TERRY v. LITTLE.

(11 Otto, 216–218. 1879.)

ERROR to U. S. Circuit Court, Western District of North Carolina.

STATEMENT OF FACTS.- Terry brought suit against two persons named Little, to enforce the liability created by the charter of a bank in which they were stockholders, the bank being insolvent. The action was at law, and defendants demurred to the declaration. The demurrer was sustained, and plaintiff brought this writ of error. Further facts appear in the opinion of the court.

Opinion by WAITE, C. J. The individual liability of stockholders in a corporation is always a creature of statute. It does not exist at common law. The first thing to be determined in all such cases is, therefore, what liability has been created. There will always be difficulty in attempting to reconcile cases of this class in which the general question of remedy has arisen, unless special attention is given to the precise language of the statute under consideration. The remedy must always be such as is appropriate to the liability to be enforced. The statute which creates the liability may declare the purposes of its creation and provide directly or indirectly a remedy for its enforcement. If the object is to provide a fund out of which all creditors are to be paid share and share alike, it needs no argument to show that one creditor should not be permitted to appropriate to himself, without regard to the rights of others, that which is to make up the fund. 362. Charter construed as to liability of stockholders.

The language of the charter is peculiar. The stockholders are not made directly liable to the creditors. They are not in terms obliged to pay the debts, but are "liable and held bound for any sum not exceeding twice the shares." This, as we think, means that on

amount of

their

the failure of the bank each stockholder shall pay such sum, not exceeding twice the amount of his shares, as shall be his just proportion of any fund that may be required to discharge the outstanding obligations. The provision is, in legal effect, for a proportionate liability of all stockholders. Undoubtedly, the object was to furnish additional security to creditors, and to have the payments, when made, applied to the liquidation of debts. So, too, it is clear that the obligation is one that may be enforced by the creditors; but as it is to or for all creditors, it must be enforced by or for all. The form of the action, therefore, should be one adapted to the protection of all. A suit at law by one creditor to recover for himself alone is entirely inconsistent with any idea of distribution. As the liability of the stockholder is not to any individual creditor, but for contribution to a fund out of which all creditors are to be paid alike, the appropriate remedy is by suit to enforce the contribution, and not by one creditor alone to appropriate to his own use that which belongs to others equally with himself. We think this case comes clearly within the rule laid down in Pollard v. Bailey, 20 Wall., 520 (§§ 360, 361, supra), to which we adhere. § 363. Liability must be enforced by a suit in equity.

The second ground of demurrer is equally fatal. The liability of the stockholders is several and not joint. Each stockholder is bound for his own share and no more. No judgment can be rendered against him for what another should pay. It follows that in an action at law each stockholder must be separately sued. In equity it is different, for there the decree can be moulded to suit the exigencies of the case, and each stockholder can be held liable and proceeded against for what he is bound to pay, and no more. Undoubtedly, under

the provisions of some charters, suits at law may be maintained by one creditor against one or more of the stockholders. The form and extent of a statutory liability of this kind depend upon the particular phraseology of the statute which creates the liability. All we decide is that, under this charter, the suit to enforce the liability should be in the nature of a suit in equity, by or for all creditors, and that it cannot be at law by one creditor, for himself alone, against two stockholders who are not jointly liable on account of the shares standing in their respective names.

Judgment affirmed.

CUYKENDALL v. MILES.

(Circuit Court for Massachusetts: 10 Federal Reporter, 342-346. 1882.)

STATEMENT OF FACTS.-Action by the receiver of a New York corporation against a stockholder to collect an assessment levied by reason of inability of the corporation to pay its debts, etc. Plaintiff was appointed receiver by the supreme court of New York.

Opinion by LoWELL, J.

The assessment sought to be recovered in this action was made under the general law of New York governing manufacturing corporations, as modified in relation to those established in Herkimer and Cayuga counties by later laws. These statutes are construed and passed upon in Walker v. Crain, 17 Barb., 119; Story v. Furman, 25 N. Y., 214; Hurd v. Tallman, 60 Barb., 272; Cuykendall e. Douglass, 19 Hun, 577; In re Dodge & Stevenson Manuf'g Co., 77 N. Y., 101. The last two of these decisions relate to this assessment and maintain its validity. The allegations of the declaration are sufficient to bring the defendant within the class of persons subject to assessment, until he shall show something to the contrary. Supposing this to be so, will an action lie in this court to recover the defendant's share of the assessment? That the receiver of an insolvent corporation, having powers like those of an assignee in insolvency, may sue in his own name in this court, I cannot doubt. Hurd v. Elizabeth, 41 N. J. (12 Vroom), 1; Ex parte Norwood, 3 Biss., 504; Hunt v. Jackson, 5 Blatch., 349. These are direct decisions. The cases in which such actions have been maintained without objection, and others, in which the most eminent judges, while asserting the superior title of domestic attaching creditors, have said that the action itself was maintainable, are very numerous. Good win v. Jones, 3 Mass., 517, per Parsons, C. J.; May v. Breed, 7 Cush., 15, 42, per Shaw, C. J.; Dunlap v. Rogers, 47 N. H., 281, 287, per Sargent, J.; Hoyt v. Thompson, 5 N. Y., 320, per Ruggles, C. J.; S. C., 19 N. Y., 207, 226, per Comstock, J.; Merrick's Estate, 2 Ashm., 435; Musselman's Estate, 5 Watts & Serg., 9; Mann v. Cooke, 20 Conn., 178.

As the rule of the common law concerning the assignment of ordinary nonnegotiable debts still obtains in Massachusetts, the receiver might be required to sue on such causes of action in the name of the corporation. Blane v. Drummond, 1 Brock., 62; Bird v. Pierpoint, 1 Johns., 118; Jeffrey v. McTaggart, 6 M. & S., 126. But this demand is one which accrued to the receiver himself in his official capacity. The supreme court hold that the mode in which a liability of this sort is to be enforced depends entirely upon the particular law govern ing the corporation. If that law merely provides for a proportionate liability of all stockholders for all debts, there should be a bill in equity for the benefit of all the creditors and against all the stockholders. Pollard v. Bailey, 20

Wall., 520 (§§ 360, 361, supra); Terry v. Tubman, 92 U. S., 156; Terry v. Little, 101 U. S., 216 (§§ 362, 363, supra). But if the law of the state authorizes an action by one creditor against one stockholder, that remedy may be pursued. Mills v. Scott, 99 U. S., 25. The decisions in New York, above cited, show that such actions will lie in the courts of that state by the receiver against the several shareholders.

§ 364. A penal statute can only be enforced in the state that passed it, but a statute holding stockholders liable to the creditors of the corporation to an amount equal to their stock is not in that sense penal.

Then the question is whether such an action can be maintained outside the state of New York. There is a dictum of Mr. Justice Clifford that all such statutes are penal, and can only be enforced in the state which passed them. Steam-engine Co. v. Hubbard, 101 U. S., 188, 192 (§§ 710, 711, infra). I agree with the plaintiff's argument that the authorities which the learned judge cites decide that point only in respect to officers of corporations made liable for a neglect of duty. Halsey v. McLean, 12 Allen, 438; Derrickson v. Smith, 27 N. J. L., 166; Sturges v. Burton, 8 Ohio St., 215, etc. Even in such cases the doctrine seems narrow and provincial. If a citizen of Massachusetts assumes the obligations of an officer in a corporation in New York, I see no sound reason for making the courts of Massachusetts a house of refuge from these responsibilities. Still, a law which imposes certain duties upon an officer, and makes him responsible, in case of neglect, for all the debts of a company, without regard to the nature of the default or the amount of the debts, or whether he is a shareholder or is paid for his services, has something penal about it. It was held in one case, and in only one, so far as I know, that where stockholders were made liable to all the debts, if the directors failed to file an annual statement of the company's affairs, the statute was penal, and to be narrowly construed. It was a domestic controversy, and not precisely in point here. Cable v. McCune, 26 Mo., 371. I have found no case, and counsel have found none, which holds that a liability of shareholders, as such, is penal. The courts of New York have always held such statutes to be remedial, and so have the courts of the other states, so far as I am informed. Thompson, Stockholders, SS 80-86; Corning v. McCullough, 1 N. Y., 47; Carver v. Braintree Manuf'g Co., 2 Story, 432. See Crease v. Babcock, 10 Metc., 557.

In the cases cited by the defendant (Erickson v. Nesmith, 15 Gray, 221; 4 Allen, 233; 46 N. H., 371) the courts of Massachusetts refused to sustain an action at law or a bill in equity against one stockholder of a New Hampshire corporation, and the courts of New Hampshire approved the decision; but the ground was, not that the statute of New Hampshire was penal, but that it provided a specific remedy in behalf of all creditors against all shareholders, and that this remedy could not be conveniently pursued excepting in the domestic forum. According to the reasoning of those cases, this action may be maintained, for the laws of New York, as we have seen, permit a similar action to be brought. No one can contend that the assessment of national bank shares may not be enforced wherever shareholders are found. Casey v. Galli, 94 U. S., 673. The technical reason is that the act of congress operates throughout the country, while the laws of New York are local. But what reason is there, upon principle, why the courts should refuse to enforce the same remedy against the same person for the same liability when the charter happens to be a state charter which has not been turned into a national charter, as it may be at any time by a resolution of the shareholders?

§ 365. The rule of comity applies to the enforcement in one state of the liabili ties of stockholders of corporations in other states.

The decisions which bear directly upon the point in controversy are few. I have found none that deny the exercise of comity on the ground that such a statute is penal, or, indeed, upon any other. On the contrary, such actions were sustained in the following cases: Bond v. Appleton, 8 Mass., 472; Paine v. Stewart, 33 Conn., 516; Casey v. Galli, 94 U. S., 673; Sackett's Harbor Bank v. Blake, 3 Rich. Eq., 225; Ex parte Van Riper, 20 Wend., 614; Turnbull v. Payson, 95 U. S., 418 (§§ 500, 501, infra). In the last case the defendant had not paid up his original subscription in full, but the assessment was under a statute which made him liable beyond his capital stock, and does not appear to have been sustained specially on the first ground. The statute relied on by the plaintiff provides that all stockholders shall be liable to an amount equal to that of their stock, until the whole of the capital stock fixed and limited by the company shall have been paid in and a certificate thereof shall have been filed. In so far as the law makes shareholders responsible for a neglect of officers to file a certificate, it resembles the case in 26 Mo., above cited; but it differs in the very important circumstances that the liability is restricted to the amount of stock held by each person, and that the subject-matter is the payment of the capital. This statute should be considered, not as penal, but as requiring (as all such laws do and must) the utmost care and good faith in contributing the capital, and as prescribing a certain sort of evidence of the fact, without which the shareholder shall be presumed not to have paid. It does not appear in this case whether the actual default was in the shareholders who had not paid their capital or in the officers who had not certified the payment. If it be the former, no one doubts that the defendant is liable with or without a statute. Even if it be the latter, which on demurrer I cannot assume to be true,- still it is well known that officers of corporations do neglect the certificate with the knowledge of the shareholders in order to give the company better credit, and thereby to obtain money and goods at better prices. I do not feel inclined to extend what I consider the illiberal and narrow rule of comity, or want of it, which stops all remedies at the line of the state. The venerable maxim that he who shares the benefit should share the burden is just, and should not be local in its operation. It applies with full force to shareholders, if not to officers of a corporation who may not even be shareholders, and may act without pay. The cases, as far as they go, point in the same direction.

I ought to notice one further objection, that the assessment appears to have been ex parte; or, at least, that there is no allegation that the defendant had a day in court. If this assessment were to have the effect of a judgment against the defendant there would be great force in this objection, though possibly not controlling force. But I understand that all defenses specially applicable to this defendant, such as that he was not a stockholder, etc., are still open to him, and, indeed, perhaps the whole subject may be open. Enough is alleged in the declaration to put him to his defense. Demurrer overruled.

MORLEY v. THAYER.

(Circuit Court for Massachusetts: 3 Federal Reporter, 737-749. 1880.)

Opinion by CLIFFORD, J.

STATEMENT OF FACTS.-Section 44 of the State Statutes provides that if a corporation be dissolved, leaving debts unpaid, suits may be brought against

any person or persons who were stockholders at the time of such dissolution, without joining the corporation in such suit; and if execution issue, and judgment be satisfied by the parties sued, then those parties may sue all who were stockholders at the time of such dissolution for the recovery of the portion of such debt for which they were liable. Provision is also made by the fortyfifth section of the same article for the recovery of all voluntary payments of any debt of the corporation, made by any of its stockholders, to the amount due on his stock, and an additional amount equal to the par value of his shares. Corporations under that statute may be dissolved - First, by the expiration of the time limited in its charter; second, by a judgment of dissolution rendered by a court of competent jurisdiction; and the state statute makes no provision for such a dissolution in any other mode.

Shares in the capital stock of the Fort Scott Coal and Mining Company, to the number alleged in the bill of complaint, are owned by the respective respondents; and the complainants allege that the company was duly organized, with a capital of $200,000; that they carried on a very large and extensive business until the 11th of April, 1874, when the company, on the petition of certain creditors, was adjudged bankrupt, and that the persons named in the record were appointed assignees of the company's estate; that they accepted their appointment and received the usual conveyance of the property and effects of every kind and description, belonging to the bankrupt company. Due proceedings were subsequently taken by the creditors to establish their claims, and they proved the same to the amounts specified in the bill; and the allegation is that since that time the company has not had any office or place of business in the state. Wherefore, the complainants allege and charge that the corporation has become and is wholly dissolved, and that the stockholders have become and are liable, as well by the constitution as by the laws of the state, to pay the debts and liabilities of the company. Such is the substance of the material allegations of the bill, and the complainants pray that an account may be taken of the assets of the company, and the debts due to the complainants, and all others who may become parties to the suit, and of the stock in fact held by the respondents, and of the amount which each should contribute towards the payment of such debts and liabilities. Service was made, and the respondents appeared and demurred to the bill for the following causes: First, that the complainants have not made such a case as entitles them to the discovery or relief prayed, or to any relief touching any of the matters and things. alleged; second, that it appears by the bill that the assignees in bankruptcy and the corporation are necessary parties, and that they are not joined.

Dues from corporations shall be secured by individual liability of the stockholders to an additional amount equal to the stock owned by each stockholder, and such other means as shall be provided by law; but such individual liability shall not apply to railroad corporations, nor corporations for religious or charitable purposes. State Const., art. 12, § 2. Appropriate allegations are contained in the bill that the property of the company is insufficient to pay their debts, and that an assessment for that purpose was made by the district court,— the debts amounting to $100,000, while the assets do not exceed the sum of $12,000; that the payment of the assessment was successfully resisted by the respondents because not seasonably enforced, which litigation was the cause of the delay in filing the present bill. Three principal propositions are submitted by the complainants, as follows: First. That suit may be maintained by virtue of the provision of the constitution already referred to, without reference