Powell v. Oregonian Ry. Co.

• Decision Date: 18 March 1889
• Parties: POWELL v. OREGONIAN RY. CO.
• Court: U.S. District Court — District of Oregon

38 F. 187

POWELL v. OREGONIAN RY. CO.

United States Circuit Court, D. Oregon.

March 18, 1889

Syllabus by the Court

A judgment against a corporation for the recovery of money is conclusive evidence, in a suit against a stockholder for the collection of said judgment, of the existence of the corporation, and its liability to plaintiff therein, as thereby determined; and such judgment, whether given in an action ex contractu or ex delicto, is thereafter an indebtedness of the corporation for which a stockholder is liable to the amount due on his stock.

In a suit to collect a judgment against an insolvent corporation from a stockholder thereof, the statute does not commence to run against the judgment creditor and in favor of the stockholder until the entry of the judgment.

A. L Frazer, for plaintiff.

Earl C Bronaugh, for defendant.

DEADY J.

This suit is brought to collect from the defendant a judgment obtained by the plaintiff on April 8, 1887, against the Dayton, Sheridan & Grand Ronde Railway Company, for the sum of $5,300.

The defendant is sued as the holder of 1,000 shares of stock of said corporation, since February 27, 1884, on which there is due and unpaid the sum of $39,000; and it is alleged in the bill that these are the only shares of the stock on which anything is due.

The case was before this court on December 8, 1888, (36 F. 726,) on a demurrer to the bill, when it was held that a judgment obtained against an Oregon corporation for permissive waste constituted an 'indebtedness' of such corporation within the purview of article 11, Sec. 3, of the constitution of the state, for which a stockholder therein is liable thereunder to the amount of his unpaid stock.

In Ladd v. Cartwright, 7 Or. 329, it was held by the supreme court of the state that a creditor of a corporation cannot proceed against a stockholder to subject any unpaid balance on the latter's stock to the payment of his claim in the first instance. But he must exhaust his remedy at law against the corporation, when he may proceed in equity against all the delinquent stockholders, where the rights of all parties may be adjusted in one suit. See, also Patterson v. Lynde, 105 U.S. 519, 1 S.Ct. 432; Pollard v. Bailey, 20 Wall. 520.

On the overruling of the demurrer, the defendant had leave to answer the bill. The answer is excepted to for impertinence. The exceptions include the greater part of the pleading.

In and by the matter excepted to, the defendant alleges in effect: (1) That the Dayton, Sheridan & Grand Ronde Railway Company was dissolved, and not in existence on January 29, 1887, when the action was commenced, in which the judgment sought to be enforced was obtained, and therefore the latter is void. (2) That the cause of such action was a claim for damages sounding in tort, and not an 'indebtedness' for which a stockholder may be liable to a creditor of the corporation; and (3) that the cause of suit is barred by the lapse of time.

In support of the averment that the judgment is void it is alleged in the answer that on January 8, 1879, the Dayton, Sheridan & Grande Ronde Railway Company being insolvent, the Wallamet Valley Railway Company proposed to purchase its road and property, and that the stockholders of the former corporation, at a meeting thereof held on February 15, 1879, accepted such proposition, and authorized the directors thereof to dispose of the property accordingly, which they did on June 2, 1879; and said stockholders at said meeting also passed a resolution to the effect that, upon the transfer of its road and property being made, to the Wallamet Valley Railroad Company, as aforesaid, 'this company do stand dissolved.'

In the action in which this judgment was obtained the defense was made that the Dayton, Sheridan & Grand Ronde Railway Company was dissolved and non-existent. But it appears that the trial court ruled otherwise, and on an appeal to the supreme court the ruling was affirmed. Powell v. Railway Co., 16 P. 868. I am unable to see why this is not an adjudication of the question, and one that is binding on this defendant. The general rule on this subject is that a stockholder is in privity with the corporation, and cannot collaterally question a judgment against it, except for fraud or want of jurisdiction. Thomp. Liab. Stockh. Sec. 329. And although it may be that a valid judgment cannot be given against a dissolved or dead corporation any more than against a dead man, yet where the existence of the corporation is put in issue, and contested, and determined in favor of such existence, certainly the stockholder is bound by the result. It may be that where a judgment is obtained by default against an alleged corporation, which is in fact defunct, and the same is sought to be enforced against a stockholder,& he may contest the existence of the corporation as a defense to the suit.

It seems that this question has been decided otherwise, and I may say everywise, in New York; but in Stephens v. Fox, 83 N.Y. 313, the court of appeals appears to have wheeled into line with the current of judicial decisions, and holds that in a proceeding by a creditor of the corporation against a stockholder thereof, a judgment against the corporation is competent evidence of the plaintiff's status as a creditor thereof, and the amount of his claim. In other words, the judgment not only concludes the corporation on the question of indebtedness to the creditor therein, but also establishes the title of the creditor to succeed to the right of the corporation, namely, to have the balance due on the stock applied on his demand.

But as a matter of fact, the Dayton, Sheridan & Grand Ronde Railway Company does not appear ever to have been dissolved. True the stockholders declared that it should 'stand dissolved' on a given contingency, which actually happened, namely, the transfer of its road to the Wallamet Valley Railway Company. But the power of stockholders is limited by the corporation act to the mere authorizing a dissolution; and in and of themselves they have no such power. Section 3225, Comp. 1887, declares that from the first meeting of the directors of a corporation the powers vested therein are exercised by them, except as otherwise specially provided. Section 3235 (Id.) provides that the stockholders may, by a majority vote of the stock, 'authorize the dissolution' of the corporation; but they are not empowered to declare or...