Mutual Fire Insurance v. Phoenix Furniture Co., 108 Mich. 170

108 Mich. 170 | Mich. | 1895

Lead 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.

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Dissenting Opinion

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 statute 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.

As 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 subscriptions 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.

In 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 no 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 the 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.