Wilson v. Kiesel

9 Utah 397

• Court: Utah Supreme Court
• Decided: January 15, 1894
• Status: Published

Opinion

Smith, J.:

This is an action by plaintiff who claims to be a judgment creditor of the Ogden Power Company against the defendants who are alleged to be delinquent subscribers to the capital stock of that company. It is alleged that the Ogden Power Company is a corporation and is insolvent; that plaintiff's judgment is unpaid; that this action is brought on bebalf of plaintiff and the other creditors of the corporation.

Defendants Kiesel and twenty-six others answered denying the material allegations of the complaint and alleging by way of affirmative defense that plaintiff was a delinquent subscriber to the capital stock' of the Ogden Power Company. Kiesel, Carnahan & Anderson also plead payment of their subscription, and by way of cross-complaint defendants alleged, in substance, that plaintiff’s judgment, on which this action was founded, was fraudulently obtained by collusion with the president of the Ogden Power Company, who with one Brinker, had purchased the claim on which the judgment was rendered and who consented to the judgment fraudulently.

It was further alleged that no more than $2,000 was due the plaintiff on the claim sued on, whereas the judgment was rendered for $22,405.15. Defendants asked that plaintiff’s judgment be cancelled and that he take nothing. Plaintiff answered the cross-complaint.

The cause was tried by a referee, who reported findings •of fact and conclusions of law on which judgment was entered, dismissing the cross-complaint and giving judgment for plaintiff against, all of the defendants except Kiesel, Carnahan and Anderson and as to those three the judgment was against the plaintiff on the ground that they had paid their subscription.

Plaintiff appeals from the judgment in favor of Kiesel, Carnahan and Anderson, and defendants Cannon and. twenty-three others appeal from the judgment against them.

The history of the transactions out of which this "litigation arose, as disclosed by the record, is in brief as follows:

The Ogden Power Company was 'incorporated on April 11, 1890. On March 1, 1890, Wilson had entered into three contracts to construct certain works, which were intended for the benefit of this corporation subsequently organized. Work was commenced by Wilson, March 14, 1890, and he ceased work on May 13, 1890. On May 15, 1890, plaintiff began an action against the Ogden Power Company to recover $22,405.15. On June 1, 1890, H. H. Henderson became president of the Ogden Power Company, and shortly afterwards the corporation filed answer denying Wilson’s claim and this answer was verified by Henderson. On September 22, 1890, Wilson sold, assigned, transferred and made over to Joseph Brinker all his right, property, claim and interest in and to all claims and demands against the Ogden Power Company.

This assignment was for a sufficient consideration, was in writing and was placed in the safe of Henderson in an office occupied by Brinker, Anderson and Wilson’s attorney. This assignment was negotiated for and obtained by Henderson for the joint benefit of Brinker, Henderson and Mr. Oarretson of Sioux City, Iowa, and Mr. Bigelow of Ogden. On October 25, 1890, Kimball & Allison, attorneys for the Ogden Power Company in the suit of Peter Wilson against it, appeared in open court and consented to a judgment in favor of Wilson for the full amount clai&ed by Wilson. This is the judgment on which this suit is founded. Kimball & Allison consented to this judgment under the instruction and direction of Henderson, president of the company.

The board of directors of the power company had no knowledge of such instructions being given.

' On June 17,' 1892, execution issued on this judgment and on June 22, 1892, it was returned wholly unsatisfied. On June 23, 1892, this action was commenced.

Referring again to the organization of the corporation, Kiesel, Carnahan and Anderson each severally subscribed to the capital stock of the Ogden Power Company the sum of $5,000 and .the plaintiff Wilson subscribed $2,500 to ■snob capital stock; Wilson has paid $250 on his subscription and no more.

On April 26, 1890, Kiesel, Carnahan and Anderson conveyed to the Ogden Power Company land necessary for its hse, of the value of more than $40,000, and accepted in payment therefor $15,000 in paid-up stock in the company and $25,000 in notes of the company secured by mortgage ■on the land conveyed.

This mortgage has been foreclosed, and Kiesel, Carnahan and Anderson have purchased the land under the foreclosure sale.

At the time plaintiff commenced this suit he had in his possession belonging to the Ogden Power Company, personal property of the value of $2,740. At the time the judgment in favor of Wilson was rendered he had received money and property on his claim that should have been ■credited and was not, to the amount of $6,589.50.

The total amount due Wilson, allowing none of the above credits on June 1, 1890, according to his own claim (which is on its face in one or two particulars erroneous in his favoi’) is $18,332.41.

That at the’date the judgment in his favor was rendered if he be charged with his own unpaid subscription and with the credits he admits to be correct, and with the property of the power company which he had in his possession, the amount due him could have been no greater sum than $6,752.91. '

The questions raised on the appeal of Cannon and others from the judgment in favor of plaintiff and against them are as follows:

1. Can plaintiff, while a delinquent subscriber himself, maintain this action in equity against other delinquent subscribers?

2. Was the judgment at law in Wilson’s favor, taken byo consent October 25, 1890, for $22,405.15, fraudulent and void ?

3. If that judgment is valid can plaintiff maintain an action on it? Is he the real party in interest?

The question on plaintiff's appeal is:

Did Kiesel, Carnahan and Anderson pay their subscription to the corporate capital by the conveyance of land made April 26, 1890?

Upon the first question the defendants insist that plaintiff cannot ask equity to give him relief against them unless he' himself first do equity by paying up his own delinquent subscription-.

While the question is argued at considerable length in the briefs for both plaintiff and defendant, neither side cite any authority on the point. We have, however, examined the matter as fully as our time and facilities permit.

The case of Bissit v. Kentucky River Navigation Co., 15 Fed. Rep. 353, holds squarely that such delinquent stockholder can maintain such action. To the same effect is note 2, page 215 of Cook on Stock and Stockholders. On the contrary, the supreme court of Maryland in the case of Weber v. Fickey, 47 Md. 199, holds that he cannot maintain such action. We are inclined to adopt the rule declared in Bissit v. Kentucky River Navigation Co., to-wit: that he may maintain the action, but that he must contribute pari passu with the other stockholders to the payment of the amount due him, if any.

The second question on defendant's appeal, to-wit: Was Wilson’s judgment fraudulent, presents many intricate and difficult questions of fact. In the first place, as shown by the statement of facts already made, it is apparent that according to the facts found and shown in the record, this judgment was for a grossly exorbitant sum. It was reduced some $6,500 with the consent of plaintiff on the trial of this case in the court below., but it should have been reduced for a very much larger sum, to-wit: $4,426.79, which has accrued as interest, etc., since the date of the judgment, also the amount of his unpaid subscription, $2,250, and in equity he ought also to be charged with the property in his hands of the value of $2,740. So that in addition to the credit on the judgment made by the court below it would appear from the record before us. that the amount of the judgment ought to have been reduced by the further sum of $9,396.79.

We do not intend to adjudicate the question as to the amount due plaintiff in this opinion, but expressly disclaim any intention to make such adjudication. But the above facts appear from the record before us and are referred to in this connection upon the question as to whether or not the judgment sued on in this action is fraudulent or not.

In addition to the fact that the judgment is apparently for too large a sum, is the further fact that on September 22, 1890, this claim, on which the judgment is founded, was assigned, as we have seen, to Brinker, who was at the time jointly interested with Henderson in the purchase. And the judgment was consented to on October 25, 1890, at the instance and on the authority of Henderson, without the knowledge or consent of the board of directors of the power company.

In other words, it appears that Henderson was interested in obtaining this judgment against the power company and yet as president of the company he consented to its entry .or rather directed the company’s attorneys to consent, which they did. "Is such a judgment, so entered, conclusive on the stockholders? We think not. In the language of Judge Baxter in Bissit v. Ky. Riv. Nav. Co., supra, “ We are satisfied that the complainant’s judgment, to put it mildly, was unfairly obtained, and for an amount greatly in excess of the sum due.’'’

Now in tbis suit is the first opportunity the stockholders have had to inquire into the validity of plaintiff’s claim .against the corporation, and, all other matters aside, the judgment in plaintiff’s favor would have to be reversed in ■order to afford the stockholders an opportunity to contest this claim before a master Or the court below. This was the course taken in the Bissit case above referred to, and seems to be abundantly supported by authority.

In the absence of fraud or mistake in obtaining judgment against the corporation, of course, the judgment is ■conclusive on the stockholders. Henry v. Vermillion Ry. Co., 17 Ohio, 187; Donworth v. Coalbaugh, 5 Iowa, 300; Came v. Brigham, 39 Me. 35.

But if the judgment against the corporation was obtained by fraud or through collusion with the company’s agents, the stockholders may obtain relief through equitable proceedings. Morawetz on Priv. Corp. sec. G19.

And the judgment may be impeached for fraud or collusion by cross bill in the action upon it. Conway v. Duncan, 28 Ohio St. 102; Bank v. Wooster, 1 Ohio St. 233.

There is, however, another question raised, which appears to call for an absolute reversal of the judgment in favor of plaintiff and an affirmance of that in favor of Kiesel, Car-nahan and Anderson.

On September 22, 1890, the plaintiff, Peter Wilson, made and executed the following paper:

“ This is to certify that I, Peter Wilson, of Ogden City, Utah, for and in consideration of the sum of five thousand (85,000) dollars to me in hand'paid and to be paid as hereinafter expressed, and five thousand dollars in stock or bonds to be delivered to me as hereinafter provided, or their value and equivalent in money, that is to say:

CfTwo thousand ($2,000) dollars and interest thereon from the 23d of August, A. D. 1890, paid at the date hereof.

“ One thousand dollars to be paid thirty days from date hereof; one thousand dollars to be paid sixty days from date hereof; one'thousand dollars to be paid ninety days from date hereof.

“Also five thousand dollars in stock or bonds of the Ogden_ Power Company, a corporation, to be delivered as paid up stock or bonds thereof on or before the date for the last payment of money above, provided, however, that the assignee hereafter named or his assigns may pay the face value of such stock or bonds at his option in lieu of such stock or bonds, I have sold, assigned, transferred and. made over and do hereby sell, assign, transfer, make over unto Joseph Brinker, all my right property, claim and interest in and to my said claim and demand against the Ogden Power Company in suit in the first judicial district court, Utah Territory, for work and labor done and materials furnished for said company upon the several contracts mentioned and set ■ out in the complaint in said*suih and th»P said Brinker. may be substituted for me as plaintiff in the said suit.

“ It is further understood that the stock so, as aforesaid, to be delivered to me shall be taken to include the twenty-five shares, the same heretofore subscribed for by me on which I have heretofore paid two hundred and fifty ($250) dollars, which latter sum is to be paid me in addition to the five thousand dollars hereinbefore provided to be paid as part of the consideration of this assignment.

“Witness my hand and seal this 22d day of September, 1890.

“(Signed.) Petee Wilson.”

It is expressly found by the 49th finding of fact that this paper was made and executed at the instance and request and pursuant to negotiations conducted by Henderson with Wilson; that Henderson acted in the interest of himself, Brinker, Garretson and Bigelow and the assignment was made for all of them, although it was taken in the name of Brinker alone.

By the 46th finding it is shown that Henderson and Brinker occupied a single room as an office and in this office there was a single safe which was the property of Henderson; that after the execution of the written assignment, it was delivered by Wilson to Henderson who put it in the safe and kept it up to January, 1893, when he delivered it to Ogden Hiles, Esq., who was attorney for Wilson and also for Brinker and Henderson.

In the 50th finding it is shown that Brinker paid three thousand dollars to Wilson on the consideration named in the assignment before October 25, 1890.

The court below found that these facts constituted no delivery of the writing and hence that Wilson’s title to the claim did not pass. We cannot concur in that view. We hold that the delivery of this writing to the partner or joint owner of the obligee named in it, for the joint use and benefit of the person to whom it was delivered and the obligee named is a good delivery. Even a delivery to a disinterested third person for the obligee is a good delivery if assented to by the obligee. See Am. and Eng. Enc. of Law, vol. 5, p. 448 and cases cited in note.

It must be assumed that Brinker knew of the delivery to Henderson and assented to it. Because it is expressly found that he subsequently made the first two payments ($3,000) in accordance with its provisions.

Notwithstanding Wilson by this assignment parted with his title to the demand he had sued on, still his assignee had the right to prosecute that action at law against the corporation to judgment in the name of Wilson. We so held at the last term of court in the case of Bank v. Hapgood, ante, p. 85, 33 Pac. Rep. 241.

But here another suit founded on that judgment and against other parties is brought in the name of Wilson. Can it be maintained? This precise question was before the supreme court of California in the case of Dubbers v. Goux, 51 Cal. 153, and was decided in the negative, and in the same case it is held that the complaint cannot be amended by. the substitution of the real party in interest.

The statute of Utah, vol. 2, Comp. Laws 1888, sec. 31(39, declares that every- action must be prosecuted in the name of the real party in interest, except certain cases which do not in anywise affect the question at bar; this language does not admit of doubt as to its meaning. The real party in interest at the beginning of the action must prosecute it in his own name; it is not necessary to enlarge upon the reasons for this rule or to cite decisions under it; it is sufficient for us to know what the law is and it is our duty to enforce it.

We are also of the opinion that the complaint cannot be amended in this respect. The reasoning of the supreme court of California in Dubbers v. Goux, supra, on this point seems to us to be conclusive. It is sufficient for us to say that in the present case an action by the assignee of this judgment would present a wholly different issue to that tendered in the present action; it would in fact be a new and different action by the simple charge of plaintiffs. As the nominal plaintiff, Wilson, had no judgment or other cause of action against these defendants when he brought them into court, it is quite apparent that he cannot in justice complain if his action is dismissed at his cost, and the assignee cannot complain because he has never sought any judgment against the defendants. The apparently close relations between Wilson and his assignees does not in any way affect this conclusion except to emphasize the justice of it, and to add strength and color to the claim made at the bar that this action was not prosecuted in good faith.

We are of the opinion that the exceptions of defendants Cannon and others to the master’s report of facts, and the assignment of error here, that on the facts found, the judgment below is against law, are both well taken, and that on this appeal the cause should be reversed and remanded to the court below with directions to dismiss the action.

This conclusion renders it unnecessary to pass on the question raised on plaintiff’s appeal, as to whether or not Kiesel, Carnahan and Anderson had paid their subscription to the capital of the Ogden Power Company.

BaRTCH, J., concurred.