Andrews v. O'Reilly

• Decision Date: 29 May 1903
• Citation: 25 R.I. 231,55 A. 688
• Parties: ANDREWS v. O'REILLY.
• Court: Rhode Island Supreme Court

55 A. 688

25 R.I. 231

ANDREWS

v. O'REILLY.

Supreme Court of Rhode Island.

May 29, 1903.

Action of debt, under Gen. Laws 1896, c. 180, § 22, by Clarence C. Andrews, administrator, against Francis L. O'Reilly. Heard on demurrer to declaration. Demurrer overruled.

Argued before STINESS, C. J., and TILLINGHAST and DOUGLAS, JJ.

Edward D. Bassett, for plaintiff.

Comstock & Gardner, for defendant.

DOUGLAS, J. This is an action of debt, brought, under the provisions of Gen. Laws 1896, c. 180, § 22, against the defendant, as a stockholder of the Woonsocket Opera House Company, which is alleged to be a manufacturing corporation, upon an unsatisfied judgment recovered by the plaintiff's intestate against said company; it being alleged that said company failed to make the annual return prescribed by law for the year 1898. The declaration further alleges that at the time of the rendition of said judgment the said corporation was insolvent, and did not have property upon which an execution could have been levied for the satisfaction of the judgment obtained against it.

The defendant demurs to the declaration on the ground that, in order to enforce a stockholder's liability against the defendant, it is necessary to show that an execution has been taken out on the judgment against the corporation, and has been returned unsatisfied, which is not alleged. The plaintiff contends that this is unnecessary. He asserts that tins action of debt is given by the statute in substitution for the remedy previously existing, of levying an execution issued against the corporation directly upon the property of a stockholder, and that the creditor, immediately upon obtaining his judgment against the corporation, may issue ins writ against the stockholder. It seems that this view was taken by the court in Re Penniman, 11 R. I. 333. The court was divided upon the question of the constitutionality of the change in the law, but three of the judges discuss the new provisions, and two of them concur in the view that the new remedy is available immediately. Judge Potter says (page 349): "It leaves his property open to attachment, and his person to arrest, in the new action which it gives against him personally, and interposes no delay other than necessarily attends all litigations." Judge Stiness (page 351) says the new law does not withdraw any of the debtor's properly from the obligation of the contract. "* * * It is liable at once to be levied on to answer to the judgment against the corporation," etc. Judge Durfec, who considered the alteration of the remedy so great as to constitute an impairment of tlie obligation of the contract, does not hint that the meaning of the law is different from that expressed by his associates. It does not seem to have occurred to the court that the change of relation between the corporation anil the stockholder was more radical in this respect than in any other. Under the old law the stockholder was practically treated as a copartner with the corporation. After the alteration he very soon became recognized as occupying the position of a surety only, and as such became entitled to have the property of the principal debtor first applied to the extinguishment of the debt. In Third National Rank v. Angell. 1,8 R. I. 1, 29 Atl. 500, this principle is recognized in an action of debt on judgment. In Allen v. Arnold, 18 R. I. 809, 31 Atl. 208, it is directly decided in a suit in equity, and the reason assigned is "that the primary liability is that of the corporation, that of the stockholders being merely secondary"—a reason applying as well to the action at law as the suit in equity. These cases have been uniformly followed since they were decided. Kilton, Warren & Co. v. Prov. Tool Co., 22 R. I. 605, 610-612, 48 Atl. 1039, which was a suit in equity; Elsbree v. Burt, 24 R. I. 322, 53 Atl. 60. which was an action of debt.

The rule, then, may be considered as settled that neither the suit in equity nor the action at law to enforce the stockholder's liability can be commenced until the creditor has exhausted bis remedies against the corporation. Up to this point the parties do not seriously disagree, but here they differ. The defendant contends that the plaintiff has not exhausted his remedy until he has given his execution to the sheriff to levy, and received it back, with the return nulla bona. Tbe plaintiff argues that his remedy is exhausted when it appears by any other proof, as well as by the sheriff's return, that the...