Ward v. Farwell

• Citation: 1881 WL 10440,97 Ill. 593
• Parties: SAMUEL D. WARD, Receiver, etc.v.JOHN V. FARWELL et al.
• Decision Date: 31 March 1881
• Court: Supreme Court of Illinois

97 Ill. 593

1881 WL 10440 (Ill.)

SAMUEL D. WARD, Receiver, etc.

v.JOHN

v. FARWELL et al.

Supreme Court of Illinois.

Filed at Ottawa Feb. 3, 1881.Rehearing denied March Term, 1881.

OPINION TEXT STARTS HERE

APPEAL from the Appellate Court for the First District;--heard in that court on appeal from the Circuit Court of Cook county; the Hon. W. W. FARWELL, Judge, presiding.

Messrs. HUTCHINSON & LUFF, and Mr. JOHN N. JEWETT, for the appellant:

The appointment of a receiver can not be questioned in a collateral proceeding. High on Receivers, sec. 203; Vermont and Canada R. R. Co. v. Vermont Central R. R. Co. 46 Vt. 792; Howard v. Whitman, 29 Ind. 557.

The primary object of the statute is to protect the rights of creditors and not to dissolve the corporation. Fay v. Erie and Kalamazoo Railroad Bank, Harrington, 194.

The right of creditors to proceed against stockholders promptly ought to be protected, and where a dissolution of a corporation is required to enable them to proceed against stockholders, no decree of dissolution is necessary. Acts of a corporation which destroy the end and object for which it was established, are equivalent to a surrender of its franchises, and for the purpose of enabling the creditors to sue, will work a dissolution of the company. Slee v. Bloom, 19 Johns. 456; Peniman v. Briggs, 1 Hopkins, 300; Briggs v. Peniman, 8 Cow. 387; Angell & Ames on Corp. sec. 773; 2 Kent's Com. 311, 312.

The appellant has no adequate remedy at law, and a suit in equity is the only proper form of action. The pro rata amount of liability can only be ascertained by a court of chancery. Railroad Co. v. Marseilles, 84 Ill. 646; Adler v. Milwaukee P. Brick Mfg. Co. 13 Wis. 57; Salmon v. Hamborough Co. 1 Cases in Ch. 204; Spear v. Grant, 16 Mass. 9; Briggs v. Peniman, 8 Cow. 387; Thompson's Liability of Stockholders, secs. 13-15.

The act under which the receiver was appointed does not require the stockholders to be made parties, and there is no rule of the common law or equity practice requiring notice to them. Upton v. Hansboro, 3 Biss. 426. The court, through its receiver, ascertained the amount of indebtedness of the company, which is fully set out in the bill, and is presumed to be correct, but the stockholders had ample opportunity to make objection to the allowance of the claims. They would now be allowed to show a mistake if they could, which would be corrected by the court, and until they can show that a mistake has been made, they are bound by the finding of the court. Howard v. Whitman, 29 Ind. 557; Hall v. U. S. Ins. Co. 5 Gilm. 484; Upton v. Hansboro, 3 Biss. 426; Payson v. Storer, 3 Dill. 422; Sanger v. Upton, 1 Otto, 58; Jackson v. Roberts, 31 N. Y. 304; Sands v. Hall, 42 Barb. 657.

The unpaid subscriptions and unpaid stock are a trust fund to be held for the benefit of creditors, and it can not be used or disposed of in any manner inconsistent with the purposes for which it is held. Sanger v. Upton, 1 Otto, 60; Sawyer v. Hoag, 17 Wall. 620; Curren v. State of Alabama, 15 How. 308; Briggs v. Peniman, 8 Cow. 387; Wright v. Petrie, 1 Sm. & Marsh. Ch. 282; Hightower v. Thornton, 8 Ga. 486; Payne v. Bullard, 23 Miss. 90; Adler v. Pat. Brick Co. 13 Wis. 460.

The stockholder can not be released from his liability to the creditors of the company until he makes a valid transfer of his stock, without paying the company a full consideration therefor. Osgood v. King, 42 Ia. 478; Roman v. Frey, 5 J. J. Marsh. 634; Steinhope's case,L. R., 1 Ch. App. 161; Marcy v. Clark, 17 Mass. 333; Tuckerman v. Brown, 33 N. Y. 297; Henderson v. Royal British Bank, 7 El. & Bl. 356; Wood v. Pierce, 2 Disney, 211; Gillett v. Moody, 3 N. Y. 479; Burnham v. U. M. Ins. Co. 36 Ia. 632.

The statute makes it the duty of the receiver to collect the assets. The unpaid subscriptions to the capital stock of the company are assets, and the injunction should have been granted. Sanger v. Upton, 1 Otto, 60; Calkins v. North Am. Lloyd, 2 Lansing, 12; Payson v. Stover, 2 Dill. 426; Rankin v. Elliot, 16 N. Y. 377; President, etc. v. President, etc. 23 Pick. 480.

At common law a corporation may be dissolved for a forfeiture. It is well settled that it is a tacit condition of a grant of incorporation that the grantees shall act up to the end or design for which they were incorporated, and hence, through neglect or abuse of its franchises, may forfeit its charter, as, for a condition broken, or for a breach of trust. Angell & Ames on Corp. sec. 774; Commonwealth v. Union Ins. Co. 5 Mass. 230; State Bank v. State, 1 Blackf. 279; Commonwealth v. Commercial Bank of Pennsylvania,28 Pa. St. 383.

If a corporation so manages its affairs as to be in a condition which renders its further continuation in business hazardous to the insured, then the State has the right to proceed against it for the neglect or abuse of its franchises, and its charter may be forfeited for conditions broken. This is a common law ground of forfeiture.

The common law remedy was by writ of scire facias or quo warranto. The remedy, however, may be changed by the legislature, and the act of 1874 only affects the remedy. 3 Parsons on Contracts, 552; Cooley's Const. Lim. (1st ed.) 359; Richardson v. Egan, 87 Ill. 138; Wood v. Child, 20 Id. 209; Tennessee v. Sneed, 6 Otto, 69.

The general doctrine of the right of the legislature to pass general laws to regulate corporations in the exercise of their franchises, so as to protect the public from their insolvency, and a misuse of their franchises, has been affirmed in this and other States. Railroad Co. v. Loomis, 13 Ill. 548; Munn v. People, 69 Id. 80; Fertilizing Co. v. Hyde Park, 7 Otto, 659; Sinking Fund Cases, 9 Otto, 718; Rodney v. State, 4 Sm. & Marsh. 439.

Mr. FRANCIS H. KALES, for the appellees:

The act of 1874 is unconstitutional as against companies organized under special charters prior to the new constitution. It attempts to deprive courts of law of their customary and constitutional jurisdiction, and to confer it on courts of equity. Constitution of 1848, art 13, secs. 6 and 8; Constitution of 1870, art. 2, secs. 2 and 5; Baker v. Backus, 32 Ill. 97; Angell & Ames on Corp. secs. 774-778; Field on Corp. 554; 2 Potter on Corp. sec. 712; Penn v. Holme, 21 How. 481; Hepp v. Babier, 19 Id. 271.

The act attempts to deprive stockholders of a corporation of their liberties and franchises without trial by jury. Section 9 of the act of 1874; Angell & Ames on Corp. secs. 774-778; Cooley's Const Lim. (4th ed.) p. 513, note 6; Haines v. Levin,51 Pa. St. 512; People v. Cicott, 16 Mich. 283.

The act impairs the obligation of the charter contract between the State and the company. Sec. 1 of the Charter; sec. 1 of the act of 1874, p. 4; Cooley's Const. Lim. 348; Dartmouth College v. Woodward, 4 Wheat. 418; McCracken v. Hayward, 2 How. 612; Palairet's Appeal,67 Pa. St. 479.

If the act of 1874 is valid, still the present bill is prematurely brought. The matter has never yet reached that stage when the circuit court could lawfully appoint a receiver.

It is well settled that where stockholders may be personally liable, a judgment against the corporation alone is not sufficient of itself to charge the stockholders on account of individual liability. Chandler v. Brown, 77 Ill. 333; Witherhead v. Allen, 3 Keyes, 562; Hewitt v. Adams, 50 Me. 271; Wiswall v. Starr, 48 Id. 401; Atwood v. R. I., etc., 1 R. I. 376.

Courts of equity have no jurisdiction to try the liability of stockholders of a corporation when it is imposed by the charter. Phil. Fire Ins. Co. v. Cent. Nat. Bank, etc. 1 Bradw. 344; Lamar Ins. Co. 84 Ill. 575.

Mr. JOHN EVANS, and Mr. DAVID H. MOFFITT, also for the appellees:

The record does not show such performance of the requirements of the statute as will enable the receiver to maintain the suit. Smith v. Huckaby, 53 Ala. 191; Chandler v. Brown, 77 Ill. 373; Supervisors, etc. v. People, 7 Hill, 513; City Ins. Co. v. Commercial Bank, 68 Ill. 348.

The complainant has an adequate and complete remedy at law, and a bill in equity will not lie. Adler v. Milwaukee P. Brick Mfg. Co. 13 Wis. 57; Freeman v. Winchester, 18 Miss. 577; High on Receivers, secs. 207 and 204; Upton v. Hansborough, 3 Biss. 417; Sanger v. Upton, 1 Otto, 56; Kennedy v. Gibson, 8 Wall. 505; Tobey v. Russell, 9 R. I. 58; Mann v. Pence, 3 N. Y. 415; Herron v. Vance, 17 Ind. 595; Price v. Grand Rapids etc. R. R. Co. 18 Ind. 137; Culver v. Third Nat. Bank, 64 Ill. 568; Winans v. McKean R. R. & N. Co. 6 Blatch. 215; Lamar Ins. Co. v. Moore, 84 Ill. 575; Hall v. U. S. Ins. Co. 5 Gilm. 485.

Messrs. HOLMES, RICH & NOBLE, for the appellee Wm. T. Allen.

Mr. FRANK J. CRAWFORD, for the appellees Bowen et al.

Mr. G. A. FOLLANSBEE, for the appellee Geo. Bowers.Messrs. JONES & PALMER, for the appellees:

The bill was multifarious, and prayed for different kinds of relief as against different classes of defendants. Phil. Fire Ins. Co. v. Central Bank, 1 Bradw. 344; Baker v. Backus, 32 Ill. 79.

Dissolution, in the absence of a statute conferring jurisdiction on a court of equity, is one for the sole determination of a court of law. 2 Wait's Actions and Defenses, 350; 2 Potter on Corp. sec. 719; Angell, sec. 778.

Call must be made. Lamar Ins. Co. v. Moore, 84 Ill. 575; Gibbart v. Indiana R. R. Co. 12 Ind. 484; McClosky v. Grand Rapids & Ind. R. R. Co. 16 Id. 96; Ross v. Lafayette and Indianapolis R. R. Co. 6 Id. 297; Chandler v. Keith, 42 Ia. 99; Trumbull v. Payson, 5 Otto, 420; Chandler v. Siddle, 3 Dill. 477. Calls, how made. Receiver should have done so in the original, and averred the facts in his petition. Chandler v. Keith, 42 Ia. 99; Trumbull v. Payson, 5 Otto, 418; Sanger v. Upton, 1 Id. 56; Payson v. Stover, 2 Dill. 427; Bailey v. Sanger, 4 Id. 463; Pullman v. Upton, 6 Otto, 328; Howard v. Whitman, 29 Ind. 557; Embree v. Shideler, 36 Id. 423; Tobey v. Russell, 9 R. I. 58; Bangs v. McIntosh, 23 Barb. 591; Upton v. Hansborough, 3 Biss. 417; New Orleans Gas Light Co. v. Bennett, 6 La. An....