15 F. 353 | E.D. Ky. | 1882
The act of March 1, 1865, entitled “An act to incorporate the Kentucky Biver Navigation Company,” under which the defendant corporation organized, authorized the county courts of the several counties bordering upon or interested in the navigation of said river to subscribe for and in behalf of their respective counties to the capital stock of said company, and levy and collect a tax to pay the same. County subscriptions were accordingly made to the amount of $775,000. These were supplemented by a subscription of $150,000 by the city of Louisville, $100,000 by Bissit & McMahon, and $2,-300 by 23 other individuals. Thus fortified with subscribtions aggregating $1,027,300,—which the company then believed to have been duly made pursuant to the law,—the company entered into a contract with Bissit & McMahon, of which firm complainant was a member, whereby said firm undertook and agreed to do all the work contemplated by the company’s charter, and specified in said contract, for the gross sum of $1,000,000, to be paid in monthly installments upon the estimates of the company’s supervising engineer, less 10 per cent, to be retained as a guaranty for 'the completion of the work. By an agreement between themselves, to which the company was in no way a party, McMahon soon thereafter sold his interest in the contract to complainant, who began work thereunder in June, 1869, and continued the same until December, 1870. But in the meantime a disputation arose in regard to the validity of said county subscriptions. Suits followed, resulting in a decision by the court of appeals in the cases of Mercer and Garrard Counties v. Kentucky River Nav. Co. 8 Bush, 300, holding that the subscriptions claimed to have been made by said counties had not been made in conformity with the requirements of the statute conferring the authority, and that the same were invalid and not binding upon them. Thereupon the city of Louisville, and all the counties in whose behalf subscriptions had. been made, denied the validity of the same, and refused from that time forward to further participate as shareholders in the control of the corporate business. But complainant, in virtue of his ownership of
It is clear if the corporation is indebted to the complainant, and that the defendant counties are indebted, as alleged, to the corporation, the complainant is entitled to the relief prayed for. But the defendants insist (1) that the legislature possessed no constitutional power to authorize such subscriptions; (2) if it had such power their alleged subscriptions were not made pursuant to the law; and (3) if the same were made in conformity with the statute, the Kentucky Biver Navigation Company was not, at the time complainant recov-* ered his judgment, or afterwards, indebted to the complainant anything, and that said judgment was collusively and fraudulently ob■tained, and that it is not conclusive of their rights.
The questions thus presented by the first and second defenses have been considered and passed on by the court of appeals in the cases of Mercer and Garrard Counlies, supra. The first impression of the court was adverse to the constitutionality of the act under which the subscriptions were made, and an opinion to that effect was prepared and announced. But upon a rehearing, the court, three of the four judges constituting the court concurring therein, abandoned the position on which they rested their first decision, and placed their second
Such, at least, is the natural and reasonable interpretation of the language employed, and this construction of the state constitution by the highest court of the state is conclusive on this court.
, The constitutional question out of the way, we are brought- to the consideration of the second defense, to-wit: Do the records of the ,-co.unty. courts of the defendant counties evidence completed contracts of subscription, within the purview of the act authorizing the same, as construed by the court of appeals ? Herein lies the vital point of this controversy. If the orders made by these courts constitute valid subscriptions, within the meaning of that act as construed by the court of appeals, the complainant i's entitled to relief; other■wise, his bill will have to be dismissed.
We have not the time to enter upon an elaborate discussion of the details. It'must suffice to say that, in the judgment of this court, the records of Estill and Owsley county courts are in nowise materially different from the records of Mercer and Garrard county courts, which were held to be insufficient to bind said counties; and as nothing has since transpired to cure the defects therein, the complainant’s bill'will, as to these two counties, be dismissed, with costs.
But the case as to Jessamine county cannot be so summarily dis■posed of. The county court of. this county, at its September term,
Now it may be conceded that those orders do not, when measured by the reasoning of the court of appeals in the cases to which reference has been had, constitute completed and valid subscriptions on the part of the county. But it is manifest that the county court and the defendant company understood the legal effect thereof differently. It appears that after the subscriptions had been made by the commissioner, Brannaugh, in behalf of the county, and accepted by the company and notice thereof given to the court, the latter proceeded to make and enter of record several orders clearly and distinctly recognizing the validity of said subscriptions. These were followed by an agreement between the court and the company to pay in five instead of four annual installments, and an order was duly made and entered of record levying an ad valorem tax of 50 cents on each $100 worth of the taxable property of the county for the payment of the first installment; and more than $18,000 of the tax thus levied was collected, and, by the express order of the court made and entered of record in November, 1869, paid by the county treasurer to the defendant company in part discharge of the county’s subscription. i(1or a time the county claimed and exercised the rights incident to the ownership of stock and participated in the management of the corporate business. Such was the practical construction of the effect of the action had in the premises by the parties thereto. The county courts of the several counties authorized to subscribe to the enterprise in question were invested by the act with power to act for their respective counties, and to determine whether subscriptions should or should not be made. The power to make a subscription necessarily carries with it the power to complete an incompleted contract to subscribe; and if the original orders under which Brannaugh acted are not, within themselves, completed subscriptions, the subsequent construction thereof by the county court, acquiesced in by the defend
What, then, is the extent of its liability in this case? The answer to this question involves two inquiries: First, we must ascertain, if we can, how much is due from the defendant corporation to the complainant; and, secondly, the proportion thereof justly chargeable to Jessamine county.
The complainant insists that, having obtained a judgment kt law against the defendant corporation for $132,500, and costs, the same is conclusive, as against the stockholders, of the amount due him, and that Jessamine county ought to be made to contribute to the extent of its unpaid subscriptions towards the liquidation of the complainant’s demand. But we do not, upon the facts of this case, concur in this view of the complainant’s rights. The county took part, as a stockholder, in the management of the corporate business until the decision in the Mercer and Garrard County Gases was made. But upon the promulgation of that decision Jessamine county,(in common with all the other counties which had taken steps to subscribe stock in said corporation, disclaimed its subscriptions, and thereafter refused to participate further in perpetuating its .organization or supervising its business. The complainant, who owned $100,000 of stock, subscribed by Bissit & McMahon, assumed the sole and exclusive control of said corporation, and from that time forward managed and controlled its business through a board of directors elected by himself. Having thus assumed the responsibility, he was bound to due diligence in the execution of it. But we think he failed to discharge the duty thus voluntarily undertaken. The suit in which he recovered his judgment was prosecuted by complainant through counsel employed for the purpose, and defended by one of the directors chosen by him. In short, it was prosecuted on the one side by an attorney selected by him, and defended by a board of directors which he had chosen and placed in position, brought to trial just three months and six days after its institution, tried upon a false copy of the contract, sued on in the absence of material and important witnesses for the defense, and resulted in a judgment largely in excess of the amount due. We are satisfied that the complainant’s judgment, to put it mildly, was
But as the complainant is himself a stockholder, he must contribute pari passu with Jessamine county to the payment of the balance that shall be thus found due him. The master will therefore ascertain and report, secondly, the amount of stock subscribed by the complainant and said county, respectively; the amount paid thereon and the dates of such payment, calculating interest and adjusting the accounts so as to require each party to pay towards the complainant’s demand in proportion to the amount of stock severally subscribed by them. All other questions are reserved until the coming in of the master’s report.
The master to whom the matter was referred, found, on the basis of the foregoing opinion, due to complainant, including principal and interest, the sum of $25,274.68, of which one-half, $12,637.84, was charged to Jessamine county and the other moiety to complainant.
As to the first point in the foregoing opinion: Creditors of an incorporated company who have exhausted their remedy at law can, in order to obtain satisfaction of their judgment, proceed in equity against a stockholder to enforce his liability to the company for the amount remaining due upon his subscription, although no account is taken of the other indebtedness of the company, and the other stockholders are not made parties; although, by the terms of their subscriptions, the stockholders were to pay for their shares “ as called for” by the company, and the latter had not called for more than 30 per cent, of the subscriptions. Hatch v. Dana, 101 U. S. 205.
As to decisions of state courts as rules of decision in United States courts,
The supreme court of Missouri, after the transaction in controversy took place, and after the circuit court had decided this case, made a contrary decision against the same stockholders, at the suit of another plaintiff, and this decision being urged as conclusive upon the federal courts, held, that this court is not bound to follow the decision of the state court in such a case.
The federal courts have an independent jurisdiction in the administration of state lawn in eases between citizens of different states, co-ordinate with, ¿nd not subordinate to, that of the state courts; and are bound to exercise their own judgment as to the meaning and effect of those laws. .
But since the ordinary administration of law is carried on by the state courts, it necessarily happens that by the course of their decisions certain rules are established, which become rules of property and action in the state, and have all the effects of law, especially with regard to the law of real estate and the construction of state constitutions and statutes. Such established rules are always regarded by the federal courts, no less than by the state courts themselves, as authoritative declarations of what the law is ■ But where the law has not been thus settled it is the right and duty of the federal courts to exercise their own judgment, as they always do in reference to the doctrines of commercial law and general jurisprudence; and when contracts and transactions have been entered into and rights have accrued thereop. under a particular state of the decisions, or when there has been no decision of the state tribunals, the federal courts properly claim the right to adopt their own interpretation of the law applicable to the case, although a different interpretation of the law applicable to the case may be adopted by the state courts after such rights have accrued.
But even in such cases, for the sake of harmony and to avoid confusion, the federal courts will lean towards an agreement of views with the state courts, if the question seems to them balanced with doubt.
Acting on these principles of comity, the courts of the United States, without sacrificing their own dignity as independent tribunals, endeavor to avoid, and in most eases do avoid, any unseemly conflict with the well-considered decisions of the state courts.
As, however, the very object of giving to the national courts jurisdiction to administer the laws of the states in controversies between citizens of different states was to institute independent tribunals, which it might be supposed would be unaffected by local prejudices and sectional views, it would be a dereliction of their duty not to exercise an independent judgment in cases not foreclosed by previous adjudication.
The Effect as to Stockholders and Officers of a Judgment against the , Corporation.
1. General Principles. ' A judgment is conclusive as between parties and privies thereto of all matters of controversy determined by it. Every per
2. The Judgment Conclusive. In such cases as that decided by Judge Baxter in the opinion above reported, viz., suits in the nature of creditors'
In actions to enforce the statutory liability of stockholders, judgments against the corporation have been held equally conclusive. Donworth v. Coolbaugh, 5 Iowa, 300; Came v. Brigham, 39 Me. 35; Merrill v. Suffolk Bank, 31 Me. 57; Milliken v. Whitehouse, 49 Me. 529; Wilson v. Pittsburgh, etc., Coal Co. 43 Pa. St. 424; Gaskill v. Dudley, 6 Metc. 546; Hawes v. Anglo-Saxon Petroleum Co. 101 Mass. 385; Johnson v. Somerville, etc., Co. 15 Gray, 216; Holyoke Bank v. Goodman Paper Manuf’g Co. 9 Cush. 576; Thompson, Liab. of Stockh. § 329 et seq.; Freeman, Judgm. § 178. See Boyd v. Hall, 56 Ga. 563; Bigelow, Estop. (3d Ed.) 89.
In Gaskill v. Dudley, supra, D. recovered a judgment, by default, against a school-district, in an action on a contract with the district to build a schoolhouse, and levied his execution on the goods of a member of the district. Hela, that he could not give evidence that D. had not performed his said contract, and therefore ought not to have recovered judgment against the district. Shaw, O. J., said: “Every member of a corporation is so far privy in interest in a suit against the corporation, that he is bound by a judgment against it.” And, as was remarked by the same learned jurist in Farnum v. Ballard, etc., Shop, 12 Cush. 507, 509, as to a private corporation, the case is much stronger than as to such a public body as a school-district. Morawetz, in his recent work on Private Corporations, makes an admirable statement of the rule, and the reasons on which it is founded: “A judgment obtained against the corporation is certainly conclusive (until reversed for error or impeached for fraud) in a suit to charge the stockholders upon their unpaid subscriptions; and by analogy it should also be held conclusive in a suit to charge them upon their additional individual liability to creditors. It must be borne in mind that a corporation is composed of its stockholders, and that a judgment obtained against the corporation is in reality a judgment obtained against the stockholders in their corporate capacity. There is no reason why the members of a corporation should be allowed to contest a creditor’s claim twice,—
The rule is the same in England. A statute of Kew South Wales provided that the chairman of a company could be sued on behalf of the company, and that execution on a judgment in such an action could be issued against the property of any member of the company, as if the judgment had been obtained against him personally. In an action upon such a judgment against a member beyond the territory of the colony, held, that tho judgment might be impeached for want of jurisdiction or fraud in obtaining it, but that the defendant was precluded from disputing that the promises upon which the judgment was founded were never made, or from showing that they were obtained by fraud by the plaintiff. Bank of Australasia v. Nias, 4 Law & Eq. 252; S. C. 20 Law J. Rep. (N. S.) Q. B. 284. See, under a statute somewhat similar, Hampton v. Weare, 4 Iowa, 13; Donworth v. Coolbaugh, 5 Iowa, 300.
The judgment is prima faerie evidence of the indebtedness, and can be questioned only for fraud or mistake. Merchants’ Bank v. Chandler, 19 Wis. 435; Grund v. Tucker, 5 Kan. 70. See Berger v. Williams, 4 McLean, 577; Bigelow, Estop. (3d Ed.) 89. But in the Kansas case, while it was not necessary to decide that it was more than prima facie evidence, the reasoning of the court goes to the length that it is conclusive. Thompson, Stock Liab. § 329, note. And Gray, Com., in McMahon v. Macy, 51 N. Y. 155, 165, while holding that the judgment was not even prima facia evidence, said that if it was given that force, “not having been made so by statute, I am unable to understand why it is not, like a judgment in any other ease, conclusive.”
In suits against officers of a corporation to charge them with debts on account of the neglect of some duty imposed upon them, the judgment recovered against the corporation is conclusive of the existence of the debt for which it was rendered. Thayer v. N. Eng. Lith. Co. 108 Mass. 523. Contra, Miller v. White, 50 N. Y. 137. See Thompson, Liab. Officers, etc., § 463; Thompson, Liab. Stockh. § 330.
Where stockholders are liable only on a particular class of debts or to a particular class of creditors, it is proper to go behind the judgment to prove that tho debt recovered belonged to the class for which the stockholders are made liable. Wilson v. Stockholders, 43 Pa. St. 424; Conant v. Van Schaick, 24 Barb. 87; Larrabee v. Baldwin, 35 Cal. 135; Thompson, Liab. Stockh. § 834. And the judgment may not be conclusive as to the organization and existence of the corporation. Hudson v. Carman, 41 Me. 84.
3. ifisw York Cases. The conclusiveness "of the judgment has not been questioned except in Hew York, that I have been able to find, and tho decisions in that state present a spectacle of great confusion. Chancellor Kent, in the caso of Slee v. Bloom, held that a judgment against the corporation was not binding upon stockholders when sued individually, on the ground “ that the acts of the trustees or agents of the company, while it subsisted as
. The answer to Chancellor Kent’s reasoning would seem to be clear. The statutory liability to creditors is an obligation that persons must, in contemplation of law, be held to have had in view when they became stockholders. It is conceded that the officers and agents of a corporation, in the absence or fraud, can bind the stockholders by contracts made in behalf of the corporation. They have the power to execute bonds and other negotiable instruments, which not only have a prima facie validity, but may fasten an indisputable liability upon the corporation. These acts of the officers are given their ordinary legal effect, not only against the corporation, but also against the stockholders in all proceedings to make them individually liable. It is
Cincinnati, March 1, 1883. J. C. Harper.