Evans v. Nellis/Opinion of the Court

by Edward Douglass White

United States Supreme Court

187 U.S. 271

Evans  v.  Nellis

 Argued: and Submitted November 4, 1902. --- Decided: December 1, 1902

The third question lies at the threhold, and requires to be answered before approaching the consideration of the first and second questions. This becomes apparent when it is seen that if the first and second be answered in such a manner as to sustain the cause of action, the question would yet remain whether the receiver, appointed as stated, had authority to prosecute the suit, whilst, on the other hand, if the conclusion be reached that the receiver was without power to bring the suit-irrespective of what might be the reply to the first two questions-these questions become irrelevant and the case is disposed of.

The judgment against the corporation in the circuit court of the United States for the district of Kansas was rendered on December 31, 1897, prior, therefore, to the enactment of the Kansas statute of 1899. So, also, the execution was issued and the receiver appointed prior to the passage of that act. After the receiver had been appointed, however, and subsequent to the passage of the act of 1899, the court entered an order, directing the receiver to proceed against 'all or any of the stockholders of the Inter-State Loan & Trust Company, from whom, in his judgment, a recovery can be had to collect all of their liability as stockholders in said company.' Now the authority to so direct the receiver must rest upon either the statute of Kansas of 1868, referred to in the certificate, or upon the statute of 1898. But the right of the receiver of the assets of the corporation to sue under the Kansas law to recover the liability of a stockholder, cannot be evolved from the act of 1868, since that act made the liability of the stockholder, not an asset of the corporation, but an asset which the creditor of the corporation alone could recover for his individual benefit, to the extent required to pay his judgment obtained against the corporation. In Abbey v. W. B. Grimes Dry Goods Co. 44 Kan. 415, 418, 24 Pac. 426, 427, it was said, referring to the liability under the act of 1868:

'The nature of this liability is peculiar; it seems to have been created for the exclusive benefit of corporate creditors. The liability rests upon the stockholders of the corporation to respond to the creditors for an amount equal to the stock held by each, and it has been held that the action to enforce this liability can only be maintained by the creditors themselves in their own right and for their own benefit.'

The nature and extent of the liability under the Kansas statute of 1868 was so fully reviewed and stated in Whitman v. Oxford Nat. Bank, 176 U.S. 559, 44 L. ed. 587, 20 Sup. Ct. Rep. 477, that we content ourselves with referring to that case as conclusively demonstrating the proposition previously stated. Tested, then, by the Kansas act of 1868, it is manifest that the receiver had no authority to bring this suit even in the courts of the state of Kansas, and he clearly, therefore, had no power to prosecute such action in the courts of another jurisdiction. Indeed, it is manifest that the suit brought by the receiver which is now under consideration was not deemed by him to be a suit under the Kansas act of 1868, since the recovery which he seeks was not the amount of the judgment rendered in favor of the creditor in the particular suit wherein the receiver was appointed, but the whole sum of the stockholder's double liability, which could only be upon the theory that the receiver was entitled to take such liability as the receiver of the corporation and as a corporate asset to pay the debts generally. In fact, the foregoing propositions might have been taken as conceded, since in the argument at bar the right of the receiver to sue was upheld, not on the ground that he was acting under the act of 1868, but that he was proceeding in furtherance of and in supposed conformity to the act of 1898. This contention being in effect rested on the proposition that although the judgment was rendered and the receiver appointed before the passage of the act of 1898, the order of the court empowering him to enforce the liability of stockholders was entered after the enactment of the act of 1898, and therefore conferred upon the receiver the authority which it is in the argument assumed, he would have had a right to exercise if appointed under that act.

The question then is, Conceding arguendo, the proposition that the receiver was appointed under the act of 1898 and in supposed conformity to it, was he authorized to prosecute this suit by virtue of the act of 1898? The import of the Kansas act of 1898 and the extent of the powers which it called into being, were decided by the supreme court of Kansas in Waller v. Hamer (June 7, 1902), not yet reported in the official reports, but found in the advanced sheets of the 69th Pacific Reporter, p. 185. In that case two creditors obtained judgment in a Kansas court against a corporation. Execution having been issued and returned no property found, one of the creditors moved for the appointment of a receiver to close up the affairs of the corporation, which motion was allowed. The receiver thus appointed brought suit against a stockholder to recover his unpaid subscription and statutory liability. The defendant filed an answer and a plea in abatement, which, among other things, we quote from the opinion of the Kansas court, asserted 'that the receiver should not be permitted to further prosecute the action against him until all the stockholders were brought into court, to the end that a final ascertainment of the debts of the corporation and an adjustment and settlement of the liabilities of the stockholders to the corporation and as between themselves might, be had. To this plea in abatement the plaintiff demurred, which demurrer was sustained. Thereafter, upon leave of court, the defendant demurred to the petition for the reasons: (1) That the plaintiff had no legal capacity to institute and maintain the present action; (2) that the petition did not state facts sufficient to constitute a cause of action against the defendant; (3) that there is a defect of parties plaintiff; (4) that there is a defect of parties defendant. This demurrer was overruled, and thereafter the defendant answered.' In reviewing the action of the trial court the supreme court of Kansas said:

'Prior to the enactment of chapter 10, Laws of 1898, the creditor of a business corporation, other than a railway or bank, might proceed against the individual stockholders only (1) by motion after judgment and execution against the corporation returned nulla bona; (2) by action after dissolution, either by expiration of time, judgment of dissolution, or suspension of business for more than one year, as provided in §§ 32, 46, corp. act 1868. Chapter 10 of the Laws of 1898 repealed said §§ 32 and 46, and substituted therefor §§ 14 and 15.'

The sections of the act of 1898 referred to are those set out in the certificate of the court below. The court then further said that it was obvious that the act of 1898 created an 'entirely different remedy from that provided by the act of 1868,' and declared, referring to the act of 1898, that 'there exists no other statute by which the creditor of an insolvent or dissolved corporation may proceed against its stockholders. It follows, therefore, that if a creditor desires to make a stockholder respond for the debts of the corporation, he must proceed against him in the mode thus prescribed, and no other.' Proceeding, then, to test the right of the receiver to sue, by the act of 1898, the court held that, as he had not brought a suit against the corporation and all the resident stockholders, in order in such suit to fix the sum required to pay the corporate debts, he, the receiver, was wholly without authority under the statute to make any demand whatever against a stockholder, as the previous suit to fix the sum required to pay the debts was an essential prerequisite under the statute to any action by a receiver appointed under the act of 1898 against a stockholder. Summing up its view of the act of 1898, the court said:

'This act provides a complete system for collecting the assets and paying the debts of an insolvent corporation, and of adjusting the liabilities of the stockholders between themselves. To do this the receiver must bring in all stockholders that are within the jurisdiction of the court, that in one proceeding the court may ascertain and determine the indebtedness of the corporation, the amount each stockholder should pay, and, if one has paid more than his proportion, award him such relief against the other stockholders as may appear just. The receiver having failed to comply with this plain statutory requirement, the demurrer to the plea in abatement should have been overruled.'

It therefore follows that there was no authority conferred by the act of 1898 of Kansas, from which the right of the receiver to bring the suit which is now before us can be deduced. It having been heretofore demonstrated that there was no such right under the act of 1868, and as there is no such power under the act of 1898, it follows necessarily that the receiver was without any authority whatever, and the third question must be answered no. Of course, in answering this question we express no opinion whatever as to how far, if at all, the act of 1898 could validly operate to repeal the right of action in favor of creditors given by the Kansas statute of 1868, so far as creditors are concerned, whose debts accrued prior to the repeal. We, of course, also express no opinion whatever upon the question of how far the rights and remedies conferred by the act of 1898 could lawfully be enforced against stockholders in corporations who became such stockholders prior to the passage of that act. And this, of course, excludes the intimation of any opinion as to how far a judgment rendered in a court of Kansas in a suit brought by a receiver against the corporation and the resident stockholders, to fix the sum required to pay the corporate debts, would be binding upon nonresident stockholders not directly a party to such action, especially where their subscription to stock had been made prior to the enactment of the act of 1898. The third question will be answered no, and it is unnecessary to answer the other questions.

And it is so ordered.

Notes