Edwards v. Schillinger

• Decision Date: 08 June 1910
• Citation: 91 N.E. 1048,245 Ill. 231
• Court: Illinois Supreme Court
• Parties: EDWARDS v. SCHILLINGER et al.

245 Ill. 231

91 N.E. 1048

EDWARDS

v.SCHILLINGER et al.

Supreme Court of Illinois.

April 21, 1910.

Rehearing Denied June 8, 1910.

Error to Appellate Court, First District, on Appeal from Superior Court, Cook County; Farlin Q. Ball, Judge.

Bill by John B. Edwards, trustee in bankruptcy, against Gustav A. Schillinger and another. From a judgment of the Appellate Court affirming a decree for plaintiff, defendants bring error. Affirmed.McCaskill & Son, for plaintiffs in error.

Hoyne, O'Connor, Hoyne & Irwin (Harry D. Irwin and Carl J. Appell, of counsel), for defendant in error.

CARTWRIGHT, J.

The defendant in error, John B. Edwards, trustee in bankruptcy of Schillinger Bros. Asphalt Company, a corporation, filed his bill in the superior court of Cook county against the plaintiffs in error, Gustav A. Schillinger and A. C. Gumbinger, stockholders of the corporation, to set aside a dividend declared by the directors in fraud of creditors and applied by the stockholders in payment of unpaid balances of their subscriptions to the capital stock, and to compel plaintiffs in error to pay the amount of their subscriptions represented by the fraudulent dividend certificates. The defendants to the bill filed a general demurrer thereto, which was overruled by the court, and they were ruled to answer the bill within ten days. They failed to answer, but elected to stand by their demurrer, and were defaulted, and a decree was entered in accordance with the prayer of the bill, requiring the defendant Gustav A. Schillinger to pay to the complainant $3,000 and the defendant A. C. Gumbinger to pay $2,000, being the portions of their unpaid subscriptions which they had attempted to cancel by means of the fraud. The Appellate Court affirmed the decree on appeal, and a writ of error was sued out of this court to review the judgment of the Appellate Court.

The following are the material facts alleged in the bill and admitted by the demurrer: Schillinger Bros. Asphalt Company is a corporation organized on October 3, 1900, under the laws of the state of Missouri, with a capital stock of $20,000, divided into shares of $100 each. The original subscribers, with the amounts of their subscriptions,were as follows: B. J. Calking, 100 shares; Charles Mueller, Jr., 99 shares; and Henry Jacobson, 1 share. Money or property turned over to the corporation was accepted as half payment, and certificates were issued showing that the stock was only half paid for. The defendant Gustav A. Schillinger became the owner of 60 shares of the capital stock and received a certificate showing upon its face that it was but half paid, and he assumed and agreed to pay to the corporation the balance of the subscription price when demanded. The defendant A. C. Gumbinger became the owner of 40 shares and received a certificate therefor showing on its face that said stock was but half paid, and he assumed and agreed to pay the corporation the balance of the subscription price when demanded. At a meeting of the board of directors held in the city of St. Louis, Mo., on April 28, 1902, when the corporation was wholly insolvent and unable to pay any dividend whatever upon its stock, the directors, for the purpose of relieving the stockholders from liability for the unpaid portion of the stock held by them, pretended to declare a dividend of $8,920.65, and authorized the secretary to issue dividend certificates to Schillinger upon 60 shares, to Charles Mueller, Jr., upon 50 shares, to A. C. Gumbinger upon 40 shares, to Henry Jacobson upon 1 share, and to A. Maritzan upon 10 shares, and to receive said dividend certificates and the stock certificates held by each of said parties, and to issue to them, in lieu thereof, certificates of fully paid stock in the corporation. Dividend certificates were given to the above-named stockholders, who were the only holders of stock in the corporation, and said certificates, with the half paid certificates, were exchanged for certificates of fully paid stock. On November 8, 1902, the corporation was adjudged a bankrupt by the District Court of the United States in Missouri, and the complainant was elected trustee of the estate and qualified as such. The trustee reduced to cash all of the assets exceptthe liability of the stockholders and a claim that was in litigation, and has $725.95, proceeds of such assets. Claims to the amount of $7,194.10 were proved and allowed, payable out of the assets. The bankrupt corporation ceased doing business, and all the stockholders but the defendants are residents of the state of Missouri and are insolvent, and a judgment against them, or either of them, would be uncollectible. By the laws of Missouri a transferee of stock is liable for any unpaid balance thereon.

The substantial ground upon which it is contended that the judgment of the Appellate Court was wrong is that the superior court had no jurisdiction to set aside the fraudulent dividend or to order a call upon stockholders to pay unpaid subscriptions, because the dividend was declared by a corporation which was a resident of the state of Missouri, and the courts of that state, alone, had jurisdiction over it or its affairs. Counsel for plaintiffs in error regard the bankrupt corporation as a necessary party to the suit, and any interference with the action of its directors, by setting aside the fraud, as beyond the jurisdiction of the courts of this state. The arguments touching that subject have taken a very wide range, and cover nearly all questions relating to the powers of courts over foreign corporations or in any litigation where their affairs are in any manner involved.

The courts have never entertained any doubt of the right of a corporation to bring suits in other jurisdictions than that where it was created. When that question first arose in England, the argument that a foreign corporation was but an emanation of the foreign sovereignty, of which the laws of England would not take notice and the courts might not sufficiently understand the foreign laws, did not prevail, and it was held that such a corporation might sue in the English courts. Henriques v. Dutch West India Co., 2 Ld. Raym. 1532; Dutch West India Co. v. Henriques & Moses, 1 Strange, 613. The law in this state on that subject was declared in the early case of Bank of Washtenaw v. Montgomery, 2 Scam. 422, where the court said: ‘It is supposed that nothing is better settled than that corporations may institute suits in the courts of other states and countries than those under whose laws they may have been established.’ The only rule consistent with that doctrine would be that a corporation permitted to enforce rights in this state should also be subject to have its liabilities enforced here; but as a matter of fact there was considerable conflict in the decisions in this country as to whether a foreign corporation could be sued outside of the state of its creation except upon a voluntary appearance, and perhaps more numerous decisions were that it could not. The view of many courts was that a corporation could not migrate beyond the boundaries of the state of its creation so as to be there served with process. Peckham v. Haverhill North Parish, 16 Pick. (Mass.) 274;McQueen v. Middletown Mfg. Co., 16 Johns. (N. Y.) 5;Middlebrooks v. Springfield Ins. Co., 14 Conn. 301.

The theory that a corporation can only have its existence in the state of its creation has long since been dispelled by the migratory corporations which have transacted the business of the country, and there have always been courts which held that they could be sued wherever they could be served with process in accordance with the local law. Quite convincing reasons that they could be so sued were given in Libbey v. Hodgdon, 9 N. H. 394, where the court said: ‘If we admit and vindicate their rights, even-handed justice requires that we also enforce their liabilities, and not send our citizens to a foreign jurisdiction in quest of redress for injuries committed here.’ The Supreme Court of the United States, in Barrows Steamship Co. v. Kane, 170 U. S. 100, 18 Sup. Ct. 526, 42 L. Ed. 964, commented on the manifest injustice resulting from permitting a foreign corporation to do business in a state and to bring suits in its courts, but not permitting the corporation to be sued there. It was said that such injustice had induced the passage of statutes in many states providing that a foreign corporation doing business within the state shall keep a place of business and appoint an agent residing therein upon whom process may be served; but it was held that a foreign corporation doing business in the state might be sued there without any such statute, and that the liability to be sued might be implied from the grant to do business in the state. In Western Union Telegraph Co. v. Pleasants, 46 Ala. 641, it was held that a foreign corporation doing business in a state through a managing agent or employé may be sued there by obtaining service on such agent or employé, and a statute providing for that method of service on corporations generally was applied to a foreign corporation.

It is a just and reasonable theory that a business corporation is constructively present, outside of the state of its origin, wherever it has property and carries on its operations by means of agents. This court has maintained that doctrine from the beginning, and in Mineral Point Railroad Co. v. Keep, 22 Ill. 9, 74 Am. Dec. 124, which was an action of debt, with an attachment in aid, against a Wisconsin corporation, it was held that service upon an agent in this state was sufficient to give jurisdiction. The court said that it would be neither just nor wise to bestow upon foreign corporations having property within this state and exercising powers and privieges here immunity of exemption from observance of their contracts or to deny to the people the usual facilities for collecting their debts against them. It was held that...