Where a bill was filed against the stockholders of a voluntary
association for the purposes of banking, and the process was
returned "served" upon some of the parties named in the bill, and
as to others who were not within the reach of the process "not
found," the Court stated that it was not meant to say that in cases
of this nature it is necessary to bring all the stockholders before
the
court before any decree can be made. It well known that there
are cases in which a court of equity dispenses with such a
proceeding when the parties are very numerous and unknown, and the
adoption of the rule should evidently impede if not defeat the
purposes of justice.
Upon the death of some of the parties to the bill who had been
served with, process, the bill ought to have been revived against
their personal representatives if they could be brought before the
court, unless same good reason such as absolute in insolvency could
be assigned to justify the decision.
One of the great principles which courts of equity generally
require all parties who are known and within the reach of its
jurisdiction to be made parties is to prevent future litigation and
to take away multiplicity of suits. There are exceptions, it is
true, to the rule, but they are founded upon special
considerations.
We know of no instances where a joint liability has been
asserted before a court of chancery on which the decree has not
been made against all the parties before it who did not establish
some personal discharge.
In a bill filed in the Circuit Court of Alexandria County in the
District of Columbia against the stockholders of an association for
banking purposes, the bill was dismissed as to those stockholders
who were named in the bill, but were not served with process, and
it was held to be error. As nonresidents, the Act of Congress of 3
May, 1803, allows proceedings to be had against them by publication
in the newspapers in the District.
Where an appeal from the circuit court to this Court was prayed
by a number of the defendants and one only executed the proper
appeal bond, the objection to the proceedings ought to have been
taken by way of preliminary motion to dismiss the appeal for
irregularity on account of the failure to give the proper appeal
bond.
In July, 1818, a bill was filed by the appellee against certain
individuals named in the subpoena charging them with having entered
into a certain association or co-partnership, called "the
Merchants' Bank of Alexandria." That the partnership for a
considerable time issued notes
Page 27 U. S. 483
and bills, and in other respects prosecuted their trading or
business as a bank until about the month of May, 1816, at which
time they became so embarrassed as entirely to put a stop to their
proceedings. The bill then alleges that sundry notes or bills of
various denominations and amounts, issued and sent into circulation
by the bank during its operations, amounting in the whole to
$20,000, regularly came into the possession of the complainant, and
that no part of them has been paid. The bill proceeds to present
other facts and proceedings upon which the complainant claimed
relief, and concludes with a demand for general relief.
The process was served on twenty-two of the stockholders and
defendants. the whole number being sixty-one. An alias subpoena
having issued, the marshal returned, as to the others "not found;
nonresidents in the County of Alexandria." On 13 August, 1818, a
pluries subpoena was issued on which the marshal returned,
"executed on John McPherson, the other defendants not found."
In November, 1818, the bill was taken for confessed as to those
defendants on whom process had been served and who had not
answered, and continued as to the others.
At May rules, 1820, and at November term, 1820, the suit was
abated as to such of the deceased defendants upon whom the process
was executed, and no proceedings were instituted to bring in their
legal representatives. The answers of some of the defendants who
were served with process having been filed, depositions taken,
reports of the auditor made and the arguments of counsel heard, the
court went on to decree the payment of certain sums to the
complainant by the parties thus before the court, apportioning the
same according to the time they became stockholders in the bank and
the periods of issuing the notes held by the complainant. The bill
was dismissed as to the other defendants who did not answer and
also as to all those who were either not served with process to
appear in the cause or who were served with process and not charged
by any evidence on the part of the complainant.
The defendants against whom the decree was rendered prayed an
appeal to this Court which was allowed on their
Page 27 U. S. 484
giving bond and security, &c. Joseph Mandeville alone, of
all the defendants, gave bond to prosecute the appeal.
It is not considered necessary to state in this report any of
the points presented by counsel upon which no opinion was expressed
by the court, and therefore those proceedings in the case and
matters set forth in the bill, answers, and evidence, which are not
connected with or required to exhibit the only question decided by
the court, and the arguments of the counsel upon them, are
omitted.
MR. JUSTICE STORY delivered the opinion of the Court.
This is an appeal from a decree rendered in the Circuit Court of
the District of Columbia, sitting in Alexandria, in a suit in
chancery in which the appellants were original defendants. The
appellants are stockholders in an unincorporated association which
was formed in 1815 for the purpose of carrying on the business of
banking under the name of the Merchants' Bank of Alexandria; the
nature and extent of which association is evidenced by certain
articles of agreement, which were at the time published in the
newspapers in the District and are set forth in the case. The first
article provides that the capital stock may consist of one million
dollars, divided into shares of one hundred dollars each, which
were to be payable by calls provided for therein. In the other
articles, provision is made for the management of the business of
the bank by directors and for the issuing of bank notes, &c.,
to be signed by the president and countersigned by the cashier of
the bank. The 15th
Page 27 U. S. 485
article declares the object of the stockholders to be that the
joint stock of the company
"shall alone be responsible for the debts and engagements of
this company, and that no person who may deal with the company . .
. shall on any pretense whatsoever have recourse against the
separate property of any present or future member of this company
or against their persons further than may be necessary to secure
the faithful application of the funds thereof to the purposes to
which, by these presents, they are liable. But all persons
accepting any bond, bill or note . . . of the company . . . thereby
give credit to the said joint stock or property of said company,
and thereby respectively disavow having recourse, on any pretense
whatever, to the persons, or separate property of any present or
future member of this company except as above mentioned."
The whole stock of one million dollars was subscribed, and calls
to an amount of about one $183,000 were paid in with money or by
stock notes discounted for that purpose. The bank went into
operation and circulated its notes to a large amount, and finally,
after about a year, the bank failed, leaving its notes to an
amount, as it is said, of about $90,000 in circulation and unpaid,
and having assigned all its property to certain assignees (who were
not parties to the bill) for the payment of certain preferred debts
and then for the benefit of the creditors generally. These
assignees have now no property in their hands for distribution. The
original plaintiff is the holder of the bank notes of the bank to
the amount of $20,000 and upwards, which remain unpaid. The form of
the notes issued by the bank was as follows, "Capital, $1,000,000.
The Merchants' Bank of Alexandria promises to pay to C. McKnight or
order, on demand, _____ dollars." These notes were signed by the
president and countersigned by James S. Scott, who was cashier, and
endorsed by C. McKnight in blank, without consideration and solely
to enable the notes to circulate as currency as notes payable to
the bearer.
The bill seeks payment out of the separate property of the
stockholders, to the amount of $20,000, the notes so held
Page 27 U. S. 486
by the plaintiff. It states the articles of co-partnership and
charges that the notes were issued by the bank and that it
prosecuted business until May, 1816, at which time its affairs,
either by mismanagement or by a fraudulent issue of paper beyond
its known means, became embarrassed and stopped payment. But it
contains no direct charge of fraud or fraudulent misapplication of
the funds by the directors or stockholders in distinct terms. It
states the assignment of the property of the bank after the failure
and charges the preferences therein provided for to be fraudulent,
but if not fraudulent, then that the trust fund is insufficient to
pay the creditors of the bank without resort to the separate
property of the stockholders. It further charges that the plaintiff
does not know whether there are other stockholders or not than
those sued, and that he has no means of ascertaining them, and
calls upon the defendants for a discovery. And the prayer of the
bill is that the assignment may be decreed null and void, that the
plaintiff's demand may be paid out of the joint funds as far as
they will go, and then out of the separate funds of the
stockholders, and also for general relief.
In the progress of the cause, some of the original defendants
died, and the bill was not revived against their representatives.
Some of the defendants put in their several answers, to which the
general replication was filed, and against others the bill was
taken
pro confesso; and after several intermediate
proceedings, references to, and reports by a master in order to
ascertain certain facts, &c., the cause was finally set down
for a hearing against the defendants who had answered, and those
against whom it was taken
pro confesso, and a decree
rendered for the plaintiff, from which the parties against whom it
was made have appealed to this Court. The decree in substance
declares that there are no funds in the hands of the assignee to
pay the debt; that certain defendants (naming them) who had
answered do pay the debt to the plaintiff with interest from the
first of January, 1818 with costs; that this decree be discharged
as to two of the persons so charged by their paying a less sum
equal to the amount of the notes issued
Page 27 U. S. 487
by the bank while they were stockholders, and as to the other
defendants the decree is that the bill be dismissed,
"it appearing to the court that they are either not served with
process to appear in the said cause or where served with process,
not charged by any evidence on the part of the plaintiff."
Such is a very summary statement of the case. Several questions
have been elaborately argued at the bar respecting the form and
sufficiency of the bill as well as the merits of the case. Upon
some of these questions much diversity of opinion at present exists
among the judges. But as we are all of opinion that there must be a
reversal upon two points, we deem it unnecessary to examine any
others. Those points are the defect of parties, and the erroneous
dismissal of the bill as to any of the defendants properly before
the court against whom a decree might have been made.
In the first place as to the defect of parties, we do not mean
to say that in cases of this nature it is necessary to bring all
the stockholders before the court before any decree can be made. It
is well known that there are cases in which a court of equity
dispenses with such a proceeding when the parties are very numerous
or unknown and the adoption of the rule would essentially impede,
if not defeat the purposes of justice. But in the present case, we
are of opinion that upon the death of the parties who were before
the court, the bill ought to have been revived against their
personal representatives if they could be brought before the court,
unless some good reason, such as absolute insolvency, could be
assigned to justify the omission. The reason is obvious. Supposing
the decree against the parties jointly to be good, those who shall
pay are entitled to contribution from the other stockholders and
their personal representatives. If they are not before the court,
they are not bound by the decree, and consequently in a subsequent
suit for contribution they may controvert every material fact upon
which the decree was founded, and put the party seeking
contribution to the full proofs of them, as well as of the
responsibility over the party made. One of the great principles
upon which courts of equity generally require all
Page 27 U. S. 488
parties who are known and within the reach of its jurisdiction,
to be made parties is to prevent future litigation and to take away
multiplicity of suits. It is a matter of justice as well as of
convenience that all the parties who are ultimately liable to
contribution should, when practicable, be brought before the court
so that the equities between them may be adjusted as well as the
right of the plaintiff. There are exceptions, it is true, to the
rule, but they are founded upon special considerations, such as
where a decree of contribution would be useless or where the
proceeding would defeat the jurisdiction of the court and the
parties are not indispensable to a decree, or where the convenient
administration of justice forbids it in the particular case.
This reasoning applies with far more force to the dismissal of
the bill as to the defendants, who were before the court and who
were liable to a decree as stockholders. It is a positive injury to
the defendants, who are charged by the decree not only as to their
immediate responsibility, but as to the means and proofs of
contribution. The decree of dismissal, so far from aiding the other
defendants, puts then to the absolute necessity of instituting a
new suit for contribution, and to establish every step in its
progress by plenary evidence. We know of no instance where a joint
liability has been asserted before a court of chancery in which the
decree has not been made against all the parties before it who did
not establish some personal discharge.
If the bill had been dismissed against those persons only who
appeared and answered and whose liability was not proved by the
evidence, there would have been no difficulty. But it is dismissed
as to all the defendants who did not answer the bill and against
whom the bill was taken as confessed and set for a decree. Now if
these persons were duly brought before the court, and if due
proceedings were afterwards had against them, they certainly were
jointly chargeable with the other defendants upon their own
default, as in cases of confession.
It is no answer to this objection that no exception was taken at
the hearing for the want of proper parties. The objection we are
now considering is not merely that the
Page 27 U. S. 489
proper parties were not before the court, but that the bill,
being set down for a hearing as to those who had answered and also
as to those against whom it had been taken as confessed, the court
has decreed against a part only, when it ought to have decreed
against the whole, who were chargeable as stockholders. The proper
parties for such a decree were before the court, and the error was
in dismissing the bill as to any of them. It has been also said
that the decree of dismissal, if an error, is only to the prejudice
of the plaintiff. But this is not admitted. It was prejudicial to
the rights of all the defendants who were charged by the
decree.
We are also of opinion that, assuming that the cause might be
properly brought to a hearing as to the parties before the court,
the decree was erroneous in dismissing the bill as to any of the
defendants named in the bill as stockholders upon whom process was
not served if, by any proceedings they could have been brought
before the court before a final decree. They were known to the
plaintiff when he brought his bill, and were named therein, and the
other defendants, in proceeding to a hearing, cannot be understood
to waive any further proceedings against them. If they were
nonresidents, still the Act of Congress of 3 May, 1802, allows
proceedings to be had against nonresidents by publication in the
newspapers in the district, and no reason is assigned why such a
proceeding might not have been effectual to bring them before the
court in the present case. We give no opinion what would have been
the case if they had not been named in the bill or had not appeared
by the bill to have been known to the plaintiff at the time of
filing it. But as they were known and named, the same reasons apply
to them as to the other defendants before the court and their
personal representatives.
It was asserted at the argument that the bill had also been
dismissed as to some of the defendants who had answered and
admitted themselves liable as stockholders. Upon examining their
answers, it is manifest that they were nominal stockholders only,
their names having been used without their consent or under
circumstances which demonstrate
Page 27 U. S. 490
that they never meant to become stockholders. And no attempt was
made at the hearing to charge them with any other proofs. As to
them, therefore, the dismissal was properly decreed.
An objection was taken at the argument as to the regularity of
the appeal, it having been claimed by all the defendants against
whom the decree was made and the appeal bond having been given by
Mandeville only. The objection, if it had been material in this
case, ought to have been taken by way of preliminary motion to
dismiss the appeal for irregularity on account of the failure to
give the proper appeal bond. But it is not material in this case,
since if Mandeville be considered the only appellant, the error of
the decree is equally fatal, and consequentially reinstates the
cause, discharged of that decree, as to all his co-defendants.
Upon the whole, we are of opinion that the decree must be
Reversed and the cause remanded to the circuit court with
directions to have the cause reinstated as to all the defendants as
to whom the bill was taken as confessed and dismissed at the
hearing, and with directions also that the personal representatives
of the parties to the bill, who died during the pendency of the
suit, if they are known, can be brought before the court to be also
made parties, and also with directions that all the other
defendants named in the bill who were not served with process but
against whom further proceedings may be had to bring them before
the court (as to whom the bill was dismissed at the hearing) be
brought before the court, if practicable, as parties, and that
thereupon such further proceedings be had as to justice and equity
may appertain.
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Columbia holden in and for the County of Alexandria and was argued
by counsel, on consideration whereof it is the opinion of this
Court that there is error in the decree of the said circuit court
in dismissing the bill against the defendants upon whom process was
not served and also
Page 27 U. S. 491
against the defendants against whom the bill was taken
pro
confesso and set down for a hearing, and also error in the
said court in not requiring the said suit to have been revived
before said decree against the personal representatives of the
parties thereto who were served with process and died during the
pendency of the said suit who were known and might have been
brought before the court. It is therefore ordered, adjudged, and
decreed by this Court that the decree of the said circuit court in
this cause be and the same is hereby reversed and annulled and that
the cause be and the same is hereby remanded to the said circuit
court with directions to cause the same to be reinstated as to the
defendants aforesaid against whom the bill was taken
pro
confesso and set down for a hearing, and by the decree
dismissed. And also with directions that the personal
representatives of the defendants who died pending the suit who are
known and may be brought before the said circuit court be made
parties thereto and the bill be revived as to them.
