92 Mo. App. 560 | Mo. Ct. App. | 1902
A demurrer was sustained to the plaintiff’s petition in this case, in which he seeks to enforce a statutory liability agaiiist Jacob Gruen and John Gruen as stockholders in-the Columbus Watch Company, an insolvent corporation organized under the laws of the State, of Ohio.
The grounds of the demurrer were a misjoinder of parties defendant and a failure to state facts sufficient to constitute a cause of action.
Plaintiff stood on his petition.
Erom the allegations contained therein it appears the plaintiff is both a stockholder and a creditor of an insolvent Ohio corporation, the Columbus Watch Company, and that he brings this suit in behalf of himself and all its other creditors. The defendants are and for years have been stockholders thereof and the only stockholders resident in this State. It also appears that two suits have been instituted in the court of common pleas of Eranklin county, Ohio, against said watch company. In one the plaintiff in this action, Carl Pfaff, and Louis Lindeman were plaintiffs; in the second, Jacob Scheutz was plaintiff. In both cases the corporation itself and all the stockholders in Ohio were made parties defendant, either by service of process or their voluntary appearance. The object of both suits was to wind up the corporation, ascertain its indebtedness, collect its assets and distribute them among its creditors.
By the finding of the said court of common pleas and also by the return of an execution which had been issued on a judgment obtained by said Scheutz against the Columbus
A receiver was appointed in tbe first case, prior to tbe institution of tbe second one, but tbe two causes were subsequently consolidated and the same receiver retained. It further appears that an assessment of thirty per cent of tbe par value of tbe company’s capital stock was assessed against tbe shareholders in said suit in Ohio, which they were directed to pay to tbe receiver and that all holders of stock, including these defendants, have paid that assessment. Afterwards, another assessment was levied against the stockholders, which, with the first levy, carried the assessments against them up to the full par value of the capital stock. The amounts necessary to be paid by the defendants and all other shareholders to make good what the company owes, were definitely fixed by the decree of the court in said consolidated ease and all the stockholders have paid their second assessment, except these defendants who refuse to pay, wherefore this action was instituted to compel payment.
We regard most of the propositions of law involved in the controversy as well settled and supported by harmonious decisions; but some of them are still open, at least in this jurisdiction, and the cases in other States which deal with them are so contradictory as to cast doubt on what the rule is or ought to be.
A statutory liability, like the one with which the defendants are sought to be charged, is not strictly an asset of a corporation, but an indemnity or further security exacted by the laws of the State of the corporation’s domicile for the benefit of its creditors. Such a liability is not in the nature of a penalty, nor does the obligation to discharge it, if the contingency for which it is provided happens, that is, if the corporation becomes insolvent, rest exclusively on the Constitution and statutes which impose it. While it is a legislative expression of
Another settled rule is that this liability on the part of shareholders is not primary but contingent on the insolvency of the company and its inability to meet its obligations to creditors.
The disposition of the courts of States outside the one where an insolvent company is domiciled is to enforce such a statutory liability, both because of that comity and good will which ought to exist among the States of the Hnion and that respect which the governmental departments of other States ought to show to the laws and policies of a sister State, and also because it is the duty of courts everywhere to compel parties to keep all obligations and engagements, not illegal or immoral, into which they enter. As has been said, a liability of this kind is more than a public policy, more than a mere indemnity exacted from the holders of corporate stock in favor of corporation creditors; it is an obligation voluntarily assumed by every individual who subscribes for shares in a company organized and doing business under laws which prescribe such a liability, and, therefore, over and above the duty of comity — that ■nobless?, oblige which should constrain sovereign States — ought to be
“A contract is an agreement in which a party undertakes to do or not to do a particular thing. The law binds him to perform his undertaking and this is of course the obligation of his contract,” was the language of Chief Justice Maeshalx, in Sturges v. Crowinshield, 4 Wheat. 122.
The foregoing observations apply to the statutory liability of members of corporations generally, wherever that kind of liability exists, without reference to the particular provisions of the Constitution and statutes of Ohio, which we are called on to consider in this case and which need to be noticed. The Constitution of that State contains this clause:
“Dues from corporations shall be secured by such individual liability of the stockholders and other means as may be prescribed by law, but in all cases each stockholder shall be liable over and above the stock by him or her owned, and any amount unpaid thereon and a further sum at least equal in amount to such stock.”
In the Revised Statutes of Ohio are the following sections undertaking to execute the foregoing constitutional provision:
“The stockholders of a corporation which may be hereafter formed and such stockholders as are now liable under former statutes shall be deemed and held liable in addition to their stock in an amount equal to the stock by them subscribed, or otherwise acquired, to -the creditors of the corporation to secure the payment of the debts and liabilities of the corporation.
*568 “The term ‘stockholders’ as used in the preceding section shall apply not only to such persons as appear by the books •of the corporation to be such, but to any equitable owner of ■stock, although the stock appears on the books in the name of another.”
There is also this statute providing the procedure according to which the liability is to be enforced in the State of Ohio:
“A stockholder or creditor may enforce such liability by action jointly against all the holders or owners of stock, which action shall be for the benefit of all creditors of a corporation and against all persons liable as stockholders, and in such action there shall be found and determined the amount payable by-each person liable as stockholder on all indebtedness of a corporation, in which adjudication no costs shall be taxed to nor collected of any stockholder to an amount which, together with the amount to be paid on said indebtedness, will exceed the amount of stock on which he is liable.”
It has been adjudged by the Supreme Court of Ohio that the statutory responsibility of stockholders, created by the legislation above quoted, was intended for the exclusive benefit of creditors; that the corporate authorities have no control over the liability; that a suit by a creditor to enforce it should be for the benefit of all the creditors and that stockholders who are proceeded against are entitled to have all their co-members made parties so there may be an accounting, an ascertainment of the company’s debts, creditors and assets, an assessment of the members in proportion to their holdings of stock and a distribution of the assets and the sum collected from the shareholders among the creditors, and that the corporation ought to be a party. Wright v. McCormack, 17 Ohio St. 87; Umsted v. Buskick, 17 Id. 113.
As the construction of the Constitution and statutes of a State by its highest court is usually deferred to and recognized as the true meaning of those laws, it must be held, in
This brings us to a question about which there is much dispute and an irreconcilable conflict of opinion, namely: whether the liability should be enforced by the courts of another jurisdiction when the insolvent corporation is domiciled and does business in a State whose statutes provide a remedy for the enforcement of the liability like the one provided by the Ohio statute; that is, by a proceeding to which all the shareholders and the corporation itself must be parties and which must be instituted by all the company’s creditors, or by one or more of them in behalf of all ? As has been said, it is the disposition of the courts of all the States at the present time, although it was not always so, to aid in the collection of these dues from stockholders resident inside their jurisdiction whenever they can; and that is certainly the judicial policy of Missouri, as declared by our Supreme Court in a carefully considered opinion which disapproved the contrary rule announced in the earlier decisions of the Supreme Court of Massachusetts. Guerney v. Moore, 131 Mo. 650. But whatever may be the judicial inclination in this regard, courts have sometimes found it impossible to enforce foreign legislation of this kind without doing violence to well-settled legal rules and injustice to the stockholders resident in their jurisdiction and proceeded against therein, from their inability to obtain jurisdiction of
One rule of statutory, construction is, that when a statute creates a right which did not exist before at common law and at the same time provides a remedy for the enforcement of that right, this remedy is exclusive. The theory underlying that canon of construction is that in such cases the remedy is so intimately associated with the right as to be a part of it and the right and remedy are inseparable. Morley v. Thayer, 3 Fed. 737; Slee v. Bloom, 19 John. 456; Lowry v. Inman, 46 N. Y. 119; Dauchy v. Brown, 24 Vt. 197. As a consequence, when a court outside the State where such a statute is in force is called on to compel obedience to it and finds itself unable to apply the prescribed remedy, either because the procedure it may tolerate does not embrace such a remedy, or because the necessary parties to make the remedy effective are beyond its reach, or from any other circumstance standing in the way of a just use of the remedy, it will refuse to entertain the litigation, although it would entertain it if no remedy was prescribed by the statute creating the right and would then enforce the
But one can not read the cases on this subject without being convinced that the drift is more and more towards qualifying this doctrine so as to make shareholders answer to corporate creditors in the courts of sister States and to brush away the difficulties and dangers of attempting to hold them as often though not always, purely technical, imaginary and derogatory to justice. Indeed, a perusal of the cases clearly shows an increasing liberality and breadth of view in dealing with this question; a tendency to disregard questions of procedure when they involve no substantial right and to place these contracts on the same plane others occupy in respect to judicial enforcement. Local prejudices are less influential than they were and there is less State jealousy and disposition to screen citizens of the State of the forum, who hold stock in insolvent companies in other States, from losses incident to their holdings. The earlier spirit displayed in the decisions on this subject was to some extent a reproach to justice, the opinions often being manifestly colored and biased by partiality for home shareholders and an inclination to find technical excuses for exonerating them from their just responsibilities. But as corporate
In Howarth v. Angle, the New York Court of Appeals ■entertained a suit by the receiver of an insolvent bank, incorporated in the State of Washington, to collect the liability imposed by the statutes of that State on corporation stockholders against a stockholder of the bank resident in New York.' The court instead of overruling Marshall v. Sherman, distinguished 'the two cases on grounds more or less solid; but the decisions are absolutely contradictory in their reasoning and spirit, the older one showing a hostile feeling to the effort to collect the liability from citizens of New York, while the recent one received it with the same judicial impartiality shown to any other proceeding to compel performance of an engagement. These ■cases, in addition to showing the drift of adjudication, are instructive in reference to the one at bar in another respect. The piaintifPs right in Howarth v. Angle was held to be taken out
A similar change of heart is exhibited in two cases decided by the United States Circuit Court of Appeals for the First circuit, to-wit, State Nat. Bank of Cleveland, Ohio, v. Sayward et al., 91 Fed. Rep. 443, 33 C. C. A. 564; and Hale v. Hardon, 95 Fed. Rep. 747, 37 C. C. A. 240. The opinions in both those cases were written by the same judge and both were actions begun in the circuit court of the United States for the district of Massachusetts against stockholders of foreign companies resident there; one against a stockholder in an Ohio corporation and the other against a stockholder in a Minnesota corporation. In the first case it was ruled that the remedy provided by the Ohio statutes in such matters was an equitable proceeding, and exclusive of all others; and as the Federal Court of Massachusetts could not get the necessary parties before it, it could not apply the remedy.
In Hale v. Hardon, the suit was brought by a receiver of a defunct Minnesota company who had been appointed by a court of that State to take charge of the company’s assets and collect the dues of the stockholders, and the Federal Court entertained this suit on the ground that the necessary adjudication to ascertain the indebtedness, the assets and the insolvency of the corporation had taken place in the domiciliary court. It was held that the Minnesota Constitution and statutes “clearly contemplate a proceeding in the nature of an equity proceeding in that State for the benefit of all the creditors in which all the debts and assets will be ascertained, in-
Hale v. Hardon contains an exhaustive and able opinion which is very instructive in respect to all phases of the subject. As the same judge wrote it who wrote the opinion in State National Bank v. Sayward, supra, and as the remedies provided by the Minnesota and Ohio statutes are identical, he justified the opposite results which were reached in the two cases by commenting on the earlier one as follows:
“In a recent case in this circuit involving the Ohio statute (State Nat. Bank v. Sayward, 33 C. C. A. 564) some observations were made as to what the Ohio statute contemplated as to procedure and what was intended should be done in the home State before liability under that statute could be enforced ex-traterritorially without intimating what would have been done in that case if the joinder and ascertainments contemplated by such statute had been made. Relief was denied therein, for the reason that what was contemplated as to ascertainments and joinder had not been done.”
That case also holds the procedure in the ancillary litigation should be similar to that provided for by the statutes of the domicile, as does also Kirtley v. Holmes, supra.
We may allude to the foregoing precedents again in the course of this opinion.
The Supreme Court of Massachusetts took strong ground in its earlier decisions against enforcing this statutory obligation against shareholders of a foreign corporation who were citizens of and resident in that State, assigning two distinct reasons therefor, to-wit: the impossibility in some instances of
“When the liability is distinctly imposed by statute upon the stockholders severally, it would be unfortunate if it could not be enforced against stockholders not resident within the State under whose law3 the corporation has been established on the ground that due process could not be served on them within that State, and the courts of the State where they reside would not take jurisdiction of suits to enforce the liability.”
The question came before that court again in Howarth v. Lombard, 175 Mass. 570, a suit which, like the one at bar, was ancillary to an equitable proceeding in the company’s home court in the State of Washington wherein a receiver for the insolvent bank had been appointed, the amount of its assets and liabilities determined, the necessity for an assessment upon stockholders and the amount of the required assessment ascertained, and an assessment on all the stockholders made. It was ruled the liability was contractual and was enforcible everywhere. The opinion says:
“Inasmuch as the nature of it and the method of enforcing it depend upon the statute which enters into the implied contract, we must look to the statute to ascertain its extent and the manner of enforcing it. If it is of such a nature as to call for local proceedings in the State where the corporation is, in order*576 to adjust equities, such proceedings must be bad, and it can not be made effectual without them. Most of the cases in wbicb creditors of foreign corporations have been refused relief in this commonwealth have shown rights which, undef the statutes creating them, could not properly be enforced without proceedings in the foreign State, whereby equities could be adjusted. In the present case, as the statute has been construed, it is plain that no action can be maintained against a stockholder until after proceedings in a court of Washington, showing the insolvency of the corporation and the need of payment, to satisfy the claims of creditors. After such proceedings, and an adjustment of the rights and liabilities of the corporation, of creditors and of stockholders, collection can be made from stockholders wherever they are found.”
In Whitman v. Oxford National Bank, 176 U. S. 559, the Supreme Oourt of the United States threw the weight of its great authority in favor of the proposition that the statutory liability of corporate shareholders to creditors is contractual;,, that an action to enforce it is one to obtain a private right and can be maintained in any court of competent jurisdiction, whether State or Federal.
This very Ohio statute with which we are dealing was the basis of a bill in equity filed in a common pleas court in Pennsylvania to collect their dues from shareholders of an insolvent Ohio company resident in the former State. The caso went on appeal 'to the Supreme Court and was decided in an opinion delivered by Chief Justice Shahswood. It is evident that while the Pennsylvania court acquired jurisdiction of all the stockholders and creditors, as they were all residents, it did not and could not acquire jurisdiction of the corporation itself as it was domiciled in Ohio. Nevertheless, the decision was that the bill should be retained, as the corporation was insolvent and its assets had been exhausted.
Hanson v. Davison, 73 Minn. 455, was where a stockholder in a Minnesota bank was proceeded against in an ancil
In Young v. Farwell, 139 Ill. 326, a creditor’s bill was filed to collect the statutory dues from an Illinois shareholder in a Michigan company, and it was held that it would not lie without a preliminary suit in Michigan:
“The appellant must first seek a remedy in the courts of the State of Michigan, and there have authoritatively determined the respective relations of creditors and stockholders of this corporation towards it and towards each,other, and then, if it shall be necessary, their rights as respects stockholders domiciled in this State may be enforced in the courts of this State.”
Kirtley v. Holmes, 101 Fed. Rep. 1, 46 C. C. A. 102, was an appeal from a bill filed in the circuit court of the United States for the district of Kentucky by a receiver of a defunct bank of Cincinnati to recover the statutory dues of one John M. Kirtley, deceased, a stockholder of said bank who had resided in Kentucky and whose widow still resided there and was the party sued. A suit had been filed in Hamilton county, Ohio, by a creditor of the bank against it and its stockholders for the purpose of recovering the dues of the latter and the case referred to a master, who had made a report, setting forth
This cause was decided after much consideration, construes the very statute we have before us. and sustains the right of a receiver to proceed in equity in a foreign forum to enforce the liability of stockholders in the foreign jurisdiction. It decides another point material to the one in hand which will be adverted to later. The court said:
“The case actually under consideration comes to this: Can the contractual liability of a stockholder in an Ohio corporation, domiciled in a foreign jurisdiction, be enforced, where the proofs show an assessment in the State of the creation of the corporation upon domestic stockholders to the full amount of the stockholder’s liability, and the testimony discloses the insolvency of the corporation and indebtedness in excess of the stockholder’s liability, and an assessment is sought of exactly the same character as was enforced in the original case? We think, in the light of principle and auth*579 ority, this question must be answered in tbe affirmative. We find tbe obligation to be one arising upon contract, and its enforcement upon principles of comity, at least, in cases like tbe one under consideration, to work no injustice upon citizens of a foreign jurisdiction.”
So in Howarth v. Angle, 162 N. Y. 190, it is said:
“In that case (Marshall v. Sherman) the amount of tbe deficiency was not ascertained in any way by a court or otherwise; tbe action was not brought by a receiver; tbe remedy sought was that provided by the foreign statute, which created the liability; that remedy could not be wholly enforced in this State, and, to the extent that it could be enforced, might result in injustice to our citizens. In this case the action is brought by a receiver, who, according to the decisions of the Washington courts, has the title and the right of action, and the amount of the deficiency has been definitely ascertained both by the courts of that State and of this. It does not appear that there is any other stockholder of any creditor in this State or that injustice will be done to any citizen of this State by sustaining the judgment appealed from. The reasons given by the court for denying relief in Marshall v. Sherman are met by the facts of this case, which distinguish it in many essential respects and permit a recovery under the principles sanctioned, but not applied in that case becausejEe necessary facts were wanting.”
A conservative deduction from the cases we have noticed is that the judicial mind is more favorably disposed toward obligations of this kind, more inclined to make all shareholders, whether domestic or foreign, comply with them, to release the liability from theoretical difficulties and entanglements connected with, its enforcement when possible, and thus render it more completely binding. In order to carry out this policy by enforcing the contract when it arises on the statute of another State which prescribes not only the right but a remedy which requires all shareholders and the corpora
It is a settled principle of jurisprudence that a remedy shall accompany every right, and redress be afforded^for every wrong; so it is the duty of courts to adopt and use any procedure to effectuate a right or prevent a wrong, that may be available. We come then to the consideration of the question whether there is any insuperable obstacle in the way of the-present proceeding to charge these ¡Missouri shareholders of an insolvent Ohio company?
Plaintiff’s bill does not ask the Missouri courts to take charge of the assets of the corporation, to ascertain its liability, collect its resources, find how far the assets are insuffi
This case is one of first impression in this State, and in molding the law and saying what it shall be within pur jurisdiction, we feel we ought to make such a choice among the contradictory precedents as will best subserve the ends of right and justice.
As opposed to this view, we are cited to the case of Nimick v. Iron Works, 25 W. Va. 184, which construes the Ohio statute in question to be non-enforcible in West Virginia. That decision seems to have induced the enactment of a statute to meet the difficulty the court encountered, as was decided in Swing v. Bently Gerwig Furniture Company, 45 W. Va. 283; and we think it is not as sound in its argument and conclusions as the cases above cited whiqh hold the contrary view.
A question arises as to the conclusiveness of the assessments against the defendants and the other orders and decrees made in the original suit in the court of common pleas of EranMin county, Ohio. It is quite generally held that the shareholders of a corporation are bound by all proceedings to which it is a party, whether they are parties or not, if such proceedings relate to corporation affairs. Howard v. Glenn, 85 Ga. 258; Hawkins v. Glenn, 131 U. S. 319. But this statutory liability is not a corporate asset; it goes primarily to the creditors instead of the corporation itself, and can only become an asset to which the receiver or assignee of a corporation is entitled, by virtue of an order of the court where the principal suit is, directing him to collect it for the benefit ' of all the creditors as a convenient way of handling the matter. Respectable and, indeed, high authority can be found holding that a decree of a court that has jurisdiction of the corporation itself, ascertaining and fixing the liability, is binding on a shareholder whether he was a party to that proceeding or not, and conclusively binding on him. Hale v. Hardon; Hanson v. Davison; Howarth v. Lombard, supra. It is unsafe, generally speaking, to hold persons absolutely bound by judgments or decrees in actions to which they were not parties and in which they had no opportunity to be heard. Indeed, the above cases only treat them, we understand, as concluded in respect to the findings in the original suit concerning the indebtedness of the company and the deficiency of its assets to meet its liabilities, the amount of the latter and what sum must be raised from the shareholders; not by a finding that they are shareholders or of the amount they should contribute as such tp meet corporate obligations.
We think the safer and better rule to announce is that such finding and decrees in the parent action or suit are only prima facie evidence against foreign shareholders who are not
No point is made about the right of plaintiff to sue or whether that right is confined to the receiver appointed by the Ohio court. Indeed, this liability belongs primarily, as said, to'the creditors and not to the corporation or its receiver or assignee; but such measures should be taken by the circuit
The allegation as to the plaintiff’s demand having been reduced to judgment or allowed, is not definite, but respondent has said nothing in regard thereto and we shall pass over the point, as perhaps the petition sufficiently shows his ns well as the other creditors’ demands have been allowed, if indeed the condition of the company is not such as to make a judgment for the demand not indispensable to his maintaining a creditor’s bill. \
As to the point that there is a misjoinder of parties defendant, we think the bill is well brought; because these defendants are alleged to be the only stockholders of the Columbus Watch Company resident in Missouri, and as this is an ancillary equitable proceeding, all the shareholders within the jurisdiction of the court ought to be parties to it.
The judgment of the circuit court sustaining the demurrer to plaintiff’s petition is reversed and the pause remanded with directions .to said court to set aside its .order sustaining the demurrer, to overrule the same, to permit the defendants to answer the petition if so advised, and to proceed with the cause in conformity to the views expressed in this opinion.