Cushing v. Perot , 175 Pa. 66 ( 1896 )

Opinion by

Mr. Justice Mitchell,

The affidavit sets up three grounds of defense, first, that defendant is a citizen and resident of Pennsylvania and is not bound by the laws of Kansas under which the liability is claimed to arise; secondly, that he is a creditor of the Western Farm Mortgage Trust Company, as well as a stockholder, and presumably that he claims a right of set-off against the liability ,if it exists, and thirdly, that suit has already been brought and judgment obtained against him in Kansas on his liability as a stockholder and execution has been levied on his real estate there.

The second defense is not averred with sufficient precision to be available to prevent judgment, even if it were good in substance, wbicb is not entirely clear on the authorities.

The third defense, though it is not averred with the precision as to dates, amounts, etc., which it should have, nevertheless sets up a substantial bar to plaintiff’s suit. A levy in execution is presumed to be satisfaction, and the affidavit avers that the levy on his real estate in Kansas was for an amount that exhausted his liability there. This would be a good defense, even in Kansas, for the constitution of that state limits the individual liability of stockholders to “ an additional amount equal to the stock owned by each stockholder,” and it is expressly said in Howell v. Manglesdorf, 33 Kans. 194, that the defendant “ may also set up as a defense that he is discharged by having already paid the amount of his individual liability to other creditors of the corporation.” On this point the defendant was entitled to go to a jury, and it was error to enter judgment against Mm.

The first point though averred with the generality and looseness that pervade the whole affidavit, raises questions of great nicety, involving general principles of jurisprudence, the comity between states, and the conflict of laws with regard to both rights and remedies. The difficulty of these questions is shown by the conflicting views in a large number of courts of the last resort. The plaintiff asks us to enforce against a citizen of PennsylvaMa a liability created solely by the local statutes of Kansas, and to enforce it in the form prescribed by those statutes, although that form is repugnant not only to our own established mode of procedure M analogous cases, but also to strong considerations of convemence and natural justice. The first question that arises is the nature of the liability created by the statute. .If it is penal, the authorities are all agreed that it will not be enforced outsidS of the jurisdiction of the state imposing it. If however it is contractual, or in the phrase preferred by some writers, statutory only, the authorities differ widely whether it should be enforced at all, and if enforced, whether in the form directed by the statute, or in that of the lex fori. In regard to the Kansas statute under consideration, my individual opinion is that by the weight both of reason and authority the liability created by it is contractual and should be enforced by any court having jurisdiction of the parties. .And I understand our own case of Aultman’s Appeal, 98 Pa. 505, to tend towards that view. But for reasons to be given presently we are not required to enter into this discussion. The cases have been collected and cited in the argument, and the whole subject will be found ably treated in 23 Am. & Eng. Ency. of Law, tit. Stockholders, pp. 867 and 890-894.

As to the mode of enforcement the decisions of the Supreme Court of Kansas seem to have settled that the statute contemplates a separate action at law against each stockholder. Abbey v. Dry Goods Co., 44 Kans. 415; Howell v. Bank, 52 Kans. 133. The courts of some other states however, notably of Massachusetts, have refused to sustain such actions, on the ground that the relations of the creditors and of the stockholders among themselves cannot be properly determined in that way. Certainly by far the most convenient and just method is by bill in equity to which all the stockholders can be made parties and their rights settled. This is the established mode of procedure in Pennsylvania in analogous cases.

The special fact however that makes it unnecessary in the present case to determine the ultimate rights of the plaintiff, or the mode of their enforcement, appears in the statement, where it is set forth that a receiver for the corporation was appointed before this suit was begun. If the defendant’s liability under the statute to the creditors of the corporation in which he is a stockholder is contractual — and it is only in that aspect that it will be enforced at all outside of Kansas — then it was like any other claim, an asset for the payment of the corporate debts, and as such the right to sue on it passed to the receiver. This is the general rule, so far as we are aware, and is so manifestly in accordance with justice, as well as convenience, that in the absence of an express decision of the Supreme Court of Kansas to the contrary we must presume that such is the law in that state. No such decision has been brought to our notice. In Abbey v. Dry Goods Co., 44 Kans. 415, it does appear that the corporation had made an assignment for the benefit of creditors, but the court took no notice of this fact,' probably considering it unnecessary to do so, as the case was reversed solely on the points raised in the pleadings as clearly appears by the reference in the opinion to the absence of a judgment against the corporation, which would seem to be a fatal objection, but which the court merely referred to by saying that it had not been discussed and would not be decided.

It is true that Mr. Cook in his treatise on Stock and Stockholders says broadly, that the right to sue on the statute “ is not to be numbered among the assets of the corporation. ... A receiver has no power to enforce such a liability: ” Sec. 218. But Mr. High in his standard work on Receivers says more cautiously, “ The authorities are not wholly reconcilable as to the right of a receiver of a corporation to maintain an action in behalf of its creditors, to recover of shareholders an individual liability imposed by charter or statute upon shareholders for the protection of creditors: ” Sect. 317 a.

The cases relied upon by Cook in support of his text are from Illinois and New York. The former appear to go to the extent claimed, as it is said in Arenz v. Weir, 89 Ills. 25, that “ this insurance company having passed to a receiver diminishes in no degree the liability of a stockholder to a creditor of the company. The creditor stands on an independent platform above that of the receiver, having no concern with the corporation, and the stockholder is bound under the law to answer to him. The stockholder is not under the control or in the power of the receiver, but holds a fund, so to speak, out of which the creditors of the company may be paid.” I do not find that this doctrine has been changed by that court, but it is apparent that it rests on the particular wording of the statute involved and not on general principles, for in Wincock v. Turpin, 96 Ills. 135, three judges of the seven dissented on this point, and in Munger v. Jacobson, 99 Ills. 349, a similar liability was enforced in a bill by the receiver. The case of Jacobson v. Allen, 20 Blatchf. 525, was by the receiver of an Illinois corporation, and the decision was based on Arenz v. Weir, supra.

The New York cases cited by Cook look the same way, but are less positive than those in Illinois, and it is equally clear that they rest on the special phraseology of the statutes: Billings v. Robinson, 94 N. Y. 415, was a suit by a receiver and decided on the ground that the corporation had released the defendant before this suit was brought. The court said, “ The receiver who is plaintiff is not shown to represent any creditor having any equities against Robinson (defendant). ... So far as the case shows, the receiver represents in this action only the corporation which assented to the substitution of Marshall’s liability for that of Robinson.” And that in New York a receiver can recover unless prevented by the language of the particular statute appears to follow from the cases of Story v. Furman, 25 N. Y. 214, and Atty. Gen. v. Guardian Ins. Co., 77 N. Y. 272. In fact in no case that I have seen are the inconveniences of separate actions by the creditors, and the advantages of one suit by a receiver in behalf of all, more forcibly set forth than by Folger, J., in Pfohl v. Simpson, 74 N. Y. 137.

In Patterson v. Stewart, 41 Minn. 84, under an act making the directors of a corporation ordering or assenting to a violation of any of its provisions, jointly and severally liable for all corporate debts subsequently contracted, it was held that the appointment of a receiver did not prevent an action by a single creditor against a director, but the decision was put upon the special provisions of the statutes (whose “ chaotic condition ” is referred to in the opinion by Mitchell, J.), and particularly on the fact that the liability was unlimited, and “ what one creditor may collect will not reduce the amount which another may recover.” And in Minn. Manuf. Co. v. Langdon, 44 Minn. 37, the same learned judge intimates that as tins point was not the principal one in that case, it may have to be reconsidered, and it was held that the statutory right to recover from stockholders capital which had been unlawfully refunded to them as dividends without provision for the corporate debts was an asset which vested in the receiver for the benefit of all the creditors. The case was put upon the broad ground of the receiver’s rights and powers. “ Everything becomes assets in his hands which was assets as to creditors, as well as what was assets as to the corporation.”

These are all the cases we have been able to find on the subject, and in the absence of a controlling weight of authority, and as already said especially in the absence of an express decision of the Supreme Court of Kansas, we are not willing to depart from the settled general rule. The objections to doing so appear to us unanswerable. A receiver represents not only the corporation but all its creditors, and as to the latter it is his duty to secure all the assets available for their payment. For this purpose he succeeds to their rights, and has all the powers to enforce such rights that the creditors before his appointment had in their own behalf, even though such powers be beyond those which he has as the representative of the corporation alone. As each creditor may sue, the right is equal in all, and common to all, and hence the receiver who represents all alike is the proper party to assert the common right and pursue the common remedy for the common benefit. We do not of course refer to pending suits already begun by creditors before the appointment of the receiver. As to them his power to interfere may be doubted. But as to others he is clearly the proper parly. If any creditor or class of creditors have preferred claims, or as argued here, special claims against special liabilities, that does not deprive the receiver of the right or relieve him from the duty to gather them all into his hands for proper distribution. In this manner the rights of all will be protected and justice be done in a single proceeding in which every one will get what is his due, no one will be called upon to pay more than his fair proportion, and the expense, delay, inconvenience and inevitable occasional injustice of separate actions by different creditors against different stockholders, with their attendant legion of resulting actions for contribution, will be avoided. This is so consonant with convenience and natural justice, as well as with our own settled procedure in analogous cases, that we will not be easily moved to depart from it.

We hold therefore that the right to sue, if there is any, is in the receiver, and that plaintiff cannot maintain the present action. The ultimate questions whether the courts of this state will enforce the statutory liability under the law of Kansas at all, and if so, whether against separate stockholders or only in. the form established by our own practice in similar cases, -we-leave to be decided when they arise.

Judgment reversed.