Vicksburg v. Vicksburg Waterworks Co., 206 U.S. 496 (1907)
Case details
Citation
206 U.S. 496
Full caption
VICKSBURG v. VICKSBURG WATERWORKS COMPANY.
Country
United States
Jurisdiction
Federal
Court
Supreme Court of the United States
Decided
May 27, 1907
VICKSBURG v. VICKSBURG WATERWORKS COMPANY.
APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF MISSISSIPPI.
No. 275. Argued April 24, 1907.—Decided May 27, 1907. A decree must be read in the light of the issues involved in the pleadings an
the relief sought, and a decree in a suit brought by a water company against a municipality to enjoin it from regulating rates does not finally dispose of the right of the city to regulate rates under a law passed after the contract went into effect and after the bill was filed. A State may, in matters of proprietary rights, exclude itself and authorize its
municipal corporations to exclude themselves, from the right of regula ion of such matters as water rates. t , In view of the decisions of the highest court of Mississippi a municipality o
that State may, under a broad grant of legislative authority conferre without restrictions or conditions, make a contract with a corporation, fixing a maximum rate at which water should be supplied to the in a i
tants of the city for a limited period, which in the absence of fraud or convention, will be beyond legislative or municipal power to alter to the prejudice of the other contracting party under the impairment of obligation clause of the Federal Constitution.
Cas es involving the rights of the Vicksburg Waterworks Company, under the contract made between the city of Vicksburg and the company, for furnishing the water supply of the city, have been before this court in two preceding actions, viz: Vicksburg v. The Waterworks Company, 185 U. S. 65; and the Same v. Same, 202 U. S. 453.
Owing to the previous statements of the case, it is only necessary to set out enough of the facts involved in the controversy now before us to make plain the conclusions at which we arrive.
The city of Vicksburg, by act of the legislature of Mississippi (Laws of 1886, chap. 358, sec. 5, p. 695), was authorized “to provide for the erection and maintenance of a system of waterworks to supply said city with water, and to that end to contract with a party or parties, who shall build and operate waterworks.”
Acting under this authority conferred by the legislature, the city of Vicksburg made a contract with Samuel R. Bullock & Company, their associates and assigns, for the supply of water to the city and its inhabitants, which was contained in the ordinance of November 18, 1886, section 13 thereof providing that—
“The said Samuel R. Bullock & Company, their associates, successors or assigns, shall have the right to make all needful rules and regulations governing the consumption of water, the tapping of pipes and general operation of the works, and to make such rates and charges for the use of said water as they may determine, provided that such rates and charges shall not exceed 50 cents for each thousand gallons of water.”
The ordinance, by its terms, ran for thirty years, and Bul°ck & Company, as provided in section 5 of the ordinance, assigned the contract to the Vicksburg Water Supply Company, vol . ocvi—32 p. 498and it was duly accepted by that company. The supply company put in the works and operated until August, 1900, when the mortgage upon the property, including all the franchises and contract rights, was foreclosed and purchased by a Mr. Crumpler, who assigned all his rights and title to the Vicksburg Waterworks Company, the appellee herein, which company has operated the works since.
The contract contained an agreement to pay a stipulated rental for certain hydrants for public use.
The legislature of Mississippi, on March 18, 1900, passed an act authorizing the city to issue bonds and build a waterworks system of its own for the supply of the city and its inhabitants, and on the third of July, 1900, an election was held in the city under the statute, which resulted in a vote to build or buy a waterworks plant of its own.
The city repudiated any contract relations with the company. Thereupon the company filed its bill in the United States Circuit Court for the District of Mississippi on the fourteenth day of February, 1901, the objects of which were thus stated by Mr. Justice Shiras in delivering the opinion of the court (185 U. S. 65):
“The bill prays for an injunction to restrain the defendant from assuming to abrogate and take away the franchises and contract rights of the complainant, and from attempting to coerce the company to sell its works to the defendant for an inadequate price, and that said act of the legislature of Mississippi, adopted on March 9, 1900, and said resolution and ordinance adopted and passed by said city on the seventh day of November, 1900, be declared to impair the obligations of said contract between said city and said Bullock & Company and their assigns, and to cast a cloud upon the title, franchises and rights of complainant, and said act, ordinance and resolution, and each of them, are alleged to be in contravention of the Constitution of the United States, in this, that they impair the obligations of said contract between said city and said Bullock & Company and their assigns.”
In the court of original jurisdiction the bill was dismissed for want of jurisdiction. On the appeal, 185 U. S. 65, the judgment was reversed, and this court held that there was jurisdiction, and the cause was remanded. The case went to trial upon its merits, and on May 18, 1904, a final decree was rendered, which was affirmed on appeal to this court in the case reported in 202 U. S. 453. The decree in that case, known in the record as No. 41, is given in the margin.1
i Equity, No. 41.
Vicksburg Waterworks Company )
vs. ? Mayor and Aidermen of the City of Vicksburg, Mississippi. )
This day this cause came to be heard in accordance with the motion of complainant and defendant filed January 12th, 1904, upon the original bill, amended and supplemental bill, exhibits, answer of defendant, proof and exhibits and the court after hearing and attending the evidence and the arguments of counsel and being fully advised in the premises and being satisfied that the complainant is entitled to the relief prayed for in its original and amended and supplemental bills and for full relief; it is thereupon hereby ordered, adjudged and decreed:
First, that the defendants, the Mayor and Aidermen of the city of Vicksburg be and are hereby perpetually enjoined from abrogating and taking away, or from assuming to abrogate or take away the franchises or contract rights of complainant under and by virtue of the ordinances, franchises or contract of said defendants entitled, “An ordinance to provide for a supply of water to the city of Vicksburg in Warren county, Mississippi, and to its inhabitants, contracting with Samuel R. Bullock & Company, their associates, successors and assigns for a supply of water for public use and giving the said city of Vicksburg an option to purchase the said works,” ordained the 19th day of November, 1886, approved by John W. Powell, Mayor, November 19th, 1886, being the ordinance, contract and franchise marked Exhibit B to the original bill of complaint, and said ordinance, contract and franchise being specifically and accurately set out in words and figures in the pleadings, which ordinance, contract and franchise was acquired by and is the sole and exclusive property of said complainant.
Second, that said ordinance, contract and franchise be and is hereby declared and held to be in every respect legal, valid and enforceable and binding upon said defendant, and said defendant is hereby perpetually enjoined rom infringing, ignoring, rescinding or denying liability under said ordinance, contract and franchise in any of its parts, or from in any manner disturbing or interfering with the rights, privileges and benefits acquired by complainant thereunder. .
hird, that said defendant be, and he is hereby, directed to rescind its resolution and ordinance adopted the 7th day of November, 1900, which
During the pendency of the original action the legislature of Mississippi passed an act authorizing the cities and villages of the State to prescribe, by ordinance, maximum rates and charges for the supply of water, electric light and gas furnished to cities and the inhabitants thereof. Laws of Mississippi, 1904, p. 231. Section 1 of this act is inserted in the margin.1
is in words and figures as follows: “Resolved, that the Mayor be and is hereby instructed to notify the Vicksburg Waterworks Company that the Mayor & Aidermen deny any liability upon any contract for the use of the waterworks hydrants. That from and after August, 1900, they will pay reasonable compensation for the use of said hydrants. That the City Attorney take such action as shall be necessary to determine the rights of the city in the premises.”
And also to rescind the ordinance or resolution of said defendant adopted the 7th day of February, 1901, when said defendant adopted the report of the Committee on Waterworks, as set out in the pleadings.
Fourth, that the said defendant refrain from in any manner accepting the benefits of or proceeding under the act of the legislature of the State of Mississippi approved March 9, 1900, and from issuing bonds under and by virtue of said act, or any other act or ordinance, for the purpose of erecting waterworks of its own during the period prescribed by ordinance, contract and franchise.
Fifth, that the said defendant refrain from constructing waterworks of its own until the expiration of the period prescribed in said ordinance, contract and franchise, dated the 16 day of November, 1886.
Sixth, that the said defendant be, and is hereby, required to pay all moneys due or owing, or that may be hereafter be due and owing to said Complainant under and by virtue of said ordinance, contract and franchise.
Seventh, that the said defendant be, and is hereby, perpetually enjoined from making or adopting any resolutions, or ordinance, refusing to pay the contract price of water fixed by said ordinance, contract and franchise until the expiration of the period prescribed in said ordinance, contract and franchise. . Eighth (relates to certain sewers).
Ninth, that said defendant pay the costs of this cause to be taxed.
1
Section 1. Be it enacted by the Legislature of the State of Mississippi, That the corporate authorities of any city, town or village now or hereafter incorporated under any general or specific laws of this state, in which any individual, company or corporation has been or hereafter may be authorized by said city, town or village to supply water, electric light or gas to said city, town, or village, or the inhabitants thereof, be and they are hereby empowered to prescribe by ordinance maximum rates and charges for the supply of water, electric light or gas furnished by such individual, company or corporation to such city, town or village or the inhabitants thereof, such rates and of any such city, town or village shall fix unjust and unreasonable rates and charges the same may be reviewed and determined by the Circuit Court of the county in which said city, town or village may be; provided, that this act shall not be construed so as to impose (impair) the effect or obligation of any valid or binding contract with any waterworks company, electric light company or gas company now existing or heretofore made with any individual or water company, electric light or gas company. 1This case coming on to be finally heard at this Jan’y Term, 1906, of this court, upon the original bill of complaint and the answer of the defendant ereto, and all the exhibits which are made such, to said original bill of complaint and said answer, and all of the other pleas and proceedings in t ' cause, together with a certified copy of the charter of the said Vicksburg when due,” approved the 8th day of December, 1903, so far as the latter relates to complainant. Third. That the restraining order heretofore granted in this cause on the 11th day of January, 1905, be and the same is hereby made permanent. Fourth. That the said defendant be and is hereby enjoined from in any manner interfering with the complainant’s contract rights under its said contract with the City of Vicksburg entered into between Samuel R. Bulloc & Company and said city under the ordinance of November 19th, 1886. Fifth. That the defendant be and is hereby enjoined from interfering wit the rules and regulations of Complainant, the Vicksburg Waterworks Com pany, and the water rates for the inhabitants of the city of Vicksburg now in force established by the Vicksburg Waterworks Company.
On April 20, 1904, about one month before the rendition of the final decree in the original case, the city adopted two ordinances fixing the maximum charge for the use of water, one by what is known as the “flat rate” and the other for water measured by meters.
On December 7, 1903, the city passed an ordinance prohibiting the water company and gas company from charging damages and other penalties for failure to pay bills, until ten days after presenting the same and giving an opportunity for the payment thereof.
On the seventh of January, 1905, the water company, in view of this action by the city, filed another bill, which is the original bill in this case, and was numbered 79, in which it set forth the preceding history of the litigation, the decree of May 18, 1904, the city ordinance of December 7, 1903, and the two of April 20, 1904, and in that bill alleged its contract under the ordinance of 1886 and the former decree, and that the enforcement of the ordinances was in violation of that decree and the company’s contract of 1886 and would be destructive of its business, and they prayed for an injunction. A temporary injunction was allowed, and afterwards, the case standing on the bill, answer, and exhibits attached thereto, a final decree was rendered in the case, which final decree is set forth in the margin.1
From this decree the present appeal has been prosecuted.
charges to be just and reasonable. And in case the corporate authorities
Mr. Hannis Taylor, with whom Mr. George Anderson was on the brief, for appellants:
Appellee rests its claim of exemption from the right of the
Waterworks Company, which is filed in the record as evidence in the cause, also the petition of the defendant for a modification of the temporary injunction granted in this cause, so that the complainant shall not be authorized to cut off water from its patrons who refuse to pay the rates of complainant, claiming the right to have the injunction modified by virtue of the ordinances of the defendant, fixing water rates; and the motion of complainant to have said injunction granted heretofore made perpetual. And the court having heard the arguments of counsel, and being fully advised in the premises, and being satisfied that the complainant is entitled to the relief prayed for in its bill of complairft for full relief, it is thereupon finally ordered, adjudged and decreed:
First. That the defendant, the Mayor & Aidermen of the City of Vicksburg, is hereby denied the relief prayed for in its petition, to wit, that the injunction be modified so that the Mayor & Aidermen of the City of Vicksburg shall not be restrained from enforcing the ordinances passed by them fixing the water rates and prescribing rules and regulations of the Vicksburg Waterworks Company, and that the Vicksburg Waterworks Company shall not be permitted to cut off patrons’ water, provided patrons pay the rates fixed in said ordinances.
Second. That said defendant be and is hereby enjoined from enforcing the said three ordinances described in said bill, to wit: An ordinance entitled “An Ordinance to fix and prescribe maximum rates and charges for water supplied to the inhabitants of the City of Vicksburg, whether measured by meters, and for other purposes,” approved the 20th of April, 1904, an ordinance entitled “An Ordinance to fix and prescribe the maximum flat rates and charges for the supply of water to consumers in the City of Vicksburg, and for other purposes,” approved the 20th day of April, 1904; and an ordinance entitled “An Ordinance to require waterworks, gas and electric companies to present bills before charging damages for a failure to pay them p. 503206 U. S. Argument for Appellants.
legislature of Mississippi to regulate water rates solely on § 13 of the ordinance of November 18, 1886, by which Bullock & Co. were authorized to construct and operate waterworks for public use. But the only legislative authority the mayor and aidermen of the city of Vicksburg had to enact this ordinance, is an act amending the charter of Vicksburg, approved March 7, 1884, authorizing them “to provide for the erection and maintenance of a system of waterworks to supply said city with water, and to that end to contract with a party or parties who shall build and operate waterworks.” This emphatically negatives the idea that the city of Vicksburg was to have the power to grant any special privileges to appellee whatsoever. No authority was given, expressed or implied, to make the grant to appellee an exclusive one; nor was any limitation upon the power of the legislature subsequently to regulate or reduce water rates even hinted at. The act of March 18, 1886 is not in the record, but it is before the court as a part of its judicial knowledge. In the exercise of its appellate jurisdiction over the lower courts of the United States, this court takes judicial notice of the laws of all the States. Renaud v. Abbott, 116 U. S. 277; Hanley v. Donoghue, 116 U. S. 1; Liverpool and G. W. Steam Co. v. Phenix Insurance Co., 129 U. S. 445.
The city of Vicksburg was not authorized to create a monopoly or to confer special privileges of any kind. Dillon on Mun. Cor. §§443, 457.
Exclusive rights to public franchises are not favored, and will never be presumed in the absence of an express grant. Wright v. Nagle, 101 U. S. 791; Ruggles v. Illinois, 108 U. S. 536. “Every statute which takes away from a legislature its power will be construed most strongly in favor of the State.”
Sixth. That said defendant be and is hereby enjoined from interfering with the water rates known as the fiat rates now in force established by the Vicksburg Waterworks Company.
It is further ordered, adjudged and decreed that the defendant pay all costs of this cause.
Finally ordered, adjudged and decreed this the 3d day of Jan. A. d . 1906.
Argument for Appellee. 206 U. S.
The adjudication as to the exclusive right of appellee to maintain and operate waterworks for a definite period cannot in any manner give color to the present contention, never considered or passed upon heretofore, that the legislature of Mississippi has deprived itself of the power subsequently to authorize the city of Vicksburg to regulate rates of charges for water, and prescribe rules and regulations for the conduct of the water company. Railroad Commission Cases, 116 U. 8. 307; Freeport Water Co. v. Freeport, 180 U. S. 587; Rogers Park Water Co. v. Fergus, 180 U. S. 624; City of Joplin v. Light Co., 191 U. S. 150; Owensboro Water Co. n . Owensboro, 191 U. S. 358; Stanislaus v. San Joaquin &c. Co., 192 U. 8. 201.
Mr. Joseph Hirsh, with whom Mr. Murray F. Smith was on the brief, for appellee:
The questions now at issue have already been heretofore conclusively adjudicated and are no longer open for investigation and determination here again.
No case can be properly tried by installments; no complainant or defendant can speculate with judicial decisions; when a defendant or complainant once has a standing in court to uphold or to annul a contract or any other solemn undertaking, that it is incumbent upon both parties to the litigation to formulate, present, and seek a final disposition of all material issues involved; when a contract is presented for consideration in its entirety, and when the owner of the contract prays that the other party to the contract should be prohibited from annulling it, destroying it, or impairing it, if the other party then has any real or substantial defenses known to him upon the basis of which said contract can be assailed, it is the bounden duty of that party to interpose such defenses—not one, but all—and, failing to do so, should not thereafter be permitted to reopen the controversy to interpose p. 505206 U. S. Argument for Appellee.
defenses known to him and existing at the time the contract is under consideration and an adjudication of its validity is sought. 24 Am. & Eng. Ency. of Law (2d ed.), pp. 781 and 782.
Under the laws of Mississippi, as construed by the highest court, and under the constitution of 1890, the contract of the waterworks company is unassailable.
The decision in the Freeport case and Rogers Park case and other cases announcing similar principles must be construed, of course, in the light of the facts involved in those cases.
If a state legislature has reserved to itself the right to amend, repeal, or alter a state statute, and to amend or repeal a corporate charter, it can be readily maintained that by the creation of such a charter or by the enactment of such a law the legislature has not parted with its power to regulate a corporation organized under such laws, or to regulate, change, modify, or vary rates authorized by such laws. A corporation which makes a contract under such laws is chargeable with knowledge thereof, and if by so doing it invites destruction by a practical confiscation of its property under a so-called regulation of its rates, it has only itself to blame. When its powers are limited by the law under which it claims a right or privilege, that law of course furnishes the measure of its right or privilege, and it cannot be heard to complain if that law operates to its detriment. But in the State of Mississippi, in the year 1886, there was not vested in the legislature the right to repeal, annul, or abrogate a charter procured under the laws then existing. That charter was a contract, and was protected both by the state and the Federal constitutions, and the Supreme Court of the State of Mississippi has not held, so far as we have been able to ascertain, that a charter thus obtained prior to the constitution of 1890 was subject to repeal or amendment unless such right was especially reserved in the act, and the provision of the constitution of 1890 which vested the power in the legislature to repeal or amend corporate charters expressly exempts from its operation any charter p. 506then existing and irrevocable, and was mainly intended to be prospective in its operation.
Mr . Jus tice Day , after making the foregoing statement, delivered the opinion of the court.
It is contended on behalf of the appellee that the original decree of May 18, 1904, finally disposed of all the issues between the parties, including the right of the city to make rates for water consumption to private consumers under the authority of the act of March 19, 1904, and that the present controversy is foreclosed by the decree in the former case.
While it is true that the decree is very broad, we cannot agree to the contention of the appellee that it finally disposed of the matter now in controversy. When the case was first here, reported in 185 U. S. 65, while there are expressions in the opinion affirming the validity of the contract and the authority of the city to make it, the issue really decided was as to the jurisdiction of the court as a Federal court, which was sustained, and the cause remanded for further proceedings. Upon the second hearing of the case, and the appeal here, the opinion shows that the adjudication was regarded as settling the right of the Vicksburg Waterworks Company, under the contract, to carry on its business without the competition of works to be built by the city itself, as the city had lawfully excluded itself from the right of competition; and it was further held, as incidental to that controversy, in passing upon an issue made in the suit, that the Vicksburg Waterworks Company had succeeded to all the right, title, and interest of the original contracting party, and that the contract, having been made prior to the constitution of 1890, was not controlled by its provisions. The right to recover for rentals was also directly involved, as the city had denied its liability therefor, and an accounting was prayed in the original bill and the decree specifically disposed of that issue. It is true that in the answer it was averred that the allege contract imposed upon the inhabitants of Vicksburg an onerous p. 507and extortionate burden; “that no such contract would now be made with the Vicksburg Waterworks Company or any other company; that the rates authorized in said ordinance far exceeded the rates charged in other cities under like circumstances and, in general terms,” the city denied that it was bound to the complainant by contract; “ that for the many reasons therein set forth, no liability existed on the part of the city by reason of the contract.”
An examination of the record in the former case shows that the only testimony taken in the case, as to the reasonableness of the rates charged to private consumers, was on behalf of the company, -and tended to show, that the rates charged were reasonable, and if it could be said that the pleadings put in issue the reasonableness of the rates then charged, was the right of the city to regulate rates under a subsequent law of the State necessarily involved and concluded? The determination of issues as to the right of injunction against the city building its own works, or denying liability or refusing to pay the rentals contracted for, and a finding that existing rates were reasonable, did not necessarily conclude a controversy which might thereafter arise, as to the right of the city to fix rates when the legislature of Mississippi should pass a law for that purpose, giving the city the right to regulate the same. It is to be remembered that when the bill was filed in the original case no such law had been passed; that when the act of March, 1904, went into effect the case was nearly ready for final decree, and the city passed its ordinances long after the beginning of the suit, and shortly before that decree. No supplemental bill was filed, but after the decree, in January, 1905, the present independent suit was brought, with a view to enjoining the proposed action of the city in enforcing ordinances regulating the rates by charges other than those contained in the contract.
Upon the appeal, the question seems to have been argued by the city as though made in the case, though the brief on behalf of the appellee contends that the act of 1904 was not p. 508involved. But a decree must be read in the light of the issues involved in the pleadings and the relief sought, and we are of opinion that the matters now litigated were not involved in or disposed of in the former case, and that when properly construed the decree does not finally dispose of the right of the city to regulate rates under a law passed after the contract went into effect and long after the bill was filed in the case.
Holding, then, that the plea of res judicata must be denied, had the city authority, under the charter of Vicksburg, passed in 1886, to make a binding contract, fixing maximum rates for water supply to private consumers for a definite period, thirty years in the present case? The grant of legislative power upon its face is unrestricted, and authorizes the city 11 to provide for the erection and maintenances of a system of waterworks to supply said city with water, and to that end to contract with a party or parties who shall build and operate waterworks.”
That a State may, in matters of proprietary rights, exclude itself from the right to make regulations of this kind, or authorize municipal corporations to do so, when the power is clearly conferred, has been too frequently declared to admit of doubt. Los Angeles v. Los Angeles City Water Company, 177 U. S. 558; Walla Walla v. Walla Walla Water Company, 172 U. S. 1-7; New Orleans Waterworks Company n . Rivers, 167 U. S. 674; Freeport Water Company v. Freeport, 180 U. S. 587-593.
In the latter case this court, following the construction of the Supreme Court of Illinois, held that where a city council was authorized to contract with any person or corporation to construct and maintain waterworks at such a rate as may be fixed by ordinance for a period not exceeding thirty years, the words “fixed by ordinance” being capable of application so as to make one ordinance endure for the period of thirty years, for which the contract was made, or to give the right to pass ordinances from time to'time regulating rates, the latter construction was adopted.
In the cases generally in this court it will be found that, in determining the matter of contract, the local decisions have been given much weight and, ordinarily, followed. As this is a Mississippi contract, and the power was exercised under the authority of an act of the legislature of that State, we naturally look to the decisions of the courts of that State, particularly to such as had given construction to similar charters at the time the contract was made, with a view to determining the extent of the power conferred.
While the case now before us was pending, Griffith and others, citizens of Vicksburg, filed a bill, setting forth the city ordinances of 1903 and 1904, and asking to have them established and maintained and an injunction granted against enforcing charges for higher rates, and upon appeal the case went to the Supreme Court of Mississippi, and is reported in 40 So. Rep. 1011. In that case the Supreme Court of Mississippi held that the municipal corporation represented the citizens and taxpayers of the city, and that where a right had been adjudged as between the company and the city it would conclude private citizens, and while the court declined to pass directly upon the question here involved, because of its pendency in the Federal courts, it used this pertinent and suggestive language:
“We decline to follow the decision in Griffin v. Goldsboro Water Company (N. C.), 30 S. E. 319; 41L. R. A. 240, in holding that while a water company which accepts an ordinance by which a maximum rate is fixed is bound, and cannot exceed the same because of its contract, yet such rates are not binding upon consumers, who have a right to litigate against unreasonable charges. This holding, it seems to us, practically denies the power of a company, under a contract embodied in its charter giving the power, so to fix a rate as to bind a private consumer at all. It opens a never-ending and limitless field of litigation. It is well settled that the courts cannot fix a rate; and if, proceeding duly under statutes enacted for that purpose, the municipality cannot do so, or authorize the p. 510company by contract to do so, and thereby bind the citizens, then there is no authority by which it can be done.
“ It is not a matter open to serious discussion in this State, since the decision by this court in the case of Stone v. Railroad Company, 62 Mississippi, 607, 52 Am. Rep. 193, decided at the April term, 1885, and before the act of 1886 (Laws 1886, p. 694, c. 358), amending the charter of Vicksburg, was enacted, that a Q'uasi-public corporation may have a contract right to fix rates within a certain designated maximum, and that the rates so fixed are matter of contract guaranteed by the contract clauses of the United States Constitution. In that decision the court was manifestly directing its observations to the binding character of the rates as between the company and the shippers; otherwise, the decision was practically meaningless and without point. The philosophy of the situation is simple. Granting that the company is lawfully invested with authority to fix its rate, then such rate being so fixed by it within the maximum limit allowed by the charter, or allowed by the duly authorized ordinance, is by the courts presumed to be reasonable; and it is not permissible for each individual citizen, in every controversy that may arise, to have that question, once passed upon by the lawfully constituted public authorities charged with power in the premises, reopened and litigated anew.”
The case to which the court refers in the preceding extract, Stone v. The Railroad Company, 62 Mississippi, 607, as having been decided prior to the enactment of the charter of Vicksburg under which the contract in question was made, did not directly involve the question of authorizing municipal corporations to make such contracts, but did maintain, after an exhaustive consideration of the subject, that a grant to a railroad company, in the charter, of a right to fix rates within maximum limits named, was a contract, within the meaning of the Federal and state constitutions, which could not be violated by* a subsequent attempt to prescribe different rates, and held that the railroad company’s grant was not a p. 511renunciation of the legislative power to secure reasonable rates, but rather an exercise of that power, and, when rights were thus conferred, to that extent there was a renunciation of the right of the State to control the subject. In the course of the discussion the learned judge, speaking for the court, said:
“The power to contract is an essential attribute of sovereignty and is of prime importance. Its exercise has been productive of incalculable benefits to society, however great may be the evils incident to its injudicious employment. It cannot be denied merely because of its liability to abuse. The power to contract implies the power to make a valid contract. . . . The right to grant charters includes the right to grant such as will be upheld. Conferring power on the grantee of the franchise to fix rates of compensation at discretion, or within prescribed limits fixed by the charter, has been the common practice of the legislatures of the States of the United States from an early period of their history. The right of the corporators to exercise the powers conferred by the act of incorporation, whether to fix rates themselves or to take those fixed by their charter and to rest securely on its provisions in this respect, has hitherto been generally regarded as indisputable.
“A grant in general terms of authority to fix rates is not a renunciation of the right of legislative control so as to secure reasonable rates. Such a grant evinces merely a purpose to confer power to exact compensation which shall be just and reasonable.
* * * * * * * *
1 If the grant can be interpreted without ascribing to the legislature an intent to part with any power, it will be done. Only what is plainly parted with is gone. Fixing rates in a charter is a specification of what is reasonable—an exclusion of tacit or implied conditions on the subject. It is an essential part of the contract of incorporation, the most important condition of its existence, the inducing cause of its acceptance.”
We are referred to other cases in Mississippi which deal directly with the extent of the power conferred upon municipal corporations in charters in general terms, some of which we may notice.
In Light, Heat & Water Company v. City of Jackson, 73 Mississippi, 598, the city of Jackson had filed its bill, undertaking to annul a contract binding the city to pay for water for a period of twenty years at a price and rate fixed in a certain ordinance, on the ground that it was ultra vires and without authority from the legislature. In that case the authority conferred was in general terms, authorizing the city to contract with any reliable corporation, association or individual for supplying the city of Jackson with water and electric or gas lights from year to year. Under authority of this general power the city undertook to make a contract with the Light, Heat and Power Company of Jackson, contracting for the furnishing of water to the public at certain annual rentals for a period of twenty years, and fixing a certain rate for annual rentals to private consumers. The Supreme Court of Mississippi dealt directly with the question: Was the contract made between the city and company and set forth in the bill invalid for want of power in the city to contract for a series of years? And the court said:
“In view of the nature and character of the subject-matter of the contract which the board of mayor and aidermen of the city of Jackson was authorized to make by the third section of the act of February 29th, 1888, we think the contract entered into with the appellant was within the delegation of power so far as the time of its duration is involved. . • • We know that the machinery, mains and appliances required for supplying the city with water are costly to begin with, and are relatively of little value if removed when once located. Permanency of the plant is essential to the realization of any profit in the enterprise, and in cities having no greater population than that of Jackson the use of water for municipal purposes would probably be a prerequisite to secure the p. 513investment of the capital necessary to the construction of the plant. The words ‘from year to year’ relied upon by the appellee as limiting the power of the officers of the city to the making of the annual contracts, derived much of their significance from the subject and nature of the thing contracted for, the character of the body on which the power is conferred, the end to the attainment of which the power is to be exercised, and the extent to which such powers for such purposes are usually conferred.
“A few days after the act was passed, a commission was appointed by the legislature to contract for water for the state institutions, situated in and near the city, for the term of twenty-five years. In this act powor was conferred upon all municipalities to enter into contracts for a term not exceeding twenty-five years, for supplies of water, on a two-thirds affirmative vote of the qualified electors, but the act provided that it should not apply to municipalities, whose charters already conferred the power of making contracts for water.
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“A contract made by the authorities of a municipality with a water company for supplying the city with water for a period of twenty years, is within the power conferred on them by an act of the legislature authorizing them to contract with any reliable corporation for supplying the city with water from year to year, in view of the purpose of the delegation of power, the nature of the body on which it was conferred, the subject-matter of the contract, the large outlay for machinery and appliances, the profit of which was dependent upon the permanency of the enterprise, and the cotemporaneous legislation, from which the intent to authorize a contract of as great duration as twenty-five years is deducible.”
Again, in the case of Reid v. Trowbridge, 78 Mississippi, 542, the mayor and aidermen of the city of Vicksburg had been authorized, in general terms, to provide for the lighting of said city by electric light or other method. Under this general power the city made a contract with the Vicksburg Railroad, vol . ccvi—33 p. 514Power and Manufacturing Company for lighting the streets by electricity, at a given rental per annum, for one hundred and twenty-five lights, for a period of ten years. The taxpayers of the city of Vicksburg filed a bill to enjoin the carrying out of the contract, alleging that the city had no authority to make such a contract without submitting it to a vote of the people under the act of March, 1888, passed subsequent to the charter, requiring submission to a vote of the people, that the contract was unreasonable and oppressive, and that the council had acted arbitrarily and without exercising discretion in awarding it. The court held that the act of 1888 had no application to the case, and, speaking of the general terms of the charter authorizing a contract for lighting purposes, said:
“The intent of the legislature to confer the power without restriction appears to us to be too plain, from the collocation and order and sequence of the sections and article of the charter act, to admit of obscuration by learned argument about original power. The very last legislative action on the subject, that in the municipal charter of the Code of 1892, shows that the lawmakers thought the power to be one to be conferred or prohibited, because it expressly confers it on cities and towns and prohibits its exercise by villages.
******4:^
“It is claimed now that the last clause of section 1 of the first quoted of the above acts, that approved March 10, 1888, applied to and modified the charter of the city of Vicksburg so as to make the contract here in controversy void because not submitted to vote. In order to this result it is claimed that, in the charter of Vicksburg, it is not ‘otherwise provided/ because the charter expressly confers the power, without restriction, on the municipal board at any ‘regular or special meeting.’ Besides, in construing the section of the act secondly above quoted, this court expressly so held in the case of Light &c. Co. v. Jackson, 73 Mississippi, 644. If the precise point was not made, the omission is quite significant of the opinion of the eminent counsel for appellee in that case p. 515that there was nothing in it. Aside from this, the question was at the very root of the cause, and was considered and decided, and it is the exact question in the case at bar, except that this case is somewhat stronger in favor of the power than the case decided.
“By section 3 of the act of February 29, 1888, the Jackson board was ‘hereby authorized and empowered to contract,’ etc., while by the Vicksburg charter act, the board was authorized to so contract ‘at any regular or special meeting.’ We presume that no charter then existent ‘otherwise provided’ by an express prohibition of electric lighting without vote. The grant of the power without restriction is to ‘ otherwise provide.’ ”
And the court held that under this power the municipal authorities had the right to make the contract for electric lights without advertising for bids and without submitting the matter to a popular vote, and the power was not taken away by the act of March, 1888.
In this case the learned judge, speaking for the court, further said:
“Within its charter powers, the board has a discretion independent of courts, and no exercise of it will be held void for unreasonableness, unless so gross as to strongly suggest fraud or corruption. The people elect their council, and the courts are not chosen members of it.”
In the light of these decisions, and others might be cited, we reach the conclusion that, under a broad grant of power, conferring, without restriction or limitation, upon the city of Vicksburg the right to make a contract for a supply of water, it was within the right of the city council, in the exercise of this power, to make a binding contract, fixing a maximum rate at which water should be supplied to the inhabitants of the city for a limited term of years, and, in the absence of a showing of unreasonableness “so gross,” as the court of Mississippi has said, as to strongly suggest fraud or corruption,” this action 0 the council is binding, and for the time limited puts the
Syllabus. 206 U. S.
right beyond legislative or municipal alteration to the prejudice of the other contracting party.
While we, therefore, reach the conclusion that the former case did not adjudicate the matter, we think the contract in this respect was within the power of the council and cannot be violated consistently with the contract rights of the company by the subsequent ordinances of the city.
In this case the Circuit Court rendered a final decree practically upon the bill and answer. No testimony was taken, and all that was before the court was the bill, answer and exhibits. We think the decree goes too far in enjoining the city from interfering with the contract right of the company to charge the rates fixed thereby, in view of the allegations of the answer, that the rates charged by the company exceeded those named in section 13 of the ordinance of 1886.
The decree should be modified, so as to enjoin interference on the part of the city during the term of this contract, with the right of the company to charge rates not in excess of fifty cents a thousand gallons to private consumers, as set forth in the ordinance.
With this modification, the decree will be
Affirmed.
BERNHEIMER v. CONVERSE.
DREY AND BERNHEIMER v. CONVERSE.
IN ERROR TO THE CIRCUIT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK.
Nos. 278, 279. Argued April 25, 26,1907—Decided May 27, 1907. This court in this case followed the judgment of the highest court of the
State in determining that a corporation was not within the exception, constitutional and statutory, as to stockholders’ liability in favor of cer tain classes of corporations. Where, as in Minnesota, stockholders har
bility is fixed and measured by the Constitution, a stockholder upon p. 517acquiring his stock incurs an obligation arising from the constitutional provisions, and as such capable of being enforced in the courts not only of that State but of another State and of the United States.
There is a broad distinction between laws impairing the obligation of contracts and those which simply give a more efficient remedy to enforce a contract already given, and the statute of Minnesota of 1899 for the enforcement of stockholders’ liability, under which the constitutional liability can be enforced by the receiver without the State, is not void under the impairment of obligation clause of the Constitution of the United States because it repealed a prior act under which the stockholders’ liability could not be so enforced.
An act intended to make effectual a liability which is incurred by stockholders under the constitution of the State and which operates equally upon all stockholders and assesses all by a uniform rule should not, in the absence of substantial reasons, be rendered nugatory, and the Minnesota act of 1899 will not be declared void as violating the constitutional rights of stockholders either because it provides for fixing the liability in a proceeding within the State to which non-resident stockholders are not parties, or because it changes the procedure for collecting the assessment, and gives the receiver the right to maintain actions without the State.
One who becomes a member of a corporation assumes the liability attaching to such membership and becomes subject to such regulations as the State may lawfully make to render the liability effectual.
While a chancery receiver, having no authority other thafi that arising from his appointment, may not maintain an action in another jurisdiction, a receiver may sue in a foreign jurisdiction to collect statutory liability of stockholders where the statute confers the right upon the receiver as quasi-assignee.
Section 55 of ch. 588, N. Y. Laws of 1892, limiting the time within which to bring an action against a stockholder for a debt of the corporation does not apply to an action brought by a receiver to enforce statutory liability of stockholder of a foreign corporation.
Thes e are writs of error to the Circuit Court of the United States for the Southern District of New York.
The actions were brought (January 28, 29, 1904) by Theodore R. Converse as receiver of the Minnesota Thresher Manufacturing Company, a corporation of the State of Minnesota, to enforce an alleged stockholders’ liability under the constitution and laws of the State of Minnesota. The court below held the executors of Simon Bernheimer and Isaac Bernheimer, both having died before the suits were brought, liable as such stockholders.
Statement of the Case. 206 Ü. S.
The record discloses that the Minnesota Thresher Manufacturing Company was incorporated under the laws of the State of Minnesota on the fifth of December, 1884, the objects for which the corporation was formed being the purchase of the capital stock, evidences of indebtedness and assets of the Northwestern Manufacturing and Car Company, also a corporation under the laws of the State of Minnesota, and for the further purpose of manufacturing and selling steam engines, farm implements, machinery, etc., and the manufacture and sale of articles, implements and machinery of which wood and iron form the principal parts.
The Northwestern Manufacturing and Car Company was in the hands of a receiver, carrying on its business under the orders of a court, and, on October 27, 1887, the property and plant of that company, including all its bills receivable, farmers’ notes and assets were sold under decree and purchased by the Minnesota Thresher Manufacturing Company. The last-named company continued in business until December, 1900. On December 14 of that year the property and business of the thresher company were placed in the hands of a receiver by the order of the Circuit Court of the United States for the District of Minnesota, in a suit for the foreclosure of a mortgage upon its property, and this receiver carried on the business until the mortgaged property was sold under a decree of foreclosure on May 25, 1901.
On May 6, 1901, the Merchants’ National Bank of St. Paul obtained a judgment in the District Court of Ramsey County, Minnesota, against the thresher company, and executions thereon having been returned unsatisfied, the judgment creditor brought suit against the thresher company for the appointment of a receiver and the enforcement of the individual liability of its stockholders in the District Court of Washington County, Minnesota. In that suit Theodore R-Converse, defendant in error in these cases, was appointed receiver. On the petition of the receiver, for the purpose of providing funds for the payment of the expenses of the p. 519receivership in the enforcement of the stock liability and payment of indebtedness, an order was made, December 22, 1902, reciting, among other things, that copies of an order of April 16, 1902 (not in the record), had been published, mailed and served as therein required, and that due notice of the hearing had been given to the defendant company and to each stockholder of record as directed by the order, and, on a hearing duly had, an order of assessment of thirty-six per cent of the par value of each share of the capital stock of the thresher company, to wit, eighteen dollars per share, was assessed against each and every share of the capital stock and against each and every person, corporation or party liable as such stockholder, and each such person, corporation or party was directed to pay to the said receiver, at his office in the city of Stillwater, Minnesota, within thirty days after the date of the order, the said sum of eighteen dollars a share; and, further, upon failure to pay said sums, the receiver was authorized to prosecute actions or proceedings against the persons liable in any court having jurisdiction in the State of Minnesota or elsewhere. On appeal to the Supreme Court of the State of Minnesota this order was affirmed. 90 Minnesota, 144. Subsequently, as stated, these actions were brought and judgment rendered against the executors of the Bernheimers.
Mr. Lawrence Arnold Tamer for plaintiffs in error:
The statute of 1899, under which the proceedings for the assessment were taken, impairs the obligation of the contract between the stockholders and the creditors.
The liability is a contractual liability. Hanson v. Davison, 73 Minnesota, 454, 460; Flash v. Conn, 109 U. S. 371, 377; Hawthorne v. Calef, 2 Wall. 10; Whitman v. Oxford National Bank, 176 U. S. 559, 563; Knickerbocker Trust Co. v. Myers, 133 Fed. Rep. 764, affirmed Myers v. Knickerbocker Trust Co., 139 Fed. Rep. Ill, 112, 114; Carroll v. Green, 92 U. S. 509, 513.
The terms of the stockholders’ contract are embodied in the constitution and statutes in force at the time when he p. 520acquired his stock. Von Hoffman v. City of Quincy, 4 Wall. 535, 550; Webster v. Bowers, 104 Fed. Rep. 627.
The constitution and the statute are to be construed together. Allen v. Walsh, 25 Minnesota, 543, 551; Whitman v. Oxford National Bank, 176 U. S. 559, 563; Middletown National Bank v. Toledo &c. Ry. Co., 197 U. S. 394, 405.
The provisions creating the liability are to be strictly construed, and cannot be extended beyond the words used. Brunswick Terminal Co. v. National Bank of Baltimore, 192 U. S. 386, 390; Converse v. ¿Etna National Bank, 64 Atl. Rep. 341, 344.
The act of 1899 deprives stockholders of property without due process of law, by authorizing a conclusive judgment against non-resident stockholders who have not been served with process.
The only notice to stockholders provided for by the act is that on the petition being filed the court 11 shall direct such notice of such hearing to be given by the party presenting said petition, by pubheation or otherwise, as the court in its discretion may deem proper.” Section 6 provides that it shall be the duty of the assignee or receiver to bring an action against every stockholder for the amount so assessed against him.
In the case at bar, the defendants were not parties to the assessment proceedings, and had no knowledge in fact of them. They contend that the statute, permitting a conclusive assessment against them without service of process upon them, deprives them of their property without due process of law.
Due process of law requires personal service of process, or a voluntary appearance. Mason v. Eldred, 6 Wall. 231, 239, Pennoyer v. Neff, 95 U. S. 714, 733, 734; Haddock v. Haddock, 201 U. S. 562, 567; Clark v. Wells, 203 U. S. 164, 170.
The Minnesota court was without jurisdiction to make the
order of assessment.
These actions were brought upon the assessment order, as on a judicial determination binding upon the defendants. Whether the District Court of Washington County, Minnesota, p. 521had jurisdiction to make that determination is a proper subject of inquiry, for if that court acted without jurisdiction, its determination is a nullity, and no recovery can be based on it. Williamson v. Berry, 8 How. 495, 540; Thompson v. Whitman, 18 Wall. 457, 468; Old Wayne Life Assn. v. McDonough, 204 U. S. 8, 15-17.
That court had no jurisdiction of the subject-matter, because no state of facts existed under which it was authorized to appoint a receiver and make an assessment. The statute of 1899 authorizes the District Court to proceed in the manner therein prescribed, in certain cases. Unless one of those cases or states of fact existed, the court had no jurisdiction to proceed. Thatcher v. Powell, 6 Wheat. 119, 127; East Tennessee, Va. & Ga. R. R. Co. v. Southern Telegraph Co., 112 U. S. 306, 310; Griffith v. Frazier, 8 Cranch, 9, 23; Hatch v. Ferguson, 68 Fed. Rep. 43, 45; Murray v. American Surety Co., 70 Fed. Rep. 341, 346.
The District Court had no jurisdiction of the persons of the defendants, because it failed to give them the notice required by the statute. Even if compliance with this requirement would constitute due process of law, the burden of proof was upon plaintiff to show such compliance; in default of which he has failed to show jurisdiction over the persons of the defendants, and the assessment order is a nullty. Galpin v. Page, 18 Wall. 350; Windsor v. McVeigh, 93 U. S. 274, 283, 284; Old Wayne Life Assn. v. McDonough, 204 U. S. 8, 18.
The actions were barred by limitation, because not brought within two years after the defendants ceased to be stockholders in the thresher company, within the meaning of § 55 of the Stock Corporation Law of New York which provides that no action shall be brought against a stockholder after he shall have ceased to be a stockholder, for any debt of the corporation, unless brought within two years from the time he shall have ceased to be a stockholder.”
The provision cited is a statute of limitations relating to the liability of stockholders in all stock corporations, and
Argument for Defendant in Error. 206 U. S.
is applicable not only to an action against a single stockholder on a single debt, but also to liabilities of all the stockholders to contribute ratably to a deficiency. Adams v. Wallace, 82 App. Div. 117; Adams v. Slingerland, 89 App. Div. 312; Sanford v. Rhoads, 113 App. Div. 782.
The limitation is applicable to actions against stockholders in all corporations, foreign as well as domestic.
General Corporation Law of New York (Laws of 1892, Chapter 687), §§ 2, 3, subd. 5, § 33. Platte. Wilmot, 193 U. S. 602; Hobbs v. National Bank of Commerce, 96 Fed. Rep. 396.
When the defendants ceased to be stockholders within the meaning of this statute is a question of local law, upon which the decisions of the state courts are controlling. Great Western Telegraph Co. v. Purdy, 162 U. S. 329, 339.
Mr. William G. Wilson, with whom Mr. C. A. Severance was on the brief, for defendant in error:
The plaintiff, as receiver, is entitled to maintain actions in New York and elsewhere to enforce the individual liabilities of the defendant’s testators and other stockholders, inasmuch as those liabilities are made assets for the payment of corporate obligations and are vested in the receiver.
The constitution of Minnesota imposed upon stockholders of the Minnesota Thresher Company a general and several liability for all legal obligations of the corporation to an amount equal to the par value of the stock respectively owned or held by them.
The act of 1899, in legal effect, vested the title to these individual liabilities in the receiver, as a trustee for creditors, and directly authorized the receiver to maintain actions for their collection wherever the stockholder should be found.
The receiver thereby became a statutory assignee. See Kennedy v. Gibson, 8 Wall. 498; Relfe v. Rundle, 103 U. S. 222, Howarth cases.
The right of a Minnesota receiver appointed and proceeding under the act of 1899 is recognized and, in legal effect, approved by this court in the Burget case, 188 U. S. 739, when it reversed the judgment in Hale v. Allinson, 188 U. S. 56, where the receiver had been appointed before the act of 1899 was passed and refused to entertain the Burget case, although its attention was explicitly drawn to the claim that the two cases presented the identical question. And this, also, although this court had in the meanwhile held in Finney v. Guy, 189 U. S. 335, that a Minnesota receiver appointed before the act of 1899 could not maintain such action.
The right of the present receiver, Converse, to maintain these present actions in the Federal court in New York, is not open to question. Willis v. Mabon, 48 Minnesota, 140; Whitman v. Oxford Bank, 176 U. S. 559; State v. Thresher Co., 40 Minnesota, 213; Merchants’ Bank v. Thresher Co., 90 Minnesota, 144; Bank v. Winona Plow Co., 58 Minnesota, 167; Forsyth v. Hammond, 166 U. S. 506; Bank v. Converse, 200 U. S. 425; Hale v. Hardon, 89 Fed. Rep. 283; Howarth v. Angle, 162 N. Y. 179, 187; Howarth n . Lombard, 175 Massachusetts, 570, 574, 579; Hale v. Allinson, 188 U. S. 56; Relfe v. Rundle, 103 U. S. 222'; Burget v. Robinson, 123 Fed. Rep. 262; Finney v. Guy, 189 U. S. 335.
The obligations and liabilities of the stockholders of the thresher company rest upon a contract by which they have submitted themselves to the jurisdiction and control of the State of Minnesota. Bank v. Deuveaux, 5 Cranch, 61; Marshall v.
The legislation of Minnesota in providing an adequate and effectual remedy for enforcing the obligations and liabilities of stockholders does not impair any obligation of their contracts. Sturges v. Crowinshield, 4 Wheat. 122, 197; Bank n . Francklyn, 120 U. S. 747, 755; Evans v. Nellis, 187 U. S. 271; Bank v. Reckless, 96 Fed. Rep. 70; Commonwealth v. Bank, 3 Allen (Mass.), 42; Story v. Furman, 25 N. Y. 214; Bronson v. Kinzie, 1 How. 315; Railroad Co. v. New Orleans, 157 U. S. 224.
Mr . Jus tice Day , after making the foregoing statement, delivered the opinion of the court.
Before entering upon a discussion of the objections urged against the validity of the assessment upon stockholders which is the subject of controversy here, we may say we find no reason to disagree with the judgment of the Supreme Court of Minnesota in holding the Minnesota Thresher Manufacturing Company to be a corporation organized for other than the purpose of carrying on any kind of manufacturing or mechanical business, and therefore not within the exception as to stockholders’ liability in favor of corporations of that kind. State v. Minnesota Thresher Man. Co., 40 Minnesota, 215; Merchants Bank v. Minnesota Thresher Man. Co., 90 Minnesota, 144.
The questions made in these cases involve the right to recover upon a stockholder’s liability in a Federal court in a State other than the one in which the original proceedings in liquidation were had, and under whose laws the corporation was formed and wherein it carried on business, against stockholders in such corporate companies as the thresher company, where the stock had been acquired before the passage of the statute of 1899. General Laws of Minnesota, chap. 272, being “An act to provide for the better enforcement of the liability of stockholders of corporations.”
A former statute had been for some years in force in Minnesota and was the statute law of the State when the stock which concerns the controversy here was acquired by the Bernheimers. This statute was before this court in the cases of Hale v. Allinson, 188 U. S. 56, and Finney v. Guy, 189 U.S. 335. It was the act of 1894, General Statutes of Minnesota of that year, chap. 76, p. 1595, and is set forth in full in the margin, 188 U. S. p. 60.
Under that act it was held, in a series of decisions in the
State of Minnesota, which were reviewed in Hale v. Allinson, that an action could only be maintained under the laws o p. 525Minnesota when brought by a creditor or creditors for the benefit of all creditors of the corporation, and the recovery was had for the purpose of making good any deficiency in the corporate assets for the payment of corporate debts; that the receiver could not maintain such an action outside of the jurisdiction of the court appointing him, and that the only remedy was, as stated, in a creditor’s action, bringing in all the stockholders, for the realization of a fund to be proportionately distributed among the creditors in one suit.
The principal contentions in these cases are that the act of 1899, above referred to, works such a change in the contract theretofore existing by virtue of the acquisition of stock in a Minnesota corporation as to impair the obligation thereof, and, in ways to be hereafter noticed, undertakes to hold a stockholder by judgment rendered without due process of law.
The act of 1899 was before this court in the case of the First National Bank v. Converse, 200 U.S. 425, and its principal parts are set forth in the margin of the report of that case on page 428. The act, for our purposes, may be summarized as follows:
“Sec . 1. Whenever any corporation created or existing under the laws of the State of Minnesota, whose stockholders or any of them are liable to it or to its creditors . . . upon or on account of any liability for . . . the stock or shares at any time held or owned by such stockholders, respectively, whether under or by virtue of the constitution and laws of said State of Minnesota, or any statute of said State or otherwise, has heretofore made or shall hereafter make any assignment for the benefit of its creditors under the insolvency laws of this State; or whenever a receiver for any such corporation has heretofore been or shall hereafter be appointed by any district court of this State, whether under or pursuant to • • . any statute of this State or under the general equity powers and practice of such court, the district court appointing such receiver or having jurisdiction of the matter of said assignment may proceed as in this act provided.”
Section 2 provides that upon the petition of the assignee or receiver, or any creditor of the corporation who has filed his claim, the District Court shall appoint a time for hearing not less, than thirty days nor more than sixty days from the time of filing said petition, and direct notice of the hearing to be given by publication or otherwise, in the discretion of the court, but if the petition be filed by a creditor, other than the assignee or receiver, the court shall direct notice of the hearing to be personally served on the assignee or receiver.
Section 3 provides that the court shall consider the proofs offered by the assignee or receiver, or by any creditor or stockholder who may appear in person or by attorney, as to the probable indebtedness of the corporation and the expenses of the assignment or receivership and the probable amount of assets available for the payment of such indebtedness and expenses; also as to what parties are or may be liable as stockholders and the nature and extent of such liability. And if it shall appear to the satisfaction of such court that the ordinary assets, or such amount as may be realized therefrom in a reasonable time, will not be sufficient to pay the expenses of such assignment or receivership and the indebtedness, and it is necessary to resort to the liability of stockholders, the court shall, by order, direct and levy a ratable assessment upon all parties liable as stockholders, or upon or on account of any stock or shares of such corporation for such amount as the court in its discretion may deem proper, taking into account the probable solvency or insolvency of stockholders and the probable expenses of collecting the assessment, and shall direct the payment of the amount so assessed to the assignee or receiver within such time as the court may specify in said order.
Section 4 provides for an order to the assignee or receiver to proceed to collect the amount so assessed, unless it be paid within the time specified in the order, and in default of payment the receiver is to bring suit.
Section 5 provides that the assessment levied shall be con- p. 527elusive upon and against all parties liable upon or on account of any shares of said stock of such corporation, whether appearing or having notice thereof or not, as to all matters relating to the amount of and the necessity for said assessment, which provision shall also apply to any subsequent assessment levied by order of the court.
Section 6 makes it the duty of- the assignee or receiver, upon failure to pay as required by the order, to institute and maintain an action against any party liable upon or on account of any such shares of stock, and that actions may be maintained against each stockholder in Minnesota or in any other State or country, where such stockholder, or any property subject to attachment, garnishment, or other process may be found, and provides that if the assignee or receiver shall believe any such stockholder to be insolvent, or that the expense of prosecuting such action will work to the disadvantage of the estate, he shall not be required to prosecute the same, unless specifically directed so to do by the court.
Section 7 provides for further assessments in case the first proves inadequate.
Section 8 extends the provisions of the act to such subsequent assessments.
Section 9 provides where two or more assessments are levied or directed, the assignee or receiver may join the causes of action against any stockholder on two or more such assessments.
Section 10 provides that if the assignee or receiver fails to institute or prosecute the action, the creditors may petition the court to compel him to proceed, under certain conditions.
Section 11 provides for the return of the surplus, if any remain, in the hands of the assignee or receiver after paying the expenses of the assignment or receivership and the claims of the creditors, and that stockholders who have paid assessments shall, in addition to the remedy provided in the statute, be entitled to enforce contributions from stockholders who have not paid assessments.
Section 12 provides for additional judgments in case of the inadequacy of former assessments.
Section 13 excludes certain stockholders in pending actions from the operation of the act.
This statute came before the Supreme Court of Minnesota in Straw & Ellsworth Company v. Kilbourne Boot & Shoe Manufacturing Company, 80 Minnesota, 125. In that case it was given full consideration and its constitutionality sustained, and it was held that while the assessments upon the outstanding shares of stock in an amount necessary to meet the deficiency in the assets of the corporation was conclusive upon the stockholders as members of the corporation, yet the statute, properly construed, did not have the effect to deprive a person, when sued for the amount assessed on shares of stock under the provisions of the act, from showing that he was not a stockholder, or that he was not the holder of so large an amount of stock as was alleged, or that he had a claim against the corporation which in law or equity he might be enabled to set off as against a claim for assessments, or from making any other defense personal to himself; and that the order of assessment was conclusive upon stockholders only in so far as it decided the amount of assets or liabilities of the insolvent corporation and the necessity of making an assessment upon the stock to the extent and in the amount ordered.
The constitutionality of the act was again affirmed in the same court in the later case of The London &c. Mortgage Co. v. St. Paul Park & Improvement Co., 84 Minnesota, 144.
The stockholders’ liability in Minnesota, as in some other States, has its origin in a constitutional provision, and arises under section 3, article X, of the constitution of that State. The language is:
“Liabilities of stockholders. “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.”
The courts of Minnesota have held that a stockholder’s liability is, therefore, fixed and measured by the constitution. Willis v. Mabon, 48 Minnesota, 140; McKusick v. Seymour, Sabin & Co., 48 Minnesota, 158. It is apparent from a consideration of this constitutional provision that its purpose was to make a stockholder liable to the creditors of the corporation in an amount not exceeding the par value of the stock held by him, and thus secure for the benefit of such creditors, in addition to the assets and property which the corporation might possess, the liability of those who hold its stock in a sum necessary to make good any deficiency between the amount of the assets and the debts within the limitation stated. It is evident from the general language used in this constitutional provision that while a remedy might have been worked out in the courts of equity in the State, it was proper if not necessary that a statute should be passed to make more effectual the liability thus secured by the constitution.
In pursuance of that power the legislature passed the act of 1894, which remained in force until the passage of the act of 1899.
The fundamental contention upon which the argument of the plaintiff in error against the constitutionality of this subsequent act rests is that the statute created a contract into which the stockholder entered upon subscribing to or obtaining his stock, which the legislature had no power to change without running counter to the constitutional requirement invalidating laws impairing the obligation of contracts. Constitution, Art. 1, § 10.
It may be regarded as settled that upon acquiring stock the stockholder incurred an obligation arising from the constitutional provision, contractual in its nature and, as such, capable of being enforced in the courts not only of that State, but of another State and of the United States, Whitman &c. v. Bank, 176 U. S. 559, although the obligation is not entirely contractual and springs primarily from the law creating the obligation. Christopher v. Norvell, 201 U. S. 216.
vol . ccvi—34
Is there anything in the obligation of this contract which is impaired by subsequent legislation as to the remedy enacting new means of making the liability more effectual? The obligation of this contract binds the stockholder to pay to the creditors of the corporation an amount sufficient to pay the debts of the corporation which its assets will not pay, up to an amount equal to the stock held by each shareholder. That is his contract, and the duty which the statute imposes, and that is his obligation. Any statute which took away the benefit of such contract or obligation would be void as to the creditor, and any attempt to increase the obligation beyond that incurred by the stockholder would fall within the prohibition of the Constitution. But there was nothing in the laws of Minnesota undertaking to make effectual the constitutional provision to which we have referred, preventing the legislature from giving additional remedies to make the obligation of the stockholder effectual, so long as his original undertaking was not enlarged. There is a broad distinction between laws impairing the obligation of contracts and those which simply undertake to give a more efficient remedy to enforce a contract already made.
This principle was stated by Mr. Chief Justice Marshall in Sturges v. Crowninshield, 4 Wheat. 122, as follows:
“The distinction between the obligation of a contract and a remedy given by the legislature to enforce that obligation exists in the nature of things, and, without impairing the obligation of the contract, the remedy may certainly be modified as the wisdom of the Nation may direct.”
The same rule is recognized in Hill v. Merchants’ Ins. Co., 134 U. S. 515, wherein a statute was sustained changing the character of the remedy against stockholders in common to one giving a direct remedy against an individual stockholder. The principle was clearly enunciated in Wagoner v. Flack, 188 U. S. 595-603, in which Mr. Justice Peckham, speaking for the court, said:
“To enact laws providing remedies for a violation of p. 531contracts, to alter or enlarge those remedies from time to time as to the legislature may seem appropriate, is an exercise of sovereignty, and it cannot be supposed that the State in a case like this, contracts in a public act of its legislature to limit its power in the future, even if it could do so, with or without consideration, unless the language of the act is so absolutely plain and unambiguous as to leave no room for doubt that its true meaning amounts to a contract by it to part with its power to increase the effectiveness of existing remedies.”
See, also, Wilson v. Standefer, 184 U. S. 399; New Orleans City &c. Railroad Co. v. New Orleans, 157 U. S. 219.
The liability arising under the constitution of Minnesota was such that legislation was appropriate to make it effectual. We can find nothing in the fact that one legislature has passed an act which would conclude a subsequent law-making body of equal power from passing new and additional measures to make the remedy more effectual. That the first act did not accomplish its purpose is evident. Under it stockholders in another State,’who could not be reached by personal service, were immune from liability and the entire burden was cast upon local stockholders. There was no provision for a receiver or assignee beginning action outside the State, and it was held by this court in Hale v. Allinson, supra, that a chancery receiver was powerless to enforce the rights of creditors beyond the borders of the State. In this condition of affairs the State of Minnesota has undertaken to provide a proceeding for the settlement of insolvent corporations which shall ascertain the assets of the corporation, the extent of the indebtedness of the corporation, the amount to which it is necessary, if at all, to call upon the stockholders’ liability. It is obviously an act intended to make effectual the liability which is incurred by stockholders under the constitution of the State, and it ought not to be rendered nugatory unless substantial objection exists against its enforcement. It operates equally upon all stockholders at home and abroad and assesses all by a uniform rule.
We shall proceed to notice some of the specific objections which are urged against the validity of this legislation by stockholders who acquired stock before-the act of 1899 went into effect.
It is said that the stockholder is held liable in a proceeding to which he is not a party. Under the prior act he could only be held where service could be had upon him personally, but if we are right in the proposition just announced, that additional remedies may be provided by legislation, then the validity of such additional enactments depends not necessarily upon the personal service upon the stockholder, but upon the fact whether the remedy provided is a well-recognized means of enforcing such obligations and not in violation of constitutional rights. It is true that the stockholder is not necessarily served with process in the action wherein the assessment is made under the act of 1899, but no personal judgment is rendered against him in that proceeding, and it has reference to a corporation of which he is a member by virtue of his holding stock therein, and the proceeding has for its purpose the liquidation of the affairs of the corporation, the collection and application of its assets and of other liabilities which may be administered for the benefit of creditors. In such case it has been frequently held that the representation which a stockholder has by virtue of his membership in the corporation is all that he is entitled to. It was so held in a well-considered case in Massachusetts, Howarth v. Lombard, 175 Massachusetts, 570. And it has been held in cases in this court that when an assessment is necessary to be made upon unpaid stock subscriptions for the benefit of creditors, the court may make the assessment without the presence or personal service of stockholders. Hawkins v. Glenn, 131 U. S. 319; Great Western Tel. Co. v. Purdy, 162 U. S. 329, 336.
Nor can we see any substantial difference in this respect between a liability to be ascertained for the benefit of creditors upon a stock subscription and the liability for the same purpose which is entailed by becoming a member of a corporation p. 533through the purchase of stock whereby a contract is implied in favor of creditors. The object of the enforcement of both liabilities is for the benefit of creditors, and while it is true that one promise is directly to the corporation and the other does not belong to the corporation but is for the benefit of its creditors, either liability may be enforced through a receiver acting for the benefit of creditors under the orders of a court in winding up the corporation in case of its insolvency.
It is sought to distinguish between the Massachusetts case of Howarth v. Lombard, 175 Massachusetts, supra, and kindred cases, and the one at bar, in the fact that when the stock was acquired in that case a statutory provision was already in existence which made the stockholder liable to an assessment in a proceeding in which the stockholder was represented by the corporation. But, as we have said, keeping within the constitutional measure of liability, it was within the power of the legislature of Minnesota to make provisions, within the limits of due process of law, for the liquidation of the affairs of the corporation in a proceeding in the State of its origin, wherein members of the corporation should be sufficiently represented by the presence of the corporation itself. This practice has the sanction of the courts, as we have already shown. It is substantially the procedure authorized by the national banking act, except that the Comptroller of the Currency takes the place of the court, and, without the presence of the stockholders, makes a conclusive assessment. We cannot find any constitutional right belonging to the stockholder which is violated by this change in the character and nature of the remedy against him.
By becoming a member of a Minnesota corporation, and assuming the liability attaching to such membership, he became subject to such regulations as the State might lawfully make to render the liability effectual.
It is further urged that in imposing upon the stockholder the additional expense in a proceeding where the expenses incident to the enforcement of the liability in other States,
and against other parties, are taken into consideration and included in the estimate, there is an unwarranted increase in the amount which could be recovered against the stockholder under the former statute. But remembering at all times that the obligation of the shareholder was the creature of the constitution of Minnesota, we think the fact that the additional expenses were included in the assessment cannot operate to defeat it. Such expenses are incident to the ascertainment of the trust fund, which it is necessary to realize from the liability of stockholders, and as long as these expenses are kept within the amount of the original liability no legal right is violated. League v. Texas, 184 U. S. 156; Richmond v. Irons, 121 U. S. 27; King v. Pomeroy, 121 Fed. Rep. 287.
It is objected that the receiver cannot bring this action, and Booth v. Clark, 17 How. 322; Hale v. Allinson, 188 U. S. 56, and Great Western Mining Co. v. Harris, 198 U. S. 561, are cited and relied upon. But in each and all of these cases it was held that a chancery receiver, having no other authority than that which would arise from his appointment as such, could not maintain an action in another jurisdiction. In this case the statute confers the right upon the receiver, as a quasi assignee, and representative of the creditors, and as such vested with the authority to maintain an action. In such case we think the receiver may sue in a foreign jurisdiction. Relfe v. Rundle, 103 U. S. 222, 226; Howarth v. Lombard, 175 Massachusetts, 570; Howarth v. Angle, 162 N. Y. 179, 182.
It is also contended that the action is barred by the statute of the State of New York, limiting to two years the right to bring an action for a debt of a corporation after the defendant ceased to be a stockholder. We do not think the provision of the statute (§55, ch. 588, N. Y. Laws, 1892) relied upon covers these cases. It evidently refers to domestic corporations provided for in reference to the stockholders liability created by the preceding section of the same chapter. The cause of action did not accrue until the receiver could sue p. 535upon the assessment after the stockholder had failed to pay, as required by the order of the Minnesota court of December 22, 1902. King v. Pomeroy, 121 Fed. Rep. 287. Under the New York statute of limitations there was six years in which to bring the action after it accrued, under § 382 of the code, the Minnesota Thresher Manufacturing Company not being a “moneyed corporation or banking association” within § 394. Platt v. Wilmot, 193 U. S. 603.
The present suits were brought a little more than one year after the causes of action accrued.
Other objections are urged as to the nature of the proceedings in the court of Washington County, Minnesota, in which the original order was made. We have examined them and think none of them go to the jurisdiction and authority of the court, or are such as would invalidate the order of assessment made therein when sued upon in another jurisdiction.
In what we have said we have noticed the principal objections made to the enforcement of the order of the Minnesota court in another jurisdiction, and, finding no error in the judgment of the court below, it is
Affirmed.
Mr . Jus tic e Holmes ;
I regret that the court has thought it unnecessary to state specifically what contract the stockholder is supposed to have made, as different difficulties beset the different views that might be taken. It seems to me hard to reconcile the construction adopted with that given to the stronger words of § 5151 of the national bank act in McClaine v. Rankin, 197 U. S. 154, 161. But under the circumstances I shall say no more than that I doubt the result.