This Court looks to the constitution and statutes of a state and
the decisions of its courts to determine the nature, extent, and
method of enforcing the liability of stockholders of a corporation
of that state.
The provisions of the Minnesota Constitution imposing double
liability on stockholders of corporations other than those carrying
on manufacturing or mechanical business is self-executing, and
under it each
Page 224 U. S. 244
stockholder becomes liable for the debts of the corporation in
amount measured by the par value of his stock.
The liability of stockholders under the Minnesota Constitution
is not to the corporation, but to the creditors collectively, is
not penal but contractual, not joint, but several, and the means of
its enforcement are subject to legislative regulation.
Under § 272 of the Laws of Minnesota, the receiver of a
corporation, the stockholders whereof are subject to double
liability, is invested with authority to sue for and collect the
amount of the assessment established in the sequestration suit
provided by the statute.
A receiver to collect the double liability of stockholders of a
Minnesota corporation is more than a mere chancery receiver; he is
a
quasi-assignee, invested with the rights of creditors,
and he may enforce the same in any court of competent
jurisdiction.
As the statute of Minnesota providing for determining whether
stockholders of a corporation of that state are subject to
statutory double liability does not preclude a stockholder from
showing that he is not a stockholder or from setting up any defense
personal to himself, it is not unconstitutional as denying due
process of law, but is a reasonable regulation, and the
jurisdiction of the court is sustained by the relation of the
stockholder to the corporation and his contractual obligation in
respect to its debts.
While an ordinary chancery receiver cannot exercise his powers
in jurisdictions other than that of the court appointing him,
except by comity, one who is a
quasi-assignee and invested
with the rights of his
cestuis que trustent may sue in
other jurisdictions, and his right so to do is protected by the
full faith and credit clause of the federal Constitution.
While there are certain well recognized exceptions to the full
faith and credit clause, especially in regard to the enforcement of
penal statutes, the right of a receiver of a Minnesota corporation
to sue in the courts of another state to recover the double
liability imposed on the stockholders is within the rule, and the
courts of the latter state are bound to give full faith and credit
to the laws of Minnesota and the judicial proceedings upon which
the receiver's title, authority and right to relief are
grounded.
136 Wis. 589 reversed.
The facts, which involve the recognition to be given, under the
full faith and credit clause of the federal Constitution, in the
courts of a state of a receiver appointed by the courts of another
state, and the right of such receiver
Page 224 U. S. 245
to enforce double liability against the stockholders in the
former state, are stated in the opinion.
Page 224 U. S. 251
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
These were actions at law, brought in the Circuit Court of Dane
County, Wisconsin, by a receiver of an insolvent Minnesota
corporation, the Minnesota Thresher Manufacturing Company, to
enforce an asserted double liability of two of its stockholders.
The facts stated in the complaints, which were substantially alike,
were these: a judgment creditor, upon whose judgment an execution
had been issued and returned
nulla bona, commenced a suit
against the company in the District Court of Washington County,
Minnesota, for the sequestration of its property and effects and
for the appointment of a receiver of the same. The company appeared
in the suit, a receiver was appointed, and such further proceedings
were had therein, conformably to the statutes of the state, as
resulted in the appearance of the creditors of the company, in the
presentation and adjudication of their claims, aggregating many
thousands of dollars, in an ascertainment of
Page 224 U. S. 252
the complete insolvency of the company, and of the necessity of
resorting to the double liability of its stockholders for the
payment of its creditors, and in orders levying upon its
stockholders two successive assessments of 36 and 64 percent of the
par value of their respective shares, requiring that these
assessments be paid to the receiver within stated periods, and
directing the receiver, in case any of the stockholders should fail
to pay either assessment within the time prescribed, to institute
and prosecute all such actions, whether within or without the
state, as should be necessary to enforce the assessments. Some of
the stockholders intervened in the suit and appealed from the order
levying the first assessment, and the order was affirmed by the
supreme court of the state. 90 Minn. 144.
The defendants here were stockholders in the company, and failed
and refused to pay either assessment, although payment was duly
demanded of them. But they were not made parties to the
sequestration suit, and were not notified, otherwise than by
publication or by mail, of the applications for the orders levying
the assessments. Upon the expiration of the times prescribed in the
orders, the receiver brought the present actions to enforce them.
The complaints set forth the proceedings in the sequestration suit
and the provisions of the Minnesota Constitution and statutes
relating to the double liability of stockholders and its
enforcement, with the interpretation placed upon those provisions
by the Supreme Court of that state, and also made the claim that §
1, Article IV, of the Constitution of the United States, and § 905,
Rev.Stat., required the courts of Wisconsin to give such faith and
credit to those proceedings and provisions as they have by law or
usage in the courts of Minnesota.
Demurrers to the complaints were sustained upon the ground that
to permit the actions to be maintained in the Wisconsin courts
would be contrary to the settled policy
Page 224 U. S. 253
of that state in respect of the enforcement of the like
liability of stockholders in its own corporations, and judgments of
dismissal were entered accordingly. The judgments were affirmed by
the supreme court of the state, 136 Wis. 589 and 594, and the
receiver sued out these writs of error, alleging that he had been
denied a right asserted, as before indicated, under the
Constitution and laws of the United States.
Of course, we must look to the Minnesota Constitution, statutes,
and decisions to determine the nature and extent of the liability
in question, and the effect given in that state to the laws and
judicial proceedings therein looking to its enforcement, and when
this is done, we find that the situation, as applied to the cases
now before us, is as follows:
1. Section 3, article 10, of the Minnesota Constitution,
provides:
"Each stockholder in any corporation (excepting those organized
for the purpose of carrying on any kind of manufacturing or
mechanical business) shall be liable to the amount of stock held or
owned by him."
The insolvent company, before mentioned, is within the general
terms of this provision, not the excepting clause.
Merchants'
National Bank v. Minnesota Thresher Manufacturing Co., 90
Minn. 144;
Bernheimer v. Converse, 206 U.
S. 516,
206 U. S. 524.
The provision is self-executing, and under it each stockholder
becomes liable for the debts of the corporation in an amount
measured by the par value of his stock. This liability is not to
the corporation, but to the creditors collectively; is not penal,
but contractual; is not joint, but several, and the mode and means
of its enforcement are subject to legislative regulation.
Willis v. Mabon, 48 Minn. 140;
Minneapolis Baseball
Co. v. City Bank, 66 Minn. 441, 446;
Hanson v.
Davison, 73 Minn. 454;
Straw & Ellsworth Co. v.
Kilbourne Co., 80 Minn. 125;
London & Northwest Co. v.
St. Paul Co., 84 Minn. 144;
Bernheimer v. Converse,
supra.
Page 224 U. S. 254
2. The proceedings in the sequestration suit, looking to the
enforcement of this liability, were had under chapter 272, Laws of
1899, and §§ 3184-3190, Revised Laws of 1905, the latter being a
continuation of the former, with changes not here material. An
earlier statute prescribed a mode of enforcement by a single suit
in equity in a home court, which was to be prosecuted by all the
creditors jointly, or by some for the benefit of all, against all
the stockholders, or as many as could be served with process in the
state, and all the rights of the different parties were to be
finally adjusted therein. That mode was exclusive. A receiver could
not sue on behalf of the creditors in a home court or elsewhere. A
single creditor could not sue in his own behalf, and, if all united
or one sued for the benefit of all, it was essential that the suit
be in a home court. The statute was so interpreted by the supreme
court of the state.
See Hale v. Allinson, 188 U. S.
56, and
Finney v. Guy, 189 U.
S. 335, where the cases were carefully reviewed. In one
of them,
Minneapolis Baseball Co. v. City Bank, supra,
that court, after holding that the liability could not then be
enforced through a suit by a receiver, added:
"If it be desirable, in order to secure a speedy, economical,
and practical method of enforcing the liability, to invest the
receiver with such power, it must be done by statute."
Doubtless responding to this suggestion, the legislature enacted
chapter 272, Laws of 1899. It expressly prescribed the mode of
enforcement pursued in the present instance -- that is to say, it
made provision for bringing all the creditors into the
sequestration suit for the presentation and adjudication of their
claims, for ascertaining the relation of the corporate debts and
the expenses of the receivership to the available assets, and
whether and to what extent it was necessary to resort to the
stockholders' double liability, for levying such assessments upon
the stockholders according to their respective holdings as
should
Page 224 U. S. 255
be necessary to pay the debts, and for investing the receiver
with authority to collect the assessments on behalf of the
creditors. And it also contained the following provisions
respecting the effect to be given to the orders levying
assessments, and respecting the authority and duties of the
receiver:
"SEC. 5. Said order and the assessment thereby levied shall be
conclusive upon and against all parties liable upon or on account
of any stock or shares of said corporation, whether appearing or
represented at said hearing, or having notice thereof or not, as to
all matters relating to the amount of and the propriety of and
necessity for the said assessment. This provision shall also apply
to any subsequent assessment levied by said court as hereinafter
provided."
"SEC. 6. It shall be the duty of such assignee or receiver to,
and he may, immediately after the expiration of the time specified
in said order for the payment of the amount so assessed by the
parties liable therefor, institute and maintain an action or
actions against any and every party liable upon or on account of
any share or shares of such stock who has failed to pay the amount
so assessed against the same, for the amount for which such party
is so liable. Said actions may be maintained against each
stockholder severally in this state or in any other state or
country where such stockholder or any property subject to
attachment, garnishment, or other process in an action against such
stockholder may be found. . . ."
3. Under this statute, as interpreted by the supreme court of
the state, as also by this Court, the receiver is not an ordinary
chancery receiver or arm of the court appointing him, but a
quasi-assignee and representative of the creditors, and
when the order levying the assessment is made, he becomes invested
with the creditors' rights of action against the stockholders, and
with full authority to enforce the same in any court of
competent
Page 224 U. S. 256
jurisdiction in the state or elsewhere.
Straw &
Ellsworth Co. v. Kilbourne Co., supra; Bernheimer v. Converse,
supra.
4. The constitutional validity of chapter 272 has been sustained
by the supreme court of the state, as also by this Court, and this
because (1) the statute is but a reasonable regulation of the mode
and means of enforcing the double liability assumed by those who
become stockholders in a Minnesota corporation; (2) while the order
levying the assessment is made conclusive, as against all
stockholders, of all matters relating to the amount and propriety
of the assessment and the necessity therefor, one against whom it
is sought to be enforced is not precluded from showing that he is
not a stockholder, or is not the holder of as many shares as is
alleged, or has a claim against the corporation which, in law or
equity, he is entitled to set off against the assessment, or has
any other defense personal to himself, and (3) while the order is
made conclusive as against a stockholder, even although he may not
have been a party to the suit in which it was made, and may not
have been notified that an assessment was contemplated, this is not
a tenable objection, for the order is not in the nature of a
personal judgment against the stockholder, and as to him is amply
sustained by the presence in that suit of the corporation,
considering his relation to it and his contractual obligation in
respect of its debts.
Straw & Ellsworth Co. v. Kilbourne
Co. supra; London & Northwest Co. v. St. Paul Co., supra;
Bernheimer v. Converse, supra.
This statement of the nature of the liability in question, of
the laws of Minnesota bearing upon its enforcement, and of the
effect which judicial proceedings under those laws have in that
state discloses, as we think, that, in the cases now before us, the
Supreme Court of Wisconsin failed to give full faith and credit to
those laws and to the proceedings thereunder, upon which the
receiver's right to sue was grounded. It is true that an ordinary
chancery
Page 224 U. S. 257
receiver is a mere arm of the court appointing him, is invested
with no estate in the property committed to his charge, and is
clothed with no power to exercise his official duties in other
jurisdictions.
Booth v.
Clark, 17 How. 322;
Hale v. Allinson,
188 U. S. 56;
Great Western Mining & Mfg. Co. v. Harris,
198 U. S. 561. But
here the receiver was not merely an ordinary chancery receiver, but
much more. By the proceedings in the sequestration suit, had
conformably to the laws of Minnesota, he became a
quasi-assignee and representative of the creditors, was
invested with their rights of action against the stockholders, and
was charged with the enforcement of those rights in the courts of
that state and elsewhere. So, when he invoked the aid of the
Wisconsin court, the case presented was, in substance, that of a
trustee, clothed with adequate title for the occasion, seeking to
enforce, for the benefit of his
cestuis que trustent, a
right of action, transitory in character, against one who was
liable contractually and severally, if at all. The receiver's right
to maintain the actions in that court was denied in the belief that
it turned upon a question of comity only, unaffected by the full
faith and credit clause of the Constitution of the United States,
and this view of it was regarded as sustained by the decision of
this Court in
Finney v. Guy, 189 U.
S. 335. But that case is obviously distinguishable from
those now before us. It involved the right of a Minnesota receiver
and of the creditors of a Minnesota corporation to sue a
stockholder in Wisconsin prior to the enactment of chapter 272, and
while the earlier statute, before mentioned, provided an exclusive
remedy through a single suit in equity in a Minnesota court. That
remedy having been exhausted, the receiver and the creditors
sought, by an ancillary suit in Wisconsin, to enforce the liability
of a stockholder who resided in that state and was not a party to
the suit in Minnesota. The Supreme Court of Wisconsin, treating the
right to maintain the suit in that
Page 224 U. S. 258
state as depending upon comity only, ruled that it ought not to
be entertained. The case was then brought here, it being claimed
that full faith and credit had not been accorded to the laws of
Minnesota and the proceedings in the suit in that state. This claim
was grounded upon a contention that the first decisions in
Minnesota, holding that the remedy provided by the earlier statute
was exclusive, that a receiver could not sue thereunder, and that
the rights of creditors against stockholders must be worked out in
the single suit in the home court, had been overruled by later
decisions giving, as was alleged, a different interpretation to
that statute. The contention was fully considered by this Court,
the cases relied upon being carefully reviewed, and the conclusion
was reached that "the law of Minnesota still remains upon this
particular matter as stated in the former cases, which have not
been overruled." The claim under the full faith and credit clause
was accordingly held untenable, and it was then said:
"Whether, aside from the federal considerations just discussed,
the Wisconsin court should have permitted this action to be
maintained because of the principle of comity between the states is
a question exclusively for the courts of that state to decide."
We perceive nothing in the decision in that case which makes for
the conclusion that, when the representative character, title, and
duties of a receiver have been established by proceedings in a
Minnesota court conformably to the altogether different provisions
of the later statute embodied in chapter 272, his right to enforce
in the courts of another state the assessments judicially levied in
Minnesota depends upon comity, unaffected by the full faith and
credit clause. Indeed, the implication of the decision is to the
contrary. We say this first because, had it been thought that the
controlling question was one of comity only, there would have been
no occasion to consider what effect was accorded in Minnesota to
the
Page 224 U. S. 259
earlier statute and to the proceedings thereunder, and second
because especial care was taken to explain that the case in hand
was not controlled by the decision in
Hancock National Bank v.
Farnum, 176 U. S. 640.
That was an action in a Rhode Island court by a creditor of a
Kansas corporation against one of its stockholders to enforce the
contractual double liability of the latter. The creditor had
recovered against the corporation in a court in Kansas a judgment
which, according to the laws of that state, invested the creditor
with a cause of action against the stockholder which could be
asserted in any court of competent jurisdiction. The Supreme Court
of Rhode Island, treating the right to maintain the action in that
state against the stockholder as dependent upon comity only, and
finding that the right with which the creditor was invested under
the law of Kansas was unlike that conferred by the law of Rhode
Island in like situations, ruled that the action could not be
maintained in the courts of that state. 20 R.I. 466. But, when the
case came here, it was held that full faith and credit had not been
given to the Kansas judgment upon which the creditor relied, and
the judgment of the Supreme Court of Rhode Island was accordingly
reversed, it being said in that connection:
"The question to be determined in this case was not what credit
and effect are given in an action against a stockholder in the
courts of Rhode Island to a judgment in those courts against the
corporation of which he is a stockholder, but what credit and
effect are given in the courts of Kansas in a like action to a
similar judgment there rendered. Thus and thus only can the full
faith and credit prescribed by the Constitution of the United
States and the Act of Congress be secured."
In
Bernheimer v. Converse, 206 U.
S. 516, the present receiver sought, by reason of the
proceedings in the Minnesota court under chapter 272, to maintain
an action in New York against a stockholder residing in that
state,
Page 224 U. S. 260
to enforce one of the assessments before mentioned, and this
Court sustained the action, saying (p.
206 U. S.
534):
"It is objected that the receiver cannot bring this action, and
Booth v.
Clark, 17 How. 322;
Hale v. Allinson,
188 U. S.
56, and
Great Western Mining Co. v. Harris,
198 U. S.
561, are cited and relied upon. But in each and all of
these cases it was held that a chancery receiver, having no other
authority than that which would arise from his appointment as such,
could not maintain an action in another jurisdiction. In this case,
the statute confers the right upon the receiver, as a
quasi-assignee and representative of the creditors, and as
such vested with the authority to maintain an action. In such case,
we think the receiver may sue in a foreign jurisdiction.
Relfe
v. Rundle, 103 U. S. 222,
103 U. S.
226;
Howarth v. Lombard, 175 Mass. 570;
Howarth v. Angle, 162 N.Y. 179, 182."
And in
Converse v. First National Bank of Suffield,
212 U. S. 567,
where, in a similar action, the Supreme Court of Errors of
Connecticut had given judgment against the receiver, this Court
reversed the judgment on the authority of
Bernheimer v.
Converse, supra.
True, the full faith and credit clause of the Constitution is
not without well recognized exceptions, as is pointed out in
Huntington v. Attrill, 146 U. S. 657;
Andrews v. Andrews, 188 U. S. 14, and
National Exch. Bank v. Wiley, 195 U.
S. 257, but the laws and proceedings relied upon here
come within the general rule which that clause establishes, and not
within any exception. Thus, the liability to which they relate is
contractual, not penal. The proceedings were had with adequate
jurisdiction to make them binding upon the stockholders in the
particulars before named. The subject to which chapter 272 is
addressed is peculiarly within the regulatory power of the State of
Minnesota, so much so that no other state properly can be said to
have any public policy thereon. And what the law of Wisconsin may
be respecting the
Page 224 U. S. 261
relative rights and obligations of creditors and stockholders of
corporations of its creation, and the mode and means of enforcing
them, is apart from the question under consideration.
Besides, it is not questioned that the Wisconsin court in which
the receiver sought to enforce the causes of action with which he
had become invested under the laws and proceedings relied upon was
possessed of jurisdiction which was fully adequate to the occasion.
His right to resort to that court was not denied by reason of any
jurisdictional impediment, but because the supreme court of the
state was of opinion that, as to such causes of action, the courts
of that state "could, if they chose, close their doors and refuse
to entertain the same."
In these circumstances, we think the conclusion is unavoidable
that the laws of Minnesota and the judicial proceedings in that
state, upon which the receiver's title, authority, and right to
relief were grounded and by which the stockholders were bound, were
not accorded that faith and credit to which they were entitled
under the Constitution and laws of the United States.
The judgments are accordingly reversed, and the cases are
remanded for further proceedings not inconsistent with this
opinion.
Reversed.