Refusal of a state court to respect a sister state judgment upon
the ground that the court rendering it exceeded its jurisdiction
under its own constitution and laws presents a federal question
based on the full faith and credit clause and the supplementary
legislation of Congress.
The Minnesota Constitution, Art. 10, § 3, in providing for
stockholders' liability, excepts corporations organized for
carrying on manufacturing business.
Held:
(1) That the exception goes not to the jurisdiction, but only to
the merits in proceedings to sequester the assets of a local
corporation and assess stockholders to pay its debts, under
Rev.Laws, 1905, §§ 3173, 3183187, and that an order of assessment,
made in such proceedings by the proper Minnesota court, of general
jurisdiction, which in other respects has acquired jurisdiction
over the corporation, and through it over the shareholders,
necessarily involves a determination that the corporation is not of
the excepted class, and, in that respect, is in Minnesota
conclusive against collateral attack by a shareholder, whether or
not he was personally a party to the proceedings.
(2) That like force must be given such order in an action
brought by the receiver, appointed in such proceedings, to enforce
the assessment against a shareholder in the courts of another
state, and that a refusal of those courts to be bound by it, upon
the ground that the corporation was of the class excepted by the
Minnesota Constitution, and erroneously treating this exception as
jurisdictional, fails to accord the due faith and credit to which
the order is entitled under the federal Constitution and laws.
32 N.D. 536 reversed.
The case is stated in the opinion.
Page 247 U. S. 144
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
This was an action at law in North Dakota by a receiver of an
insolvent Minnesota corporation to enforce against one of its
stockholders an order of a Minnesota court laying an assessment on
the stockholders generally. The defendant prevailed because the
North Dakota court was of opinion that the order laying the
assessment was made in the absence of such jurisdiction as was
essential to bind him, 32 N.D. 536, and the question for decision
here is whether that court gave to the laws and proceedings in
Minnesota the full faith and credit to which they are entitled
under the Constitution and laws of the United States.
See Great
Western Telegraph Co. v. Purdy, 162 U.
S. 329;
Tilt v. Kelsey, 207 U. S.
43,
207 U. S.
51.
Under the law of Minnesota, where an execution on a
Page 247 U. S. 145
judgment against a corporation of that state is returned
unsatisfied, the court, in a suit by the judgment creditor, may
sequestrate the property of the corporation, appoint a receiver of
the same, cause the property to be sold and apply the proceeds to
the payment of the receivership expenses and the corporate debts.
And where in such a suit the receiver presents a petition asserting
that "any constitutional, statutory, or other liability of
stockholders" exists, and that resort thereto is necessary, the
court must appoint a time for a hearing on the petition and cause
such notice thereof as it deems proper to be given by publication
or otherwise. If from the evidence presented at the hearing,
including such as may be produced by any creditor or stockholder
appearing in person or by attorney, it appears that there is a
liability of stockholders and that the available assets are not
sufficient to pay the expenses and debts, the court is required to
make an order ratably assessing the stockholders on account of such
liability, and to direct that the assessment be paid to the
receiver. If payment be not made, the duty is laid on the receiver
of enforcing the same by actions against the defaulting
stockholders, "whether resident or nonresident, and wherever
found." The court's order is expressly made "conclusive as to all
matters relating to the amount, propriety, and necessity of the
assessment." Rev.Laws 1905, §§ 3173, 3184-3187.
According to a settled line of local decisions, the proceeding
on the receiver's petition for an assessment on the stockholders is
not an independent suit, but simply a step in the original
sequestration suit,
Ueland v. Haugan, 70 Minn. 349, and
the conclusive effect of the court's order is not dependent on the
personal presence of the stockholders, because they are so far in
privity with the corporation as to be represented by it, and a
judgment against it is in effect a judgment against them.
Hanson v. Davison, 73 Minn. 454, 462;
Town of Hinckley
v.
Page 247 U. S. 146
Kettle River R. Co., 80 Minn. 32. But, while the order
is conclusive "as to all matters relating to the amount, propriety
and necessity of the assessment," matters which concern all
stockholders alike, it leaves open the questions whether a
particular person is a stockholder or holds the number of shares
attributed to him, whether he has discharged his liability or has a
claim which may be set off against the assessment, and whether he
has any other defense which is "personal to himself."
Straw
& Ellsworth Co. v. Kilbourne Co., 80 Minn. 125, 136.
As so applied, the Minnesota law has been sustained by this
Court against various claims that, as to stockholders, it infringes
the due process clause of the Fourteenth Amendment, and we have
also recognized and enforced the duty of courts of other states,
under the due faith and credit clause of the Constitution and the
legislation of Congress on that subject, to give effect to orders
of Minnesota courts making assessments under that law, although the
stockholders were not personally made parties to the suits wherein
the orders were made.
Bernheimer v. Converse, 206 U.
S. 516;
Converse v. Hamilton, 224 U.
S. 243;
Selig v. Hamilton, 234 U.
S. 652.
And see Royal Arcanum v. Green,
237 U. S. 531,
237 U. S.
543-545.
The order with which we here are concerned was made by a
Minnesota court in a sequestration suit against a Minnesota
corporation. Besides being a court of general jurisdiction, both at
law and in equity, the court making the order had full jurisdiction
of that suit. The suit was begun by a judgment creditor after an
execution on his judgment was returned unsatisfied. The defendant
corporation had its principal place of business in the county where
the suit was begun, and was brought into the suit by due service of
process. Thus, much is not questioned. Nor is it questioned that a
receiver was appointed, or that, by a petition in the suit, he
sought an
Page 247 U. S. 147
assessment on the stockholders, or that public notice of the
hearing on the petition was given as the court directed, or that
there was a hearing as contemplated. But it is insisted that the
court was without jurisdiction to make the assessment, and that, in
consequence, the order is open to collateral attack. In support of
this contention, it is said that, in making the assessment, the
court evidently proceeded on the mistaken assumption that the
corporation was one on whose stockholders a liability was imposed
by § 3 of article 10 of the state constitution,
* whereas, in
truth, the corporation was one of a class whose stockholders were
excepted from the operation of that provision. But is this anything
other than saying that the court erred in ruling on a matter of
substantive law regularly presented to it for decision in a pending
suit? The constitutional provision does no more than to declare a
general rule of liability and to except therefrom stockholders of a
certain class of corporations. It does not purport to deal with the
jurisdiction of courts -- their power to hear and determine -- but
only to prescribe in a general way the relative rights of
stockholders and creditors. It therefore must be taken as going to
the merits, rather than to the jurisdiction. The Minnesota courts
evidently so regard it, and they also treat the question whether a
particular corporation belongs to one class or another as a matter
the decision of which in a suit against the corporation is binding
on the stockholders in subsequent litigation with the latter.
Merchants' National Bank v. Minnesota Thresher Manufacturing
Co., 90 Minn. 144, 149.
Four Minnesota cases are cited as making against these views,
but we do not so understand them. In
Dwinnell v. Kramer,
87 Minn. 392, a policyholder in an insolvent
Page 247 U. S. 148
mutual fire insurance company against whom a general assessment
on the policy holders was sought to be enforced successfully
defended on the ground that his policy did not conform to the
mutual plan, but was an "ordinary contract of insurance" issued on
receipt of a cash premium. The defense plainly was personal to him.
Swing v. Humbird, 94 Minn. 1, arose under an Ohio law, and
not the law of Minnesota. An assessment made in Ohio on the
policyholders of an insolvent fire insurance company was sought to
be enforced in Minnesota, and the defendant prevailed because his
policy had been fully paid for and had terminated prior to the
assessment. That also was a personal defense. In
Swing v. Red
River Lumber Co., 105 Minn. 336, an attempt was made to
enforce a similar Ohio assessment, but it failed for the reason,
among others, that when the defendant's policy was issued, the
insurance company was doing business in Minnesota in violation of
the laws of that state -- a matter which was personal to him and to
other Minnesota policyholders if there were such. In
Finch, Van
Slyck & McConville v. Vanasek, 132 Minn. 9, there was a
direct appeal from an order levying an assessment on stockholders
in a sequestration suit. The character of the corporation was not
in controversy, and the "only controverted question before the
[trial] court was the amount to be levied." There also was a
question in the appellate court as to whether the trial should have
been to a jury. With this in mind, it seems plain that what was
said can have no particular bearing here.
Had the Minnesota court in this instance held that the
corporation was in the excepted class and then denied the
receiver's petition, is it not certain that the order, if neither
vacated nor reversed, would have settled conclusively the
nonexistence of the asserted liability? And if, in a subsequent
suit, the receiver or the creditors represented by him had again
asserted such a liability on the part of
Page 247 U. S. 149
the stockholders, is there any doubt that the latter could have
relied safely on the order as a prior adjudication in their favor?
The answers seem obvious. Charged with the duty, as the court was,
of ascertaining whether there was any liability to be enforced, it
was its province to consider and decide every question which was an
element in that problem, including the one of whether the
corporation was in the excepted class. That question required
solution, and the power to solve it was lodged in the court. The
court did solve it, for, as is said in
Neff v. Lamm, 99
Minn. 115, 117, the order making the assessment is "necessarily
based upon a determination that the corporation is of the class
whose stock is assessable, and not of the excepted class." Whether
the decision was right or wrong is not open to discussion here. If
wrong, it was subject to correction on proper application to the
court which made it, or on appeal, but it was not void or open to
collateral attack.
Deposit Bank v. Frankfort, 191 U.
S. 499,
191 U. S.
510-512;
Noble v. Union River Logging R. Co.,
147 U. S. 165,
147 U. S.
172-174;
Dowell v. Applegate, 152 U.
S. 327,
152 U. S. 340;
In re First National Bank, 152 F. 64, 68-70. Of course, it
was the duty of the court to have due regard for the exception in
the constitutional provision because of its bearing on the merits,
and if proper effect was not given to it, an error of law was
committed, but nothing more. The true view of the subject is
indicated in the following excerpts from our opinion in
Fauntleroy v. Lum, 210 U. S. 230,
210 U. S. 234,
210 U. S.
237:
"No doubt it sometimes may be difficult to decide whether
certain words in a statute are directed to jurisdiction or to
merits, but the distinction between the two is plain. One goes to
the power, the other only to the duty, of the court. Under the
common law, it is the duty of a court of general jurisdiction not
to enter a judgment upon a parol promise made without
consideration, but it has power to do it, and, if it does, the
judgment is unimpeachable,
Page 247 U. S. 150
unless reversed. Yet a statute could be framed that would make
the power -- that is, the jurisdiction -- of the court dependent
upon whether there was a consideration or not. Whether a given
statute is intended simply to establish a rule of substantive law,
and thus to define the duty of the court, or is meant to limit its
power is a question of construction and common sense. When it
affects a court of general jurisdiction and deals with a matter
upon which that court must pass, we naturally are slow to read
ambiguous words as meaning to leave the judgment open to dispute,
or as intended to do more than to fix the rule by which the court
should decide."
"A judgment is conclusive as to all the
media concludendi,
United States v. California & Oregon Land Co.,
192 U. S.
355, and it needs no authority to show that it cannot be
impeached either in or out of the state by showing that it was
based upon a mistake of law."
Whether the stockholder against whom the order is here sought to
be enforced was personally a party to the suit in which it was made
does not appear; nor is it material. Under the rule in Minnesota,
as also the general rule, he was sufficiently represented by the
corporation to be bound by the order insofar as it determined the
character and insolvency of the corporation and other matters
affecting the propriety of a general assessment such as was made.
This Court frequently has recognized and applied that rule. In
Hawkins v. Glenn, 131 U. S. 319, an
assessment ordered by a Virginia court having the corporation
before it was sustained as against stockholders residing in another
state and not personally brought into the suit, the ground of
decision being that
"a stockholder is so far an integral part of the corporation
that, in the view of the law, he is privy to the proceedings
touching the body of which he is a member."
Of similar import are
Sanger v. Upton., 91 U. S.
56;
Glenn v. Liggett, 135 U.
S. 533;
Great Western Telegraph Co.
v. Purdy, 162
Page 247 U. S. 151
U.S. 329,
162 U. S. 336;
Hancock National Bank v. Farnum, 176 U.
S. 640;
Bernheimer v. Converse, 206 U.
S. 516,
206 U. S. 532;
Royal Arcanum v. Green, 237 U. S. 531,
237 U. S.
544.
No doubt the order might be attacked collaterally by showing an
absence of jurisdiction of person or subject matter. The cases of
Thompson v.
Whitman, 18 Wall. 457, and
National Exchange
Bank v. Wiley, 195 U. S. 257,
hold nothing more. Neither gives any warrant for saying that the
order may be attacked collaterally by showing that error was
committed in deciding the merits. One dealt with a judgment by a
court having no jurisdiction whatever over the subject matter, and
the other dealt with a personal judgment rendered without service
of process or personal appearance, but confessed under a warrant of
attorney which did not cover it -- in other words, a judgment
rendered without jurisdiction of the person through a
representative or otherwise. Both are inapposite here. By the law
of its organization, the Minnesota court was empowered to take
cognizance of, hear, and determine the suit to sequestrate and the
receiver's petition for an assessment. Thus, it had jurisdiction of
the subject matter.
Cooper v.
Reynolds, 10 Wall. 308,
77 U. S. 316.
The corporation was before it in virtue of process duly served, and
the stockholders, as has been said, were represented by the
corporation. Thus, there was jurisdiction of the person.
Under these circumstances, the order is entitled, under the
Constitution and laws of the United States, to the same faith and
credit in the courts of North Dakota as by law or usage are given
to such an order in the courts of Minnesota.
Hancock National
Bank v. Farnum, 176 U. S. 640;
Converse v. Hamilton, 224 U. S. 243. In
Minnesota, as before said, it is conclusive of all matters relating
to the propriety of the assessment, including the questions of the
character and insolvency of the corporation, and therefore it
should have been held similarly
Page 247 U. S. 152
conclusive in North Dakota. The court of that state declined to
regard it as determining the character of the corporation, and so
failed to give it the faith and credit to which it is entitled.
Judgment reversed.
* 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.
MR. JUSTICE CLARKE, dissenting.
The importance of the question involved in this case leads me to
state somewhat fully my reasons for dissenting from the decision of
the court.
The plaintiff in error, as receiver of the American Biscuit
Company of Crookston, an insolvent corporation organized under the
laws of the State of Minnesota, instituted suit in a District Court
of North Dakota against the defendant in error, a stockholder in
the company, to recover upon an order, treated in the record as a
judgment, entered by, an inferior, a district, court of the State
of Minnesota which is described in the amended complaint as
follows:
"The said court . . . made an order in said proceedings ordering
and assessing against each and every share of the capital stock of
said American Biscuit Company of Crookston the sum of one hundred
dollars ($100), and against the persons and parties liable as such
stockholders . . . , and further ordering that each and every party
or person liable as such stockholder pay to this plaintiff as
receiver of said insolvent corporation the sum of one hundred
dollars ($100) for each and every share of stock on which he should
be liable,"
etc.
It is further alleged that the defendant is the owner of one
share of stock of the said company of the par value of $100, and
that he has not paid to the court the assessment made.
The complaint sets out in detail the statutes under which the
Minnesota court proceeded and alleges that the Biscuit Company,
Page 247 U. S. 153
"by its articles of incorporation, was empowered to manufacture
and sell biscuits, crackers, candies, confections, cereals, and
other kindred products or supplies [necessary] or component parts
thereof, and ['to purchase or own' probably omitted] the machinery,
fixtures, equipment, and supplies necessary for the manufacturing
and dealing in the same . . . , and to maintain and operate stores
and depots for the sale and disposal of its products and the
purchase of its supplies, and in general to do and perform all
matters and things necessary and proper in the successful
conducting of the said business."
The District Court of North Dakota sustained a demurrer to the
complaint on the ground that it did not state facts sufficient to
constitute a cause of action, and its judgment was affirmed by the
supreme court of the state.
The Constitution of Minnesota in effect at the time of the
transactions involved in the case contains the following
provision:
Article 10, § 3:
"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."
It is admitted that this is the only warrant for the Minnesota
order, which was for the amount of the personal or double liability
of stockholders.
The theory on which the North Dakota courts proceeded was that
the complaint showed that the Biscuit Company was a manufacturing
corporation such that no double liability could attach to its
stockholders, and that therefore the Minnesota court did not have
jurisdiction, under the Constitution and laws of that state, to
enter an order which precluded the defendant from showing that he
was not, and could not be, liable to a valid double liability
assessment.
The distinction between provisions of law which are
Page 247 U. S. 154
jurisdictional and those which are not has not been, perhaps
cannot be, made the subject of hard and fast definition. A much
quoted statement is that the distinction, while difficult of
application, is between "a rule of law for the guidance of the
court and a limit set to its power."
Interstate Commerce
Commission v. Northern Pacific Ry. Co., 216 U.
S. 538,
216 U. S. 544;
Fauntleroy v. Lum, 210 U. S. 230,
210 U. S.
235.
In the opinion of the Court, it is said that the district court
which entered the order sued on is a court of general jurisdiction.
As a general statement, this may be accepted, but when that court
entered the order we are here considering, it was not acting as a
court of general jurisdiction, but -- as we shall see from the
decisions of the Supreme Court of Minnesota -- as a statutory court
of narrowly limited powers authorized to enter orders "conclusive"
in specifically defined respects. As a court of general
jurisdiction, and independent of the statute under which the court
was acting, its receiver could not have maintained this action in
North Dakota.
Hale v. Allinson, 188 U. S.
56.
In the case at bar, we are dealing with a constitutional
provision, obviously intended for the encouragement of manufactures
in the State of Minnesota, which places it beyond the power of the
legislature to attach double liability to holders of stock in any
manufacturing corporation organized under the laws of that
state.
Shall it be said that this, clearly a limitation on the power of
the legislature, is not also a limitation on the power of the
Minnesota courts? That it is a jurisdictional limitation upon the
legislature, but was only a rule for the guidance of the court, the
jurisdiction of which, when entering the order involved, was
determined by the act of the legislature? It is not merely a rule
to guide courts in determining whether stockholders in
manufacturing corporations are subject to double liability, for it
prohibits both the legislature and the courts from imposing
such
Page 247 U. S. 155
liability upon stockholders in such corporations under any
circumstances, and is therefor a limitation upon the power of
courts as certainly as it is a limitation on legislative power.
The validity, in a proper case, of such an order as was entered
by the Minnesota court, and the right of such a receiver to
maintain a suit upon it in a foreign state to collect from
stockholders resident therein, have both been sustained by this
Court.
Bernheimer v. Converse, 206 U.
S. 516;
Converse v. Hamilton, 224 U.
S. 243. But in each of these cases, it was expressly
found that the insolvent company was within the general terms of §
3, Art. 10, of the Minnesota Constitution, and that therefore
personal liability attached to its stockholders.
Notwithstanding this fact, the defendant in error contends that
the Minnesota court was without jurisdiction to render the order
sued upon, and argues in substance as follows:
(1) That the Minnesota court had authority to render such a
"judgment" only as against stockholders in other than corporations
organized for manufacturing or mechanical business.
This is not contested by the plaintiff in error in argument, but
the answer to it relied upon is that the first question confronting
the Minnesota court hearing the petition of creditors for the
assessment was whether the Biscuit Company was a corporation whose
stockholders were subject to double liability; that the order
making the assessment could have been rendered only upon a holding
that it was such a corporation, and that such an order, not
appealed from, is conclusive as to this question, upon all
stockholders.
(2) That the character of the corporation as pleaded shows it to
have been a manufacturing company, that therefore no personal
liability attached to its stockholders, and that thereby the
Minnesota court is shown to have
Page 247 U. S. 156
been without jurisdiction to render the "judgment" sued
upon.
This contention also is not contested by the plaintiff in error,
who contents himself again with relying upon the implication
springing from the rendering of the Minnesota order.
It seems clear enough that a corporation
"empowered to manufacture and sell biscuits, crackers, candy,
etc., and to own and use the machinery, fixtures, equipment, and
supplies necessary for the manufacturing and dealing in the
same"
must be classed as one "organized for the purpose of carrying
on" a "manufacturing business."
But the Supreme Court of Minnesota has placed this conclusion
beyond discussion.
In
Senour Mfg. Co. v. Church Paint Mfg. Co., 81 Minn.
294, it is held:
"In proceedings to enforce the personal liability of
stockholders for the debts of the corporation, the articles of
association are the sole criterion as to the purposes for which the
corporation was formed."
And corporations organized for purposes stated as follows have
been held by that court to be manufacturing corporations such that
they came within the constitutional exception, so that personal
liability did not attach to holders of stock in them,
viz., companies organized for:
"The manufacture of painters' materials and supplies,"
Senour case,
supra; "for the manufacturing or
brewing of lager beer, and selling and disposing of same,"
Hastings Malting Co. v. Iron Range Brewing Co., 65 Minn.
28; "for the manufacture of cloth of every description and the sale
of cloth so manufactured,"
Nicollet National Bank v.
Frisk-Turner Co., 71 Minn. 413; "to produce and create water,
steam, and other motive power for transmission and use as may be
desirable for any legitimate purpose,"
Cuyler v. City Power
Co., 74 Minn. 22; "for the purpose of generating electricity
for distribution
Page 247 U. S. 157
to the public,"
Vencedor Investment Co. v. Highland Canal
& Power Co., 125 Minn. 20.
The test prescribed by the Supreme Court of Minnesota is whether
the entire business which the corporation is authorized to engage
in is manufacturing and disposing of its products and such
incidental business as may reasonably be necessary for the purposes
of its organization.
Hastings Malting Co. v. Iron Range Brewing
Co., 65 Minn. 28, 31. Again, and obviously, in
Nicollet
National Bank v. Frisk-Turner Co., 71 Minn. 413, it was held
that the buying of raw materials and the selling of manufactured
products are within the scope of the incidental powers of a
manufacturing corporation, and do not constitute doing business
other than the manufacturing business authorized. Clearly the
Biscuit Company meets the constitutional requirement thus
interpreted.
The difference between the case at bar and the
Bernheimer and
Converse cases,
supra, is
manifest and fundamental. These two cases were concerned with the
affairs of the same corporation, and the Supreme Court of Minnesota
held that, on their face, the articles of incorporation of the
company provided for the purchase of the capital stock, evidences
of indebtedness, and assets of another corporation, and also for a
manufacturing purpose; that the former business was not incidental
to the latter, and that therefore the company not being organized
exclusively for a manufacturing purpose, did not come within the
constitutional exception, and that the personal liability attached
to the stockholders. With this conclusion this Court expressed
itself satisfied in both cases.
The question remains whether, in the proceeding in which the
order relied upon was entered, the Minnesota court had jurisdiction
to render and actually did render an order such that a stockholder,
when sued upon it either in Minnesota or in another state, would
not have open to him the defense that the insolvent corporation was
of
Page 247 U. S. 158
such character that double liability did not attach to the
owners of its stock.
That the court did not have such jurisdiction and did not enter
such an order in this case seems to me clear for the reasons
following,
viz.:
In
Thompson v.
Whitman, 18 Wall. 457, a decision obviously
"rendered on great consideration," prior decisions dealing with the
full faith and credit clause of the Constitution were carefully
reviewed and it was there decided that, when the question of
jurisdiction is appropriately presented, the record of a judgment
rendered may, constitutionally, be assailed in a collateral
proceeding to enforce it in another state, even as to facts therein
stated to have been passed upon by the court. This decision has
been repeatedly affirmed and followed, and in
National Exchange
Bank v. Wiley, 195 U. S. 257, it
was accepted as authority sufficient for holding that a judgment by
confession under warrant of attorney could be collaterally attacked
in a foreign state by showing that the plaintiff in whose favor it
was rendered in an Ohio court of general jurisdiction was not the
owner of the note in suit at the time, and that the court entering
it was therefore without jurisdiction, although the rendering of
the judgment involved, or implied, the finding that the plaintiff
was then the owner of the note.
These authorities will suffice to illustrate the scope of the
established rule that a judgment sued on in a foreign state may be
shown in defense to have been entered by the court rendering it
without jurisdiction, regardless of the form which such judgment
make take on.
With this rule in mind, let us examine the character and scope
of the "order" sued upon in this case.
The order was entered in a special statutory proceeding of a
character such that the Supreme Court of Minnesota has declared
that it is intended to be "
summary and without formal
pleadings, and not controlled by all the forms
Page 247 U. S. 159
usually incident to judicial procedure." 132 Minn. 9, 12; the
hearing in such cases is upon "such notice as it [the court] deems
proper by publication or otherwise to be given;" upon the hearing,
the court
"shall receive and consider such evidence
by affidavit or
otherwise as may be presented by the receiver, or by any
creditor, officer, or stockholder appearing in person or by
attorney,"
and the statute expressly provides that:
"Such order shall be conclusive as to all matters relating to
the
amount, propriety, and necessity of the assessment,
against all parties therein adjudged liable upon, or on account of,
any stock or shares of such corporation, whether appearing or being
represented at the hearing or not or having notice thereof or
not."
Rev.Laws 1905, § 3186.
That the conclusive character of the order entered in such a
proceeding has been strictly confined by the Minnesota Supreme
Court to the respects in which the statute just quoted declares it
shall be conclusive, leaving all other defenses open to the
stockholder, is shown by the following decisions:
The act in force when the order now under discussion was entered
was passed in 1899, and, in the following year, the Supreme Court
of Minnesota sustained its constitutionality in
Straw &
Ellsworth Manufacturing Co. v. Kilbourne Co., 80 Minn. 125, a
case cited with approval by this Court in both the
Bernheimer and
Converse cases,
supra. It
was there held as follows:
"Although the court inquires into the amount of the liabilities
as well as to what will probably be realized out of the assets,
its sole determination is that it is necessary and proper
that an assessment of a given amount shall be levied against each
share of stock.
That, and that only, is the ultimate issuable
fact to be found by the court."
"The plain purport of §§ 3 and 5 is that, after an
Page 247 U. S. 160
order of assessment has been duly made and the receiver has sued
an alleged stockholder to recover upon the assessment, the order
cannot be attacked in that action upon the ground that the
assessment was unnecessary or excessive, or upon the ground that
the defendant was not actually [made] a party to, or personally
notified of, the hearing upon which the assessment was made. . .
."
"But, as we have heretofore intimated, the stockholders are not
concluded in all respects by the determination of the court, nor is
that the fair meaning of chapter 272, § 5. A person sued as
a
shareholder may show, if he can,
that he is not a
shareholder at all, or that he is not the holder of so large an
amount of stock as is alleged, or that he has discharged his
liability, or that he has a claim against the corporation which he
may, in law or equity, set off against the claim or judgment in
assessment,
or he may make any other defense which is personal
to himself."
Again, in its latest construction of the act, in 1916, in
Finch, Van Slyck & McConville v. John F. Vanasek, 132
Minn. 9, 12, the court uses this language:
"It was intended by the statute that the proceeding should be
summary and without formal pleadings, and it is not controlled by
all of the forms usually incident to judicial procedure.
The
court, under the statute, deals in the main with
probabilities, and
is not authorized to determine any fact,
other than that of insolvency and the amount of the assessment to
be made, which in any way precludes the stockholders in a
subsequent action brought to enforce the assessment.
The
assessment is but preliminary to such an action, and therein the
stockholders may present all matters that may be available to them
in defense. Straw & Ellsworth Mnfg. Co. v. L.D. Kilbourne Boot
& Shoe Co.,"
supra.
Thus is the expression in the earlier case, "[h]e [the
stockholder] may make any other defense personal to himself,"
interpreted in this later case as meaning
Page 247 U. S. 161
"all matters that may be available to them [the stockholders] in
defense."
During the sixteen years between these two decisions, that court
had under consideration the scope of several such "orders"
[following the language of the act, the court habitually refers to
them as "orders," not "judgments"], and it has expressed its
conclusions as follows:
In
Dwinnell v. Kramer, 87 Minn. 392 (1902), in a suit
upon an assessment order, made under the act we are considering
against the holder of a policy in a mutual insurance company, there
is no
"difference in principle, in respect to the question now under
consideration, between an action to recover on premium notes when
insolvency of the company has made an assessment on the members
necessary and an action to enforce a stockholder's liability,
constitutional or statutory,"
80 Minn. 134, the defense was made on demurrer that the policy
issued to the defendants
"shows upon its face that the defendants were not insured on the
mutual plan, and that the extent of their liability by the terms of
the policy was the amount of the premium named therein which has
been paid."
This defense was entertained and held valid by the court against
precisely such a "judgment" as this Court now holds conclusive
against a defense in principle precisely similar -- that, under the
contract relation of the defendant to the corporation, he was not
liable for any double liability assessment.
Again, in
Swing v. Humbird, 94 Minn. 1 (1904), in an
action on an assessment made by the Supreme Court of Ohio in a suit
on a mutual insurance company policy under a statute similar to
that of Minnesota, the court holds in the syllabus, paragraph
1:
"Such assessment is not conclusive upon any policyholder as to
the question whether his relation to the company was such as to
subject him to liability for an assessment. The judgment making the
assessment is, however,
Page 247 U. S. 162
conclusive as to matters relating to the necessity for, and the
amount of, the assessment."
In the opinion the court says:
"The plaintiff contends, in effect, that the
ex parte
decree in question is conclusive upon the defendants upon the
question of their liability to assessment for the losses of the
company, and that they are barred from urging the defense pleaded
in this case.
The question of the conclusiveness of an
assessment upon stockholders and members of a corporation for
the payment of its liabilities made by a court having jurisdiction
to wind up its affairs
is too well settled in this state to
justify any extended discussion of it. Where a court has such
jurisdiction of a corporation, its order or decree making an
assessment upon its stockholders or members without personal notice
to them is conclusive as to all matters relating to the necessity
for making the assessment and the amount thereof.
But it does
not conclude any stockholder or member as to the question whether
his relation to the corporation was such as to subject him to
liability for an assessment, or as to any other defense
personal to himself [citing cases]. . . . The assessment in the
case last cited [
Dwinnell v. Kramer, supra] was made by
one of the courts of our own state, yet effect was given to the
claim of the defendant that, by virtue of his policy contract, he
was not liable to assessment."
Here again, the same character of defense urged in the instant
case was entertained and sustained,
viz.: that,
notwithstanding the order or judgment, the policies on which the
assessment was entered were "of a class which imposed no liability
upon the holders thereof beyond the amount of the cash deposit
required." In the case at bar, the character of the corporation is
such that no double liability can constitutionally be imposed on
any of its stockholders.
Again, in
Swing v. Red River Lumber Co., 105 Minn.
Page 247 U. S. 163
336 (1908), the court had under consideration an assessment upon
the policyholders of a mutual insurance company entered by the Ohio
Supreme Court under a statute similar to that of Minnesota, and the
court said:
"The last contention of the plaintiff to be considered is to the
effect that the decree of the Supreme Court of Ohio making the
assessment is conclusive upon the defendant upon the question of
its liability to be assessed for the losses of the company, and
that the trial court in this case, by refusing to give such
conclusive effect to the decree, refused to give full faith and
credit to the judicial proceedings of the State of Ohio, as
required by section 1, Art. IV, of the federal Constitution. The
decree was
ex parte as respects the defendant, it having
been made without notice to the defendant. The decree, then, the
court having jurisdiction of the corporation, was conclusive as to
all matters relating to the necessity for and the amount of the
assessment,
but it is not conclusive as to the question whether
the contract relations of an alleged member to the company were
such as to subject him to liability for the assessment. It did
not, nor could it, deprive a member of the company of any defense
going to show that he was not liable to be assessed for the losses
of the company.
Great Western Tel. Co. v. Purdy,
162 U. S.
329;
Swing v. Weston Lumber Co., 205 U. S.
275."
These cases, made complete by
Finch, Van Slyck and
McConville v. John F. Vanasek, supra, decided in 1916,
give us a line of decision not only general in terms, but specific
in application, consistently maintained for sixteen years, which,
it seems to me, makes it very clear that, if the suit commenced in
North Dakota which we are considering had been instituted in a
Minnesota court, it would have been open to the defendant
stockholder to show, in defense, that his relations to the company
were such as not to subject him to liability (94 and 105 Minn.,
supra), and that therefore the opinion of the Court gives
to the
Page 247 U. S. 164
"order" of an inferior court of Minnesota a faith and credit in
North Dakota which it would not have had in the state of its
origin, a result which I venture to think is unsound in principle,
anomalous in our judicial history, and likely to lead to most
unfortunate results.
The opinion of the Court concedes that, notwithstanding this
"judgment," it was open to the defendant stockholder, in the North
Dakota case, to show, if such were the fact, that he was not a
stockholder at all, that he owned but half as many shares as was
alleged, that he had paid the amount assessed against him in whole
or in part, or that he had a set-off to apply on the amount of the
assessment. But nevertheless the Court concludes that he cannot be
permitted to show, as was true, that he was not, and could never
have been, indebted to the receiver on the liability relied upon --
and this notwithstanding that the latest decision of the Supreme
Court of Minnesota, construing the statute of its own state, holds,
as quoted above, that, in such a suit, the stockholders "may
present all matters that may be available to them in defense," and
notwithstanding the fact that the earlier cases also held that such
an order is not conclusive as to "whether the contract relations of
the alleged member and the company were such as to subject him to
liability for the assessment" (94 and 105 Minn.,
supra).
When we add that the holding of this Court in the
Bernheimer case, repeated in the
Converse case,
supra, was that
"it may be regarded as settled that, upon acquiring stock, the
stockholder [in a Minnesota corporation] incurred an obligation
arising from the constitutional provision, contractual in its
nature,"
we are seemingly confronted with the conclusion that the
decisions of a supreme court of a state, construing its own
statutes, of the character such as we have here (
Flash v.
Conn, 109 U. S. 371,
109 U. S.
378), are no longer of controlling influence on this
Court, but may be ignored in its discretion.
Page 247 U. S. 165
Believing, as I do, that, upon the discussion in this opinion
and upon the authorities cited, the defense that the insolvent
corporation involved was one within the exception of the Minnesota
Constitution, and that therefore no double liability attached to
the defendant in error; that, under the Minnesota decisions cited,
this defense could have been successfully made against the order if
it had been sued on in a Minnesota court; that the implied finding
that the corporation was not within the exception is necessarily
jurisdictional, and that therefore it was open to the stockholder
to assail it when sued in North Dakota as it would have been in
Minnesota, and that facts sufficient appeared on the face of the
complaint to show that, in this case, the defense was a valid one
-- I think the judgment of the Dakota courts should be affirmed,
and therefore I dissent from the decision of the Court.
MR. JUSTICE PITNEY and MR. JUSTICE BRANDEIS concur in this
dissent.