Upon a bill in equity by subscribers for shares in a corporation
to compel it to issue shares to them, and to set aside as
fraudulent a contract by which it had agreed to transfer all its
shares to another person, a decree was entered, setting aside that
contract, and ordering shares to be issued to the plaintiffs, and a
new board of directors to be chosen. Upon a bill by other
stockholders, afterwards filed by leave of court in the same cause
and entitled a supplemental bill, alleging fraud and mismanagement
of the new officers and insolvency of the company, and praying for
the appointment of a receiver, the court, without notice to the
plaintiffs in the original bill, appointed a receiver and made an
order for a call or assessment upon all stockholders of the
company.
Held that this order, although conclusive
evidence of the necessity of the assessment as against all
stockholders, did not prevent a plaintiff in the original bill,
when sued by the receiver, in the name of the corporation, for an
assessment, from pleading the statute of limitations to his
liability upon his subscription.
In an action brought in a state court by a corporation against a
subscriber for shares to recover an assessment thereon under an
order of assessment made by a court of another state upon all the
stockholders, in a proceeding of which he had no notice, a judgment
of the highest court of the state for the defendant upon the ground
that, by its construction of a general statute of limitations of
the state, the cause of action accrued against him at the date of
his contract of subscription, and not at the date of the order of
assessment, involves no federal question, and is not reviewable by
this Court on writ of error.
This was an action brought August 30, 1888, in the District
Court of Des Moines County, in the State of Iowa, by the
Page 162 U. S. 330
Great Western Telegraph Company, a corporation of Illinois, by
its receiver, Elias R. Bowen, against Hiram Purdy, a citizen of
Iowa, to recover the sum of $437.50, with interest from July 10,
1886, alleged to be due from him to the company under his
subscription to its stock, and under a decree of the circuit court
of Cook County, in the State of Illinois, of that date, which
ordered an assessment upon the stockholders of the company, and
which was alleged to have been made in a suit to which he was a
party, and to be binding upon him. Trial by jury was waived, and
the case tried by the court. The material facts appeared by the
record to have been as follows:
The company was incorporated under the laws of the State of
Illinois in 1867. On February 16, 1869, Purdy subscribed for fifty
shares of the par value of $25 each, by signing and delivering to
the company's agent at Burlington, in the State of Iowa, the
following writing:
"
Capital, $3,000,000; Shares, $25;"
"
Assessments not to Exceed $10 on a Share"
"
Subscription List for the Capital Stock of the"
"
Great Western Telegraph Company"
"We, the subscribers hereunto, for value received, severally,
but not jointly, agree to take the number of shares in the capital
stock of the Great Western Telegraph Company placed opposite our
respective names, and pay for the same in installments, to-wit,
five percent on amount paid in, and the balance as the directors
from time to time may order. In consideration thereof the Great
Western Telegraph Company agree that when forty percent of the par
value of the shares shall have been paid under such orders, and the
installment receipts therefor surrendered to the company, the
number of shares severally subscribed by the undersigned shall be
issued to them as full-paid stock by the said company."
"T. C. Snow is appointed agent to solicit stock and receive only
the first installment of five percent (fifty cents on a share) at
the time of subscription."
"J. Snow, Secretary"
Page 162 U. S. 331
Upon this subscription, Purdy paid $275 before November,
1869.
On November 19, 1869, Jeremiah Terwilliger and others, including
Purdy, subscribers to stock in the company, and who had paid money
on their subscriptions, filed a bill in equity in the Circuit Court
of Cook County, Illinois, against the company, its president and
secretary, and Selah Reeve, to compel the issue of certificates of
stock to the plaintiffs and other subscribers, and to set aside as
fraudulent a contract between the company and Reeve, by which Reeve
agreed to build its telegraph lines, and the company agreed to
transfer to him its entire capital stock. On November 16, 1872, a
decree was entered in that suit setting aside the contract between
Reeve and the company, ordering an accounting between them,
ordering the company to issue to the subscribers certificates for
as may shares as they were entitled to by the money paid, directing
the President and secretary to call a meeting of the company to
choose a new board of directors, reserving leave to the plaintiffs
at any time to apply for such further order or decree as should be
necessary to carry out this decree or be necessary in the cause and
ordering the individual defendants to pay the costs of the
suit.
On January 7, 1873, those costs were paid, and on January 29,
1873, a meeting of the company was held and a new board of
directors chosen, and a certificate for twenty-seven and a half
shares was issued to Purdy.
The following proceedings were afterwards had in that cause:
"On September 19, 1874, other stockholders, by leave of the
court, intervened, and filed a 'supplemental bill' against the
company and its officers alleging mismanagement and fraud on the
part of the new officers and the insolvency of the company and
praying for the appointment of a receiver. On October 7, 1874, upon
motion of the plaintiffs in the supplemental bill, and after notice
to and with the consent of all the parties to that bill, the court
appointed Oliver H. Horton receiver of the property of the company.
Bowen was afterwards appointed receiver in place of Horton, and
upon his petition, and upon the report of a
Page 162 U. S. 332
master appointed to inquire into the amount of the debts and
assets of the company and the percentage of the par value of the
shares necessary to be paid by the stockholders to satisfy those
debts, the court, on July 10, 1886, adjudged that the company was
insolvent and had no means for paying its debts except the sums
remaining unpaid upon subscriptions for stock, and that there were
more than two thousand stockholders widely scattered through twelve
states and territories, and it was impracticable to make all of
them parties to the suit, and entered an order and decree"
"that a call or assessment be, and the same is hereby, made upon
the stock and stockholders of the said company (excepting those who
have paid in full), their legal heirs, representatives, and
assigns, of thirty-five percentum of the par value of the shares of
said stock subscribed for or held by them, being eight dollars and
seventy-five cents on each and every share thereof, and that the
stockholders of said company, and each and everyone of them
(excepting those who have paid twenty-five dollars on each and
every share subscribed for or held by them), and their heirs, legal
representatives, and assigns, be, and they hereby are, severally
ordered and required to pay to the receiver of said company, the
said Elias R. Bowen, the several amounts by this decree called for
and assessed and required to be paid, namely, eight dollars and
seventy-five cents on each and every share subscribed for or held
by them, respectively, and that the same be paid upon the demand of
said receiver or his agent;"
and
"that said receiver shall at once proceed to collect the said
sums so ordered to be paid by this decree, and shall make all
necessary demands for such payments, shall employ such assistance
and counsel, take such action and institute such suits and
proceedings in the name of the said company and in such
jurisdictions as he shall be advised or deem expedient and proper
and for the purpose of enforcing the payment of the sums hereby
ordered paid."
On August 29, 1888, the receiver accordingly demanded of Purdy
the payment of the sum of $8.75 upon each share of his stock,
amounting to $437.50, and on the next day brought this action.
Page 162 U. S. 333
The inferior court of Iowa in which this action was brought gave
judgment for the defendant. The plaintiff appealed to the Supreme
Court of Iowa, which affirmed the judgment upon the ground that the
action was barred by the statute of limitations. 83 Ia. 430.
The plaintiff sued out this writ of error, and assigned for
error that the Supreme Court of Iowa did not give full faith and
credit to the decree of assessment of the court of Illinois, as
required by Article IV, Section 1, of the Constitution, and section
709 of the Revised Statutes of the United States.
Page 162 U. S. 334
MR. JUSTICE GRAY, after stating the case, delivered the opinion
of the Court.
By Article IV, Section 1, of the Constitution of the United
States,
"full faith and credit shall be given in each state to the
public acts, records and judicial proceedings of every other state.
And Congress may, by general laws, prescribe the manner in which
such acts, records and proceedings shall be proved and the effect
thereof."
In the exercise of the power so conferred, Congress, besides
providing the manner in which the records and judicial proceedings
of the courts of any state shall be authenticated, has enacted
that
"the said records and judicial proceedings, so authenticated,
shall have such faith and credit given to them in every court
within the United States that they have by law or usage in the
courts of the state from which they were taken."
Act May 26, 1790, c. 11; 1 Stat. 122; Rev.Stat. § 905.
The plaintiff relied on the order of assessment made by a court
of the State of Illinois, as a judgment of that court, entitled to
the effect of being conclusive evidence of the plaintiff's right to
maintain this action against the defendant. The Supreme Court of
the State of Iowa denied it that effect.
Page 162 U. S. 335
The question whether that court thereby declined to give full
faith and credit to a judicial proceeding of a court of another
state, as required by the Constitution and laws of the United
States, was necessarily involved in the decision.
This Court therefore has jurisdiction of the case, but must
judge for itself of the true nature and effect of the order relied
on.
Armstrong v. Treasurer of
Athens County, 16 Pet. 281,
41 U. S. 285;
Texas & Pacific Railway v. Southern Pacific Co.,
137 U. S. 48;
Grover & Baker Co. v. Radcliffe, 137 U.
S. 287;
Carpenter v. Strange, 141 U. S.
87;
Huntington v. Attrill, 146 U.
S. 657,
146 U. S. 666,
146 U. S.
683-686, and cases cited.
By the original contract between the parties, made in the State
of Iowa on February 16, 1869, Purdy, the present defendant, agreed
to take fifty shares, of the par value of $25, in the plaintiff
company, and to pay five percent (which he did), and "the balance
as the directors from time to time may order," and the company
agreed to issue the shares to him as soon as forty percent had been
paid.
On November 19, 1869, Purdy and other subscribers for shares
filed in a court of the State of Illinois a bill in equity to
compel the company to issue shares to them, and to set aside as
fraudulent a contract by which the company had agreed to transfer
all its capital stock to one Reeve, and upon that bill, on November
16, 1872, obtained a decree setting aside that contract and
ordering shares to be issued to the subscribers as prayed for, and
a new board of directors to be chosen. By that decree, all the
objects of the suit were accomplished so far as Purdy was
concerned, and he does not appear to have had any notice of, or
part in, any further proceedings. That bill did not ask for the
appointment of a receiver or for any order of assessment upon
stockholders.
The subsequent proceeding, begun September 19, 1874, alleging
mismanagement and fraud of the new officers and the insolvency of
the company, was by other stockholders, and, although entitled a
"supplemental bill," and permitted by the court to be filed in the
former cause, was a distinct proceeding in which Purdy had and took
no interest. The orders of the court upon this proceeding,
appointing on October
Page 162 U. S. 336
7, 1874, a receiver, and on July 10, 1886, making a "call or
assessment" upon the stockholders of the company, were entered
without any notice to him or consent on his part. He was not
personally a party to this proceeding nor named therein. The
receiver was appointed almost two years, and the assessment ordered
more than thirteen years, after Purdy had ceased to have any
connection with the litigation.
There can be no doubt that, as heretofore declared by this
Court,
"after a decree disposing of the issues and in accordance with
the prayer of a bill has been made, it is the prayer of a bill has
been made, it is not competent for one of the parties, without a
service of new process or appearance, to institute further
proceedings on new issues and for new objects, although connected
with the subject matter of the original litigation, by merely
giving the new proceedings the title of the original cause. If his
bill begins a new litigation, the parties against whom he seeks
relief are entitled to notice thereof, and without it they will not
be bound."
Smith v. Woolfolk, 115 U. S. 143,
115 U. S.
148.
The question, therefore, is of the effect, as against Purdy, of
the order for an assessment made by the Illinois court in a
proceeding to which the corporation was a party, but to which he
personally was not.
The order of that court was, in effect, as it was in terms,
simply a "call or assessment" upon all stockholders who had not
paid for their shares in full. It was such as the directors might
have made before the appointment of a receiver, and in making it,
the court, having by that appointment assumed the charge of the
assets and affairs of the corporation, took the place and exercised
the office of the directions.
Scoville v. Thayer,
105 U. S. 143,
105 U. S. 155;
Hawkins v. Glenn, 131 U. S. 319,
131 U. S. 329;
Lamb v. Lamb, 6 Bissell 420, 424;
Glenn v.
Saxton, 68 Cal. 353;
Great Western Tel. Co. v. Gray,
122 Ill. 630, 636, 640;
Great Western Tel. Co. v.
Loewenthal, 154 Ill. 261.
The order of assessment, whether made by the directors as
provided in the contract of subscription, or by the court as the
successor in this respect of the directors, was doubtless, unless
directly attacked and set aside by appropriate judicial
Page 162 U. S. 337
proceedings, conclusive evidence of the necessity for making
such an assessment, and to that extent bound every stockholder
without personal notice to him.
Hawkins v. Glenn,
131 U. S. 319;
Glenn v. Liggett, 135 U. S. 533;
Glenn v. Marbury, 145 U. S. 499.
But the order was not, and did not purport to be, a judgment
against anyone. It did not undertake to determine the question
whether any particular stockholder was or was not liable in any
amount. It did not merge the cause or action of the company against
any stockholder on his contract of subscription, nor deprive him of
the right, when sued for an assessment, to rely on any defense
which he might have to an action upon that contract.
In this action, therefore, brought by the receiver in the name
of the company, as authorized by the order of assessment, to
recover the sum supposed to be due from the defendant, he had the
right to plead a release, or payment, or the statute of
limitations, or any other defense going to show that he was not
liable upon his contract of subscription.
In each of the three cases last cited above, the defense of the
statute of limitations was entertained and passed upon.
Hawkins
v. Glenn, 131 U. S. 332;
Glenn v. Liggett, 135 U. S. 547;
Glenn v. Marbury, 145 U. S.
506.
The whole effect of the order of assessment being to fix the
amount which any stockholder liable under his contract of
subscription should pay, and to authorize the receiver to bring
suits against stockholders for the same, but not to determine
whether the present defendant, or any other particular stockholder,
was liable for anything, the Iowa court, by sustaining the defense
of the statute of limitations, did not deny to the judicial
proceeding of Illinois the full faith and credit to which it was
entitled.
The statute of limitations of the State of Iowa provides
that
"the following actions may be brought within the times herein
limited respectively after their causes accrue, and not afterwards,
except when otherwise specially declared."
"4. Those founded on unwritten contracts those brought for
injuries to property, or for relief on the ground of fraud
Page 162 U. S. 338
in cases heretofore solely cognizable in a Court of Chancery,
and all other actions not otherwise provided for in this respect,
within five years."
"5. Those founded on written contracts, on judgments of any
courts, except those courts provided for in the next subdivision,
and those brought for the recovery of real property, within ten
years."
"6. Those founded on a judgment of a court of record, whether of
this or of any other of the United States, or of the federal courts
of the United States, within twenty years."
Code Iowa, 1873, § 2529.
This action was not brought on a judgment, for there had been no
judgment. But it was brought on the defendant's written contract of
subscription, and was therefore by the terms of the Iowa statute,
barred in ten years after the cause of action accrued. The action
was brought more than ten years after the contract, but within ten
years after the order of assessment.
In many jurisdictions the cause of action, within the meaning of
a statute of limitations, would be held to have accrued at the time
of the order for an assessment, and not before. It has been so held
by the Supreme Court of the State of Illinois, where this company
was incorporated, and the order of assessment made, as well as by
this Court in cases coming up from circuit courts of the United
States, and unaffected by decisions of the highest court of the
state in which those courts were held.
Great Western Tel. Co.
v. Gray, Hawkins v. Glenn, Glenn v. Liggett, and
Glenn v.
Marbury, above cited.
But the Supreme Court of Iowa in the present case held that, as
it rested with the directors of the corporation to make that order,
the delay in making it could not suspend the operation of the
statute of limitations, and that the case was within the rule,
established by a series of decisions of that court, that when a
plaintiff could at any time, by making a demand, or giving a
notice, acquire a right to recover against the defendant, the
statute of limitations began to run when he might have done so.
Great Western Tel. Co. v. Purdy, 83 Ia. 430, 433, and
cases cited.
Page 162 U. S. 339
The limitation of actions is governed by the
lex fori,
and is controlled by the legislation of the state in which the
action is brought, as construed by the highest court of that state,
even if the legislative act or the judicial construction differs
from that prevailing in other jurisdictions.
McElmoyle
v. Cohen, 13 Pet. 312;
Bauserman v. Blunt,
147 U. S. 647;
Metcalf v. Watertown, 153 U. S. 671;
Balkam v. Woodstock Iron Co., 154 U.
S. 177.
Neither the statutes nor the decisions of the State of Iowa upon
this subject have made any discrimination against the citizens, the
contracts, or the judgments of other states, or against any right
asserted under the Constitution or laws of the United States. The
case is thus distinguished from
Christmas
v. Russell, 5 Wall. 290, cited at the bar.
The question at what time the cause or action accrued in this
case, within the meaning of the statute of limitations of Iowa, was
not a federal question, but a local question, upon which the
judgment of the highest court of the state cannot be reviewed by
this Court.
Judgment affirmed.
