Great Western Telegraph Co. v. Barker

Mb. Justice Cartwright

delivered the opinion of the Court.

The declaration in this case is the same in substance as the one which we held subject to demurrer in Bennett v. Great Western Telegraph Co., for use, etc., 53 Ill. App. 276. From its allegations it appears that a suit in equity was commenced in 1869, against plaintiff by some of its stockholders; that the other stockholders, among whom was defendant, were not made parties because impracticable; that a receiver was appointed on account of mismanagement and malfeasance of the officers of plaintiff and by consent and stipulation of the plaintiff and the other parties to said suit; that under orders of court entered in said suit, certain creditors of plaintiff proved claims against it; that a decree was entered finding that some subscribers for stock had paid in full $25 for each share, some had paid $10, and some fifty cents on each share, and assessing thirty-five per cent on all who had not paid in full, regardless of what they had paid, and that defendant was one of those who had paid $10 on each share subscribed for by him.

The contract of defendant set out in the declaration only bound him to contribute ratably to the payment of the debts of the corporation. 1 Morawetz on Priv. Corp., Sec. 154; Cook on Stock and Stockholders, Sec. 114.

The contract was to pay at such times and in such amounts as the directors from time to time might order, and under such a contract the subscriber does not become liable to pay anything until a valid call or assessment has been made. Cook on Stock and Stockholders, Sec. 105; Banet v. A. & S. R. R. Co., 13 Ill. 504; Spangler v. I. & I. C. Ry. Co., 21 Ill. 276. The assessment was shown by the declaration to have been made in violation of defendant’s contract, and to have been such that if made by the directors under the terms of the contract it would have been void, and created no liability on his part to pay. It is claimed, however, that he can make no defense under his contract because he was represented in fixing his liability by the corporation which was the other party to his obligation, and which therefore represented both sides of the contract in the suit in equity, and that while Terwilliger and other of his fellow stockholders were obtaining an assessment the plaintiff was his representative in making defenses against it.

Plaintiff in error claims that in the case of Bennett v. Great Western Telegraph Co., supra, we misconstrued the decision of the Supreme Court in Great Western Telegraph Co. v. Gray, 122 Ill. 630, and that our decision was against the weight of authority. We were not unmindful at that time that there were decisions in support of the doctrine of representation to the extent contended for, but none were cited, and as we then regarded and still regard the Gray case as an authority in support of our decision it did not seem necessary to call attention to such decisions. Some cases on that subject are now referred to, but perhaps more to the purpose of counsel than any that have been cited, and directly supporting his claim is the case of Lycoming Fire Ins. Co. v. Langley, 62 Md. 196.

In the case of Glenn, Trustee, v. Williams, 60 Md. 93, which is cited by counsel and also by the Supreme Court in the Gray case, among the defenses to the assessment was the fact that the stockholders were not parties as individuals to the suit in Virginia and had no opportunity to defend against the establishment of debts against the corporation which they were assessed to pay, and it was held that they were represented in their corporate capacity by the president and directors, who were intrusted with the management of the corporate interest of all the stockholders. The stockholders were held to be concluded as to such debts the same as they would be in any ordinary action against the corporation to establish and recover a debt, and not entitled to set up the statute of limitations against the claims so established, because it was for the corporation to decide whether that statute should be resorted to as a defense against them. It was also held, as in the Gray case, that the statute of limitations did not begin to run against the cause of action on the subscription until the call was made. We see nothing in that case conflicting with our decision. But in the case of Lycoming Fire Ins. Co. v. Langley, supra, it was held that the defendant was barred from his personal defense under his contract. That was a suit for the use of a receiver against a Maryland policy holder to recover two assessments on his premium note. One was made by the directors before the receiver was appointed, and the other by the receiver under an order of a court in Pennsylvania. It was held to be error to instruct that if the receiver, in making his assessment, failed to assess the premium notes in force during a certain period, for losses and incidental expenses occurring and accruing during the period, the plaintiff could not recover, and it was decided that the defendant, as a policy holder, and consequently member of the Mutual Insurance Company, was in contemplation of law before the Pennsylvania court, and that the order of that court was a conclusive determination what notes should be assessed and the amount he was liable to pay on his contract.

The Supreme Court of this State, in the Gray case, referred to Glenn v. Williams, 60 Md. 93, as an authority on the doctrine of representation, but made no reference to the insurance case. The case of Sanger v. Upton, 91 U. S. 56, was also cited in the Gray case with approval. In that case the order was to pay the unpaid balances of the stock subscriptions, and the assessment was just such as could be legally made by directors under the contracts of subscription. It was held not necessary that the stockholders should be before the court when it made the assessment, and the only question personal to the appellant, Mary E. Sanger, was whether she owned the stock, which was decided against her on the ground that she was estopped to deny her ownership.

Plaintiff in error also relies upon the cases of Hawkins v. Glenn, 131 U. S. 329, and Glenn v. Liggett, 135 U. S. 543. In those cases the call was for thirty per cent of the subscriptions, and it clearly appears would have been binding if made by the officers of the corporation. In the first mentioned case the court said:

“ But it is said that a binding assessment can not be levied without the presence of the stockholders or service of process or notice upon them. Under the charter of this company a call could only be made by the president and directors and was a corporate question merely, and in the situation of the company’s affairs it was a duty to make it, failing the discharge of which by the president and directors, creditors could set the powers of a court of equity in motion to accomplish it. Executing in that regard a corporate function for a corporate purpose, it is difficult to see upon xvhat ground it could be held that the court could not order an assessment operating upon stockholders, who would be bound if the president and directors had ordered it.”

These cases recognize the doctrine that the court in making an assessment is exercising a corporate function within the limits of a corporate power. The language used is similar to that employed by the Supreme Court in the Gray case. The latter case as before stated we regard as an authority that a stockholder is not barred of his personal defenses in such a case. One of the points in that case was that the claim was barred by the statute of limitations, and this was treated as a good defense if the statute had run, but it was held that the cause of action accrued at the date of the assessment and that it had not commenced to run when the assessment was made. There was evidently no claim that the statute had run after the assessment which had been recently made. If the order of assessment concluded Gray it did so as to any defense he might have had under that statute equally with all others. The Supreme Court held no such doctrine, but disposed of that defense on other grounds.

The case of Ward v. Farwell, 97 Ill. 593, was there cited, and in that case it was held that the stockholders, simply as stockholders, were not necessary parties; but if the object was to charge them personally on account of corporate property or to obtain any relief against them with respect to it, they would be proper and necessary parties.

■ It was decided that Gray could not question, collaterally, the appointment of a receiver of corporate assets in which his interest was the equity of a stockholder because he was represented in bis interest as such stockholder by the presence of the corporation. But as to the order of assessment he was not before the court, and it was held not necessary that he should be there at all, because it was not necessary that he should be before the directors when they were making calls. There is no intimation that the payee of his obligation was representing him in his individual capacity as a party to the contract.

The purpose of this suit is to recover from defendant, assets, which it is alleged he is withholding from the plaintiff. As regards creditors, there is no distinction between a demand against a stockholder on his subscription and any other assets which may form a part of the property of the corporation. Sanger v. Upton, sufra; Hawkins v. Glenn, sufra. If the consideration of defendant’s promise had not been stock, but it had rested on some other consideration, ancl was payable on the same condition, a call would be necessary as a. step toward its collection, and if directors failed to make it, the court could make it. We think that in the Gray case the assessment was regarded as such a Step. The court had taken possession of the corporate assets and was authorized to exercise the powers of the directors for their collection. The assessment was merely a step toward such collection, and the court directed its receiver to resort to such courts as might have jurisdiction of the parties and sue upon the contracts for the amounts assessed. It does not seem to have been regarded as a judicial sentence concluding the parties as to their individual liability. In Bangs, Receiver, v. Duckenfield, 18 N. Y. 592, where different rates were assessed on premium notes, the assessment was held as to a maker of a note not a party to the suit in which the assessment was made, in a point involving his personal liability, to not be such a sentence, and to have no greater force than the same act would have possessed if done by the board of directors. The contention of plaintiff in error that it has greater force and is of the nature of a judicial decision, is founded alone on the presence of the corporation in the suit. If that is so it must be because it has power to waive defendant’s right as an individual. It has no such power in this State outside of court. The board of directors in making an assessment can not represent the stockholder so as to waive or in any manner affect his right to a lawful assessment. The defendant’s contract amounted to a promissory note payable upon demand, being made by the board of directors. Goshen Turnpike Co. v. Hurtin, 9 Johns. 217; White v. Smith, 77 Ill. 351. Ordinarily, the payee of such an obligation could nob go into court and waive the demand for the maker.

Though a court may have jurisdiction of the subject-matter and of the parties to a cause, its order may be void, because it has exceeded its jurisdiction. Courts are limited in the extent and character of their judgments, and if they transcend their lawful powers their judgments are void and may be collaterally impeached. U. S., for use, etc., v. Walker, 109 U. S. 258; Windsor v. McVeigh, 93 U. S. 274; Rogers v. Dill, 6 Hill 415; Folger v. Columbian Ins. Co., 99 Mass. 267; Fithian v. Monks, 43 Mo. 502; Seamster v. Blackstock, 83 Va. 233; Anthony v. Kasev, 83 Va. 338.

In U. S., for use, etc., v. Walker, supra, an orphans’ court, having jurisdiction of the estate of a decedent and of the person of the administratrix, and having power on her removal to settle her account and order her to deliver unadministered assets to the administrator de bonis non, entered judgment by which she was ordered to pay over a balance found due her from the estate and it was held to be void because the fund was n@t considered unadministered assets. In the case before us, there is an order reciting on the face of it facts which show that it is illegal and an arbitrary violation of individual right. It would be no less so, if it had ordered those who, by its findings, had paid in full, to pay again, or that the burden of the assessment should be borne by those over a certain age, or living in a certain county or State. If such an order is binding and conclusive against the individual stockholders, scattered, as alleged, over more than twelve States and Territories, in a suit begun and carried on by a few of their fellow-stockholders, by virtue of a fiction of law that they have had their day in court and an opportunity to show why the assessment should not be made because the corporation was there, then the courts may be easily made the instruments of fraud and injustice. The assessment in question was held void in Great Western Telegraph Co. v. Burnham, 79 Wis. 47.

But we understand that the corporation was not authorized to act for or represent the defendant as to his individual liability to it, and that the order was not intended and is not to be treated as a judgment against him, but rather as the exercise by a court of a corporate function. It is conceded that, although the Circuit Court of Cook County had defendant on the list, he might defend this suit on the ground that he did not belong there by pleading that he never signed the contract, or that it was obtained by fraud, or made in violation of law, or that the relation of stockholder was canceled before the assessment; and wTe see no reason why he may not also insist upon the conditions of his contract. His promise to pay was several and individual, and if the condition that he should only pay assessments equalized between himself and his fellow-stockholders so that they should contribute ratably to the corporate assets had been written on the face of it, an order to pay in violation of that condition would not be more an encroachment upon individual as distinguished from corporate interest and right, than the order in question. The law implied that condition, and if the same thing had been written in his contract it would, have been mere surplusage. If the order is to be treated as an adjudication of his individual right under the conditions of his contract, then, by the rules laid down in Ward v. Farwell, supra, he would have been a necessary party to the suit where it was made. It is immaterial whether the assets which he is charged with withholding from the plaintiff consist of money or chattel property. The right claimed by him is personal. But treating the order merely as the exercise of a corporate function and a step in the collection of the assets for the purpose of maturing the obligation, he was not a necessary party, and it was so held and the order so treated in the Gray case. The court there said that a court of equity might make the order in place of the directors, citing Glenn v. Saxton, 68 Cal. 353. In that case the question was presented whether a call so made was a judgment or decree of the court, and it was held not to be, and it was said that the call made by the chancery court was the same in effect as if made by the president and directors of the corporation. Accordingly the action thereon was held to be barred by a two years’ statute of limitations, when it would not have been barred if the call could- be considered a judgment or decree of a court.

While there are cases in which it has been held that the corporation represents a member in his contract relation to it so as to bind him to a personal liability by an unlawful assessment, in violation of his contract, of which Lycoming Fire Ins. Co. v. Langley, supra, is an example, in almost all cases where an assessment has been in question, it has been entirely legal and in accordance with the stockholders’ contract, and the only question was whether the court could make it in place of the board of directors and in the absence of the stockholders. In those cases it has often been said that the stockholders in their relations as stockholders are represented by the corporation; but we do not think that in the just character of that relation the several personal liability of the stockholder to the corporation or its creditors is embraced. The stockholder, by becoming a member of a corporation, agrees that his interest as such shall be managed by the corporation. The rendition of judgments against it may extinguish the value of his interest, and yet he has no right as a stockholder to appear and defend for it in suits. So a few stockholders may file a bill against the corporation and without notice to their fellow-stockholders; claims may be proved in the course of the litigation against the corporation which bind the other stockholders, because they are against it in matters submitted to its management. The stockholder can not question the necessity or advisability of an assessment to pay such claims. To do so would be to question the allowance of the claims or judgments themselves. But our Supreme Court has never said that in respect to any individual liability to pay or contribute to the payment of them the stockholder is represented by the corporation, and in the eye of the law before the court by its presence.

It is also urged that the matters in controversy here became res judicata by the decision in the Gray case. The declaration demurred to in this case makes no averment about Gray’s case. But if the defendant’s rights have been settled by the defeat of Gray in his case, it must be because Gray represented him in some way. That would certainly be carrying the rule too far.

Counsel also insists, with much earnestness, that everything is to be regarded as decided against Gray touching .the merits of the declaration and the order of assessment which could have been decided against him if presented to the court and passed upon, and that we are bound to so regard the question raised in this case. The question involved here might, perhaps, have been raised in that case, but the doctrine of stare dceisis embraces nothing except questions decided, and as the question was not raised there was no- decision on it for us to stand by. So far as the decisions of our Supreme Court afford us any light on the question they lead to the conclusion at which we have arrived, that the assessment was void and the demurrer properly sustained. The judgment will be affirmed.