Court Opinion

ID: 6897295
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:51:09.781246+00
Date Added: 2024-06-11T16:06:02.695491
License: Public Domain

Decided April 19, 1897.
On Motion for Rehearing.
(48 Pac. 474.)
Opinion by
Mr. Justice Wolverton.
Since the opinion was rendered in this cause, we have been favored with an elaborate brief upon respondents’ motion for a rehearing, urging with commendable earnestness that the court is in error in holding that the plaintiff is not estopped to prosecute this action by reason of the judgment rendered and given in Posson’s favor in the justice’s court. In our anxiety to be right, we have at much pains re-examined the question, but find no reason for receding from our former position. One line *474of authorities relied upon in support of the motion establishes the doctrine clearly stated by Chief Justice Fuller in Hawkins v. Glenn, 131 U. S. 332, that “A decree against a corporation in respect to corporate matters, such as the making of an assessment in the discharge of a duty resting on the corporation, necessarily binds its members, in the absence of fraud, and that this is involved in the contract created in becoming a stockholder.” The estoppel which was invoked with success in that case was a decree of a chancery court in a creditor’s suit against a corporation, whereby an assessment was levied against the stockholders. It was urged that as the stockholders were not made parties to the suit, nor served with summons, they were not to be bound by the decree; but it was decided that they were represented by the corporation, and that the assessment by decree took the place of a regular assessment by the board of directors, and, therefore, that it was unnecessary to make them parties to the suit, or serve them, but that they were bound by the decree, because they were integral parts of the corporation, and in view of the law they were privy to the proceedings touching the body of which they were members. Such is the effect also of Glenn v. Liggett, 135 U. S. 533; Lehman v. Glenn, 87 Ala. 618; Howard v. Glenn, 85 Ga. 238, 21 Am. St. Rep. 156; and Glenn v. Williams, 60 Md. 93. All these cases, including Hawkins v. Glenn, 131 U. S. 332, are concerning different phases of the same transaction, but the courts are in accord upon the proposition stated. Stutz v. Handley, 41 Fed. Rep. 531, is a case by a creditor of a corporation, instituted in behalf of himself and all others similarly situated, against a stockholder, to subject the amount remaining unpaid upon shares of the capital stock held by him to the payment of the company’s debts. The creditor had previously obtained judgment against the *475company for the price of certain machinery, against which it had interposed a counterclaim for damages by hreach of warranty, which was disallowed, and the stockholder attempted to again counterclaim for the same breach, but it was held that he was precluded by the judgment in the action against the company upon the ground and for the reason that he was represented by the company in that action, and had already had his day in court on that question. Baines v. Babcock, 95 Cal. 581, 29 Am. St. Rep. 158, was a suit similar to Stutz v. Handley. A judgment had been recovered against the company upon its contract, and in the creditor’s suit a stockholder attempted to show that the contract was one which the corporation was without power to make, and therefore ultra vires and void, but the court held that he was precluded by the judgment in the action against the corporation. In deciding the question, De Haven, J., said: “A corporation represents and binds its stockholders in all matters within the limits of its corporate power, so long as it acts in good faith and without fraud upon their rights; and in the bringing and defending of suits affecting the rights and obligations of the corporation, it binds the stockholders as fully as in the making of contracts.”
Willoughby v. Chicago Junction Railway Co., 50 N. J. Eq. 656, was a case instituted by plaintiff in behalf of themselves and all others similarly situated who should come in and be made parties to the suit, in deciding which the court said: “From the very form and nature of these suits, each stockholder must be considered as represented; for if he is in sympathy with the complainant he may become a party complainant by application to the court, if he is in sympathy with the threatened action of the company, he is represented by and in the corporation, which is a necessary party to the suit.” This was held to fall within a class of cases where a duty is incumbent upon *476the corporation, but, failing to take action in the premises, a stockholder is permitted to prosecute as the nominal party, but representing the corporation as the real party, in the place and stead of the accustomed officials. In all these cases it will be seen that the stockholders are bound by the judgment or decree against the corporation in matters pertaining to the duties of the corporation touching its rights and obligations with which it is charged as the representative of the individual stockholders, who may be regarded in that respect as integral parts of the body corporate, and this is as far as the estoppel extends. But in an action by the corporation against a stockholder to recover for stock assessments, while it may be said that the corporation is acting in discharge of a duty imposed upon it by the stockholders through the articles of incorporation and by-laws, the defendant is, from the very nature of things, an adversary party in the fullest sense of the word. The corporation cannot be said to represent the stockholder while prosecuting an action against him to enforce the payment of a stock subscription which he is resisting. But a stockholder who has no action pending against him for the enforcement of his unpaid stock bears the same relation to the corporation, is bound or obligated to it by a contract of like nature and effect, and his rights and duties toward the company and all other stockholders are identical with the one resisting, so that if, in such a case, it does not represent the stockholder against whom the action is being prosecuted, can it be consistently or logically said to represent such as have not actions pending against them, in so far as to conclude them in their individual capacities and touching their obligations to the corporation? Mr. Van Fleet says: “In order to conclude any right, title, or interest of a person by adjudication, it is essential that he be a party to the proceeding, or be represented by one. In the latter case *477he is said to be a privy”: 2 Van Fleet on Former Adjudication, § 459. And it is because the- stockholder is represented by the corporation that he is precluded by a judgment or decree rendered against it; but if the proceeding is one in which the stockholder and the corporation are adversary parties, the reason of the rule ceases, for in such case the corporation does not and cannot represent the stockholder. Suppose the judgment in the justice’s court had gone against Posson, and it had been there determined that he was a subscriber to the capital stock of the concern, would it be contended for a moment that the defendant in this action would be precluded by that judgment when he at the same time was contesting the legality of the organization of the company upon the very ground that Posson was not a stockholder in an action of the same nature? In what way could it be said that the defendant here was in privity with Posson, and, if not in that event, why should he be when the judgment is rendered against the corporation? Stockholders are not in privity with the corporation as it pertains to actions prosecuted by it against them for the recovery of unpaid stock subscriptions, for the very cogent reason that they and the company are always adversary parties in such actions, and a priori they are not in privity with each other, as such privity must depend upon the corporate function to represent the stockholders, which does not nor cannot exist. The motion will be denied.
Rehearing Denied.