Glenn v. Williams

Alvjky, J., delivered the opinion of the Court. This was an action brought by 4he plaintiff as trustee against the defendants to recover of them a certain per cent, of the unpaid subscription to the capital stock of the National Express and Transportation Company, a corporation chartered and organized under the law of the State of Virginia. The corporation was organized in 1866, under a charter granted by the Legislature of Virginia in 1865, subject to the general laws of that State, relating to corporations or joint stock companies. And among the provisions of such general laws upon the subject, there is one which declares that upon every subscription for shares in any joint stock company there shall be paid upon each share two dollars at the time of subscribing, and the residue thereof as required by the president and directors / and if any money which any stockholder has to pay upon his shares be not paid as required by the president and directors, the same, with interest thereon, may be recovered by warrant or action, according to amount, &c.

The authorized capital stock of the company was 85.000. 000, (with the privilege of increasing it to 810.000. 000,) divided into shares of 8100 each, on which two dollars per share were payable at the time of subscription, and the balance as called for by the president and directors. Of this capital stock 40,044 shares -were subscribed, and the defendants, as it is alleged, became sub ¹⁰⁸ scribers for one hundred shares. On the stock subscribed calls or assessments were made to the extent of about 20 per cent.; but a considerable proportion of the calls was never realized. Much the larger portion of the subscribers to the stock resided in other States, and at great distance from the principal office of the corporation, and, as we may suppose, the collection of assessments upon the stock was attended with no little difficulty.

The company soon became embarrassed and determined to suspend its operations; and on the 20th of September, 1866, under and by virtue of an order and resolution of the board of directors, the president of the company executed a deed of trust to three trustees for the benefit of the creditors of the company. That deed or assignment conveyed all the property of the corporation, including the balance unpaid on subscriptions to the stock. The validity of the deed was a subject of litigation, and was before this Court in the case of the Balt. & Ohio R. R. Co. vs. Glenn, 28 Md., 287 , and was then pronounced valid, according to the laws of Virginia, where it was made. It has also been pronounced valid by a Court of competent jurisdiction in the State of Virginia.

In December, 1871, a creditors' bill was filed in the Chancery Court of the City of Richmond, in the State of Virginia, where the corporation was located and had its principal office, against the corporation, and certain of its officers, and against the trustees named in the deed of assignment ; and to which bill an amendment and supplement were filed in August, 1879, praying that the trustees named in the deed of- assignment he removed, and'others appointed in their place ; that an assessment on the un-. paid capital stock be made ; that the debts of the corporation be ascertained and paid; and for general relief. Upon this bill and amendment such proceedings were had as resulted in a decree of the Court, whereby the original trustees in the deed were, upon their own request, dis ¹⁰⁹ placed, and the plaintiff appointed in their stead ; an account of the debts due from the corporation taken and adjudged to be paid, and an assessment of 30 per cent, on the unpaid subscriptions to the capital stock made, with authority and direction to the plaintiff, as trustee, to proceed, by suit or otherwise, and in such jurisdictions, as he might be advised, to collect such assessment. It is by virtue of the power and authority thus conferred upon him that the plaintiff has brought the present action. The case is presented on demurrers to pleading exclusively.

The parties by their counsel have agreed that the Court shall refer to the record of the Chancery Court of the City of Richmond, in the case of Gflenn’s administrator and others against the ^National Express and Transportation Company and others, (the creditors’ suit already referred to,) as if the same had been fully set out in the declaration, and that the printed copy of such record of said cause may be used in this Court, without being copied into the record in this cause. The object of this is, as we understand it, to place before the Court all the facts relevant to the case as fully as they could have been alleged in the declaration; and any facts disclosed by that record which may be material to the questions raised on the pleadings, are to be regarded as set out in the declaration. It is only in that way that we can regard such an agreement in deciding questions on demurrer. The declaration, as amended, contains but a single count, in which are alleged briefly the facts supposed to be sufficient to constitute a right of action against the defendants.

The latter pleaded by way of defence eleven pleas, and all of them, except the first and fourth, have been demurred to by the plaintiff. The Court below gave judgment on the demurrers for the defendants, and the appeal is taken from that judgment. The issues of fact were not tried, and are therefore not before us. The demurrers mount up to and challenge the sufficiency • of the declaration, as well as the pleas to which they were ¹¹⁰ interposed.

We are required, therefore, to determine the questions that arise upon the whole pleadings before us, the declaration included. And the questions thus raised are:— 1st. Whether the Chancery Court of the City of Richmond obtained jurisdiction over the case referred to against the National Express and Transportation Company, and others, by proper process, to justify that Court to render the decree referred to in the declaration? If so, 2nd.

Whether that Court had power and jurisdiction, under the circumstances of the case, to make assessments, or to direct assessments to be made, upon the unpaid subscriptions to the capital stock of the corporation, with which to pay the debts of the company; and whether any decree making or directing assessments upon the capital stock for such purpose, can bind or affect the stockholders who were not, in their individual capacities, parties to the cause ? 3rd. Whether there was power and jurisdiction in that Court to remove the trustees appointed by the corporation, by its deed of assignment, and to appoint a new one in their stead, and to invest such new or substituted trustee with the rights and powers possessed by those removed, including the right to sue in his own name as trustee ? 4th. Whether it be competent to the defendants in this action, and as a bar thereto, to plead and rely upon the Statute of Limitations of 'this State, to the various debts due from the corporation, and which have been found to be owing, and adjudged to -be paid, by the decree of the Chancery Court of the City of Richmond, and for the payment of which the assessment uj>on the unpaid subscriptions to the capital stock was ordered ? 5th. If the present action be properly brought and by the proper party, whether the Statute of Limitations forms a bar to the right to recover ? 6th.

Whether the institution and pendency of other suits in equity, not by the plaintiff, but by other parties, ¹¹¹ and in several respects for different purposes, can form any legal bar to the recovery in this action? The determination of these questions would seem to embrace the whole controversy as presented by the pleadings before us; and we shall consider the questions in the order we have stated them. 1. It is always competent to parties sought to be bound or affected by a judgment or decree, of any regularly organized Court, professing to have jurisdiction, whether of our own or a sister State, to allege and show that such judgment or deeree was rendered without competent jurisdiction. It is hot, however, to be assumed that there was want of jurisdiction.

The presumption is the other way ; and the party seeking to avoid the effect of the judgment or decree must allege and show affirmatively, that it was rendered without jurisdiction, whether that want of power be in defect of process or otherwise. It, is alleged in the declaration in this case that the Virginia Court was one of competent jurisdiction ; but irrespective of that allegation, there is no intendment against the validity of the decree for want of jurisdiction in the Court that rendered it; for the comity and respect which are justly due from one State to another, would forbid the Courts of this State to presume that the tribunal which pronounced the decree had transcended its jurisdiction. This is abundantly shown by the cases cited and reviewed in the case of the Bank U. S. vs. Merchants’ Bank of Baltimore, 1 Gill, 429, 431. It appears by the record made a part of the pleadings in this case, that the corporation failed to appear in its corporate capacity to the suit, and the original and amended and supplemental bills were taken as confessed against it; but it appears that it was served with process by service on two of its directors, in their official capacities and as representatives of the corporate body, and one of them appeared and answered, though not for the cor ¹¹² poration; and that another of the officers, the cashier oí the company, Mr. Porteaux, was served with process as a representative of the company, and that he appeared and answered.

This would appear to be sufficient not only to notify the company of the pendency of the action against it, but to bind it by the decree that was subsequently passed in the cause. U. S. Ins. Co. vs. Shriver, 3 Md. Ch. Dec., 381; Boyd vs. Ches. & Ohio Canal Co., 17 Md., 195 .

The surviving trustees in the deed of assignment appeared to the cause, and, by their answers, desired to be relieved of the trust. And it was because the other parties, defendants in the proceeding, were non-residents that they were not served with process. A decree passed upon such service of process cannot be pronounced void for want of jurisdiction of the parties so served and warned. If they failed to appear in Court to make defence it was their own fault and disregard of the process of the Court; and the Court was fully justified in proceeding in their absence.

It must be recollected that this Court cannot sit in review of the decree of the Virginia Court, for the correction of errors or irregularities that may have been committed in the exercise of a competent jurisdiction. If there be such errors or irregularities in the proceedings, they could,' possibly, have been the subject of a direct appeal from the decree ; but thej^ cannot be allowed to aifect the validity of the decree in a collateral proceeding like the present. Pennoyer vs. Neff, 95 U. S., 714 . The Constitution of the United States requires that “full faith and credit shall be given in each State to the public acts, records, and judicial proceedings of every other State and the Act of Congress providing for the mode of authenticating such acts, records, and judicial proceedings, declares that, when authenticated as provided, “they shall have such faith and credit given to them in every Court within the United States as they have by the law or usage in the Courts of the State from ¹¹³ which they are or shall be taken.” If, therefore, the decree be such that it would be enforced in Virginia, it must, in such case as the present, have the same faith and credit allowed to it in the Courts of this State.

Caldwell vs. Carrington’s Heirs, 9 Pet., 86 . It is not pretended that it is not such a decree as would be respected and enforced by the Courts of Virginia ; and it is well settled that a decree of a Court of equity, of competent jurisdiction, is equally binding, and equally within the constitutional provision, as a judgment of a Court of law. Pennington vs. Gibson, 16 How., 65 ; Christmas vs. Russell, 5 Wall., 290 ; Williams vs. Preston, 3 J. J. Marshall, 603. We can entertain no doubt, therefore, that the Court acquired jurisdiction of the cause as against the corporation and the trustees, and that the decree as against those parties must be allowed full faith and credit in the Courts of this State. 2.

The second question is one that was much discussed at bar, but we do not perceive that it presents any very great difficulty in view of the facts disclosed. The corporation suspended all active operations, and was supposed to be insolvent. Its tangible property was of uncertain value, and was dispersed over the country, and consequently liable to great loss. Large debts had been contracted, with but small amount of assets in hand with which to pay them; and the only real reliable fund for the payment of the debts was the unpaid subscriptions to the capital stock of the company.

In the deed of assignment for the benefit of the creditors, such unpaid subscriptions were expressly assigned to constitute a part of the trust fund with which to pay the debts; but the corporation could not, and did not attempt to, assign the discretionary power vested by law in the president and directors, as to the time and amount of the calls, in respect to the balance of the unpaid subscriptions of stock. That power was still left with the president and directors. The eorpora ¹¹⁴ tion was not dissolved; it had only suspended active operations; and the president and directors, by tbe terms of tbe charter, continued in office until their successors were chosen, with power to fill vacancies, as prescribed by tbe by-laws. They made no assessment upon the unpaid subscriptions, and, in that respect, either neglected or refused to do their duty towards the creditors, and left tbe trustees without the means of realizing the trust funds to fulfil the objects of the trust confided to them.

In such state of case, both tbe trustees and tbe creditors were powérless, without the’ assistance of a Court of equity. Under such circumstances what was to be done ? Was the trust to fail, and tbe creditors to go unpaid, simply because the board of directors, or tbe trustees under tbe deed, thought proper to be inactive and neglectful of their duties ? Justice would be very imperfectly administered indeed, if such a case was without an adequate remedy at tbe instance of the creditors.

The law has provided a remedy, and one that was plain and adequate. It was the right of any creditor of tbe corporation, interested in tbe administration of tbe trust, to apply to a Court of equity for relief; and the fact that, to obtain relief, it was necessary to take an account of tbe debts due from tbe corporation, and to do what tbe president and directors of tbe company ought to have done, make an assessment upon tbe unpaid subscriptions of stock, to raise funds with which to pay the debts, could form no substantial reason, in tbe view of a Court of equity, for refusing relief. It was but the exercise of tbe ordinary powers of a Court of chancery for tbe execution of trusts, embarrassed with difficulties and impediments that could not be readily overcome without the assistance of tbe Court. Such proceeding was strictly analogous, indeed similar, to that adopted in many other cases for the accomplishment of tbe same objects; and tbe precedents are not confined to recent times.

Dr. Salmon vs. The Hamborough Company, 1 ¹¹⁵ Cas. in Ch., 204; Hall vs. U. S. Ins. Co., 5 Gill, 484 ; Ward vs. Griswoldville Man. Co., 16 Conn., 598 ; Sanger vs. Upton, Assignee, 91 U. S., 56 ; Scovill vs. Thayer, 105 U S., 155. But it is said, and contended for with zeal, that the Virginia decree, in determining and making the assessment upon the stock held by stockholders, for the payment of debts, is without any validity or effect whatever, as against the stockholders, because they, in their individual capacities, were not parties to the proceeding, and had no opportunity to defend against the establishment by the decree of the large amount of debts against the corporation.

This objection to the decree is distinctly raised by the defendant’s eighth and ninth pleas. The argument in support of the defence thus set up is plausible, but we do not think it sound. When the Court obtained jurisdiction of the corporation, every stockholder, in his corporate capacity, was a party to the cause, and was supposed to be represented by the president and directors, who were intrusted with the management of the corporate interest of all the stockholders. If they neglected their duty, in allowing claims to be established against the corporation that ought to have been defeated, the stockholders must have themselves to blame for not having a more active and efficient board of directors.

But we cannot assume that there has been any injury done in that respect. If the decree were held to be totally without effect as against the stockholders, because they were not parties to it in their individual capacities, the consequence would be that the creditors would be without adequate remedy. It is apparent, indeed conceded, that the stockholders are distributed among several States, and but a comparatively small number of them reside in Virginia. No ordinary process from the Courts of that State could reach the non-residents, and in a proceeding where the defendants are ¹¹⁶ sought to be bound or affected by a judgment or decree in personam, no constructive notice by publication, or actual service of process beyond the State, will have any effect to give the Court jurisdiction over, the party.

Pennoyer vs. Neff, 95 U. S., 714 . If, therefore, the stockholders were necessary parties in such a proceeding, the creditors would be without any adequate redress as against the stockholders, or, at best the remedy would be very imperfect and difficult to pursue. But are the stockholders in their individual capacities necessary parties to such a proceeding? It is very clear that in any ordinary action or suit against the corporation to establish and recover a debt, the stockholders are not. proper parties, except as they are represented by the corporation; and if they, in their separate capacities, are allowed to intervene at all, it can only be through and in the name of the corporation.

And yet the judgment recovered against the corporation binds the stockholders, unless they can show that it was procured by fraud or collusion. Weber vs. Fickey, 47 Md., 196 ; Thayer vs. New England Printing Co., 108 Mass., 523 ; Milliken vs. Whitehouse, 49 Me., 527; Ang. & Am. on Corp., sec. 615. The judgment is conclusive as against the corporation and its property (Railroad Co. vs. Howard, 7 Wall., 392 , 410 to 413,) and, upon principle, those who hold its property or funds for the payment of debts, ought to be concluded, except where there has been fraud or collusion. The unpaid subscriptions to the capital stock are the proper assets of the corporation, and constitute a trust fund for the payment of its debts; and as against a creditor with an established debt against the corporation, by judgment or decree, the stockholder has no right to withhold the funds of the company upon the ground that he was not individually a party to the proceedings in which the recovery was