John W. Cooney Co. v. Arlington Hotel Co.

• Decision Date: 21 November 1918
• Court: United States State Supreme Court of Delaware
• Parties: JOHN W. COONEY COMPANY, v. ARLINGTON HOTEL COMPANY. In the Matter of the Petition of James Frank Ball, Aulick Palmer and Peyton Gordon, Receivers of Arlington Hotel Company, to assess stockholders of said Arlington Hotel Company on unpaid stock subscriptions. T. COLEMAN duPONT, Z. D. BLACKISTONE, WILLIAM H. FENN, LEWIS L. DUNHAM and WALBRIDGE S. TAFT, Appellants, v. JAMES FRANK BALL, AULICK PALMER and PEYTON GORDON, Receivers of Arlington Hotel Company, Appellees

106 A. 39

11 Del.Ch. 430

JOHN W. COONEY COMPANY, v. ARLINGTON HOTEL COMPANY. In the Matter of the Petition of James Frank Ball, Aulick Palmer and Peyton Gordon, Receivers of Arlington Hotel Company, to assess stockholders of said Arlington Hotel Company on unpaid stock subscriptions. T. COLEMAN duPONT, Z. D. BLACKISTONE, WILLIAM H. FENN, LEWIS L. DUNHAM and WALBRIDGE S. TAFT, Appellants, v. JAMES FRANK BALL, AULICK PALMER and PEYTON GORDON, Receivers of Arlington Hotel Company, Appellees

Supreme Court of Delaware

November 21, 1918

APPEAL FROM THE COURT OF CHANCERY. Upon a bill filed in the court below by John W. Cooney Company, a judgment creditor, on behalf of itself and all other creditors, against Arlington Hotel Company, receivers were appointed, who thereafter presented to the Chancellor a petition praying that an assessment be levied against subscribers to the capital stock of the Arlington Hotel Company who had failed to pay in full the amounts of their respective subscriptions. From a decree entered by the Chancellor on August 4, 1917, levying such assessment, the appellants, five of the subscribers, took separate appeals. Decree affirmed, except as modified in the opinion of the Supreme Court.

The facts in addition to those stated in the report of the case below (ante p. 286, 101 A. 879), are sufficiently stated in the opinion of the Supreme Court.

William S. Hilles and Robert H. Richards, for the appellants duPont Fenn, Dunham and Taft.

Saulsbury Morris & Rodney, for appellant Blackistone.

John R Nicholson, with him Henry H. Glassie, of Washington, D. C for the appellees.

Argued before PENNEWILL, C. J., BOYCE, CONRAD, RICE and HEISEL, J. J. HEISEL, J. concurs.

OPINION

PENNEWILL, C. J.

The statement of the case contained in the opinion of the Chancellor, from whose decree this appeal was taken, is so clear and comprehensive that it is deemed unnecessary to re-state in this opinion the facts, the pertinent constitutional and statutory provisions, the proceeding in the lower court, and the many questions argued by counsel. We shall discuss only those questions that appear to be important and upon which the appellants seemed to mainly rely.

Upon the much debated question of jurisdiction the court have reached the opinion, after a very careful examination of the case, that the conclusion of the Chancellor is sound. But our opinion is based upon reasoning somewhat different from that of the Chancellor. The court are not much concerned about the history of the law respecting the stockholder's liability for the debts of the corporation before the enactment of our General Corporation Act (22 Del. Laws, c. 394). The learned and elaborate discussion of this subject, including the trust theory and the holding out theory, in the briefs of counsel, is interesting but not very helpful. Whatever may have been the law before, and whether the statute of this State is simply declaratory of pre-existing law or not, the important fact is that the statute clearly and expressly states the stockholder's liability to creditors to the extent of the par value of stock not paid for. The only troublesome question is: What proceeding may be employed to enforce the liability? Are the two remedies mentioned in section 49 of the Delaware act exclusive of a pre-existing remedy that would be equally, if not more, convenient and effective in carrying out its purpose; and if they are, does the statute mean that the remedy "by bill in Chancery" shall be initiated by what is known as a creditor's bill? Or does it mean any proceeding in that court that is adapted to the accomplishment of the purpose sought? It so happens that New Jersey has an incorporation law very similar to ours, and most of the questions raised in this case have been raised there and settled by decisions of the highest court of that State. A good deal of ingenuity and refinement have been used by counsel for the appellants in the effort to show that there is a very substantial difference between the statutes of the two states, but the argument is not convincing. There is, of course, some difference in language, but it seems to us the effort to find any in principle is strained, and the distinction contended for exceedingly technical.

There is but one difference noted by the appellants which need be considered by the court. The difference to which we refer, and upon which alone it is possible to base an argument, is the concluding clause of section 20 of the Delaware act which does not appear in the New Jersey act, viz:

"Which said sum or proportion thereof may be recovered as provided for in section 49 of this act * * * after a writ of execution against the corporation has been returned unsatisfied as provided for in section 51 of this act. * * * "

The courts of New Jersey have held that the remedies prescribed by section 92 of their act (2 Comp. St. 1910, p. 1655), which corresponds with section 49 of the Delaware act, cannot be employed to enforce the liability of stockholders under section 21 of their act, which corresponds with section 20 of our act without the concluding clause. And the reason for so holding appears to be that said remedies are made available in actions against officers and directors, as well as stockholders, and that the Legislature in enacting section 92 had in mind liabilities other than those that might arise under their section 21. We agree with the construction placed upon section 92 of the New Jersey act by the courts of that State, and, therefore, hold that the remedies prescribed by section 49 of the Delaware act could not be employed to enforce the stockholders' liability under section 20 if that section did not contain the clause which specifically makes such remedies available. And we are more strongly confirmed in this opinion because upon investigation it is found that said section 49 was taken from the Incorporation Act of 1883 (17 Del. Laws, c. 147), which did not contain the concluding clause of section 20 of the present act. The concluding clause of section 20, unlike the New Jersey law, expressly makes said remedies applicable, so that the questions that arise, touching the matter of jurisdictions, are the two we have already mentioned.

But assuming that the procedure adopted in the court below was not authorized or contemplated by the statute, are the remedies mentioned in section 49 and made available to creditors by section 20 of our statute exclusive of the usual procedure employed in collecting the assets and paying the debts of an insolvent corporation, viz: a bill in Chancery for the appointment of receivers on the ground of insolvency? If the statute had not provided any remedy at all for enforcing the stockholder's liability under section 20, unquestionably the creditor would have a remedy in equity, and such has been the decision of the courts of New Jersey and other states in similar cases. Can it be that because the Delaware act provides that the creditor may enforce the stockholder's liability under section 20 by an action at law or by bill in Chancery he is not permitted to enforce such liability by proceeding under the insolvency act? Are the remedies prescribed exclusive of or additional to the usual remedy in Chancery? It seems to the court that it was the purpose of the Legislature, not to take away from the creditor a plain and effective remedy that already existed, but to provide other remedies that he might use if he preferred to do so, and that might be more available and effective in some cases. It is reasonable to believe that the Legislature intended by the concluding part of section 20 to make the creditor independent of receivers appointed under the Insolvency Act, by providing remedies that he might employ directly against the stockholder. And it is also reasonable to believe that the Legislature thought there might be cases where the corporation would not be in such a condition of insolvency as would justify the appointment of receivers under the statute, but nevertheless in such a condition that the creditor could not collect his claim by judgment and execution. This view is strengthened by the fact that the statute provides that the particular remedies prescribed may be employed only after judgment has been recovered against the corporation and execution thereon returned unsatisfied.

There can be no doubt that obtaining a judgment and unsatisfied execution against the corporation is a condition precedent to the employment of the remedies mentioned in section 49 by the creditor directly against the stockholders. And the reason is that the law does not permit a creditor to collect his claim from stockholders if he can recover it from the corporation, and the only way his inability to do this can be shown to the court is by a judgment and unsatisfied execution. But if he proceeds independently of the statute, by a bill asking for the appointment of receivers on the ground of insolvency, a judgment and execution are not required because the court is compelled to determine the very fact that the judgment and execution are designed to establish. Firestone Tire & Rubber Co. v. Agnew, et al., 194 N.Y. 165, 86 N.E. 1116, 24 L. R. A. (N.S.) 628, 16 Ann. Cas. 1150.

It will be observed that section 41 of the Incorporation Act of 1883, while providing for the creditor an action at law directly against the stockholder did not give him a remedy by bill in Chancery. The natural inference from this circumstance is that the Legislature intended in the present act to provide for the creditor a direct remedy in Chancery also, and in addition to the one he already had under the Insolvency Act. The giving to the creditor a personal and direct remedy at law by the act of 1883 did not take away from...