GOSS v. CARTER, 156 F. 746

SHELBY, Circuit Judge (after stating the facts as above). The decision which we have determined to make in this case we think is sustained, if not required, by the opinion of the Supreme Court in Bernheimier v. Converse (decided May 27, 1907) 206 U. S. 516, 27 Sup. Ct. 755, 51 L. Ed. 1163, after the learned trial judge had sustained the demurrer to the petition. 1. It is held by the Supreme Court in Booth v. Clark, 17 How. 322, 15 L. Ed. 164, and in later cases, that a chancery receiver, having no other authority than that which arises from his appointment, cannot maintain an action in another jurisdiction.

It is contended that the rule established in these cases is applicable to the plaintiff here, and that, as he is a receiver appointed in Nebraska, he cannot maintain an action in Texas. It is important, therefore, to ascertain whether he is vested by law with other rights than merely those conferred on him as a chancery receiver. The plaintiff was made receiver by the Nebraska court as a part of the procedure to enforce liabilities of stockholders fixed by the Constitution of Nebraska. The sections in question are parts.of

article 11b, and are as follows: ‘.‘See. 7. Every stockholder in a banking corporation or institution shall be individually responsible and liable to its creditors over and above the amount of stock by him held to an amount equal to his respective stock or shares so held, for all its liabilities accruing while he remains such stockholder; and all banking corporations shall publish quarterly statements under oath of their assets and liabilities.” “Sec. 4.

In all cases of claims against corporations and joint stock associations, the exact amount justly due shall be first ascertained, and after the corporate property shall have been exhausted the original subscribers thereof shall be individually liable to the extent of their unpaid subscription, and the liability for the unpaid subscription shall follow the stock.” These provisions are self-executing. They require no supplementary legislation. The liability imposed by them is a trust fund for the benefit of all creditors of the corporation.

The only proper way to enforce the liability is by suit in equity in behalf of all the creditors against the corporation and stockholders, in which suit all equities should be adjusted and a receiver or trustee appointed to collect from each his pro rata share of the total indebtedness of the corporation for the benefit of all the creditors. This constitutional liability of the stockholders cannot be enforced till the indebtedness of the corporation is judicially ascertained and the assets of the corporation exhausted by legal process.

The following are among the Nebraska cases which place these constructions on the Nebraska Constitution: Farmers’ Loan & Trust Co. v. Funk, 49 Neb. 353, 68 N. W. 520; State v. German Savings Bank, 50 Neb. 734, 70 N. W. 221; German National Bank v. Fanners’ & Merchants’ Bank, 54 Neb. 593, 74 N. W. 1086; Van Pelt v. Gardner, 54 Neb. 701, 75 N. W. 874; Hastings v. Barnd, 55 Neb. 93, 75 N. W. 49; Brown v. Brink, 57 Neb. 606, 78 N. W. 280; Hamilton National Bank v. American Loan & Trust Co., 66 Neb. 67, 92 N. W. 190; s. c. on second appeal, 72 Neb. 81, 100 N. W. 202.

The plaintiff appointed in such proceeding is not a mere custodian of property, but he is clearly vested with the legal title. The terms of the Nebraska Constitution point out a trust fund in the event of the insolvency of the corporation. The construction placed on the Constitution by the Nebraska courts makes a receiver or trustee necessary to the enforcement and administration of the trust. When appointed, he has the legal title to the trust fund, with the power and charged with the duty to collect it for the creditors of the corporation. He represents all the creditors entitled to share in the fund.

In such case the receiver can sue in a foreign jurisdiction. Bernheimer v. Converse, 206 U. S. 516, 27 Sup. Ct. 755, 761, 51 L. Ed. 1163; Howarth v. Lombard, 175 Mass. 570, 579, 56 N. E. 888, 49 L. R. A. 301; King v. Cochran, 76 Vt. 141, 56 Atl. 667, 104 Am. St. Rep. 922; Glenn v. Soule (C. C.) 22 Fed. 417. 2. A question is raised as to the effect of the decree on which this suit is brought.

It may be stated as a, general rule that a stockholder is a part of the corporation to the extent that he is privy to the proceedings to which the corporation was a party, and that he is bound by a decree of a court against the corporation in the enforcement of a corporate duty, although not a party as an individual, but only through representation by the company. Sanger v. Upton, 91 U. S. 56, 23 L. Ed. 220. In Hawkins v. Glenn, 131 U. S. 319, 9 Sup. Ct. 739, 33 L.

Ed. 184, an assessment ordered by a court which had jurisdiction of the corporation was held binding on the stockholders residing in another state, although not made, parties as individuals. The assessment sued on in that case was on a subscription for stock, but the principle involved here is the same. When the defendant became a stockholder in the American Loan & Trust Company, it is presumed that he did so with knowledge of the laws of Nebraska which controlled- the company.

By those laws, as a stockholder, he became individually responsible and liable to its creditors over and above the amount of stock by him held to an amount equal to the stock so held for all of the company’s liabilities accruing while he remains a stockholder. This liability is not only statutory, but it is contractual; the law imposing the liability being a part of the contract of the stockholder with the corporation. The Nebraska Constitution also provides the conditions upon which this liability was to be enforced.

It is a liability secondary in its nature, to be enforced only when necessary to protect the corporation’s creditors. The exact amount of the claims against the corporation must be first judicially ascertained, the assets of the corporation exhausted, and the amount required by each stockholder necessary to satisfy the company’s unpaid debts must be also .judicially ascertained. Such is the effect of the sections of the Nebraska Constitution which we have quoted, as construed by the Supreme Court of the state.

The defendant, having contracted with reference to these requirements, is bound by them, and in a proceeding to enforce them he is represented by the corporation. He is necessarily bound by all valid proceedings had pursuant to the statute which controls the settlement of the affairs of the corporation. Howarth v. Lombard, 175 Mass. 570, 56 N. E. 888, 49 L. R. A. 301; King v. Cochran, 76 Vt. 141, 56 Atl. 667, 104 Am. St. Rep. 922; Bernheimer v. Converse, 206 U. S. 516, 27 Sup. Ct. 755, 51 L. Ed. 1163.

What we have said on this point is sufficient for the decision of this case; for it is now presented to us on a ruling upon a demurrer to the petition. As to what- defenses may be made to a suit on a decree like the one in question is not now to be decided. The main reason for holding the decree making the assessment binding on the stockholder is that his obligation is contractual, and that it contemplates the possibility of an assessment by a court.

The defendant would, of .course, be allowed to impeach the decree of assessment for fraud, and it has been said that such decree does not cut off defenses personal to the stockholder; that, for example, he may show that he is not a stockholder, or that he is not a stockholder for so large amount as is alleged.

But we are of opinion that, as a member of the corporation, the. defendant is bound, without personal notice to him, by the decision of the courts of the state where the corporation is organized, made in the administration of its affairs on its insolvency, determining the amount of its assets and liabilities and the amount of assessment which should be made on its stockholders. Being so bound, a demurrer to the petition because the defendant was not individually served with process in the Nebraska suit should have been overruled. 3.

It is contended that the right of action is barred by the statute of limitations of four years. Rev. St. Tex. 1895, § 3356. The stockholder’s liability which this suit is brought to enforce is secondary and conditional. It is based on the Nebraska Constitution, which we have quoted, and, while the corporation’s creditors are permitted to take steps to settle the affairs of the corporation and fix the exact amount of such secondary liability, they are not permitted individually or in groups to sue for the liability to satisfy their own claims.

It appears from the petition that the amount sued for was not decreed against the defendant till June 3, 1903. The suit was brought in the Circuit Court December 13, 1905, which is in less than four years of the date of the decree sued on. The statute of limitations did not begin to run till the decree of assessment was rendered and the receiver appointed. Bernheimer v. Converse, 206 U. S. 516, 27 Sup. Ct. 755, 51 L. Ed. 1163. The petition does not show that the suit is barred by the statute of limitations of four years, and therefore it is not amenable to demurrer on that ground.

The judgment of the Circuit Court is reversed, and the case is remanded, with instructions- to overrule the demurrer to the petition and to grant a new trial.