Gund v. Ballard

• Decision Date: 19 April 1905
• Docket Number: 13,305
• Citation: 103 N.W. 309,73 Neb. 547
• Parties: HENRY GUND, APPELLEE, v. ELIAS BALLARD ET AL., APPELLANTS
• Court: Nebraska Supreme Court

103 N.W. 309

73 Neb. 547

HENRY GUND, APPELLEE, v. ELIAS BALLARD ET AL., APPELLANTS

No. 13,305

Supreme Court of Nebraska

April 19, 1905

APPEAL from the district court for Lancaster county: LINCOLN FROST JUDGE. Reversed.

REVERSED.

Roscoe Pound and Frank H. Woods, for appellants.

Tibbets & Anderson and W. G. Hastings, contra.

OPINION

HOLCOMB, C. J.

This is a suit in equity, the real controversy being between stockholders of a banking corporation in process of voluntary liquidation. The disputed questions are with reference to the distribution among the stockholders of moneys derived from the assets of the corporation while its affairs were being closed up. The plaintiff sues for the purpose of having applied on his stock a certain per cent. of the moneys belonging to the corporation, which is alleged to be due him under the terms of an agreement entered into between the stockholders for the purpose of disbursing among those entitled thereto the funds which had accumulated prior thereto. The following is a copy of the agreement on which the suit is grounded and which is set out in the petition of the plaintiff: "It is agreed between the stockholders of the Blue Valley Bank that a dividend of 70 per cent. shall be paid to the stockholders at once on presentation of stock certificates to Elias Ballard for indorsement, and out of said dividends shall be charged any note held by the bank against such stockholders * * * and no money shall be paid any shareholder till his indebtedness to the bank is paid." The plaintiff alleges that by the terms of said agreement he as a stockholder of the bank is entitled to the sum of $ 6,930. He alleges that he has paid all of his indebtedness due to the bank and thereby has become entitled, under the terms of the agreement, to his proportionate share of the funds held for distribution among the stockholders. It is alleged in the petition:

"That under such agreement all of the stockholders of said bank excepting this plaintiff have been paid the full 70 per cent dividend upon the face value of the stock held by each stockholder; that the amount due under said agreement to this plaintiff was held by the said trustees and by the said Elias Ballard, as treasurer, awaiting the determination of a liability of this plaintiff upon a certain note due to the said Blue Valley Bank upon which this plaintiff was surety.

"6. Plaintiff further alleges that the liability of this plaintiff upon said note has been fully determined by a judgment in the district court for Thayer county, state of Nebraska, and that he has fully paid, satisfied and discharged the said note and the obligation evidenced thereby, and is entitled to receive from the trustee of said bank and from Elias Ballard, as treasurer, upon said 70 per cent. distribution, the sum of $ 6,930."

The appellants, who also are stockholders, take issue with the plaintiff regarding the question of his indebtedness to the bank and its satisfaction, and by their answer allege that the plaintiff is indebted to the bank in the sum of $ 4,841.15, with interest thereon at 6 per cent. per annum from January 7, 1896, as evidenced by a promissory note in favor of the bank for the principal sum stated, dated April 19, 1899, and executed by the plaintiff and one George H. Hayes. It is further alleged in the answer that the judgment mentioned in the petition, the satisfaction of which the plaintiff pleads as a satisfaction of the indebtedness owing by him to the bank, was procured to be obtained fraudulently and collusively, and that such judgment is not binding and conclusive upon the stockholders as an adjudication of the amount due from the plaintiff to the banking corporation. These answering stockholders ask for an accounting and an ascertainment of the amount due to the bank from the plaintiff, and pray for a distribution of the proceeds, after the amount found to be due from the plaintiff is determined and deducted from his pro rata share of the fund for distribution, which would otherwise be coming to him as one of the stockholders.

The substance of the controversy, therefore, it will be seen, is in respect of the liability of the plaintiff to the corporation on the indebtedness mentioned and the conclusiveness of the judgment rendered in Thayer county district court, in an action on the note in which the bank was the plaintiff and one Hayes and the plaintiff herein were the defendants. The plaintiff relies on the adjudication in that action as a final determination of his indebtedness to the bank, and this is controverted by the defendants who contend that, notwithstanding the judgment, they are entitled in this action to recover for the full amount due according to the face of the note evidencing the indebtedness. In the action begun in Thayer county, it was adjudged by the district court that there was due the bank only the sum of $ 1,464.28. This judgment resulted from findings in favor of the defendant George Hayes, one of the makers of the note, who interposed as a defense the plea of usury, and, upon this issue, the trial court found in his favor and held the plaintiff in this action, the other defendant in that, liable only as a surety. An intelligent disposition of the questions now presented require of us a consideration of the force and effect of the judgment rendered by the district court for Thayer county upon the parties to the present action, and whether or not they are concluded by it. If the defendants are not bound by the judgment, then the nature of the liability incurred by the plaintiff when he became obligated on the note evidencing the indebtedness, and whether or not the contract is usurious in its character, and, if so, what is its legal effect upon the plaintiff in this action as to his liability thereon, are all matters for consideration and determination.

1. It is earnestly contended by the plaintiff, the appellee herein, that the Thayer county judgment is conclusive on the parties to this action as to the amount of his indebtedness to the bank. This seems to have been the view entertained by the trial court in the case at bar as to the principle of law applicable to the facts, the trial resulting in a decree in the plaintiff's favor. It is argued that this judgment can be attacked only in a direct proceeding, and must, for the purposes of this case, be accepted as a final adjudication, binding alike on the banking corporation, its stockholders and all in privity with them. The stockholders, it is contended, are parts of the corporation, represented by it in the litigation terminating in the judgment rendered in the district court for Thayer county, which is as binding on the individual members as it is upon the corporation itself. It may be admitted that the rule contended for is of general application respecting parties and privies to a judgment, the important question being whether or not there are exceptions to the rule which will permit stockholders to impeach a judgment obtained in a proceeding by or against a corporation, upon the ground that the same was obtained fraudulently or collusively. In 3 Thompson, Corporations, sec. 3400, it is observed by the author:

"Under the modern American codes of procedure, where equitable defenses are allowed in actions at law, no reason is perceived why a defendant, sued upon a judgment, who was not in strictness a party to the record in which the judgment was rendered, should not be allowed to set up, as a reason why it should not be enforced against him, that it was procured to be rendered by collusion and fraud."

In an action purely equitable in character, such as the case at bar, the reasons for permitting the defendants to attack the judgment relied on as an adjudication of the amount due the corporation from the plaintiff are as persuasive, or more so, than those underlying the rule mentioned in the text. It is obvious from an inspection of the plaintiff's petition that his right to the relief prayed for is dependent upon the satisfaction and discharge of his indebtedness to the bank. For the purpose of showing himself entitled to the dividend sued for, and as a basis for a decretal order in his favor, he pleads affirmatively that the amount by him owing to the corporation has been regularly determined and adjudicated by a court of competent jurisdiction, and that the sum found and adjudged to be due has been paid and the debt thereby discharged. Coming into a court of equity and relying upon the adjudication as a determination of the amount justly owing by him, it surely ought not to be said that, if the judgment was procured fraudulently or collusively, the defendants cannot be heard to raise the question and be relieved from an unconscionable advantage gained through no fault of their own.

In Clarke and Marshall, Private Corporations, sec. 800, the author speaking to the same point says:

"It is a well settled rule that a judgment rendered by a court of competent jurisdiction is conclusive, in the absence of fraud or collusion, against the parties to the suit, and against all persons represented by the parties; and it is also well settled that a corporation represents its stockholders in all matters within the scope of its corporate powers transacted in good faith by its officers. In an action against a corporation by a creditor, the stockholders are represented by the corporation, within this principle; and it follows that the judgment rendered against the corporation therein if the court has jurisdiction, is conclusive upon the stockholders, in the absence of fraud or collusion, in any collateral suits or proceedings against them, in equity or at law, to compel payment of the balance due on their stock. * * * The judgment may be attacked by stockholders...