Ewald's v. City of Louisville , 192 Ky. 279 ( 1921 )

Opinion of the Court by

Judge Clay

— Reversing.

This is the sixth appeal of this ease. On the last appeal the judgment was reversed “with directions to the lower court to find (1) whether Ewald’s estate should be charged with taxes on the stock owned by him in the Ewald Iron Company; (2) if the court finds it should be, to assess, and fix a value on the same.” City of Louisville, Ky. v. Fidelity & Columbia Trust Co., Exor., etc., 182 Ky. 551, 206 S. W. 778. On the return of the case the court adjudged that Ewald’s estate was liable for taxes to the city of Louisville for the years 1904, 1905 and 1906, on the stock owned by Ewald in the Ewald Iron Company, and fixed the value of such stock for assessment purposes at $842,310.25 for the year 1904, $881,-246.70 for the year 1905, and $1,135,849.60 for the year 1906. From that judgment this appeal is prosecuted.

To understand the questions involved it will not be necessary to review the entire litigation, but the following facts will be sufficient: On September 1, 1903, 1904 and 1905, L. P. Ewald was a resident of the city of Louisville and owned all the stock of the Ewald Iron Company, a Kentucky corporation whose principal place of business was. in Lyon county, Kentucky.

For the years 1904, 1905' and 1906, the Ewald Iron Company paid taxes on all of its property except certain surpluses on deposit in the banks of St. Louis. These surpluses were as follows: September 1, 1903, $842,-310.25; September 1, 1904, $881,246.70; September 1, 1905, $1,135,849.60, and their taxable situs was in Lyon county.

L. P. Ewald died on July 31, 1909, and the Fidelity & Columbia Trust Company qualified as' his executor and trustee.

■ Section 4085, Kentucky Statutes, provides:

“The property of all corporations, except where herein differently provided, shall be assessed in the name of the corporation in the same manner as that of a natural person, except that, when legally called on, the chief officer shall report a full statement of the property of such corporation for taxation, and, for a failure, shall be subject to the penalties in this, article provided; and so long as said corporation pays the taxes, on all its property of - every kind, the individual stockholders shall not be required to list their shares in said corporation.”

The action by the city proceeds on the theory that Ewald was a resident of the city on the assessment dates for the years 1904,1905 and 1906, and as the corporation did not pay on its St. Louis deposits for those years, Ewald was therefore liable on his individual stock. Besides other defenses not necessary to be considered, the executor pleaded that the Commonwealth and Lyon county brought actions against the Ewald Iron Company in Lyon county styled “ J. F. Hahn, Revenue Agent for the State at Large v. Ewald Iron Company,” alleging that the Ewald Iron Company omitted certain property for taxation for the year's 1904, 1905 and 1906; that thereafter trials were duly had in the Lyon county court and it was adjudged that the Ewald Iron Company had omitted certain property owned by it as of the 1st day of September, 1903, the 1st day of September, 1904, and the 1st day of September, 1905; that judgments were entered against said Ewald Iron Company on account of said omissions, and thereafter said judgments were satisfied by the payment of said amounts to the Commonwealth of Kentucky and Lyon county, and that none of said judgments had ever been appealed from or vacated or modified in any way, and precluded the city from claiming that the Ewald Iron Company was liable for any further taxes for said years.

We have repeatedly held that the. omission of property from an assessment in a given year gives rise to only a single cause of action, and where an action has been brought to have property assessed and a judgment has been rendered therein, tíre judgment is conclusive, and an action. cannot afterwards be brought to assess other property omitted from the same assessment which was not embraced in the first action. Commonwealth v. Bacon, 126 Ky. 30, 102 S. W. 839; Commonwealth v. Churchill, 131 Ky. 251, 115 S. W. 189; Commonwealth v. Helm, 163 Ky. 69, 173 S. W. 389; L. & N. R. Co. v. Commonwealth, 181 Ky. 193, 204 S. W. 94. Under the statute above quoted, an individual stockholder is not liable on his stock so long as the corporation pays taxes on all its property, and we have ruled that where the taxing-authority seeks to hold the individual stockholder liable, it must affirmatively appear from the record that it first proceeded against the corporation. Commonwealth v. Steele, 126 Ky. 670, 104 S. W. 687; Commonwealth v. Fidelity Trust Co., 147 Ky. 77, 143 S. W. 1037; Slater v. Commonwealth, 166 Ky. 250, 179 S. W. 201; Commonwealth v. Muir, 170 Ky. 435, 186 S. W. 194. Here the Commonwealth proceeded ag-ainst the corporation and recovered certain judgments for taxes omitted for the years in question, and these judgments were paid. There can be no doubt, therefore, that if this were a proceeding by the Commonwealth itself to assess the'Ewald stock, it would be precluded by the judgments rendered by the Lyon county court from now insisting- that there was other property omitted by the corporation from assessment for the years in question, and that the corporation had not, therefore, paid on all of its property. It remains, then, to determine the effect of the judgment so far as the city is concerned. Under the rule of res judicata, a right, question or fact, distinctly put in issue and directly determined by a court of competent jurisdiction, cannot "be disputed in a subsequent suit between tbe same parties or tbeir privies; and even if tbe second suit is for a different cause of action, the right, question or fact, once so determined, must, as between the same parties or their privies, be taken as conclusively established so long as the judgment in the first suit remains unmodified. Stone v. Winn, 165 Ky. 9, 176 S. W. 933; Southern Pacific v. U. S. 168 U. S. 1, 42 L. Ed. 355. As neither Ewald nor the city was a party to the suits in which the judgments were rendered, the conclusiveness cf the judgments depends on whether or not they were privies. Privity may arise by representation. Thus, a judgment against a corporation is conclusive against its stockholders in an action to enforce their statutory liability to creditors; and it is also held that a judgment in a garnishment proceeding against a corporation is conclusive in an action against stockholders to reach assets wrongfully withdrawn, as to the fact of indebtedness. to the principal debtor and the amount thereof. Calloway v. Glenn, 105 Ky. 648, 49 S. W. 440; Otter View Land Co.’s Receiver v. Bolling’s Ex’x, 70 S. W. 834, 24 Ky. L. R. 1157; Farmers Bank v. Ohio River Line Steamboat Co., 108 Ky. 447, 56 S. W. 719; Montgomery v. Whitehead, 40 Colo. 320, 90 Pac. 509, 11 L. R. A. (N. S.) 230, 15 R. C. L. p. 1034. In Clark & M. Priv. Corporations, sec. 800, p. 2470, the rule is stated:

“It is a well settled rule that a judgment rendered by a court of competent jurisdiction is conclusive, in the absence of fraud or collusion, against the parties to the suit, and against all persons represented by the parties; and it is also well settled that a corporation represents its stockholders in all matters within the scope of its corporate powers transacted in good faith by its officers. In an action against a corporation by a creditor, the stockholder's, are represented by the corporation, within this principle; and it follows that the judgment rendered against the corporation therein, if the court has jurisdiction, is conclusive upon the stockholders, in the absence of fraud or collusion, in any collateral suits or proceedings against them, in equity or at law, to compel payment of the balance due on their stock.”

And in Cook on Corporations, section 209, it is stated:

‘ ‘ The ■ authorities have firmly established the rule that, in the absence of fraud and collusion, judgments against the corporation, if the court had jurisdiction, are conclusive against the stockholders, as to the validity and amount of the creditor’s claim.”

For a like reason it would seem that a judgment against a corporation for omitted taxles is. conclusive on the stockholder in a subsequent action to collect taxes on his individual stock, where his liability depends on whether or not the corporation has paid taxes on all of its property. The next question is whether the city was represented by the Commonwealth. The corporation did not owe the city any taxes whatever for the years in question. The only taxes claimed to be omitted were those due the Commonwealth. Therefore, the city could not proceed against the corporation. Whether, under the rule requiring the taxing authority first to proceed against the corporation,, it should have requested the Commonwealth to take such action, it is not necessary to decide. As a matter of fact, the Commonwealth, to which the corporation owed taxes for the years in question, if any were due, had the right to proceed and did proceed against the corporation and recovered the judgments in question. The city being but an arm and subdivision of the Commonwealth, and its right to collect on the Ewald stock being' secondary to the Commonwealth’s right to collect from the corporation, it seems to us that the city, though not a party to^ the actions, was represented by the Commonwealth, and that the judgments preclude not only the Commonwealth, but the city, from now insisting that the corporation omitted other property for the years in question.

The point is made that the doctrine should not be applied to the facts of this case because the sums recovered were insignificant in comparison with the taxes due. In reply to this contention it is sufficient to say that the doctrine of res judicata does not depend on the amount due, the amount sued for, or the amount recovered, but rests entirely on the principle that parties and privies ought not to be permitted to litigate the same issue more than once.

Another insistence is that the adoption of the rule in cases of this kind will put it in the power of the corporation and the tax collecting officers to defeat valid claims for taxes against the stockholders by the entry of fraudulent or collusive judgments. There need be no fear of this, however, because an examination of the authorities herein cited will show that the rule does not apply where the judgment was obtained by fraud or collusion.

The conclusion makes it unnecessary to discuss the other questions raised.

Judgment reversed and cause remanded with directions to dismiss the petition.