Avery & Sons v. McClure

• Decision Date: 11 January 1909
• Docket Number: 13,681
• Citation: 47 So. 901,94 Miss. 172
• Parties: AVERY & SON v. WILLIAM C. MCCLURE ET AL
• Court: Mississippi Supreme Court

47 So. 901

94 Miss. 172

AVERY & SON v. WILLIAM C. MCCLURE ET AL

No. 13,681

Supreme Court of Mississippi

January 11, 1909

FROM the chancery court of Lowndes county, HON. JAMES F. MCCOOL Chancellor.

Avery &amp Son, a corporation, appellant, was complainant in the court below; McClure and others, appellees, were defendants there. From a decree in defendants' favor the complainant appealed to the supreme court. The opinion of the court states the facts.

Affirmed.

W. H Clifton, for appellant.

The appellees' plea in the court below is insufficient in law, and appellant should have been awarded a decree final against the appellees. Railway Co. v. Brooks, 69 Miss. 168, 13 So. 847; Richberger v. Express Co., 73 Miss 161, 18 So. 922.

It is the settled law in Mississippi that in causes arising ex delicto the tort may be waived, and recovery be had in assumpsit on the implied contract, growing out of the principle that ex acquo atque bono the defendant should make good the damage done to the plaintiff; or penalty may be recovered in an action of debt. Evans v. Miller, 58 Miss. 120; Miller v. Wesson, 58 Miss. 931.

A cause of action ex delicto can hardly be conceived of from which the element of implied contract will be wholly absent. Blackstone, in his definition of actions upon implied contracts, is comprehensive enough to embrace almost every action on the case save slander, libel and assault and battery. In the present condition of the law the abolishment of the forms of actions has practically done away with the distinction sought by appellees to be made in this case, namely, that the chancery court has no jurisdiction of torts and that the recovery by appellant could be only upon an implied contract. It is apparent from the record that the appellant was and is a creditor of the corporation, the Dodson Plow Company, subsequently called the New South Plow Company; that the debt due by it to appellant is a fixed sum growing out of a transaction making the stockholders to an extent liable to appellant for the corporation's debt. The record being conclusive of these facts, the inquiry which the appellees' plea makes is wholly immaterial; and, as it is no defense to the suit, is insufficient in law and should be stricken from the files. Lamb v. Russell, 81 Miss. 382, 32 So. 916; Code 1892, § 852.

A judgment creditor of an insolvent corporation, on return of execution indorsed nulla bona, may sue in equity the different stockholders of the corporation for balance unpaid on stock subscribed for by them severally, and for dividends received by them when the corporation is insolvent. 10 Cyc. 660, 682; Code 1892, § 844; Vicks v. Lane, 56 Miss. 681; Perkins v. Sanders, 56 Miss. 733; Robinette v. Starling, 72 Miss. 652; Hatch v. Dana, 101 U.S. 205, 25 L.Ed. 885; Miller v. Bradish (Iowa), 28 N.W. 594.

The judgment of the federal court must be held res judicata of the facts set up in the plea, such facts being embraced within the issue of the chancery suit against the corporation and the stockholders of the corporation being privies to that suit. 10 Cyc. 672, 733; 21 Am. & Eng. Ency. Law (1st ed.), 181; Thompson on Liability of Stockholders, § 239; Powell v. Railroad Co., 3 L. R. A. 201; Heggie v. Building Ass'n (N. C.), 12 S.E. 277; Lehmann v. Glenn (Ala.), 6 So. 44; Freeman on Judgments, § 177.

The capital stock and other property of a corporation constitute a trust fund in the hands of the stockholders for the payment of corporate obligations. 26 Am. & Eng. Ency. of Law (2d ed.), 1007, note 6; Lewis v. Robertson, 13 Smed. & M. 558; Payne v. Bullard, 23 Miss. 88; Beach on Private Corporations, §§ 116, 117; Hatch v. Dana, 101 U.S. 205, 25 L.Ed. 885. And our own court has declared recently that the only defense which may be set up by the stockholder in a suit based upon such principle is that of payment. Robinette v. Starling, 72 Miss. 652, 18 So. 42; Vick v. La Rochelle, 57 Miss. 602.

In Carver v. Braintree Mfg. Co., 2 Story, 432, F. Cas. No. 2,485, the United States supreme court held that the word "debts" is equivalent to "dues," and the word "contracted" equivalent to "incurred." Hence the phrase "debts contracted," used in Code 1892, § 844 (Code 1906, § 909), means "dues owing or liabilities incurred," and should cover unliquidated claims arising from torts. And as the damages in this case arose from the infringement of a patent right, the rule is applicable. Chase v. Curtis, 113 U.S. 452; Flash v. Conn, 109 U.S. 371, 27 L.Ed. 969; Cable v. McCue, 72 Am. Dec. 214; Beach on Private Corporations, § 150; Powell v. Railroad Co., 3 L. R. A. 202; 10 Cyc. 734.

William Baldwin, for appellees.

The charter of the corporation, Dodson Plow Company, was granted in 1904, and was amended in 1905; hence the powers and liabilities of the corporation are governed by Code 1892. Every stockholder subscribing for stock in the corporation did so under the knowledge that his liability was limited by the statute law of Code 1892, § 844, amended Laws 1894, ch. 55. Under such law, if Avery & Son holds a debt "contracted" by the corporation during the ownership of stock by any of the appellees, recourse may be made against such appellees for the amount of any unpaid subscription on the stock; otherwise not.

With hardly a dissenting voice the courts of our land have always held that a stockholder who subscribed for stock is liable on his unpaid subscription for the contractual debts of the corporation, but not for liabilities of the corporation growing out of its torts. The corporation and its corporate assets stand liable for the torts or wrongdoing of its officers because it is the duty of the corporation to see that none of its employees shall violate the rights of other persons, and it becomes responsible for such violation of the rights of others arising from torts, according to the ordinary law of principal and agent. But the stockholder's relation to a party whose rights are infringed upon through the corporation's tort, is entirely different. The stockholder has done no wrong, and in all probability knows nothing of it at the time of its occurrence, is not a party to it, and would no doubt gladly prevent it if he could. After the proper officers of the corporation are elected, the stockholder has fulfilled his duty; and the performance of the duties of the officers is a matter for the corporation's consideration, not the individual stockholder's.

One dealing with a corporation looks to it for two things as a basis of credit to the corporation, namely, the corporation's property and the corporation's capital stock; these two items being all that a corporation can have with which to respond to the demands of creditors. And a party dealing with a corporation has the right to demand that the capital stock of the corporation be paid in or that it will be paid in, if necessary, to satisfy the debts due by the corporation. Any creditor who contracts with a corporation can in law assume that it has the amount of its capital stock paid in, or that such capital stock will be fully paid in when necessary, to settle the contracts of the corporation with its creditors. And it follows that this basis of credit becomes one of the rights of the creditors contracting on the faith of such assumption. But such is not the rule where the claim of a party against a corporation is founded upon tort. No obligation in his favor exists because of credit extended. The party injured by the tort has not dealt with the corporation at all. Beach on Private Corporation, § 151; Clark & Marshall on Private Corporations, 2479b; 26 Am. § Eng. Ency. Law (2d ed.), 1024, 1025, note I.

What is the claim sued on here? It is damage arising from the infringement of a patent; and nothing more. It is true that the decree was rendered in a court of equity, because the revised statutes of the United States 1875, §§ 4918, 4919, 4921, give jurisdiction to such court to grant decree for damages although arising from tort. But this does not affect the situation. The case was in tort, and will be so considered by any and all courts. Chase v. Curtiss, 113 U.S. 452, 28 L.Ed. 1042; Louisiana v. New Orleans, 109 U.S. 285.

It is not denied here that a judgment against a corporation is binding upon the stockholders and cannot be questioned or its merits inquired into in a subsequent suit. But a judgment against the corporation is an entirely different thing from a judgment against the individuals who comprise the stockholders of the corporation. New Orleans, etc., R. Co. v. Hurst, 36 Miss. 667.

Where property has been wrongly converted and sold, the owner may waive the tort and sue for the money value; but the foundation of the action is in tort and not in contract.

Avery & Son never was a "creditor" of appellees. Nor did the "debt" sued on in the present case exist when the alleged dividends were declared.

As to any claim upon the directors of the corporation, it is only necessary to say that Code 1906, § 924, providing that directors shall in certain cases become individually liable for excess of indebtedness over the capital-stock, and may be sued therefor by any creditor, refers merely to creditors whose debts are based upon contracts. The intent of the statute is merely to protect creditors of a certain kind, that is, only such creditors as have dealt with the corporation in ignorance of the reckless conduct of the directors. The directors are not made liable as individuals for the payment of the liabilities of the corporation adjudged as a result of the corporation's torts. 10 Cyc. 666.

Newman Cayce, on the same side.

The appellees are not the New South Plow Company, but are merely individual stockholders and sued as such. The individual liability of the stockholders of a...