McLaughlin v. O'Neill

• Decision Date: 15 December 1897
• Citation: 51 P. 243,7 Wyo. 187
• Parties: McLAUGHLIN, RECEIVER, ET AL., v. O'NEILL, EXECUTOR
• Court: Wyoming Supreme Court

51 P. 243

7 Wyo. 187

McLAUGHLIN, RECEIVER, ET AL., v. O'NEILL, EXECUTOR

Supreme Court of Wyoming

December 15, 1897

RESERVED QUESTIONS from the District Court for Uinta County HON. JESSE KNIGHT, Judge.

Action by David C. McLaughlin, receiver, and others, against Garrett O'Neill, executor of the last will and testament of Christopher E. Wurtele, deceased, to enforce the superadded statutory liability of stockholders in a Utah banking corporation. Upon submission of a demurrer to the petition the court reserved certain questions for the decision of the Supreme Court. The questions reserved and the material facts are stated in the opinion.

Hamm &amp Arnold, and Brown & Henderson, for the plaintiffs.

It is no doubt true that the statutory liability of a stockholder under the Utah statute is not, strictly speaking, an asset of the bank; it can not be enforced for the mere benefit of the corporation, and a receiver appointed to simply administer on the estate of the bank could not bring this action in any court; but in this case, the receiver is not receiver of the assets of the bank. He was appointed at the suit of a creditor. He was appointed in a creditors' suit seeking to marshal the claims against the stockholders and to collect and distribute the same agreeably to the rules of equity. The receiver was appointed to collect such claims and return the same to the court.

Under the principle of comity between States, a receiver appointed in one jurisdiction may bring an action in a tribunal of another State to reduce to his possession, debts or property to which he is entitled. (Gluck & Becker on Receivers, pp 3-5; 178-180; Patterson v. Lynd, 112 Ill. 197; Patterson v. Bank, 32 N.Y. 21.) This is the rule where there is no claim upon the same indebtedness or property within the jurisdiction where the suit is brought. In this case there is no such claim. The statute is a part of the law under which the bank was incorporated, and that law becomes a part of the contract between the people organizing it.

The liability is uncertain in amount, and depends upon principles of equity. This presents a case for equitable jurisdiction--not so much because of the uncertainty of the amount for which each stockholder is liable, but because of the amount to which each of the beneficiaries are entitled. The fund must be distributed in equity. Therefore an action was commenced in Utah for the purpose of judicially determining who are creditors, how much the liabilities are, how much the assets are, and to reduce them to the possession of the court for equitable distribution. The court appoints the receiver, and through its receiver comes into Wyoming where a stockholder resides and here brings an action to reduce the liability of the stockholder to the possession of the court. The present case is an appendant to the equitable action pending in Utah. All the facts are alleged which show the necessity for the payment of the entire liability of the stockholder. These facts are deemed true on demurrer, and if controverted, must be proved on the trial.

The defendant has no interest in having other parties before the court. Where the statute which creates the liability provides the procedure to enforce it, such procedings can not be had in a foreign jurisdiction, but the procedure is not regulated by statute in Utah. It must be left to the forum in which the action is brought. (Marshall v. Sherman, 42 N.E. 419.) The only reason for holding that the proceedings should be in equity is because the fund sought to be reached is a trust fund. (Wilson v. Book (Wash.), 43 P. 939.)

Counsel cited in addition the following authorities to sustain the right of action. (Case v. Beauregard, 101 U.S. 688; Turner v. Adams, 46 Mo. 95; Postlewait v. Howes, 3 Ia., 365; Bank v. Harvey, 16 id., 141; Cornell v. Radway, 22 Wis. 260; Sanderson v. Stockdale, 1 Md. 563; Tappen v. Evans, 11 N.H. 311; Enright v. Grant, 5 Utah, 334; Hurd v. City, 41 N.J.L. 1; Bagley v. R. R. Co., 86 Pa. 291; Ins. Co. v. Wright, 55 Vt. 526; Sercomb v. Catlin, 128 Ill. 556; Metzner v. Baur, 98 Ind. 425; Trust Co. v. Miller, 33 N.J. Eq. 155; 166 Mass. 414; 41 N.J.L. 1; 55 Vt. 526, 98 Ind. 425; 67 Wis. 577; 40 Pa. 117; 31 N.Y. 439; 34 L. R. A., 748; 45 Ia. 604; 3 Thomp. on Corp., Secs., 3050, 3064, 3055, 3018, 3013, 3046, 3059, 3154, 3422, 3417, 3567, 3569, 3356, 3371, 3368, 3415-18; 2 Morawetz Corp., 902.

Clark & Ausherman, and Cyrus Beard, for defendant.

The general rule is that a foreign receiver has no right to sue in the courts of this State, and especially for a liability of this kind. The liability is not a debt due to the corporation, nor is it an asset thereof. It is a security provided by statute for the benefit of all creditors in case the bank becomes insolvent. (Gluck & Becker on Receivers, 217; Beach on Receivers, Sec. 448; Thompson's Liability of Stockholders, Sec. 342.) Neither a receiver nor an assignee of the corporation can enforce the liability. (Jacobson v. Allen, 12 F. 454; Dutcher v. Bank, 12 Blatch, 437; Bristol v. Sanford, id., 341; Umsted v. Buskirk, 17 O. St., 113; Notes to Alley v. Caspari, 6 Am. St., 185 et seq.) The court appointing a receiver can not give him extra-territorial jurisdiction. (High on Receivers, 2d ed., Sec. 239.)

The liability created by the Utah statute can not be enforced in the courts of this State.

The double or statutory liability of stockholders is the liability sought to be enforced in these sections. This liability is not penal, neither is it in the strict sense of the term contractual, but is a liability that but for the statute would not exist. It is in the nature of a security for the debts of the corporation, and only arises when the corporation itself becomes insolvent and unable to pay its debts, and is to be enforced only after the assets of the corporation have been exhausted. The liability is not primary, but secondary, and is to be resorted to only after the assets of the corporation have been exhausted, and then only ratably, that is, each stockholder is liable to pay such an amount as his stock bears to the whole stock and in proportion to the unpaid debts of the corporation. (Henderson v. Turngren, 9 Utah, 432; Hdw. Co. v. M. & M. Co. (Utah), 45 P. 200; Allen v. Arnold, 31 A. (R. I.), 268; Nimick v. Iron Works, 25 W.Va. 197; Wilson v. Book, 43 P. 939 (Wash.); Watterson v. Masterson, 45 P. 1041.)

The action to enforce the liability must be in equity where all the stockholders, all the creditors, and the corporation itself can be brought before the court, and an accounting had, where it may be determined who are creditors, the amount due to each, who are stockholders, and the extent of the liability of each. The prerequisites to such an action is a judgment against the corporation and an execution issued thereon and returned unsatisfied. The courts of this State can not take jurisdiction because the necessary parties can not be brought before the court, and proper relief can not be granted. (Terry v. Little, 101 U.S. 216; Tube Works v. Ballou, 146 U.S. 517; 17 O. St., 116; 31 A. 268; 148 N.Y. 9; 100 Ill. 225; 154 Mass. 203; 14 Wis. 700; 144 Mass. 341; 142 id., 349; 112 Ill. 196; 6 F. 797; 15 Colo. 38; 43 P. 939; 93 U.S. 228; 139 Ill. 326; 20 Wall., 520; 161 Ill. 497; 7 Or. 329; 13 Wis. 63; Thompson's L. of S., Sec. 361.)

POTTER, CHIEF JUSTICE. CORN, J., concurs.

OPINION

POTTER, CHIEF JUSTICE.

The questions reserved for the decision of the court arise upon a demurrer to the petition. In substance the allegations of the petition are, that the Park City Bank was on the 12th day of June, 1893, and for a long time theretofore had been a banking corporation, created and existing under the laws of Utah Territory, and under the provisions of Chapter IX, Part 4, Volume 2, of the Compiled Laws of Utah Territory, 1888, and, as such corporation, was then and had been engaged in general banking business at Park City, Summit County, Utah Territory.

That on the date aforesaid the said bank was indebted upon a certificate of deposit to Cornelius McLaughlin, of said county and State, in the sum of twenty thousand dollars, with interest, and in an action brought in the Third District Court of Utah Territory, county of Salt Lake, by said Cornelius McLaughlin, and continued after his death in the name of Edward McLaughlin, executor, a judgment was had and recovered against said bank and in favor of said executor for the sum of twenty-one thousand three hundred and fifty-one dollars and eighty-one cents, and twenty-one dollars and five cents costs, which said judgment remains due and unpaid. That on the date aforesaid said bank was insolvent and unable to pay its debts, and thereupon on said date, made an assignment of all its property for the benefit of its creditors to Edwin Kimball, of said Summit County, Utah Territory, as assignee, who immediately took possession of all the assets of the bank, and proceeded to the collection thereof, and to administer its affairs, and continued in possession as such assignee until his death on or about October 11, 1893. That on June 12, 1893, aforesaid, said bank ceased to carry on business in any manner whatever, and remained totally insolvent and unable to pay its debts. That the total liabilities of the bank, at the date of the assignment, aggregated the sum of $ 139,147.35, which consisted of the judgment aforesaid, and indebtedness for moneys deposited, and upon bills of exchange, drafts, and book accounts, and is legal, and that all are legal and proper claims against the said bank. That the names of various creditors are too numerous to be set out in the petition, but are attached to the claim presented to the defendant as executor, and the action is brought by plaintiff in the right of said...