Western Nat Bank of New York v. Reckless

• Decision Date: 03 August 1899
• Citation: 96 F. 70
• Parties: WESTERN NAT. 0bank OF NEW YORK v. RECKLESS.
• Court: U.S. District Court — District of New Jersey

96 F. 70

WESTERN NAT. 0bank OF NEW YORK v. RECKLESS.

United States Circuit Court, D. New Jersey.

August 3, 1899

William M. Lanning, for plaintiff.

William H. Vredenburgh, for defendant.

GRAY Circuit Judge.

This case stands upon a demurrer to the first two counts of plaintiff's declaration, and is submitted to the court on written arguments of counsel, which fully and ably discuss the points raised. For the purposes of this opinion, the facts set forth in the declaration may be summarized as follows:

The Western National Bank of New York, the plaintiff in the case is a corporation of that state, and for the purposes of jurisdiction a citizen thereof; and Catharine P. P. Reckless the defendant, is a citizen and resident of the state of New Jersey. It is averred that the plaintiff in February, 1892 became a creditor of the Western Farm Mortgage Trust Company of the state of Kansas, in the sum of $25,000, which indebtedness was evidenced by a judgment recovered against the said Western Farm Mortgage Trust Company in the supreme court of the state of New York. Judgment was afterwards obtained in Kansas, upon a suit brought there upon the aforesaid judgment by the plaintiff thereof, less certain sums deducted on account of credits of the Kansas company on the books of the plaintiff. The Western Farm Mortgage Trust Company was incorporated in 1887, under the provisions of the statutes in that behalf, in the state of Kansas, and organized and did business as such corporation in that state. The second section of article 12 of [96 F. 72] the constitution of Kansas, then and ever since in force provides as follows:

'Dues from Corporations. 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.'

Section 32 of a statute of the state of Kansas (Gen. St. 1868, p. 198), as then and ever since existing, provides as follows:

'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 on 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.'

And the plaintiff avers that said provisions of the constitution and statutes of Kansas have been so in force in said state ever since a time prior to said incorporation of the said the Western Farm Mortgage Trust Company. Plaintiff also alleges that the liability imposed on stockholders, under and by the provisions of the constitution and statutes of Kansas, is, and has been by the court of last resort of said state construed to be, a contractual, and not a penal, liability. On the assumption of such contractual liability, the present suit is brought, and the logical and technical averments are made of the promise on the part of the defendant, in consideration of such liability, to pay, etc. It is alleged that defendant became a stockholder prior to the contraction of this debt to the plaintiff, and before it was reduced to judgment. It is also averred that an execution has been issued against the Kansas company, and returned nulla bona. The only other counts are common counts. To the two counts which substantially set forth the facts above stated, the defendant demurs generally, specifying the causes of demurrer as follows:

'(1) Because the supposed liability of a stockholder under the constitution and statutes of the state of Kansas, set forth in the said counts, respectively, is not such as can be enforced in an action at common law by a judgment creditor of said corporation in any of the courts of the state of New Jersey, or of the United States for the district of New Jersey. (2) Because by the statute of the state of New Jersey approved March 30, 1897 (Laws 1897, p. 124), entitled 'A supplement to an act entitled 'An act concerning corporations' (Revision, 1896), approved April twenty-first, one thousand eight hundred and ninety-six,' which statute took effect on the 30th day of March, A.D. 1897, and enacted that 'no action or proceeding shall be maintained in any court of this state against any stockholder, officer or director of any domestic corporation for the purpose of enforcing any statutory personal liability of such stockholder, officer or director, for or upon any debt, default or obligation of such corporation, whether such statutory personal liability be deemed penal or contractual, if such statutory personal liability be created by or arise from the statutes or laws of any other state or foreign country,' and that no action or proceeding shall be maintained in any court of law in this state against any stockholder, officer or director of any domestic or foreign corporation by or on behalf of any creditor of such corporation to enforce any statutory personal liability of such stockholder, officer or director for or upon any debt, default or obligation of such corporation, whether such statutory personal liability be created by or arise from the statutes or laws of any other state or foreign country, and no pending or future action or proceeding to enforce any such statutory personal liability shall be maintained in any court of this state other than in the nature of an equitable accounting for the proportionate benefit of all parties interested, to which such corporation and its legal representatives, if any, and all of its creditors and all of its stockholders shall be necessary parties,' the maintenance of a common-law action and of the present action to enforce the supposed liability set forth in said counts, respectively, is prohibited in the courts of the state of New Jersey, in consequence whereof no such action can be maintained in a court of the United States for the district of New Jersey. (3) Because the several undertakings and promises of the said defendant set forth in said counts, respectively, are, and each of them is, without consideration and void.'

We must assume the correctness of the statements in the declaration, in consideration of this demurrer, that under the Kansas constitution and laws, and the construction put upon them by the count of last resort in that state, an action at law by a single judgment creditor lies against a single stockholder to enforce the liability created and provided for by said constitution and laws of said state. The correctness of this statement is, moreover, established by an examination of the said provisions of the constitution and laws of that state, and of the decisions of the supreme court as to their construction. See Grund v. Tucker, 5 Kan. 70; Hentig v. James, 22 Kan. 326; Howell v. Manglesdorf, 33 Kan. 194, 5 P. 759; Abbey v. Dry-Goods Co., 44 Kan. 415, 24 P. 426. It is too late now to question the proposition that an action to enforce a liability thus created by, or existing under and by virtue of, the statute law of a state, is transitory in its nature, and may be maintained in the courts of another state, or (where diverse citizenship exists) in a federal court in another state, against a stockholder who resides there. Indeed, it is not understood that any question as to this proposition is made by the defendant's counsel. It is abundantly supported by the authority of many late cases, both state and federal. The supreme court of the United States, in Dennick v. Railroad Co., 103 U.S. 11, 18, by Mr. Justice Miller, states the doctrine thus clearly:

'Whenever, by either the common law or the statute law of a state, a right of action has become fixed, and a legal liability incurred, that liability may be enforced, and the right of action pursued, in any court which has jurisdiction of such matters, and can obtain jurisdiction of the parties.'

See, also Flash v. Conn. 109 U.S. 371, 3 Sup.Ct. 263; Railroad Co. v. Cox, 145 U.S. 593, 605, 12 Sup.Ct. 905; Railroad Co. v. Babcock, 154 U.S. 190, 197, 14 Sup.Ct. 978; Bank v. Rindge, 57 F. 279; McVikar v. Jones, 70 F. 754; Bank v. Whitman, 76 F. 697; Id., 28 C.C.A. 404, 83 F. 288; Rhodes v. Bank, 13 C.C.A. 612, 66 F. 512, 516; Mechanics' Sav. Bank v. Fidelity Insurance, Trust & Safe-Deposit Co., 87 F. 113; Dexter v. Edmands, 89 F. 467; Cook, Corp. Sec. 223; Mor. Priv. Corp. Sec. 872.

Unless therefore, the statute of New Jersey of 1897, set out in the causes od demurrer above, presents a bar to the present action, it must be held that such an action at law for damages for a breach of contract, under the provisions of the Kansas statute lies against the defendant individually. The action being transitory, the plaintiff comes into the state of New Jersey clothed with its right to pursue the defendant for a breach of the contract, if she can be brought within the jurisdiction of the courts of that state, or, inasmuch as the citizenship is diverse, if she can be brought within the jurisdiction of the federal court in that state. The sole question, therefore, that remains to be determined upon this demurrer, is, does the said act of New Jersey of 1897 depr...