557; Hoagland v. Bell, 36 Barb. 57; Hastings v. Drew, 76 N. Y. 9; Schaeffer v. Insurance Co., 46 Mo. 248. Other authorities hold that the judgment is conclusive, and cannot be attacked, except for fraud. Corse v. Sanford, 14 Iowa, 235; Grund v. Tucker, 5 Kan. 70; Coalfield Co. v. Peck, 98 Ill. 139; Conklin v. Furman, 8 Abb. Prac. (N. S.) 161; Milliken v. Whitehouse, 49 Me. 527; Henry v. Railroad Co., 17 Ohio, 187; Wilson v. Coal Co., 43 Pa. St. 424: Merchants’ Bank v. Chandler, 19 Wis. 434; Marsh v. Burroughs, 1 Woods, 463; Stephens v. Fox, 83 N. Y. 313. There is still another class of cases which holds that a stockholder, in the absence of a *179statute requiring it, is not a necessary party to proceedings to wind up the affairs of the corporation, determine its insolvency, and appoint a receiver; that a decree of court determining such matters, declaring the necessity for an assessment upon stockholders or for the collection of unpaid subscriptions to the capital stock, and directing the' collection thereof, is not open to attack in a suit brought to enforce the collection of the assets of the corporation, the unpaid subscriptions to the capital stock, or assessments so ordered. Glenn v. Williams, 60 Md. 93; Lycoming Fire Ins. Co. v. Langley, 62 Md. 196; Sanger v. Upton, 91 U. S. 56; Glenn v. Springs, 26 Fed. 494; Hawkins v. Glenn, 131 U. S. 319; Lehman, Durr & Co. v. Glenn, 87 Ala. 618; Gilchrist v. Land Co., 21 W. Va. 115 (45 Am. Rep. 555). These cases, with many others, recognize the rule, but some of them carry the rule to an extent which is not warranted by the principle which underlies the rule, and others use language which is inapplicable to the facts of the particular case before the court. A judgment against a corporation is decisive, as against a stockholder of that corporation, because the proceeding in which it was obtained was one between the contracting parties, — the parties who had the legal right to determine that question. The only question then open is the amount due from the stockholder to the corporation, or, if he is liable by reason of a statute, the extent of his liability under the statute. If he is exempted from certain classes of claims against the corporation, such exemption may be shown. If the statute imposes a liability as for labor claims, the character of the claim must be established. In Wilson v. Coal Co., supra, the stockholders were made personally liable for all debts except loans, and the court held that defendant might show either that he was not a stockholder or that the debt was a loan. In other words, the judgment is conclusive as to the amount due from the corporation to the creditor, but is only conclusive as to the stockholder when his liability is established.
*180As is said in Union Bank v. Manufacturing Co., 17 S. C. 339, 359:
“There can be no doubt of the rights of the stockholders in this action to set up any available defense that goes to the question of their liability upon the note upon which judgment has been obtained against the company. The defendants in this action were not, as individuals, parties to the action in which judgment was recovered. That suit was against the corporation, which, in law, is a distinct person from the individual members which compose it. The ground of the liability of the company may not prevail against the stockholders. For it is only when a judgment is obtained against the company upon debts of a certain description, and upon which suits have been brought within a specified time, that the stockholders are liable. In this action it is, therefore, necessary to establish that the conditions of the liability of the stockholders exist. To do this necessarily involves an inquiry in this action into the grounds of the stockholders’ liability. Of course, then, it is competent for these defendants to interpose any defense that goes to the ■ question of their liability upon the notes upon which the judgments were obtained.”
In Marsh v. Burroughs, supra, it was contended that the unpaid subscriptions of capital stock were not assets for the payment of debts, either legal or equitable; that they existed merely as possibilities; that they were not a debt due, having never been called in; that no one could call them in but the directors, and in them it was a mere discretionary power, which could not be exercised either by the assignee, the receiver, or the court itself, and could not be assigned; that said unpaid subscriptions were no part of the capital stock of the bank; and that the real capital stock was what had been called in. The court held, however, that the amount subscribed, and not the sums actually paid in, was the capital stock; that the authority to make calls was not a mere power vested in the bank, to be exercised or not, in its discretion, but that it was aright; that the mode of calling it in prescribed by the charter was a mere form of remedy given to the bank to enforce the subscription, and that unpaid sub*181scriptions were corporate property, constituting a trust fund which could be reached by creditors.
In Sanger v. Upton, supra, it was held that the order of the bankruptcy court as to the right of the assignee to bring suit was conclusive. The court refer to the application of the rule to an order made by the comptroller of the currency, citing Kennedy v. Gibson, 8 Wall. 505, wherein the court say:
“ It is for the comptroller to decide when it is necessary to institute proceedings against the stockholders to enforce their personal liability, and whether the whole or a part, and, if only a part, how much, shall be collected. These questions are referred to his judgment and discretion, and his determination is conclusive. The stockholders cannot controvert it. It is not to be questioned in the litigation that may ensue. He may make it at such time as he may deem proper, and upon such data as shall be satisfactory to him.”
The court then say:
“It was competent for the court to order payment of the stock, as the directors, under the instruction of a majority of the stockholders, might, before the decree in bankruptcy, have done. The former is as effectual as the latter would have been.”
Other questions affecting the liability of the stockholders were raised, and the court determined them.
In Hall v. Insurance Co., 5 Gill, 484, the question arose upon the admissibility in evidence of the equity proceeding in which the order directing the call had been made, and the court held that the order for the institution of the suit was conclusive.
In Glenn v. Williams, supra, it was held that the chancery court of Richmond had power and jurisdiction to make assessments upon the unpaid subscriptions to the capital stock to raise funds with which to pay the debts of the corporation, and that the decree of the court determining and making an assessment upon the capital stock for such purpose was binding and effective upon stockholders not parties to that cause.
*182In Parker v. Mill Co., 91 Wis. 174, a demurrer was interposed to the complaint, on the ground of want of capacity in the plaintiff to sue. The court below sustained the demurrer, and the supreme court reversed that holding. There is no doubt of the correctness of that decision. That question is res judicata.
In Hawkins v. Glenn, supra, Mr. Chief Justice Fuller thus states the issues involved:
“ Counsel for plaintiff in error contend that the decree of the Richmond chancery court making the call and assessment was void as against him, because he was not a party to the suit; that the cause of action was barred by the statute of limitations; that he was not responsible upon .150 shares of the stock; and that interest should not have been allowed from the date of the call, but only from the time of the filing of the complaint.”
While the learned chief justice does say, as to the determination of the Richmond chancery court, that the court may have erred in its conclusions, but its decree cannot be attacked collaterally, the court does not rest its decision upon the adjudication referred to, but proceeds to discuss the question at length, holding that, as between creditor and stockholders, the latter could not protect themselves from paying what they owed by setting up the default of their own agents.
It must be borne in mind that that case was one for an unpaid subscription to stock. It was a sum which was a part of the capital stock of the company,- — a trust fund, held for the benefit of creditors, and the obligation to pay which could not be discharged, as against creditors, by the corporation itself. The contract to pay the sum sought to be recovered was one arising under the charter at the outset. It could not be affected, as to creditors, by the acts or laches of the corporation. In the present case the limit of the liability of the defendant member is not only expressed in the note upon which suit is brought, but in the charter of the corporation as well. No act of the corporation could extend that liability. Defendant pleads *183no release from its undertaking, nor does it seek to escape by reason of the laches of the corporation in its failure to enforce the contract, nor have creditors any demands upon defendant except such as arise from its undertaking. The receiver, on behalf of the creditors, is simply subrogated to the claim of the corporation against defendant. No assessment made by the corporation in excess of defendant’s liability would have been binding upon it. This is a proceeding against the stockholder as an adversary party. It has the same right to insist that the class of debts for which it has been assessed are not such as it contracted to pay, as a stockholder would have, under our own statute, in respect to labor claims, if sued- upon a judgment against the corporation.
2. In view of the conclusion reached, it is unnecessary to discuss the question as to whether the finding of facts supports plaintiff’s contention that the note in question is. an Illinois contract. No attempt was made to show that the charter and by-laws of the plaintiff corporation enlarged the defendant’s liability. The adjudication which, it is insisted, is binding upon us, was not one involving the validity of a contract, or the validity or construction of a local charter, statute, or constitution; nor was it a question of construction, depending upon the intent of the parties, as affected, at the inception of the contract, by any fixed local rules of law; nor did it involve a rule of property.
The federal judiciary act provides that the laws of the several States, except in given cases, shall be regarded as rules of decision in trials at common law in the courts of the United States; yet, at an early day, the Supreme Court of the United States held that this provision did not apply to the decisions of the State courts in the construction of ordinary contracts or on questions of general commercial law. Swift v. Tyson, 16 Pet. 1. And it has been held that the Federal courts were not bound by decisions of the State courts construing and determining *184the legal effect of insurance contracts (Carpenter v. Insurance Co., 16 Pet. 495); nor by decisions of State courts as to the rights of the parties to negotiable paper, such rights depending on the law of negotiable paper (Oates v. Bank, 100 U. S. 239; Railroad Co. v. National Bank, 102 U. S. 14); nor by a decision on the construction of a contract of carriage (Myrick v. Railroad Co., 107 U. S. 102); nor by a decision construing a deed by the rules of the common law (Foxcroft v. Mallett, 4 How. 353). See also, as to the application of this doctrine, cases cited in 23 Am. & Eng. Enc. Law, 40, 41.
The question here presented is whether the determination of the Illinois court, made after the insolvency of the corporation, as to the legal effect of defendant’s promise, is conclusive upon the defendant and binding upon us. I think not. There was no law of place that attached to and formed a part of the contract at its inception.
The judgment should have been for defendant, with costs of both courts.
Long, J., concurred with McGrath, C. J.