
    PROCEDURE FOR COLLECTING STOCKHOLDERS’ LIABILITY.
    Common Pleas Court of Fulton County.
    Rowley, Receiver, v. George W. Griffin.
    Decided, June 23, 1913.
    
      Oorporations — Action to Recover on Liability of Stockholders in Insolvent Company — Stockholders Necessary Parties Defendant — But Service of Summons Upon Them Not a Prerequisite to Entering Judgment Against Them — Void Service by Publication.
    
    1. Service by publication upon a party who is represented to be a resident of another state is void and without effect, where as a matter of fact he is an old and well known resident of this state and of an adjoining county, and this fact has long been known to various persons interested in the suit and would have become known to the plaintiff had he made the slightest effort to inform himself with reference thereto.
    2. Service of summons is not necessary in Ohio upon a stockholder in, an insolvent corporation where the action is to enforce statutory liability, notwithstanding the law of this state requires that stockholders be made parties to an action of that character, for the reason that in such case the corporation is the representative of the stockholders therein.
    3. But in an action to recover on an -assessment entered against a stockholders in an insolvent company, it is proper for him by appropriate averments to raise the question of fact as to whether ®? not he was a stockholder in the company in question. 
    
    
      Holbrook & Banker, fox plaintiff.
    
      Frank S. Ham, contra.
    
      
       After the filing of this opinion the defendant filed an amendment to his answer and cross-petition, and the cause was reheard on demurrer to the original answer and cross-petition and said amendment. The amendment admitted defendant was a stockholder in said banking company and that he was the owner of five shares of stock therein. The court, in its final opinion, adhered to its farmer holding, and held, further, that the matter contained in said -answer and cross-petition as amended is in the nature of a collateral attack upon the Lucas county judgjnent. Final judgment was rendered against defendant.
    
   Scott, J.

On demurrers to answer and cross-petition.

The case of Rowley, Receiver, v. George W. Griffin, was submitted upon two separate demurrers and a motion interposed by the plaintiff, the receiver, to and against the answer and cross-petition of the defendant, Griffin. The demurrers the court has numbered one and two, so that the record may show a separate disposition of the same. The petition in this case is one of great length, somewhat verbose, and sets forth in every detail all the material matters that are necessary and that enter into a petition of the character of this petition.

The action in this court is to enforce an assessment or judgment rendered against the defendant Griffin in the Court of Common Pleas 'of Lucas County, Ohio, in an action pending in that court, entitled, as we remember it, The Central Savings Bank Company v. The Union Central Savings Bank Company et al. That action in that court was instituted for the pui’pose of recovering a judgment against the Union Central Savings Bank' Company in favor of the plaintiff in that cause in the sum of $1,556.95. The original petition in that action in the Lucas County Common Pleas Court was filed on the 25th of January, 1904. It was afterwards amended'. The purpose of the amendment is not of any consequence at this time, so far as the rights of the parties to this action are concerned. The amendment was filed on the 20th of. May, 1908, and the action in that court then proceeded upon its way to final determination. This is a very brief statement of the substance of that action and this, pending in this court at this time. To this petition in this court a demurrer was interposed, and disposed of at some time prior to the opening of the present term. The defendant Griffin then filed an answer and cross-petition, so-called, and to this answer and cross-petition the plaintiff filed these two several demurrers numbered as we have said, 1 and 2; and also filed a motion against the petition, asking that the answer found in the answer and cross-petition be stricken out.

We come first to dispose of this motion because of the fact that it is a very easy matter to get rid of it. It has no substance. It possibly was filed for the purpose of puzzling some one, but it hasn’t served even that purpose. The motion is overruled, with exceptions.

We now come to a more difficult question, and we take up first demurrer No. 2, which in substance reads as follows: The plaintiff comes by its attorneys, and demurs to that part of the defendant’s answer claiming that plaintiff’s pretended cause of action as set forth in his petition is barred by the statute of limitations, on the ground that on its face such defense is insufficient in law. This demurrer searches the record. It goes back and touches even the petition filed in this ease. The petition in this ease avers, among other things, that on the 29th day of January, 1912, this assessment or judgment was so levied or rendered by the Lucas County Common Pleas Court against the defendant Griffin, so that whatever liability arose against Griffin by reason of his having been a stockholder of the defunct Union Central Savings Bank Company grew into life on the date last mentioned, that is, on the 29th day of January, 1912, this finding against Griffin, a stockholder, was fixed, and that court found and entered a judgment against Griffin in the sum of $601.90. Up to the 29th day of January, 1912, no finding had been made against the defendant Griffin as a stockholder of the defunct company, so that the statute of limitations could not begin to run until a finding was had against him, and that finding, as appears by the record here, was made and entered on the date last mentioned. It follows, therefore, that the allegation in the answer and cross-petition of the defendant Griffin in this case, in substance alleging that the statute of limitations has run in favor of Griffin, and has barred any action that might be had against him by reason of his having been a stockholder in said defunct savings bank, does not come within the purview of any statute of limitations barring an action of that character.

The statute of limitations in an action to enforce the liability of stockholders in an Ohio corporation probably is one of six years, but we are not called upon to pass as to whether 'the six year limitation obtains, or some other limitation. We are clearly of the opinion that the action against the stockholders in the Lucas county common pleas cause, and especially against the stockholders, the defendant Griffin here, was not barred by the statute of limitations, for that but a brief period of time had run, in fact, before the bringing of the present action in this court.

And this demurrer No. 2 to that part oi the answer and cross-petition of the defendant Griffin, will be sustained, with exceptions.

We now come to dispose of demurrer No. 1, which raises many tangled and twisted questions, and goes to the substance of the entire record of this case. The demurrer, which in substance is that the court has no jurisdiction of the subject-matter, we need not waste any time upon. This ground is overruled. The second ground of demurrer No. 2, in substance, reads; the cross-petition does not state facts sufficient to show a cause of action.

Briefly stating the history of the Lucas county common pleas case, to which reference has been made, it appears that an abortive attempt was made in that case to obtain constructive service upon the defendant here, George W. Griffin, by means of publications in some newspaper in that county of general circulation. It is questioned seriously in this answer and cross-petition of the defendant Griffin in this case, whether or not any affidavit as required by a certain section of the code, was ever filed in the Lucas county case for the purpose of obtaining constructive service: but whatever service or alleged service was obtained, we find was illegal and void, for the reason that Griffin was represented to be a resident of Lafayette, Indiana; his residence was fixed as being in that foreign state and in that city, whereas in truth and in fact, as a great many people know, Mr. Griffin has resided in the little city of Fayette in Fulton county, Ohio, for nearly his entire lifetime, at least fifty years. It is alleged in the answer and cross-petition that Griffin was well known in the city of Toledo, that the receiver, Rowley, knew him; that he was a man of affairs in this part of the country, and especially in and around the community of Fayette; that he was a -banker for six years; that he was an agent of the Union Central Life Insurance Company for many years, that he visited Toledo many times and oft, in season and out of season; that he visited at the home of McAfee, one of the stockholders in the defunct banking company, and because of these visits, and because of the long residence of Griffin, the defendant, in this part of the country all these years, it is charged in the answer and cross-petitiqn that the receiver ought to have known his residence, and if he did not know it, he could have discovered it by the slightest use of ordinary diligence, or any diligence. Therefore, as it is alleged and claimed in the answer and cross-petition, the pretended service by publication, the constructive service attempted to be made upon Griffin, was never made, and the attempt was abortive, and the act was foolish and frivolous and no service whatever was ever had upon Mr. Griffin in the Lucas County Common Pleas Court.

It is alleged in the answer and cross-petition, and is not denied by any person who has an interest in this action, that no actual service was ever made upon the defendant Griffin in that sequestration case in Lucas county and Griffin, the defendant, never entered his appearance in that case. Griffin was, however, made a party defendant, and charged as having been a stockholder in the defunct company, in the action in Lucas county. But he was named in that action by his initials, “G. W. Griffin,” and not as George W. Griffin.

We are now called upon to determine the important question in this case as raised by the second ground of demurrer No. 1, whether or not any servicie whatever was necessary to have been made in that Lucas county case upon Griffin, in order to give the court jurisdiction in that case, through the receiver, Rowley, or in an othter way, to levy an assessment against Griffin, a stockholder in the defunct banking company, or to render a judgment against him for the alleged statutory double liability as a stockholder in that company. We may 'pause long enough to say now that this action in this court is ome to enforce a double liability against a stockholder in an Ohio corporation, which liability was created by the Constitution of 1851 of our state, and, if not self-acting, was afterwards put in action and operation by a certain act of the Legislature of our state. And whatever liability arose against Griffin as a stockholder in that company became full of life prior to the adoption by the people of the state of an amendment to the Constitution, doing away with double liability as fixed under the old Constitution. And this amendment to our Constitution, destroying the double liability under the old Constitution, became effective, as we fitemember it, in the year 1903. Under the statutes of our state and the present General Code, a way has been laid out by the Legislature directing the proceedings in an action to enforce liability against stockholder^ in corporations. I need -not recite these acts of the Legislature. They are familiar to every practicing attorney. But among other things, one of the sections of the code requires that all officers and stockholders be made parties in such actions. The question arises now as to whether or not this requirement stated that all stockholders made parties in actions, sometimes called, actions of sequestration, actions to enforce statutory liabilities, shall be summoned and brought into court; or is it true that- the corporation in which any person against whom suit may be brought to enforce the statutory liability represents the stockholders, in such suit. If that doctrine be true, that is, if the corporation in which a person against whom an action is brought to enforce the statutory liability, is the representative of all of tine stockholders in such actions, then we are of the opinion that no service of summons or by publication need be made in an action of that kind. '

When a party subscribes his name as a stockholder in a corporation in Ohio, and agrees to take a certain number of shares of stock, he enters into a sort of contractual relation, not with the corporation itself or with its officers or agents, but with the creditors of the corporation, if the corporation shall ever have any creditors after its organization. And this double liability, about which we have been speaking, is a matter of protection to the creditors of the corporation, a thing to protect them in the future.

We call counsel’s attention to a case, a recent one, found in the advance sheets of the United States Supreme Court, issued May 1st, 1912, the case of Converse v. Hamilton. This was an action brought in the courts of Wisconsin to enforce a double liability against the stockholders in an insolvent Minnesota corporation, and in this case it appears that the question was raised in the lower court that no service whatever was made on two of the stockholders of this Minnesota corporation, and after the sequestration suit, had ended, or partially ended, in the courts of Minnesota, the receiver sought to enforce a stockholders’ liability'against Hamilton and another in the courts of Wisconsin, in the Circuit Court of Dane County. The petitions filed by the receiver in that court to enforce the liability were attacked by demurrers, and upon other grounds, and one of the grounds upon which the fight was waged in the Wisconsin courts was that no service of any kind had ever been made in the sequestration suit in Minnesota against these two foreign stockholders. The ease went to the Supremie Court of Wisconsin, and the stockholders won out in that court. The receiver then took a writ of error to the Supreme Court of the United States, and that court reversed the lower courts of Wisconsin, as well as the Supreme Court of Wisconsin, and held that under thie legislative enactments of the state of Minnesota, it was not necessary that any notice be given even to stockholders in a sequestration suit, or in a suit to enforce a stockholder’s-liability, for the reason that the corporation which had become defunct, dead, possibly insolvent, being in court, was thie representative of every stockholder of that corporation.

But what puzzles us somewhat in disposing of this intricate question is that Minnesota has its statute, which provides in substance as follows, speaking of an order and an assessment against a stockholder made by and through a receiver, and then confirmed by a court:

“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.”

Now I can readily see why under an enactment of this kind, no process need issue in an action to ¡enforce a stockholder’s liability, because it is done away with by the act of the Legislature of Minnesota; but that is not true in Ohio, where all stockholders must bie made parties. That requirement is explicit, and being a necessary thing to bé done, a requirement in an action to enforce a stockholder’s liability, does it follow that all stockholders who must be made parties must also be served, either by summons, or if non-residents, by publication? The learned counsel, Mr. Ham, in his extended brief, asserts that thie fact that the Legislature has made it necessary in a proceeding to enforce a stockholder’s liability that all stockholders shall be made parties, that therefore it follows, as the night the day, that the common law rule that the corporation represents the stockholders in an action of that character is abrogated.

It is a puzzling question to determine. We are almost unable to say whether Mr. Ilam is correct in that statement. He argues logically to sustain his proposition; and wiiere it not for the case about which we are now speaking, and two other cases we find in the Federal courts, we would be compelled to agree with Mr. Ham. But wje find in this case of Converse v. Hamilton, this doctrine laid down by the Supreme Court of our republic:

“Under this statute as interpreted by the Supreme Court of this state, as also by this court, tine receiver is not an ordinary chancery receiver or arm of the court appointing him, but a gwasi-assignee and representative of the creditors; and when the ordier levying the assessment is made, he becomes invested with the creditor’s rights of action against the stockholders, and with full authority to enforce the same in any court of competent jurisdiction in the state or elsewhene.” And numerous cases are cited.

And the court further says:

“The constitutional validity of Chapter 272 has been sustained by the Supreme Court of the state, as also by this court, and this because, first, the statute is but a reasonable regulation of the mode and means of enforcing the double liability assumed by those who became stockholders in a Minnesota corporation; second, while the order levying the assessment is made conclusive, as against all stockholders, of all matters relating to th® 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 third, while the order is made conclusive as against the stockholder, leven 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 contraeturai obligation in respect of its debts.” And numerous eases are cited.

Now, if it were not for Section 5 of the act of Minnesota which we have read, this case would seem to settle, beyond all peradventure, the case at bar, so far as the questions are concerned that arise upon this siecond ground of demurrer No. 1. But because of this Section 5 of the Minnesota act, doing away with the necessity of making stockholders party to an action of this character, we are left in the dark, and the darkness grows thicker as we call to memory the act of the Legislature of our own state, in which stockholders are required to be made parties in actions to enforce this sort of liability.

We call counsel’s attention to another celebrated case, the case of Irvine v. Elliott, decided in the Federal District Court of Delaware on February 24th, 1913. This court says:

“The non-resident stockholders, including Elliott, were joined as defendants with the railroad company and resident stockholders, and constructively served by publication pursuant to the laws of Ohio. The domiciliary suit, so far as it related to the making of the assessment against non-resident stockholders not actually served'with process, nor appearing, was in the nature of a proceeding in rem, where service by publication is sufficient. ’ ’ And they cite the case of Shipman v. Treadwell, 200 N. Y., 472; 93 N. E., 1104.
“And in that suit such non-resident stockholders were represented by the company; and the decree ordering the assessment, while not binding them as a judgment or decree in personam rendered after personal service of process, was eonclusivt upon them as to the amount of tbie indebtedness or liability of the company, and the necessity of making an assessment upon the stock to the extent and in the amount set forth in such order and deertee. ”

This was an action in which a stockholder’s liability was fixed by the Court of Common Pleas of Franklin County in this state, and the receiver went to the state of Delaware to enforce that liability. And at the time of the determination of this question by the Federal District Court of Delaware, we had upon our statute books the same enactment of our Legislature which we have now, that is, a requirement by legislative act that all stockholders be made parties; and in that suit, publication was made on the foreign stockholders, so that the question of publication, whether good or bad, was not raised in this case of Irvine v. Elliott in the Federal Court of Delaware. But the court say in the very teeth of the statute of our state requiring stockholders to be madie parties in actions to enforce a stockholder ’s liability, that the corporation in that ease was the representative of all stockholders.

We are of the opinion that it was not' necessary in the case of Lucas county, to enforce the statutory liability against the stockholders of the Union Central Savings Bank Company, to summon the stockholders actually by process, or to obtain service by publication, for the reason, as the court say, this defunct corporation, the Union Central Savings Bank Company, was the representative of all of the stockholders. This may seem strange to some of us, but we think we can see a ray of light, by which we may be guided safely to a determination of these questions: first, an action to enforce a stockholder’s liability is one in chancery. It is in the nature of an action in rem, and not in personam; second, when a person became a stockholder of a corporation under the old Constitution creating this double liability, he entered into a contractual relation with all creditors of that corporation, that he would play his part in the matter of paying legal obligations that might be contracted and entered into by the corporation; third, the courts speak of the thing called ‘ ‘ assessment. ’ ’ The receiver is ordered to bring all creditors of the corporation into court, and to fix the ^extent of indebtedness of the insolvent corporation, and to determine what per cent, the assessment shall he against the stockholders. If they are stockholders under the old Constitution, then the percentage of assessment might be 100 per cent, upon their stock. Then, this assessment is made and levied by the receiver and .reported to the court, and is confirmed or modified or changed. Such an assessment can not be enforced as an 'ordinary judgment, and therefore we have this action founded upon the proceedings of the Lucas county common pleas court, to obtain a decree, a finding by this court against Griffin of the amount of his assessment as fixed and levied by the receiver, Rowley, in that Lucas county common pleas action.

And so we hold that in spite of the record and the fact that no constructive service was ever made upon Griffin in the Lucas county common pleas court, and that no actual service was ever made upon him in that ease, and that he never entered his appearance in that case, yet that court had the inherent power to confirm an assessment, and to order and decree that Griffin pay, as a stockholder of the Union Central Savings Bank Company, the amount sought to be collected in this suit, and that such assessment, finding and decree of the said court is conclusive upon the defendant Griffin, as to the amount of the indebtedness of that insolvent corporation, and the amount and extent of his liability, and the necessity of making an assessment upon the stock to the extent and in the amount set forth in the order as made by the Lucas county common pleas court.

Our first conclusion was that this second ground of the demurrer ought to be sustained, but in reading carefully and in re-reading the answer and cross-petition of the defendant Griffin, we have concluded, in spite of our conclusion on the principal point raised, that there is enough of substance in this answ;er and cross-petition to raise a certain issue that ought to be submitted to the court.

In this answer and cross-petition of the defendant Griffin is a general denial. After making certain admissions, a general denial of all of the other allegations of the plaintiff’s petition comes in, and puts the plaintiff upon proof of any material matters that he may be required to sustain and prove in order to make out his case in this court.

But we find also in this answer and cross-petition another allegation, on page 7, which is as follows:

“Your cross-petitioner further charges that this court, on or about the 29th day of January, 1912, made a pretended finding in such cause to the effect that said Geeorge W. Griffin, whom the court erroneously misnamed a defendant, was the owner of five shares of stock in the Union Central Savings Bank Company,” etc.

That is one of the allegations as found there. Then we have:

“And said court made a pretended finding that said George W. Griffin was a non-resident of the state of Ohio, all of which findings, judgments and orders were false, null, void and without legal efficacy whatsoever as against your cross-petitioner.”

Further:

“That on or about the 29th day of May, 1912, said court made a pretended finding and order in said cause that said George W. Griffin should pay said pretended receiver said amount so as aforesaid attempted to be found due from him, and that he was the owner of five shares in said bank company, and that there was due from him said sum of $608.91 and interest, and that said court in its pretended judgment of the 29th day of January, A. D. 1912, cause No. 51779, being the Lucas county common pleas cause aforesaid, made a pretended finding and judgment that said George W. Griffin was duly served with process by publication according to law; and that all, each and every said pretended findings, judgments and orders were false, null and void, and without legal efficacy whatsoever as against this cross-petitioner.” . !! ;

We think this part of this answer and cross-petition, in substance, attacks this question, was Griffin the owner of five shares of the capital stock of the Union Central Savings Bank Company? lie says in his answer and cross-petition that the Lucas county common pleas court found that he was the owner of these five shares, but he says that that finding is false, and to our mind, in substance, that part of the answer and cross-petition of the defendant Griffin, does not put the plaintiff receiver upon proof of the fact that Griffin was the owner of these five shares of stock, but it gives Griffin the right to prove and show, if he can, to this court, that he was not the owner of these five shares of stock, because that is one of the defenses that may be made to an action of this kind, in spite of all the holdings of the federal courts, as well as the state courts.

And we are of the opinion that if we should sustain this second ground of demurrer No. 1, we would commit an error, and that this case would go to an appellate court upon a frivolous proposition only, and would eventually come back here for a rehearing and trial upon the merits. So we say that in an action of this kind, the defendant Griffin, if his pleading warrants it, is permitted to furnish proof to the court as a defense to this action to enforce his stockholder’s liability — first, that he was not a stockholder. in the Union Central Savings Bank Company; second, that he did not own at any time and was never the owner of five shares or any part of five shares of the capital stock of the defunct banking company.

There is one more’ground upon which a litigant may be permitted to defend, but that it not raised by this answer and cross-petition, and that is this: in an action of this kind, where it is sought to enforce a liability of this character against a stockholder in a defunct or insolvent corporation, he may be permitted to interpose against his statutory liability any lawful or legal claim that he may have against the corporation, and have the court recognize them and set them off as against his stockholder ’s liability; but that ground is not raised by the pleadings in this ease. Therefore we are of the opinion, that the second ground of demurrer No. 2 should be overruled, and the same is overruled, and the defendant Griffin is given until the fourth Saturday in July to plead further, if he so desires.  