TEFFT t1. STERNBERG.
gaged property to satisfy the principal and interest, together with the coat of proceedings to foreclose the said mortgage. The sheriff then proceeds to advertise and sell, as in otherjudicial sales. The mortgagor may avail himself of his defenses. These are presented by an affidavit of illegality to the execution. When this affidavit is filed, the levying officer, by direction of the statute, shall postpone the sale, and return all the proceedings and papers in the case to the court from which the execution issued to be tried by ajury, etc. Now, can it be doubted that this is a proceeding in a court of the state? It is altogether unlike the foreclosure in the case from Vermont. Indeed, the Code of Georgia (section 3504) providing that an' affidavit which is the "foundation of a legal 'proceeding" cannot be amended, the supreme court of the state, in the case of Rich v. Colquitt, 65 Ga. 115, held that the affidavit as to the principal and interest due on a mortgage, under section 3971, was not amendable, it being, of course, the "foun. dation of a proceeding at law." Besides. the execution itself must bear test in the name of the judge of the court, (Code, § 3632,) and must be returned and docketed as other executions, (rd. § 3635.) It fol. lows, therefore, indisputably in the opinion of the court, that the foreclosure of a mortgage upon personalty in Georgia is a proceeding in the state court; that our duty as to this question is plainly defined by the supreme conrtof the United States in numerous decisions, many of which have been cited by defendants' solicitors, supra, and many others equally as cogent and conclusive. These are admirably collated and considered in the case of Corell v. Heyman, 111 U. S. 176,4 Sup. Ct. Rep. 355, Mr. Justice MATTHEWS delivering the opinion of the court. That emi. nent jurist quotes with approval the following of Mr. Justice NELSON in Freeman v. Howe, supra, which itself was but an applicatioll of Taylor v. Carryl, 20 How. 583: "The main point there decided was that the property seized by the sheriff under tbe process of attachment from the state court. and while in the cus. todyof the ollicer. could not be seized or taken from him by a process from tbe district court of the United States, and that the attempt to seize it by the marshal. by notice or otherwise, was a nullity, and gave the court no jurisdiction over it." And, further: "The majority of the court were of opinion that, acrording the courseo! decision in the case of conflicting authorities under a state and federal process, and in orderto avoiu unseemly collision between them, the question. as to which authority should. for the time, prevail did not depend upon the rights of the respective parties to the property seized, whether the one was paramount to the other, .but upon tbe question which jurisdiction had first attached by tbe seizure and cllstody of tbe property under its process." It does not matter whether it is process in rem or process at law or in equity, the right to hold the property belongs to the court under whose process it was seized. Chancellor Kent, in 1 Comm. 41O,baving stated thl1-t "if a marshal of the United States, under an execution in favor of the United States against A., should seize the person or property of B., the state courts have jurisdiction: to protect the person and the prop-
to
/
8 er.vy
,
REPORT'ER,' vol.
40.
the:cdurt'proceeds to point :out the error of plld}l>ositioD,and a,dds:, ,1'Weneed scarcelyreruark that lIe government could maintain the administration ,or execution of its laws" civiI or criminm, Hthe jurisdiction of, its judihittl tribunals were subject to the detetminationof anothe:ri' " The; proposition, as settled by pi ample and, indeed, irresistible array of decisions, may be broadly·statedasfollows: When property is seized and held under mesne or final process of eithera state or United States it is in the custody of the law, and within the exclusivejurisdictionof the court from which the process has issued, for the purposes of the writ, and the possessionofthe officer having it in custody cannot be disturbed by another court of co-ordinate jurisdiction. Such ance would be to invade the jurisdiction of the court by whose command it is held, and to violate the law which that jurisdiction is appointed to administer., Of cOlirse this rule is not applicable in those cases where the courts oUhe United states exerCise superior jurisdiction for the purpose of enforcingthe supremacy of the oonstitution and laws ofthe United Heyman, supra. ' Mr. Justice MILLER, in Buck v. ColStates. bath, 3 Wall. 341, gives an of the law, as follows: , "Whenever property has been seized by an officer of the court by virt,ue of ltsprocelJs, pNperty is to be considered as in the custody of the court, and nnder its control, for the time, being, a,nd that no other court ,has a right to interfere tl)at'.rossession, it pe some court which may ,have a direct supervisory control over the cpurtwhose process has first. taken possession, or Ilomesuperior jurisdiction in'the premises." The case o{Chvell v: Heyma'T/"8upra,, and the opinion of Mr. Justice MATTHEWS, afford the following observations on this subject: "The forbearance which courts pf co-ordinate jurisdiction, administered under a single system, exercise towards, .each other, whereby conflicts are 8voided by avoiding interference with the process of each other, is a principle cifcomity, with perhaps no higher sanction than the utility which comes from concord; but, between state courts and those of the United States, it is something more. It is a principle of· right and of law, and therefore of necessity. it leaves nothing to discretion or mere convenienctl. These courts do not belong to the same system sofar as theirju,risdiction is concurrent; and, although they co-exist in the same space, they are independent, and have no common superior. They exercise jurisdiction, it is true, within the same territory, but not in the same plane; and" when one 4tkes into its jurisdiction a specifio .as much withdJ,'awnfrom the judicial power of the other as if it thing, that had be.en carried vhysically into a different territorial sovereignty. To attempt to seize it by a foreign process is futile and void. The regulation of p1"Ocess, and the decision of questions relatiIllt tl? it, are part of the jurisdiction Qf the court from whicll it issues." "TheJllfisdiction of a court," said Chief Justice MARSHALL, "is not exbausted of itsjudgment, butcqntinues until that judgment shall be satisfied'. Many questions arise on the process, the judgment, in which jurisdiction is to be exerCised." ,Wayman v. Sputharq" 10 Wheat. 1. , . These citations of elevated and paramount authority are, perhaps, morecopions than is requisite, but since nothing would so seriously prejudice the character and usefulness of the courts of the United States or of the state as those ullseemly conflicts of authority, which not only ex-
TEF,F'.f;V. STERNBERG. '
cite communities, but which, both in this country and in England, have afforded occasions for intemperateness in the assertion of jurisdiction on the one hand, and for its denial on the other, hardly comporting with the serene and impartial reserve of the bench, the settled rule upon the subject, whenever its announcement is appropriate, cannot be too strongly emphasized or too amply supported by those impregnable statements of principle which stand out in the decisions of the supreme court of the United States,-statements which bear in lucid phrase the precise expression of sovereign and beneficent law. Moreover; the apparent conflicts ofauthority between t,he courts ofthe state and of the United States furnish no proper occasion for nice or narrow divisions of the subject of litigation,-none for div.isions of jurisdiction. In a case like that before the court, the court first taking jurisdiction of the substance of the litigation should dispose of all the incidents. It is true that there will be, doubtless, a balance of some amount in the hands oftbe sheriff after the more important liens there dependjng are satisfied, and this court might be justified by the letter of the law in appointing a receiver, to whom the sheriff would account for, suchbalance. This, however, would not accord with that spirit of absolute reserve which, in matters of concurrent jurisdiction, should mark the action of the courts of the United States towards the state courts. The superior court bfMuecogee county has the same power to dispose of all the matters in litigation that would obtain here. It,is therefore presumably unnecessary, were it otherwise seemly and appropriate, to go fOl'w4rd and grant the extraordinary relief sought. Besides, if the complainants choose to press their claim for a general andnfinal decree, as usual in equity in this court, they may then, by a petition pro interesse BUO, inter- ' vene in the state court, and ask for distribution of the fund or balance. They may intervene at once in the litigation :pending there. There is ample authority for this course to be found in Krippendorf v. Hyde, 110 U.S. 276, 4 Sup. Ct. Rep. 27, and especially in the recent case of Gu'mbel v.Pitkin, 124U. S. 131, 8 Sup. Ot.Rep. 379, where the procedure indicated is fully The superior court of Muscogee county being in control of the subject and the substance of the litigation, the law and the principles of comity alike forbid the action and orders sought by the plaintiffs, and the court, for the reasons stated, declines to grant the application for an injunction and for the appointment oia receiver.
'.,
8
J'EDERAL REPORTEa, vol.
BAYLES
et ale
V.
BROWN et al.'
(Oircuit Oourt, D. Mani/Zand. July 9, 1889.)
1.
CORPORATIONS-STOCKHOLDEltS-CONTltIBUTION-PENAL LIABILITY 0]1' CORPOltATION.
Certain citizens of Rhode Island; stockholders of the American File Company, a Rhode Island corporation, who ,were required to pay a judgment against that corporation by a the SUPreme court, (FiZe 00. v. Garrett, 110 U. S. 288, 4 Sup. Ct. Rep. 90,) filed this blll in 'equity to compel the Maryland stockholdel's to contribute. Held, that the proof disCloses that the lia.bility under which the complainants as stockholders were cOPJpellable to pay the debt due by the corporation was not a contractual but a penal, liability, under the Rhode Island law, and not enforceable outside of thatstate,andtherefore was not a burden upon the Maryland stockholders, in l'espect to which they can be called upon for contribution.
S. SAME-UNAUTHORIZED INCREASEl 01' CAPIT.AL-LIABILITY 01' STOCKHOLDER.
Held, that it appears from the evidence that the increase of capital stock of the American File Company issued after the filing of the certificate required by section 1, c. 128, Rev. St. R. i.. was not an increase authorized by a valid, corporate vote of a majority of the stOCkhOlders, and that under the circumstb.nces of this case it did not, inresvect to the Gil.l'rett ,entail upon the holders of that stock the lillr bilities imposed by the first section of the Rhode Island law for failure to file the certificate required by section, (Si/Uabus by the Oourt.)
In Equity. Venab16 ,& Paclfard, for complainants. Robertson & Marpury, Goodwin,& Culbref1l" Barton & Willmer, BrO'lO'fl &, Brune, and G·. ,T. Wallti8, for BeforeB,oND and MORRIS; J.The complainants are citizens of Rhode Island, who were stockholders of the American File Company, a corporation of that state, and some of'whom were officers and directors of said corporation, and are the persons Whd were compelled to pay a debt of said company to Robert Garrett & Sons, decreed to' be paid' by the decree of the circuit court of the United States for the district of Rhode Island r which was affirmed in the supreme court of the United States in the case of File Co. v. Garrett, 110 U. S. 288,4 Sup. Ct. Rep. 90. Havingmfi.de said payment on the 18th April,1884, these complainants filed this bill on the 12th February, 1886, asking a decree requiring the Maryland stockholders of said company to make contribution in proportion to the number of shares of stock held hY'ei1ch. The compl3iinants claim that they are entitled to maintain the present suit for contribution,because the debt thus paid by them under compulsion of law was, all they aver, paid for the benefit and protection of the defendants in this case, as well as all other stockholders, and in satisfaction of a demand for which these defendants were liable as well as the complainants. The American File Company was a. manufacturing corporation, chartered by a special act of the Rhode Island legislature, passed in 1863, by which it was declared that its capital stock should not exceed the sum of $500,000, to be fixed in amount by a vote of the company. It was provided by the charter that there should be an annual' meeting of the corporation held in the village of Pawtucket, and that at all meetings of the corporation not less than a
SAYLES ".BROWN.
majority of the shares should constitute a quorum for doing business, and that all matters should be decided by a majority of the votes present, allowing each stockholder in person or by proxy one vote for each share by him owned. It was also provided that the liabilities of the members of the company for debts of the corporation, its members and officers, should be fixed and limited by, and the corporation, its members and officers, should in allrespeets be subject to, the provisions of chapters 125 and 128 of the Revised Statutes of Rhode Island. By the first section of chapter 128 of the Rhode Island Revised Statutes the members of every incorporated manufacturing company were made jointlJr and severally liable for all the debts and contracts of the company until the whole amount of the capital stock fixed and limited by the charter of said company, or by vote of the company in pursuance of the charter or of law, should he paid in, and a certificate thereof made and recorded in a book kept for that purpose in the office of the town-clerk of the town wherein the manufactory was established, and no longer, except as afterwards provided. By the eleventh section it was provided that every such company should file in the town-clerk's office of the town where the manufactory was established, annually, a certificate, signed . by the president and a majority of the directors, truly stating the amount of allassessr,nentsvoted by the company ,and actually paid in, and the amount of all existing debts; and by the twelfth section it was providpd that if the company should fail to file such annual certificate all the stOCkholders should he jointly and severally liable for all the debls of the company. It is evident that the individual liability of stockholders under the first and second sections of the Revised Statutes is contractual, and, the liability under the twelfth section is penal. Flash v. Conn, 10'9 U. S; 371, 3 Sup. Ct. Rep. 263. But in the case of Garrett, v. Sayles, neither in the circuit court (1 Fed. Rep. 375) nor on appeal in the supreme, court (110 U. S.288,4 Sup. Ct. Rep. 90) was it' nectlSsaty 01' material to consider under which of these sections the liability arose. That case was begun in a Rhode Island court, and it made no difference, in a case instituted within that state, whether the liability was contractual or penal. The G-arretts, in their suit against these complainants, after alleging that the file company was "a manufacturing company; located and transacting business, and whose manufactory is and always has been established, in the town of Lincoln," further aver "that said company or its officers never did file any certifi'cate in the town-clerk's office of said Lincoln, where the manufactory of said company was established, as required by the said act of incorporation and by said statutes, so as to exempt the stockholders of said company from personal liability as aforesaid for the debts of said company;" and in that case these complainants, by their pleadings, admitted the liability, unless the equitable defenses there"set up by them could be maintained. 1 Fed. Rep· .375. If, however,the fact was that the actual liability under which complainants restedwa,8 penal, and could only be enforced in Rhode Island, then, plainly,they cannot maintain this suit against the Maryland stookholders, who were
:10
ll'EDEUL
vol. 40.
lhlPiJity caunotcompel. thl;lill ,to. cOl).tributeon the not under ground. of h!l!ying 9e8n t:elleved of QUrdl;ln. ..TQmeet this state have in. this case, to allege of the and shoW arose from an enfailure to comply with t,he .first section of the The following are some of "And thereupon your orators complain and say that (l)tbeAmerican File Company, 1\ bodycQrporate, was by of the general at the. May session thereof, assernQly of the sta!:;£l of Rhode Ishm4 1· A. D. 1863, for the of manufa6turmg files, anli forothermanufacturing pUl'posesconnected therewith. (2) Under 'this the said company _ duly organized, and commencEid the business of manufacturing files in the toWn of L.lnc()}n,J.n the county of PrlWidence"in' the state of Rhode · Island, ,SOme time in. ,year 1863, and.' continued .the. said business for a r qfyears. Anti the,said on business at any other t11e speclal,Pro:Visiqns, of. the act of incorporation, as. by the same; whenptoduced, stock of said company wasnot to hundred tbOhsimd dOllars, the amount to be fixed by a vote of thecOwpany;:and- to be divided intosbal'es bf one tliousBnd dollars each. By a vote,.of the.cofnpanj tbecapitalstbck;was in 1863 atone hundred and ,fift}'tholl$l1.nd :duUaJ:s., lWbUiWa$ 'aU sU'tl.$cribed for and· taken in shUres of one , ,On 01' ,f./.qj>ut A. D. 1863, the o.f ,tbe ,br vote of. tPll. colllpany made two hundred th'ouSantl dollats,ana the aMitioIlal nfty thousand dollars was SUbscribed (4) Subsequently, and on or for and taken about the 12th()f May, A.D,i1864:,lby'Qrt,amendment.t() the (:harter ofsaid corporatiOlli,.! the, par; value of each sha,reof, the. cap-ital stock' in said corporation was reduced from one thousand dollars to one hundred dQUars pl!rshare, of J;ltoqk Were; perfjons, held certificates ·and Dew oft4e,par. per sAarl;! fOf an amount of stock, in sllare!lof the pat value of one hundreddollhrs. each, equal to the ·amount which' each llad hela hI shares of the par value of one thousand dollars eacb;,tMoettificates of stock in: shams of the pilr'Valhleof one thousand ·1 doLlars being surrendered· when the certificateilofstock in shares of the par d9illlltl's deUvel'ed.·. (5) Afterwards, towit, oll}or.about the 16th IApril.A.. D.1868, by vote'ofsaid corporation. issue s,lid Wlijl m.ade to the ll:p1ount'ot 'Olle bundl'ed dollars; making the entire amount .of the capital thollsand 401Iars;' and said issue of capi.tal stockwas·subscrlbed for lat1d -ta:ken in sbares of tfJepar rvitille of one hun·dred "(33)By provisionsof:the actofincorporation.of;said as bY: produced,will appear, and also by stl'te of Island cases, made and provided, hi the the transactions to,tpe 'or'share'fiQlders of said company were JOIntly a.nd·severally liable for contl".tcts ITnide'Rnd entere\1iiltoby said. company until the whole 8mount of,the· capital stock.!till:ed and"ltmited by the charter of said company, {IX by.voteof,tbe company in pursuance of the charter or of law, had been ·paid hlld .1>a\!Jl made and, ina book kept ,in the ()fficl' Qtthe ,Of. tJ;t.Ei mll?company estabhslied"to:wlt, the .sald town of ;I.mcoln In the atate of RhOdl;! Island. ,. (34;) Ntlithertb.e <id.Ameri'canFile, Company, nor -anyJofiitlii oftlcetll· Qt :stockl\(>!ders,ever' (lid file 'in tlie 'tow n· clerk's office of the '.!laid .t1}wn:.iot ,LinColn,' where themnnlufaetOt\Y ofl Sl\id', company was estab· required tbelisl;\id Ae.t.:of oinaorporation and by
I
said Iltatute. and the satdstoci{holders: afsaIa com'paoy were al1dcontinuedto be joinqy aull sever:;t.!ly )jablll for sUthe debts ,of said eOO1pRuy. (35} It. was with the,knowledge. consel,\t., and the in said, File Company that certifl()ate 'rasnot filed asaf()rellaid. be:cause, as'yourorators aver, it 'Was known. acquiesced in, and consentedto.by all the stockholders in said company that its business could only be conducted by means of the credit given to it by the fact that tile individual stockholders thertin were personally liable for its debts." "(44) All the stock issued by the said American File Co., as aforesaid. has been paid ,in full. and nothing is dUfl Or owing to said company fro in the stockholders thei"eof on any of said stock,; and the said American File Company is totally insolvent. and is not posst;Bsed of 01" entith'd to any propertywhatsoever. and has long ceased to do llnybusiness whatsoever; and it would be costly and of no benefit whatsoever for your orators to institute or prosecute proceedings to recover from said corpo,ration any of the moneys due and owing on said bonds' and coupons and interest, by reason of the insolvency of said corporation; and the said company has no officer or representative residing in the state of Maryland, or witlJiti the reach ot the process ofthis court. " ' Some time after the overruling of defendants' demurrers to this in July, ,1886, and after the filing of the answers of some of the ants. in October, 1886, it was discovered and became known. to both complainants and defcIldants of the averments in complainants' bill were not in fact true; that in fact' the company had first, in the year 1863; established· its manufactory in the village of Pawtucket, intbe town of North Providence, llndhad continued established there until sometime in the year 1869, when,havihg built new works in the of itsma:q.u'factory there; and it also became known that a certificate in conformity with the first section of the Rhode Island law, signed and sworn to by the president, treasurer, and clerk, and a maj()rityof the directors, had been filed January 19, 1864, in the clerk's office of the town of North Providence. where the manufactory was then established, certifying that the capital stock had been fixed at $200,000, and had been actually paid in. These facts were set up in the answer of George S. Brown, filed 29th December. 1886, 1md adopted by other defendantFl. A general replication was filed by the ants on 17th February, 1887; they having failed to amend, and electing to stand on their bill as filed. The testimony has established that the $200,000 of stock was actually paid in, and that the certificate filed January 19, 1864, was incompliance with the law. The allegation in the bill that the company never carried on business at any place other than Lincoln is not sustained, and the proof shows that it could not possibly be true that the,Baltimore stockholders ever consented, as alleged in the bill, to the withholding of any certificates for the purpose of giving credit to the company by becoming individually liable for its debts. The proof does disclosetbat, during the period the stockholders were notoonttactually liable to oreditors because the certificatetequil'ed by section 1 had been du]yfiled,' they were'always penally liable under sections 11 and 12 because Of the' If there were nothing more in the case thanisc;iisclosedbythe allegations of<theilbill, which· !denied'
on
\
12
FEDERAL REPORTER,
vol. 4.0.
by the answers and disproved by the testimony, we think it would be evident that the bill should be dismissed, but it is contended on behalf . of the complainants that the proof does still show facts upon which they are entitled to relief, and upon which the essential averments of the bill can be maintained·. In the minute-book of the meetings of the stockholders of the company the following appears: "PAWTUCKET, April 16th, 1868. "The stockholders met according .to agreement. Present: J. Y. Smith, John R. Brockett, W. F. Saylel'l, It. A. 'fhompson, A. Chambers, J. O. Starkweatfier; and the following gentlemen were duly represented by H. A. Thompson', viz.: H. Woods, Jr., Geo.,S.. Brown, Joseph Reynolds. "Resolved, thattbe capital stoflk of the company be further .increased to an amonnt not exceeding one hundred. tho.llsa,nQ, dollars, and the are to issue new sbarEls for that amollnt to th6,present stockpolders at the rate of $5Q per .the stockholders shall consent to such Resolved, that the directtii's be fully empowered to carry into effect the resolutions passed at the meeting of stockholders held March 20th at s.!Jch time, Bnd in such manner, <ISmay seem most expedient for the interests. ot. It. (This pad,reference to selling the real estate' and bUildings in Pawtuckl't, and procuring'a ltiss expensive property elsewhere.) "Resolved, tllat', whereas the affairs of ,this company have reached a point When it is absoliltely neeessar:y that'the sum of $50,000 shall be raised by sale of our stoclt, as already: proposed., the' Baltimore direetors,' are req uested to Cl;lIl the BaltiJ:nore stockholders together, to ascertain what proportion ,of proposed of stock WM) be taken by them, and the Hhode Island directors are to pursue the same course in regard to the Rhode Island stockholders. Adjourned to meet on 'fhursday, April 30th, at 10 A.M. W.F. SAYLEs. Seety. pro tem." In with this vote, Iltock to an amount $17,500 less than $100,990 offl:!-Qe. value was issued" to be disposed of to stockholders at $50 per share of$100 par value. Mr; Chapman, a Baltimore stockholder, llubsequently pledged himself would get the Baltimore stockboloers to take their pro rata proportion, and certificates were made out dated October 14, 1868, and sent to him, as follows: George S. Brown, 60 shares; Henry A. ';I.'l)oililpsonl 30; Hiram Woods, Jr., 30; Joseph Rey,nolds,&,5; Thomas "".Wilson,.20; Horace Love, 15; R. Norris, Jr., 10; A. A. Chapman, 245 shares. Many of these perSons refused to the certificates, and declined to be subscribers for the stock. Mr. in his testimony, says: "Some of them took it, and some did not. Mr. Brown did not takelJis; I bought hisentireinterest out in,tbEl factQry. ,MI'. Thompson and Mr. Woods to,ok their stock. ¥r. Reynolds took his. I am not positive whether Mr. Wil'sontook,his Qrnot. 1 know that l4;r.Love did not take his. and Hichard N'orris did' riot 'take his. " . appear on the stock register is entitled to but certificates were issued without previous authority, who setUed for it all witb.promissory notes Qf;the conwany;,w:l;lich he had takElTl up and .held. Arising out of the traps!tctions collUected with this vote·to increase the capital stock from fllPQ,QOf.), to :$300.,090 many difficult questions have, presented and :ij:ttle