McVickar v. Jones

• Decision Date: 22 October 1895
• Citation: 70 F. 754
• Parties: McVICKAR v. JONES.
• Court: U.S. District Court — District of New Hampshire

70 F. 754

McVICKAR v. JONES.

United States Circuit Court, D. New Hampshire.

October 22, 1895

J. W Remick and Harry Bingham, for plaintiff.

Calvin Page and J. S. H. Frink, for defendant

ALDRICH District Judge.

In this case the plaintiff seeks to enforce a supposed remedy against the defendant, as a supposed stockholder in a Kansas corporation, upon supposed rights and liabilities created by the constitution and statutes of that state. The action is in the form of debt, and the plaintiff sets up a judgment for $7,892 damages, and costs taxed at $181.20, alleged to have been recovered in the courts of Kansas in 1894 against a Kansas corporation in which it is claimed the defendant was a stockholder; and the plaintiff here seeks to recover the amounts of such judgment from the defendant on the ground of individual liability, and the hearing was upon demurrer, in which 18 special causes are assigned. For the purpose of the preliminary questions raised at this stage of the proceeding we must look only to the conditions set forth by the plaintiff's declaration, the constitution and the public laws of Kansas, the decisions of the courts of Kansas and of other courts, which bear upon the questions involved.

The first ground of demurrer assigned is that the declaration sets forth no cause of action. This, of course, at once presents the question whether the plaintiff's declaration discloses a case which the defendant is bound to answer. Section 2, art. 12, of the constitution of Kansas, declares that:

'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; but such individual liability shall not apply to railroad corporations, nor corporations for religious or charitable purposes.'

In obedience to this declaration in the fundamental law of Kansas, the legislature of that state in 1868 undertook to establish the liability and provide a remedy by the enactment of a law in the following words:

'If any execution shall have been issued against the property or effects of a corporation, except a railway, or a religious or charitable corporation, and there cannot 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 proceeding 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. ' Gen. St. 1868, c. 23, art. 4, Sec. 32.

Looking at the plaintiff's declaration generally, it would seem that it is sufficiently broad and comprehensive to state the cause of action contemplated by the constitution and the statute under consideration, and that a cause of action is set forth, provided the facts are stated with reasonable precision and legal certainty, and provided, further, that the statute and constitution create a cause of action enforceable in this court.

The question whether the cause of action which the plaintiff undertakes to state in his declaration is one which we are bound to recognize and enforce, provided the plaintiff sets it forth by apt and proper pleading, will first be considered.

It is manifest that the purpose of the government of Kansas was to secure to the members of the public a higher measure of security and a greater degree of safety in their dealings with such institutions than would result from the liability of the corporation itself, by creating an individual liability on the part of the stockholders; and the decisions of the state courts of Kansas and the supreme court of the United States upon similar or analogous situations would seem, speaking generally, to establish the proposition that the stockholder's liability sought to be established by the Kansas constitution and statute is one which we are bound to recognize and enforce. Howell v. Manglesdorf, 33 Kan. 194, 199, 5 P. 759; Flash v. Conn, 109 U.S. 371, 3 Sup.Ct. 263; Rhodes v. Bank, 13 C.C.A. 612, 66 F. 512; Bank v. Rindge, 57 F. 279; Cuykendall v. Miles, 10 F. 342; Payson v. Withers, 5 Biss. 269, 278, Fed. Cas. No. 10,864; First Nat. Bank of Deadwood v. Gustin Minerva Con. Min. Co., 42 Minn. 327, 44 N.W. 198; Mor. Priv. Corp. 870, 872, 875; Cook, Stock, Stockh. & Corp. Law, Sec. 223. It follows, therefore, that the first ground of demurrer, which is a general one, and goes to the cause of action, must be overruled, and the secondary questions, as to the alleged insufficiency and uncertainty of the declaration, will be considered hereafter, under the specific assignments set forth in the demurrer.

The second and third grounds of the demurrer go to the form of action, and it is claimed that, if the action may be at law, debt is not the proper form of action. It would seem, as to liabilities created by state statutes in pursuance and within the scope of the constitution of such state, and of a character not running counter to the provisions of the federal constitution or the laws of congress thereunder, that procedure in federal courts for the enforcement of such state statutory liability will conform somewhat to the mode of enforcement in the state where such liability is created. It is not necessary to look beyond the decisions of the supreme court for authority sustaining this proposition. Mills v. Scott, 99 U.S. 25; Pollard v. Bailey, 20 Wall. 520; Flash v. Conn, 109 U.S. 371, 3 Sup.Ct. 263; Bank v. Francklyn, 120 U.S. 747, 7 Sup.Ct. 757; Glenn v. Liggett, 135 U.S. 533, 10 Sup.Ct. 867;

Bank v. Rindge, 57 F. 279. Mills v. Scott was an action of debt against an individual stockholder to enforce a liability created by a Georgia statute, and was maintained upon the ground that it was authorized by the state statute, as interpreted by the highest tribunal in that state. In Kansas the distinction between actions at law and suits in equity, and all distinctions between forms of action, are abolished. The language of the statute working this result is as follows:

'The distinction between actions at law and suits in equity, and the forms of all such actions and suits, heretofore existing, are abolished; and in their place shall be, hereafter, but one form of action, which shall be called a civil action. ' Gen. St. 1889, par. 4087.

It is contended on the part of the defendant that the procedure there is simple, direct, and comprehensive, and the proceeding ordinarily, if not always, employed, involves only a complaint and answer, wherein defenses may be set up without the restraints incident to the common-law forms of action; while the plaintiff claims that the laws of Kansas as to the individual liability of stockholders for the debts of a corporation constitute a part of the contract by which the defendant became a stockholder and the plaintiff a creditor of the corporation, and that, while distinctions between forms of action and between actions at law and suits in equity are abolished, he may properly employ the form of a declaration in debt for the purpose of stating his case in a several action for the enforcement of individual and several liability, and that a suit in equity is not the usual or proper remedy in Kansas or elsewhere (Flash v. Conn. 109 U.S. 371, 380, 3 Sup.Ct. 263), except as a remedy to ascertain and establish proportionate liability, where, under the laws and contracts, such proportionate liability exists. Among the cases bearing upon the questions involved in this proposition are Bullard v. Bell, 1 Mason, 243, Fed Cas. No. 2,121; Mills v. Scott, 99 U.S. 25; Falconer v. Campbell, 2 McLean, 195, Fed. Cas. No. 4,620; Stockwell v. U.S., 13 Wall. 531, 542; Abbey v. Dry-Goods Co., 44 Kan. 415, 24 P. 426; Howell v. Manglesdorf, 33 Kan., 194, 5 P. 759; Bank v. Rindge, 57 F. 279; Bagley v. Tyler, 43 Mo.App. 195; Morley v. Thayer, 3 Fed. 737; Pollard v. Bailey, 20 Wall. 520; Bank v. Francklyn, 120 U.S. 747, 756, 7 Sup.Ct. 757; Cuykendall v. Miles, 10 F. 342; Bank v. Peavey, 64 F. 912; Hentig v. James, 22 Kan. 326; Hoyt v. Bunker, 50 Kan. 574, 32 P. 126; Rhodes v. Bank, 13 C.C.A. 612, 66 F. 512. The suggestion that the liability may be in contract furnishes no reason why the action of debt should not be employed to enforce the supposed right, and it is not perceived that the defenses open to the defendant under the constitution and statutes of Kansas (Howell v. Manglesdorf, 33 Kan. 194, 197, 5 P. 759; Bank v. Rindge, 57 F. 279; Wilson v. Coal Co., 43 Pa.St. 424) cannot be made in an action of debt. If, however, after the defendant has pleaded to the merits, or if upon trial, it should appear that the defendant's rights are jeopardized or unreasonably hampered by this form of action, it is believed that federal procedure is sufficiently elastic to allow the pleadings or the form of action to be so recast as to permit the rights of the parties to be presented and ascertained, and justice to be administered between them. It is not necessary to determine or examine at this stage of the proceeding the nature or extent of the defendant's defenses under this form of action. We only hold that a stockholder's relation to a Kansas corporation (Bullard v. Bell, 1 Mason, 243, Fed. Cas. No. 2,121; Hobart v. Johnson, 8 Fed. 493; Tabor v. Bank, 10 C.C.A. 429, 62 F. 383; Hawkins v. Glenn, 131 U.S. 319, 329, 9 Sup.Ct. 739; Glenn...