Brown v. Trail
| Decision Date | 01 April 1898 |
| Citation | 89 F. 641 |
| Parties | BROWN v. TRAIL. |
| Court | U.S. Court of Appeals — Fourth Circuit |
George Weems Williams and Philip Bartley Watts, for complainant.
Milton G. Urner, Wm. P. Maulsby, and Robert Biggs, for defendant.
The plaintiff in this suit is a citizen of New York, who obtained a judgment for $14,688.08 against the Western Farm-Mortgage Trust Company, a corporation of the state of Kansas. The object of this suit is to enforce against the defendant, a citizen of Maryland, who is alleged to be a stockholder in the said corporation, the individual liability as stockholder imposed by the Kansas law.
The constitution of Kansas (article 12, Sec. 2) provides:
'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.'
The legislation of the state of Kansas on the subject is as follows:
Gen St. Kan. 1889, c. 23, Sec. 46: 'No 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.'
Id. Sec. 32: 'Execution against Stockholder; Action.-- If any execution shall have been issued against the property or effects of a corporation, except a railway, or a religious or a 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 upon an order of the court in which the action, suit or other proceedings shall have been brought or instituted, made upon motion in open court, after reasonable notice in writing to the person 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 of his judgment.'
The questions raised by the plaintiff's demurrer to the defendant's first, second, tenth, and twelfth pleas relate to the conclusiveness of the plaintiff's judgment against the corporation, and how far it may be inquired into in this suit.
The judgment is evidence of an indebtedness by the corporation to the plaintiff. But the fact that the plaintiff has obtained a judgment against the corporation is only one element in establishing the defendant's liability in this suit. It does not by any means follow, because the Kansas corporation owes the judgment debt to the plaintiff, that the defendant owes the plaintiff anything. By the Maryland practice, following the common-law practice, under the general issue plea the defendant may prove almost any defense which tends to show that the plaintiff's claim is unfounded; and, among the other defenses under the general issue in this case, he may dispute the plaintiff's contention that the defendant ever was a stockholder. This is not like a suit based upon a judgment between the same parties, in which neither non assumpsit nor nil debit can be pleaded, the issue of indebtedness having been once for all determined by the judgment; but this is a suit against a stranger to the judgment, who is liable if the plaintiff proves, not only the obtention of the judgment against the corporation, but all the other facts which make him liable under the Kansas statute for the debt of the corporation. I therefore hold that the first plea, 'never promised as alleged,' and the second plea, 'never was indebted as alleged,' are not demurrable under the Maryland practice.
If, however, the defendant proposes to show that there is no such judgment, or that it was obtained by fraud, or that it is for a claim for which the Kansas statute does not give the remedy sought in this suit such defense must be pleaded specially. The tenth plea avers that at the date of the judgment the plaintiff was not a bona fide creditor of the corporation. The fact that there was due from the corporation to the plaintiff the amount recovered was settled by the judgment, and that question cannot be retried upon its merits in this litigation. I hold, therefore, that the tenth plea is bad, and the demurrer is sustained. Weber v. Fickey, 47 Md. 196-201; Mor. Priv. Corp. Sec. 619; Ball v. Reese (Kan. Sup.) 50 P. 875.
The third, fourth, and fifth pleas, if amended, as proposed, will be held good.
The sixth and seventh pleas aver that before the bringing of the suit by the plaintiff against the corporation and the obtention of the judgment a receiver had been appointed by a Kansas court, who had taken possession of, and still has possession of, all the property of the corporation. The demurrer to these pleas is sustained. The right given to the creditor under the Kansas statute which this suit seeks to enforce is an individual liability of the stockholder to pay to the creditor an amount equal to the stock owned by the stockholder.
This liability is in the nature of a suretyship for the benefit of the creditor, and is not an asset of the corporation, which passes to the receiver, and it cannot be recovered by him. Jacobson v. Allen, 12 F. 454.
The eleventh plea alleges that plaintiff...
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