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HALE v. ALLINSON.

decided: January 19, 1903.

HALE
v.
ALLINSON.



CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT.

Author: PECKHAM

[ 188 U.S. Page 59]

 MR. JUSTICE PECKHAM, after making the foregoing statement of facts, delivered the opinion of the court.

Of the several grounds of demurrer to the bill herein, only two need be specially noticed. They are (1) that this complainant (receiver) has no right to sue in the courts of a State foreign to that in which he was appointed; and (2) that, even if he had the right to sue, there was no ground of equitable jurisdiction set froth in the bill, and the complainant's remedy, if any he had, was at law.

The Circuit Court sustained the demurrer on the ground that no case for equitable relief was stated, and dismissed the bill without prejudice. The Circuit Court of Appeals sustained that view of the case and affirmed the judgment, but also intimated that it was strongly inclined to the opinion that the complainant's appointment as receiver by the Minnesota court did not entitle him to sue as such in a foreign jurisdiction.

In our judgment both grounds of demurrer were well taken.

First. As to the right of the receiver appointed in the Minnesota action to sue in a foreign State. The portions of the constitution and laws of Minnesota which are applicable are set forth in the margin.*fn1

[ 188 U.S. Page 60]

     The constitution of Minnesota it will be seen simply imposes a double liability upon the stockholders. The statutes of the

[ 188 U.S. Page 61]

     State provide the only means of there enforcing that liability.

The Supreme Court of Minnesota has decided that the liability of the stockholder is to the creditor, and that the receiver of the company cannot enforce it. It was held as far back as 1879, in Allen v. Walsh, 25 Minnesota, 543, that the only remedy to enforce the liability of stockholders was laid down in the General Statutes of Minnesota, chapter 76, (the one in question,) and that the statute contemplated a single action, in which all persons having or claiming any interest in the subject of the action should be joined or particularly represented, and their respective right, equities and liabilities finally settled and determined. The receiver of an insolvent corporation was not a proper party to bring such action.

In Palmer v. Bank of Zumbrota, 65 Minnesota, 90, (decided in 1896,) the court referred to Allen v. Walsh, as holding that a receiver could not maintain an action to enforce the liability of the stockholders, and held that the direction in the decree then under review ordering the receiver to sue the stockholders on such liability was a harmless error which had been corrected before it was assailed.

Again, in Minneapolis Baseball Company v. City Bank, 66 Minnesota, 441, (decided in 1896,) it was once more distinctly held that a receiver could not, under chapter 76, maintain in the courts of that State an action to enforce such liability of stockholders. The Supreme Court of Minnesota has, however, in a very late case, Hanson v. Davison, 73 Minnesota, 454 (decided in July, 1898,) somewhat limited or explained Allen v. Walsh, supra, and, in the course of his opinion, the Chief Justice expressed views as to the right of a receiver to sue in another

[ 188 U.S. Page 62]

     State under the facts which he rehearsed. The case does not, however, overrule the prior cases above referred to. The point as to the right of a receiver to sue in a foreign jurisdiction was not in issue or involved in the case. The material facts were, as stated in the opinion, that a creditor of the Citizens' Bank, which was an insolvent concern, brought an action (Harper v. Carroll, reported in 66 Minnesota, 487) in behalf of himself and all other creditors against all of the resident stockholders thereof, pursuant to the provisions of chapter 76, supra. The creditors of the bank intervened and proved their claims against it, and judgment was duly rendered in the action against the bank and all of its stockholders within the jurisdiction of the court in favor of each of the creditors, of whom the complainant herein was one, for the amount of their claims respectively, as adjudged in that action. Executions were issued on each of these judgments, which were returned, and there still remained unpaid upon them the sum of forty odd thousand dollars, exclusive of interest. The defendant in the Hanson v. Davison action was named as a defendant in the other, or Harper v. Carroll, action, but being a non-resident, the court in the latter case did not acquire jurisdiction to render a judgment against her. In the opinion in Hanson v. Davison, the court, after referring to the fact of non-residence, continues:

"She was, however, a stockholder of the bank at the time it became insolvent and made its assignment, and ever since has been, and now is, the owner of the capital stock thereof of the par value of $1500, and now has property within this State to satisfy her liability to the creditors of the bank as a stockholder therein. The existence of such property within the jurisdiction of the court was discovered after the entry of the judgment in the Harper-Carroll case. Upon the discovery of such property the plaintiff herein obtained leave of court to bring this action against the defendant, to the end that her statutory liability might be collected, and paid to the receiver in the original action, and by him distributed to the judgment creditors of the bank. The defendant's property was attached. Thereupon she appeared in this action."

The trial court dismissed the complaint and the Supreme

[ 188 U.S. Page 63]

     Court affirmed the dismissal on the ground that the property of the stockholder having been found within the jurisdiction of the court either before or after judgment in the original action, (Harper v. Carroll,) a separate suit against her to reach the property was neither necessary nor proper, for it could be attached or sequestered in the original action.

It was contended by the defendant in the Hanson v. Davison case that as there had been a former action, (Harper v. Carroll,) brought for the purpose of enforcing the liability of the stockholders, which action was, as prescribed by the statute, the exclusive remedy, no further suit could be maintained. The court in commenting upon the contention said that if it were correct, then as the court could only acquire jurisdiction of the resident stockholders in a corporation, all non-resident stockholders would have absolute immunity from such liability, while their associates who happened to be within the jurisdiction of the court would have to respond to the last cent of their liability. Continuing, the court said:

"Inequitable as such a conclusion would be, still it must be admitted that there are expressions in the opinion in the case of Allen v. Walsh, 25 Minnesota, 543, relied upon by the defendant, which, if taken literally, and without reference to the actual point decided by the court, justify the contention. A decision upon this claim of the defendant involves a consideration of the nature of the liability of stockholders for the debts of the corporation, the method of enforcing it, and just what was decided by the case of Allen v. Walsh. In that case, which was an action at law by a creditor, for his sole and exclusive benefit, against a single stockholder, to enforce his individual liability, it was correctly held that the action could not be maintained, and that the plaintiff's remedy was an equitable action, in behalf of himself and all other creditors, against the corporation and its stockholders, wherein the debts of the corporation must be determined, and, after exhausting the corporate assets, the liability of stockholders for the deficiency might be adjudicated and enforced pursuant to the provisions of Gen. Stat. 1878, c. 76, (Gen. Stat. 1894, c. 76). It was not, however, decided in that case that, if a stockholder was omitted from such

[ 188 U.S. Page 64]

     original action because the court could not acquire jurisdiction of him, or for any other cause, the liability could not be subsequently enforced against him by bringing him or his property into the original action, if found within the jurisdiction of the court, or by proceeding against him alone in an action ancillary to the original action in any other jurisdiction where he might be found, if the comity of the sister State would permit it."

The particular attention of the court was directed to the objection that but one action could ever be maintained against the stockholders over whom the court had jurisdiction, who must all be joined therein, and that the rest could not thereafter be made liable. The action it will be noticed was not brought by a receiver, the plaintiff in the action being a creditor of the corporation, and no question arose in regard to the right of a receiver appointed under chapter 76 to maintain an action either inside or outside the State to enforce the liability of stockholders to the creditors of an insolvent corporation. Whatever was said in the opinion regarding the possible right of a receiver to maintain such an action as the one now before us was not necessary to the decision of the case, and cannot be regarded as overruling the prior cases.

The opinions in the Minneapolis Baseball Company v. Bank, 66 Minnesota, 441, and in Hanson v. Davison, 73 Minnesota, 454, were written by the same judge, and in the latter case he does not refer to the earlier one decided but two years before, and which held that a receiver, under the state statute, could not maintain such an action as this. There was a strong dissent by Mr. Justice Canty from the remarks of the Chief Justice, as to the right of the receiver to maintain an action in a foreign State. Referring to the earlier cases, he said:

"This court has several times held that a receiver appointed under chapter 76 has no authority to enforce the stockholders' superadded liability. See Minneapolis Baseball Company v. City Bank, 66 Minnesota, 441; Palmer v. Bank, 65 Minnesota, 90. I am unable to see how this court can lay down a rule or edict to govern proceedings in courts of other States, contrary to the rule it lays down to govern proceedings in the courts of this State."

[ 188 U.S. Page 65]

     We can ourselves see the difficulty in holding that such an action may be maintained by the receiver in a foreign jurisdiction, while at the same time holding that such receiver could not maintain a like action in the Minnesota courts. If a receiver cannot maintain this kind of an action in the courts of his own State, because its statute provides another in the name of a creditor, or permits it only after the performance of conditions precedent which he has not performed, he cannot, although appointed in the State, maintain such action in a foreign jurisdiction. This we have decided at this term in Evans v. Nellis, 187 U.S. 271. In that case it was said the receiver was appointed under the statute of that State of 1868 or 1899. It was shown that the act of 1868 made the stockholder liable to the creditor, and that the receiver could not maintain the action thereunder. It also appeared that under the statute of 1899, which made the stockholder's liability an asset of the corporation, to be collected by the receiver, no such action could be maintained except by complying with the statute, and as the receiver had not done so, it was held he could not maintain the action outside the State.

This would seemingly be enough to compel the affirmance of the judgment herein, when we see that the Minnesota Supreme Court has held that a receiver cannot maintain such an action as this in the courts of that State.

An examination of the opinion of the Chief Justice, however, in the Hanson v. Davison case, shows that it is not based upon the proposition that such an action is provided for by the Minnesota statute, but that the statute failed to say anything forbidding it, and this failure the judge thought left the matter open to the general rules governing in such cases, for he says, at page 461:

"The remedy for enforcing the liability must, in the first instance, from the nature of the liability, be an equitable action. Gen. Stat. 1878, c. 76, (Gen. Stat. 1894, c. 76,) indicates and regulates to some extent the remedy, leaving to the court the duty of making the remedy effectual by an application of the principles of equitable procedure. This statute prescribes the exclusive remedy only to the extent that an equitable action of the

[ 188 U.S. Page 66]

     character therein indicated must be first instituted for the enforcement of the liability of stockholders. Such an action, though provided by statute, is essentially an equitable proceeding; and the rules of equity are to be followed, unless inconsistent with the statute. If chapter 76 were repealed, equity would find an adequate remedy for the enforcement of the liability. . . . There is nothing in the statute which justifies the conclusion that, if a stockholder's liability is not enforced in the original action because he is a non-resident, an ancillary ...


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