Martin v. South Salem Land Co

• Decision Date: 03 December 1897
• Citation: 26 S.E. 591,94 Va. 28
• Parties: MARTIN et al. v. SOUTH SALEM LAND CO. et al.
• Court: Virginia Supreme Court

26 S.E. 591

94 Va. 28

MARTIN et al.

v.SOUTH SALEM LAND CO. et al.

Supreme Court of Appeals of Virginia.

Dec. 3, 1897.

Suits against Stockholders—Effect of Change of Remedy — Final Decree — Supersedeas — Title of Statute — Creditors' Suits against Corporations — Parties — Notice of Taking Account—Corporations—Insolvency—Rights of Stockholders — Rescission of Stock Subscription— Notice to Corporation — Knowledge of Director.

1. The act of December 19, 1895 (Laws 1895-96, pp. 25, 26), giving courts of law exclusive jurisdiction of suits to recover unpaid subscriptions to joint-stock companies, and providing that it shall apply to all suits brought before its enactment in which final judgment and decree on the merits had not been rendered, does not apply to creditors' suit against an insolvent company and its members, in which a decree had been entered, before the taking effect of the act, against the stockholders on their subscriptions, and authorizing executions against them in favor of the receivers; such decree being final on the merits as to the liability of the stockholders, though not the final decree in the suit.

2. The act does not apply to creditors' suits for the further reason that they are not within its title, which is, "An act to prescribe the mode by which unpaid subscriptions to joint stock companies may be recovered by said companies, their receivers, or assignee."

3. A supersedeas granted on an appeal from a decree in chancery does not vacate the decree conditionally, its only effect being to stay proceedings thereunder pending the appeal.

4. Where litigation has proceeded to a judgment which determines a controversy on the merits, it is beyond the power of legislation to alter or control.

5. Although a subscription to the stock of a corporation is a common-law contract, enforceable by an action at law, it may also be enforced in behalf of judgment creditors of the corporation by a creditors' suit in equity brought by them after return of executions unsatisfied.

6. In a creditors' suit to subject the assets of a corporation, including its unpaid stock subscriptions, to the payment of judgments against it, all the stockholders are not indispensable parties.

7. A notice of the taking of an account before a commissioner, in accordance with an interlocutory decree in a pending suit, which is directed by the decree to be given by publication, on account of the large number of parties to the suit, is sufficient if it gives the style of the suit, and states the time and place of the hearing, although it does not contain the names of all the parties.

8. A company chartered by a court becomes a corporation from the time its charter is filed for record in the office of the secretary of the commonwealth (Code, § 1146), and thereafter neither the company nor its stockholders can deny its legal incorporation, as against its creditors.

9. A party cannot avail himself on appeal of an exception taken to a deposition, unless he brought it to the attention of the trial court on the hearing.

10. A guaranty given by a corporation to subscribers to its stock, that they shall not be called on to pay more than a certain per cent, on the par value of such stock, cannot be enforced by the stockholders as against creditors of the corporation having no notice of the agreement when their debts were contracted.

11. The capital stock of a corporation, impaired only by its losses in business, is a fund on which its creditors have a right to rely for payment of its liabilities; and it is no defense by a stockholder, on whose stock only a per cent, of its par value has been paid to the corporation, to an action by a creditor to compel payment of the remainder, that the amount paid Was the full, actual value of the stock.

12. Stockholders in a corporation, who were induced to subscribe for its stock by fraudulent representations, cannot rescind the contract of subscription, as to creditors, after a delay of two years and a half, during which the means of discovering the fraud was open to them, and after the corporation has become insolvent.

13. In determining the solvency or insolvency of a corporation, unpaid stock subscriptions, which the company itself has no right to enforce, cannot be considered as assets, though its creditors, after exhausting its other property, may be entitled to enforce them.

14. A bank, when making a loan, is not chargeable with notice of a fact because it is known to two of its directors, when they do not act for it in the transaction, but, on the contrary, act for the borrower, and are indorsers on the note.

Appeal from circuit court, Roanoke county.

Bill by Martin and others, as judgment creditors, against the South Salem Land Company and others, to subject the assets of the company, including its unpaid stock subscriptions, to the payment of their judgments. Decree for complainants, and defendants appeal. Affirmed.

Griffin & Glasgow, M. M. Gilliam, Maury & Maury, Harrison & Long, Watts, Robertson & Robertson, C. M. White, M. G. McClung, and Staples & Munford, for appellants.

A. A. Phlegar, L. C. Hansbrough, and A. B. Pugh, for appellees.

BUCHANAN, J. Upon the calling of this appeal the appellants made a motion to remand the cause of the Bank of Salem, etc., v. South Salem Land Co., etc. (one of the six causes heard together, in which the decrees appealed from were entered), to the trial court, with directions to dismiss it. They base their right to have that suit dismissed upon the provisions of an act of the general assembly approved December 19, 1895, entitled "An act to prescribe the mode by which unpaid subscriptions to joint stock companies may be recovered by said companies, their receivers, or assignee." This act provides:

"(1) That all suits or motions for the recovery of unpaid stock subscriptions to the stock of any joint company, shall be brought in the courts of common law of this commonwealth, in the county or corporation where the defendant resides, and said courts shall have exclusive jurisdiction to hear and determine all questions involving the validity of such subscriptions.

"(2) In all such cases the defendant shall be entitled to a jury, where the amount involved exceeds twenty dollars. All pleas, defenses, and evidence which would be admissible if the company were solvent, shall be equally admissible, and shall have the same effect in law in any action brought after the insolvency of any such company; and this act shall apply to all suits heretofore or hereafter brought where no final judgment or decree on the merits has been rendered." Acts Assem. 1895-96, pp. 25, 26.

The suit which the appellants wish to have dismissed is not, in our opinion, within the provisions of that act. It expressly excepts from its operation all suits brought before its enactment in which a final judgment or decree upon the merits of the case had been rendered. That was a creditors' suit brought for the purpose of subjecting the assets of the South Salem Land Company, including the unpaid subscriptions of its stockholders, to the payment of its debts. It was brought in the year 1892, and was regularly proceeded in. After subjecting the assets of the land company, other than the unpaid subscriptions of its stockholders, and applying the proceeds to the payment of its debts according to their priorities, there remained a large part of its indebtedness unsatisfied. To meet this the court entered a decree against the stockholders who had not paid the whole of the 30 per cent. of their stock subscriptions theretofore called for by the land company, for the balance due from them, and against all the stockholders before the court for an additional 20 per cent. of their subscriptions, with authority to the receivers of the court to have execution against each for the amounts so decreed, with costs.

We do not think that the legislature, by that act, intended to deprive a court of equi ty of jurisdiction over a suit in which a decree had been entered fixing the rights of the parties, requiring the stockholders to pay further sums on their stock subscriptions, and giving executions therefor, although further proceedings were necessary in the case in order to complete the relief for which the suit was brought It was clearly a decree upon the merits of the case, and what remained to be done was merely to execute and give effect to that decree.

Before the act was passed, one of the Judges of this court had granted an appeal from, and awarded a supersedeas to, the decree. The effect of the supersedeas was not, as appellants contend, to vacate or annul conditionally the decree. Its only effect was to stay further proceedings upon the decree, and leave matters in the condition they were when it took effect, until this court could hear the case and pass upon the questions involved in the appeal. Bristow v. Association, 91 Va. 18, 20 S. E. 946, 947.

But if the act were susceptible of the construction for which the appellants contend, viz. that it applies to all cases in which there has not been a final decree, in the broadest sense of that term, so that nothing further remained to be done in the case, then the legislature had no right to pass such an act.

The legislature, within certain limitations, may alter and control remedies by which litigants assert their rights in the courts; but, when the litigation has proceeded to judgment or decree upon the merits of the controversy, it has passed beyond its power.

It has been uniformly held that the legislature has no power to grant a new trial or to direct a rehearing in a cause which has once been judicially settled, and that every such attempt is plainly an invasion of judicial power, and is therefore unconstitutional and void.

Immediately upon the rendition of a judgment or decree for money, there arises a contract against the party adjudged to pay in favor of him for whose benefit it is awarded, which the legislature has no power to impair. "Where, " says Blackstone,...