National Park Bank v. Peavey

• Citation: 64 F. 912
• Decision Date: 13 December 1894
• Docket Number: 3,567.
• Parties: NATIONAL PARK BANK v. PEAVEY.
• Court: U.S. District Court — Southern District of Iowa

64 F. 912

NATIONAL PARK BANK v. PEAVEY.

No. 3,567.

United States Circuit Court, S.D. Iowa, Central Division.

December 13, 1894

Chas A. Clark, for plaintiff.

Cummins & Wright, for defendant.

WOOLSON District Judge.

The petition alleges that in September, 1893, plaintiff recovered judgment in the district court of Woodbury county, Iowa against the Sioux City Street-Railway Company (a corporation for pecuniary profit, organized under the laws of the state of Iowa), for $40,611.02; that said judgment was based upon certain promissory notes executed by said company, which had been purchased and discounted by plaintiff; that general execution was issued upon said judgment, and duly placed for service in the hands of the sheriff of said Woodbury county within which county said company had its principal place of business, and has been by said sheriff returned, indorsed 'No property found'; that said company is in fact insolvent, and has no property or assets whatever from which said judgment can be collected on execution; that defendant at the time of the execution of said promissory notes and the rendition of said judgment, owned and held, and still owns and holds, 2,744 shares, of the par value of $100 each, of the capital stock of said company, upon which neither defendant nor any other person ever paid into the treasury of said company any sum or sums of money whatever, and no part of said shares have been paid up, and there remains unpaid on said shares an amount in excess of plaintiff's said judgment. The last paragraph of the petition is as follows:

That all of said shares of stock of the Sioux City Street-Railway Company, so as aforesaid issued to the defendant, and so as aforesaid owned and held by him, purported to be full-paid capital stock of said railway company, and thus and thereby, by reason of the action of defendant in receiving and holding said shares of capital stock as aforesaid, the Sioux City Street-Railway Company, apparently and in semblance, possessed money or property to the amount and value of two hundred and seventy-four thousand dollars, by reason of said shares of capital stock issued to the defendant, and owned and held by him, all of which apparent capital in money or property of said company was false, nonexistent, fictitious, and fraudulent, by reason of the fact that the said defendant never paid in any sum, amount, or value whatever for his said shares of capital stock in the said corporation, and was a fraud upon this plaintiff; that, by means of the premises, plaintiff is entitled to recover from the defendant the amount of its said judgment against the said company, together with interest and costs and the costs of this suit.

To the petition, defendant assigns as grounds of demurrer: (1) The relief herein prayed can only be granted in equity; (2) this court has no common-law jurisdiction to render a judgment at suit of one creditor against a stockholder for alleged balances due from such stockholder on his shares of stock; (3) no assessment is shown to have been made on defendant's shares of stock; (4) there is a defect of parties,-- the other stockholders and all creditors and the said Sioux City Street-Railway Company being necessary parties hereto.

It will be observed that the last paragraph of petition, copied in full above, apparently sustains no close relation to that part of the petition which precedes it. Defendant claims that this paragraph proves this action is 'not an action to recover unpaid assessments on shares of stock, or unpaid balances due thereon,' but that the action is 'in the right of the creditor seeking to show that the proceedings by which the issuance of the stock as fully paid up operated as a fraud on him, of which he can complain; an action wherein plaintiff seeks to show a liability on part of defendant,-- that the sum due from him is a trust fund, which the plaintiff, as a creditor, can reach. ' And thereupon defendant claims that the action must be brought in equity; that is, must be so brought as that the court will compel plaintiff to bring in the corporation and the other stockholders, to the end that the entire matter of unpaid stock may be determined, and each stockholder compelled to bear his due and proper portion of the outstanding indebtedness. If the character of the action is to be determined solely from the closing paragraph of petition, and without reference to the Iowa statute, the argument of defendant must have great force. But such was not the theory of counsel for plaintiff or defendant at the oral argument. The theory on which argument then proceeded was that the action was brought to recover at law judgment against defendant because of his being the owner and holder of unpaid stock,-- an amount sufficient to discharge plaintiff's said judgment. Apparently there are two causes of action attempted to be set up. An examination of the Iowa statute may assist here. Sections 1632-1635, McClain's Iowa Code, are as follows:

1632. Neither anything in this chapter contained, not any provisions in the articles of incorporation, shall exempt the stockholders from individual liability to the amount of the unpaid instalments on the stock owned by them, or transferred by them for the purpose of defrauding creditors, and execution against the company may, to that extent, be levied upon the private property of any such individual.

1633. In none of the cases contemplated in this chapter, can the private property of the stockholders be levied upon for the payment of corporate debts, while corporate property can be found with which to satisfy the same; but it will be sufficient proof that no property can be found, if an execution has issued on a judgment against the corporation, and a demand has been made thereon of some one of the last acting officers of the body for property on which to levy, and if he neglects to point out any such property.

1634. Before any stockholder can be charged with the payment of a judgment rendered for a corporate debt, an action shall be brought against him, in any stage of which he may point out corporate property subject to levy; and upon his satisfying the court of the existence of such property, by affidavit or otherwise, the cause may be continued or execution against him stayed, until the property can be levied upon and sold, and the court may subsequently render judgment for any balance which there may be after disposing of the corporate property; but, if a demand has been made as contemplated in the preceding section, the costs of such action shall in any event, be paid by the company or the defendant therein, but he shall not be permitted to controvert the validity of the judgment rendered against the corporation, unless it was rendered through fraud or collusion.

1635. When the private property of a stockholder is taken for a corporate debt, he may maintain an action against the corporation for indemnity, and against any of the other stockholders for contribution.

It will no doubt be conceded the pleader has sought to draft the petition, except the closing paragraph, with the intent to bring himself within the sections just quoted. Section 1621, McClain's Iowa Code, is as follows:

1621. Intentional fraud in failing to comply substantially with the articles of incorporation, or in deceiving the public or individuals in relation to their means or liabilities, shall subject those guilty thereof to fine and imprisonment, or both, at the discretion of the court. Any person who has sustained injury from such fraud, may also recover damages therefor against those guilty of participating in such fraud.

The pleader, in the closing paragraph of petition, apparently had in mind the section last quoted, and sought to bring himself within its terms. So that, instead of the paragraph serving the purposes suggested by defendant's counsel, it is brought at law, as a new and distinct cause of action, and should be numbered as such. The main argument of defendant's counsel is aimed at that part of petition which precedes this closing paragraph. I will, therefore, for convenience, and with a view to brevity, hereafter speak of such part as the 'petition.'

The energy and ability with which counsel have presented their views, and the exhaustive research shown in the briefs submitted, compel at the hands of the court a fuller and more lengthy statement of the views which control the decision herein reached than might otherwise be deemed necessary.

The first two grounds of demurrer, as above stated, may profitably be considered together. Defendant claims that even though the action herein proposed might, under the decisions of the supreme court of Iowa, be maintained at law in the state courts of Iowa, yet it cannot be so maintained in this court. Assuming, then, that an action at law would lie in the state courts, let us examine the matter as applied to the federal courts. We are cited to various cases decided by the supreme court of the United States, wherein has been considered how far the federal courts are bound by and follow the state courts in actions against stockholders in corporations. We may suggest that these cases relate to two distinct classes of liability of stockholders, and that, unless we keep in mind this distinction, we are liable to draw incorrect conclusions as to what has been actually decided by the supreme court. One of these classes is the liability which is created by statutory enactment, as, for instance, where the statute provides that each stockholder shall be liable, to the par value of stock held by him, for indebtedness of the corporation, or liable for the debts of the corporation, until a certificate is filed with the proper officers (named in the statute), showing entire amount of...