Schertz v. First National Bank of Chester

47 Ill. App. 124, 1892 Ill. App. LEXIS 50

• Court: Appellate Court of Illinois
• Decided: May 25, 1893
• Status: Published

Opinion

Mr. Justice Lacey.

This was an action of assumpsit commenced by the appellee against the appellant in the County Court of Woodford County, Illinois, and proceeded to trial before a jury, resulting in a verdict and judgment for appellee in the sum of $350, from which judgment this appeal is taken.

The appellee is a corporation duly incorporated under the United States Banking Act, in 1889. The appellant was a stockholder in the Husted Investment Company, a corporation under the laws of the State of Kansas, duly incorporated in 1888, owning three and one-half shares of its stock, of $100 each, and had been such stockholder for over two years. The Husted Investment Company was not a religious, charitable, or railroad corporation, and was organized for the purpose of transacting business for profit, and was authorized by its charter “ to accumulate and loan funds, etc., etc., and to buy and sell, both as principal and agent, bank stocks, bills, notes and other securities; to carry on business of a loan and trust company, and in general to have, hold and to do all things necessary and proper in the premises.”

The foundation of the action was that the appellee on the 10th November, 1891, recovered a judgment in the State of Kansas, District Court of Wyandotte County, against the Husted Investment Company, for §5,288.80, upon an indebtedness existing to appellee by said company on and since July 21, 1890, and that execution had been issued and returned “ nulla bon aP

At the time of the accruing of the indebtedness and rendition of the judgment the appellant was and ever since had been the owner of the said three and one-lialf shares of stock in said company.

The Husted Investment Company, as averred in the declaration, had been insolvent for seven months last past. The appellant was a resident of the State of Illinois and had been from the five years last past, and had not during the time been in the State of Kansas, and owned no property therein. The liability was claimed by virtue of the appellant being a stockholder in the Husted Investment Company under the constitution and laws of the State of Kansas. The appellant pleaded the general issue and eleven additional pleas, to all wdiich a demurrer was sustained by the court below and the issue tried on the plea of the general issue, appellant obtaining his pleas, to which demurrer was sustained.

The cause of action is founded on Sec. 2, Art. 12, of the Constitution of Kansas, and on Sec. 32, Chap. 23, chapter on Corporations, and Sec. 46 of the Statute of Kansas, as follows : Constitution, “ Sec. 2. Dues from corporations shall be secured by individual liability of the stockholders to an additional amount equal to the stock owned by each stockholder, and such other means as shall be provided by law; but such individual liabilities shall not apply to railroad corporations or corporations for religious or charitable purposes.”

Sec. 32 of Statutes: “ If any execution shall have been issued against the property or effects of a corporation, except a railroad-or a religious or charitable corporation, and there can not be found any property whereon to levy such execution, then execution may be issued against any of the stockholders, to an extent equal in amount to the amount of stock by him or her owned, together with any amount unpaid thereon; but no execution shall issue against any stockholder, except under an order of the court in which the action, suit or other proceeding shall have been brought or instituted, made upon motion in open court, after reasonable notice in writing to the ¡)erson or persons sought to be charged; and upon such motion, such court may order execution to issue accordingly; or the plaintiff in the execution may proceed by action to charge the stockholders with the amount df his judgment.”

Sec. 46. “Ho stockholder shall be liable to pay debts of the.corporation beyond the amount due on his stock, and an additional-amount equal to the stock owned by him.”

The statute was adopted some nine years later than the constitution and long before the company was organized.

It is insisted that the provision of the constitution above set out was not self executing, and could not have any force and effect until its provisions were enacted into law by the statute of Kansas; that it should be read and treated as directory to the legislature, and that the words “ dues from corporations shall be secured by individual liability,” should be construed “ may ” be so secured.

We are not inclined to take that view of the character of the section of the constitution in question. A constitution may be and often is drawn with a view of submitting the matter to the legislature by enactment, to give it vital force and effect, and to leave it in abeyance until such time as the legislature sees fit • to act; but on the contrary, framers of constitutions often enact complete legislation, and there seems in modern times more of a tendency to adopt such a course than formerly, Where a principle is regarded as fundamental and of vital importance, the framers of constitutions are apt to fix the matter irrevocably by complete enactment, intending to put it out of the power of a legislarture to alter or change it, or to render it nugatory by non-action.

The power of a constitutional convention to legislate, we suppose, can not be questioned; it may go as far it wills in that direction. In any given case it is only a matter of intention to be deducted from the natural import of the language that we have to deal with.

In our view, the language seems clearly to indicate an intention on the part of the constitutional convention of Kansas to so frame the instrument as to secure the debts of a corporation of the class named, by the individual liability of the stockholder to an amount equal to the quantity of the stock owned by him, but to leave it to the legislature to provide for such other means of security as it should judge most conducive to the public interest.

In such case the legislature might legislate and direct the mode of enforcing such provision, as it did in this case; and such procedure must be followed, especially in the State of Kansas. But if the legislature should fail to provide a remedy, then the right would still remain, and the common law would supply one. The creditors could not be deprived of their assured security by any omission of the legislature to enact a remedy.

As a sample of legislation by a constitution we cite The People v. Rumsey, 64 Ill. 44, and cases there cited; see also Cook on Stockholders, Sec. 213.

The legislature of Kansas recognized the binding effect of the constitution by simply providing a remedy for its enforcement without specifically re-enacting the provision relating to the liability of stockholders. The Supreme Court of the State of Kansas assume the liability of a stockholder under this section of the constitution and the statute (Abbey v. Dry Goods Co., 44 Kansas, 415), and the courts of Kansas hold that a stockholder is liable severally and individually and so enforceable against each stockholder.

The appellant, by his attorney, raises the point that the appellee can not sue and enforce the liability of a stockholder in this State in any other court than in equity, under our statute of July 1872, Sec. 25, Chap. 32, R. S., entitled Corporations. We do not deem this point well taken. Our statute only applies to corporations created under that act, and to Illinois corporations, and has reference to insolvent corporations, and closing them and winding up their business.

According to the laws of Kansas the . stockholder was individually liable and could be sued by the creditor in his own name, after obtaining judgment against the corporation, and having execution issued and returned, “ no property found.” In that event the stockholders became individually liable under the statute and laws of Kansas and could be sued by the creditors in his own name. An action of law would be the proper remedy in Kansas, and if correctly applied in such case, its recovery here would be the same, unaffected by our corporation act of 1872.

No question of the kind of action and procedure could arise. A suit at law would be the proper action to bring. Wincock v. Turpin, 96 Ill. 135.

We perceive no reason why this suit may not be maintained in this State. In Kansas it could be, and the liability is fixed, and no question of pro-rating the amount of the indebtedness arises. The appellant owed an amount equal to his stock and appellee had a right to collect. It is not like the case of Patterson v. Lynde, 112 Ill. 196. In that case the remedy was in equity; the liability was to the corporation and not to the debtor. It may be, Judge Scholfield says, a remedy “ can be enforced in a different way by a debtor against a delinquent stockholder in other States and different laws.” In Kansas this very thing can be done and why not here? See Tuttle v. Bank of the Republic, 3d Dist., filed October 3, 1892; Flash v. Conn., 109 U. S. 371. The case of Lamson v. Fowler, 44 Ill. App. 186, is not in point, as, in that case, the creditor obtained no judgment in Kansas against the debtor corporation before proceeding in this State. The case of North American, v. Rindge, 27 N. E. Rep. 1015 (Mass.), appears to be in point, but we fail to fully appreciate tlie reasons given in the opinion for the refusal to allow the suit to be maintained in Massachusetts. The final conclusion of the opinion is that “a large amount of litigation might ensue, under which substantial justice, as among the stockholders, could not be worked out.5’ But what has a stockholder in Kansas, after judgment obtained there against the corporation, and return of execution no property found, to do with this question ? It is a stockholder’s duty to first pay, and then demand a pro-rating with, other stockholders and the corporation. The same argument of inconvenience might be made of a dozen or more securities on a promissory note scattered in different States, They might all be sued separately in different States, and it might be very difficult afterward to get pro-rating with each other or satisfaction of the principal maker; yet, who would say that they should be exempt from suit in their new domicile if they remove from the State %

Culver v. Third Nat'l Bank of Chicago, 84 Ill. 538, was a similar case in principle to this in respect to the right to bring a suit at law, only the suit was brought under the laws of this State and by the charter and law no suit had to be first brought against the corporation. The stockholder could be sued in the first instance. Like the suit under consideration, as the suit against the corporation had already been brought in Kansas, the stockholder was liable in a suit by the creditor. The court says it is no objection that the stockholder may be subjected to several suits, as he can in no event be answerable for more than the amount “ of his stock.55 The appellant’s subscription to the stock of the Ilusted Investment Company was made with direct reference to, and in view of the organic and statutory laws of Kansas, and by such act he offered his personal security to any future creditor to an amount equal to his stock. The company to whose stock he had subscribed, did not hesitate to avail itself of the comity allowing it to deal in other States, and to go into the State of Illinois and contract debts. The agreement of such stockholder^ by the act of subscription made in view of the laws of Kansas, was to pay the amount for which he agreed to be liable to the creditors of the company before asking for a pro rata settlement on his own account with the other stockholders.

That was a matter with which the creditor was to have no concern. Is there anything in equity and justice opposed to the enforcement of such a contract in any State of the Union?

By removing from the State in which the contract was made, ought such a debtor be allowed to escape a liability voluntarily assumed, on the plea that he might be subject to inconvenience in a future attempt to recoup himself out of the other stockholders—his partners—for any amount which, on a final settlement of the company affairs, might be adjudged due him ?

It seems to us there could scarcely be a case appealing more loudly for the extension of that comity due from one State to a sister State of the Union than in the present.

The appellant could have the samé defense in the courts of this State that he would have had in Kansas had he been sued in that State. There is nothing in the laws of this State, or the settled policy or practice of our courts, antagonistic to the laws of Kansas in respect to the enforcement of the liability of a stockholder in favor of a creditor. On the contrary, it has often been done in this State in action at law under former laws. Schalucky v. Field, 124 Ill. 617, and cases there cited. The courts of this State, as a policy, are free to enforce the collection of indebtedness of a stockholder in accordance with his liability. If liable in such a way as that equity is the only proper procedure, then the creditor must pursue his remedy in such court. Rounds v. McCormack et al., 114 Ill. 252.

In Win cock v. Turpin, supra, it is held that “ when the statute has disclosed that the liability of the stockholder shall be to the depositor, it would seem that it might be supposed other persons were precluded from interfering or intermeddling in a matter which alone interests, or concerns the depositor.” And again, “ the liability is legal, is ereated by the statute, and must be controlled by its provisions. When the statute' creates a liability, the remedy is invariably at law unless the statute provides for proceedings in equity.” A receiver appointed for a corporation in another State by a court of equity to wind up its affairs would be allowed to sue in the courts of this State “ as a matter of interstate comity,” to prosecute actions at law to recover unpaid balances due on capital stock. Patterson v. Lynde, 112 Ill. 196, and cases cited.

The suit under consideration is being prosecuted under the laws of Kansas, which the courts of this State will enforce as a matter of comity among States in the same manner as though the same laws existed here. And if the same law existed here as in Kansas, the remedy would be at law, as shown by the above citations. We therefore think a court of law is the proper court in which to bring the action.

The appellant objects to a number of rulings of the court in regard to the pleadings, and on trial, on the admissibility and competency of evidence. But nearly all the questions have been passed on except a very few, and need not again be noticed.

The ninth plea, to which a demurrer was sustained, attempted to raise an issue as to the validity of the claim of appellee against the Husted Investment Company, in that it was an indebtedness incurred by the company to the appellee by indorsing and selling to it, as agent of another party, a promissory note on which indorsement the judgment in question was founded, the investment company receiving the proceeds of the note from appellee and passing it over to its principal, the holder of the note.

It is insisted that the transaction was ultra- vires as to Husted Investment Company.

While we deem the consideration good and not subject to any defense by the Husted Investment Company, and within the scope of its powers while dealing with third persons, we hold that the appellant could make no defense to this action on the grounds sought. He is a member of the corporation and is concluded by the judgment against it. In the work of Cook, upon stockholders, it is laid down as a rule of law, as follows:

“ Sec. 222. In general, the judgment in these cases against the corporation is conclusive as to the amount and validity of the creditor’s claim. Consequently, when suit is brought to enforce the shareholder’s statutory liability, that judgment can be impeached only for fraud and collusion, or for want of jurisdiction.” See also Buchanan v. Meisser, 105 Ill. 638; Thompson v. Meisser, 108 Ill. 359; Shalucky v. Field, 124 Ill. 617; Fuller v. Ledden, 87 Ill. 310.

It is insisted that because the Supreme Court of Kansas in Howell v. Mangelsdorf, 33 Kan. 194, held that “the liability is only secondary to the corporation,” it follows that appellant could make the defense to the cause of action after judgment against the corporation. This decision only follows the statute, which requires judgment to be rendered in favor of the creditor and execution to issue, and return thereof milla lona, before suit against the stockholder can be instituted.

The suit is secondary in this sense, and in that the judgment against the corporation is not a judgment against him. The stockholder would not be precluded from making a defense if he had a valid one. He may have paid in some legal ivay a sum equal to his stock, or he might show that he did not own the stock in the time and manner required by the constitution and laws to make him liable, and other possible defenses, but not, we apprehend, that the corporation did not owe the debt represented by the judgment against it. This disposes of that plea, and the alleged error of the court in rejecting evidence tending to impeach the validity of the judgment for the cause named.

The sixth, seventh and eighth pleas were a mere attempt to plead matters of law that have been disposed of already in this opinion.

The eleventh plea attempts to deny the truth of the sheriff’s return. Under the laws of Kansas the sheriff’s return would be conclusive in the absence of fraud and collusion, "which are not averred in the plea. The second additional plea is bad in attempting- to set up, as a ground of defense, want of diligence in not attempting to collect the judgment off the four persons joined in the judgment with the improvement company. The Kansas statute requires nothing of the kind. The law of Kansas does not require the corporation to be dissolved before the stockholder can be required to pay, as the third plea averred and attempted to set up as defense. It was therefore bad.

On the trial, appellant objected to the introduction of the judgment in evidence. First, on account of it not being in form a judgment. Second, on account of there being a variance between it and'the declaration. The judgment recites the finding of the plaintiff, on the cause of action, in the sum of the judgment and certain costs of suit, and adds, “ whereof let execution issue.” While this judgment might not be in the exact form in this State that is required, it appears to be in the form followed in Kansas and has all the elements of a judgment.

The amount due is found, and an order for execution to collect it. This is equivalent to formally stating that the ^ plaintiff have and recover from the defendant ” the amount found due. We think the court did not err in treating it as a judgment.

Another objection is that the execution, in being issued against the goods and chattels of the Husted Investment Company, did not follow the judgment and was therefore invalid. This, we think, while an irregularity, did not render it void. Except for the error hereinafter mentioned the evidence would have shown a cause of action. It will therefore be unnecessary to notice any alleged error in regard to instructions, the admissibility or rejection of other evidence, or the objection made to the introduction in evidence to the jury of the opinions of the Supreme Court of the State of Kansas rendered in certain cases, and the comments thereon by appellee’s attorneys to the jury.

There is, however, a more serious question in the case, and that is, the question of variance between the declaration and proof as respects the admissibility of the judgment in favor oE appellee against the Ilusted Investment Company, rendered in the State of Kansas.

The statute of that State does not appear to contemplate the joinder by a creditor of any debtor of the company in a suit against it, but nothing in the statute prohibits it being done. In this case it so happened, that in the claim of the appellee against the above named corporation, there were other parties jointly indebted with the latter and were joined in the action of the former in its suit against it, and final judgment was obtained against all such parties jointly. Such joinder, however, could not affect the right of the appellee under the statute of the State, and so far as such rights are concerned, the name of the parties joined in the same suit and judgment may be treated as non-consequential and immaterial.

But a more serious question arises when we come to treat of the question of variance.

_ The declaration described a judgment as against the Husted Investment Company alone, when the one offered in evidence appeared to be rendered against said company and several others jointly.

Counsel for appellant, at the time of its being offered in evidence, objected to its introduction on the ground that such judgment was a variance between it and the one set out and described in the declaration. The court overruled. the objection and allowed it to be read in evidence, to which ruling the appellant by his counsel at the time excepted. Was there a variance ? Is a declaration describing a judgment against one only supported by the production of a judgment against that one and another, or others ?

It appears, according to the ruling of the Supreme Court of this State, such a condition constitutes a material variance and forbids the introduction of such evidence under such a declaration. Mann v. Edwards, 138 Ill. 21, and cases cited.

The court then erred in admitting the judgment in evidence under the declaration without amendment.

It being the foundation of appellee’s action, without which being introduced in evidence the appellee must fail of recovery, the court erred in its ruling in a material matter requiring reversal. The judgment of the court below is therefore reversed and the cause remanded.

J¡judgment reversed and cause remanded.