Mutual Fire Ins. Co. v. Phoenix Furniture Co.

• Decision Date: 31 December 1895
• Citation: 66 N.W. 1095,108 Mich. 170
• Court: Michigan Supreme Court
• Parties: MUTUAL FIRE INS. CO. v. PHOENIX FURNITURE CO.

66 N.W. 1095

108 Mich. 170

MUTUAL FIRE INS. CO. v. PHOENIX FURNITURE CO.

Supreme Court of Michigan

December 31, 1895

Error to circuit court, Kent county; William E. Grove, Judge.

Action by the Mutual Fire Insurance Company against the Phoenix Furniture Company. There was a judgment for plaintiff, and defendant brings error. Affirmed.

McGrath C.J., and Long, J., dissenting.

D. J Schuyler and Mark Norris, for appellee.

GRANT J.

After a full argument upon the rehearing of this cause, we are satisfied that we were in error in reversing the judgment. ^[1] The testimony was not returned, and the case is before us on findings of fact and law, to which no exceptions were taken. The sole question, therefore, is, do the facts found support the judgment? We held, in Insurance Co v. Merrill, 101 Mich. 393, 59 N.W. 661, that the defendants, under such a note, were not liable to an assessment for unearned or return premiums. That case would, of course, control this, unless the decree of the Illinois court is conclusive upon the courts of this state. The constitution of the United States declares that "full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state." Article 4, � 1. In the early case of Mills v. Duryee, 7 Cranch, 481, it was held that the decrees and judgments of the courts of one state were conclusive in the courts of sister states. This case has since been uniformly followed. Where a court has jurisdiction of the cause and of the parties, its judgment is conclusive in other courts, and the only remedy is by direct proceeding in the original cause. Hanley v. Donoghue, 116 U.S. 4, 6 S.Ct. 242; Cole v. Cunningham, 133 U.S. 111, 10 S.Ct. 269; Bonesteel v. Todd, 9 Mich. 371. It is conceded that as against the corporation itself, and the directors and officers thereof, the rule applies. It is, however, contended that it does not apply to a stockholder of such corporation who is not made a direct party to the original suit. That is the question in this case. We are not dealing with a case where a stockholder is interposing the defense of payment, or any other defense which was not passed upon in the original suit against the corporation. In such a case there is no judgment or decree of the court of a sister state which other courts must recognize. But the very point now urged as a defense was involved and determined by the Illinois court. This was an Illinois contract. These notes were choses in action, were first in possession of the company in Illinois, were turned over by it to the receiver, and were under the direct control of the Illinois courts. That court entered a decree, upon evidence placed before it, determining the amount of assets and debts, and the amount of the assessment necessary to liquidate its liabilities. If every stockholder may now contest this decree, the difficulty thus thrown in the way of an orderly and practical settlement of the affairs of the insolvent corporation is apparent. Different courts might adopt different rulings upon the amount of the assessment. We think the better doctrine is that each stockholder or member of the corporation is an integral part thereof, and is represented in such suit through the corporation itself, and that such decree is binding and conclusive upon him. Two courts have so held in regard to the case now under consideration. Rand, McNally & Co. v. Mutual Fire Ins. Co., 58 Ill.App. 528; Parker v. Mill Co. (Wis.) 64 N.W. 751. In the latter case two points were raised: First, that the receiver in Illinois could not sue in the courts of Wisconsin; and, second, that the assessment was inequitable and unjust, and hence should not be enforced. The distinction between the rights of property situated in other states, and those of choses in action, is there very clearly pointed out. Upon the first point the court say: "There is no question here of transfer of property in this state. No such transfer was attempted. The property in question-that is, the defendant's note and its liability to pay assessments-was in Illinois, at the office of the company. They were choses in action, and their situs was at the residence of the company." Upon the second point the court say: "If a judgment is conclusive in the state where rendered, it is conclusive here. The decree by which the assessment in question was made was undoubtedly conclusive on the members or policy holders of the defunct company, unless attacked in a direct proceeding, notwithstanding they were not present when it was rendered. We can come to no other conclusion than that we are bound, under the constitutional requirement of 'full faith and credit,' to hold that the decree making the assessment in question, being conclusive in Illinois upon all members and policy holders, unless attacked by direct proceeding, is conclusive here, and not open to collateral attack."

The point appears to be expressly decided in Hawkins v. Glenn, 131 U.S. 319, 9 S.Ct. 739. The proceedings in that case were substantially the same as in this. The defense was that the stockholder was not a party to the suit, that the cause of action was barred by the statute of limitations, that he was not responsible on 150 shares, and that interest should not have been allowed. The stockholder was sued in North Carolina. A decree had been rendered in a court of chancery in Virginia, which had ascertained the extent of the liabilities and assets of the corporation, and decreed the assessment required to pay its liabilities. The court held the decree conclusive, and, in deciding it, speaking through Chief Justice Fuller, say: "A stockholder is so far an integral part of the corporation that, in view of the law, he is privy to the proceedings touching the body of which he is a member,"-citing Sanger v. Upton, 91 U.S. 56. The same question was again before the court in Glenn v. Liggett, 135 U.S. 533, 10 S.Ct. 867, and the same conclusion reached, quoting from Hawkins v. Glenn. The same was held in Insurance Co. v. Langley, 62 Md. 211. The learned counsel for the defendant cite Chandler v. Brown, 77 Ill. 333, and Insurance Co. v. Gulick, 102 Ill. 41. These cases are distinguished from a case like the present in Telegraph Co. v. Gray, 122 Ill. 630, 14 N.E. 214. The two former cases were based upon a statute which provided that stockholders should be made parties to the suit. Rev. St. Ill. 1889, c. 32, �� 1-40. The decree of the Illinois court in this case was based upon an act in regard to the dissolution of insurance companies. Rev. St. Ill. 1889, c. 73, �� 103-111. This does not provide for any service upon or notice to the stockholders or members, but confers the entire jurisdiction in such cases upon the courts. Upon the question of notice to stockholders, see Wardle v. Cummings, 86 Mich. 400, 49 N.W. 212, 538. Mr. May, in his work on Insurance (vol. 2, � 557), says "the receiver of an insolvent corporation stands upon no better footing" than would the directors in making an assessment, and cites Jackson v. Roberts, 31 N.Y. 304; Embree v. Shideler, 36 Ind. 423.

If these decisions sustain the rule contended for, we could not follow them, as we think they are opposed to the clear weight of authority. The New York statute is clearly different from that in the present case. It reads as follows: "In case the corporation, in regard to which a receiver has been or shall hereafter be appointed, is or shall be a mutual insurance company, such receiver shall have full power under the authority and sanction of the court appointing him, to make all such assessments on the premium notes belonging to such corporation, as may be necessary to pay the debts of such corporation, as by the charter thereof of the directors of such corporation have authority to make; and the notice of such assessment may be given in the same manner as is provided in the charter of said company for the directors of said company to give; and the said receiver shall have the like rights and remedies upon and in consequence of the non-payment of such assessments, as are given to the corporation or the directors thereof by the charter of said corporation." Laws 1852, c. 71. It thus appears that the power of the receiver was expressly limited to the power of the board of directors, and to the modus operandi of collecting the assessments. In Embree v. Shideler, it appeared, upon the face of the complaint, that neither the receiver, nor the court to which he had reported his action, had examined and determined upon the validity of the claims against the company. This was expressly required by the charter of the company. It was therefore said that "the assessment is the act of the receiver, and in and with him is the authority to act in the premises." The decree in the present case was erroneous only in that it included some items which, under Insurance Co. v. Merrill, this court would have excluded. Judgments and decrees cannot be attacked collaterally because they include items which courts, other than those by whom they were rendered, might hold to be illegal. See Mor. Priv. Corp. � 822. The judgment must be affirmed.

MONTGOMERY and HOOKER, JJ., concurred with GRANT, J.

McGRATH C.J. (dissenting).

After reargument of this cause, I see no good reason for a change of opinion upon the main issue involved. The case presents two questions: First, whether the decree of the Illinois court is res adjudicata as to the amount of the assessment directed; and, second, whether we are bound, under the constitutional requirement of "full faith and credit," to regard that decree as conclusive.

1. There are a number of authorities which hold that, in a proceeding against a stockholder, under a statute which makes him liable to...