Brundage v. Monumental Silver Min. Co.

• Decision Date: 08 June 1885
• Parties: BRUNDAGE v. MONUMENTAL SILVER MIN. CO. and others.
• Court: Oregon Supreme Court

7 P. 314

12 Or. 322

BRUNDAGE v. MONUMENTAL SILVER MIN. CO. and others.

Supreme Court of Oregon

June 8, 1885

Appeal from Multnomah county.

A.S. Bennett, for respondents.

W.B. Gilbert and H.T. Bingham, for appellant.

LORD, J.

This is a suit in equity to enforce the individual liability of stockholders for an indebtedness of the corporation. The defendants Fleckenstein & Mayer demurred to the complaint upon the grounds that there was a non-joinder of parties plaintiff and defendant, which the court overruled; whereupon the defendant filed an answer in the nature of a plea in abatement, alleging that certain persons not made defendants were stockholders in the defendant corporation, to which the plaintiff demurred, and the court sustained the demurrer, and a decree was taken in favor of the plaintiff, from which the defendants appeal, and present two questions for our determination, viz.: (1) Whether the suit must be brought in the name and for the benefit of all the creditors; and (2) whether all the stockholders must be made parties defendant. The constitution provides that "the stockholders of all corporations and joint-stock companies shall be liable for the indebtedness of said corporation to the amount of their stock subscribed and unpaid, and no more." Section 3 art. 11, Const. By this section the liability of stockholders of a corporation is limited to the amount of their stock subscribed and unpaid; and the remedy to enforce this liability, it has been held, is in equity, where the rights of the corporation, the stockholders, and all the creditors can be adjusted in one suit. Ladd v. Cartwright, 7 Or. 329; Hodges v. Silver Hill Min. Co. 9 Or. 200. The liability of the stockholders for the indebtedness of the corporation constitutes, in part, at least, the basis of its credit, and, so far as creditors are concerned, is part of its assets. The unpaid subscriptions to the capital stock due from the stockholders to the corporation, are regarded in equity as a trust fund to be held by the corporation for the benefit of its creditors. As said by Mr. Chief Justice WAITE in Patterson v. Lynde, 106 U.S. 520; S.C. 1 S.Ct 432:

"The constitution of Oregon created no new right in this particular; it simply provided for the preservation of an old one. The liability under this provision is not to the creditors, but for the indebtedness. That is no more than the liability created by the subscription. The subscription is part of the assets of the corporation, at least so far as creditors are concerned. The liability of the stockholders to the creditor is through the corporation, not direct. There is no privity of contract between them, and the creditor has not been given, either by the constitution or statute, any new remedy for the enforcement of his rights. The stockholder is liable to the extent that the subscription represented by his stock requires him to contribute to the corporate funds, and, when sued for the money he owes, it must be in a way to put what he pays directly or indirectly into the treasury of the corporation for distribution according to law. No one creditor can assume that he alone is entitled to what any stockholder owes, and sue at law so as to appropriate it exclusively to himself."

The liability, therefore, of the stockholders upon their unpaid subscription to the capital stock being a trust fund in equity for the payment of the debts of the corporation, all the creditors are entitled to share in it. As a result of this doctrine the general proposition is well sustained by the authorities that a judgment creditor of the corporation, who has exhausted his remedy at law, may maintain a suit in equity in his own behalf, and in behalf of such other creditors of the corporation as may unite to become parties with him, against the corporation and its delinquent stockholders, and have a decree that an account of the assets and debts of the corporation be taken, and that the stockholders pay in and account for so much as may be due from them respectively to the corporation on account of their capital stock, as will be sufficient to pay the debts represented by the plaintiff and such other creditors as may join. Adler v. Manuf'g Co. 13 Wis. 63; Mann v. Pentz, 3 N.Y. 415; Ogilvie v. Knox Ins. Co. 22 How. 380; Crease v. Babcock, 10 Metc. 525; Umsted v. Buskirk, 17 Ohio St. 113; Wood v. Dummer, 3 Mason, 308; Thomp.Liab.Stockh. § 351; 2 Story, Eq.Jur. 1252. When the object of the bill is to settle or wind up the affairs of the corporation which is insolvent, and it becomes necessary to ascertain the whole amount of the indebtedness and to whom due, and also who are liable to contribute upon their unpaid stock subscriptions, the necessity of bringing the suit in the name and for the benefit of all the creditors of the corporation, and against all the stockholders found within the jurisdiction, is conceded. But when the bill is not brought for that purpose, although in the form of an ordinary creditors' bill, as the case here, but seeks solely to obtain the payment of the plaintiff's judgment, and it does not appear by the bill or otherwise that there are any other creditors who wish to be made parties, a judgment creditor who has exhausted his legal remedy ought not to be stayed in his suit to pursue any equitable interest or demand of his debtor, in the absence of any showing by them objecting that there are any other creditors.

Upon the facts as presented by this record we do not think the first objection available. But it is upon the second point that all the stockholders of the corporation should be made parties defendant, that the defendants more strenuously insist. Upon this point the substance of their contention is that the effect of the decision in Ladd v. Cartwright, supra, establishing the remedy of the creditor of an insolvent corporation in equity, and not at law, to enforce the liability of the stockholder upon his unpaid subscriptions, where, as the court say, "the rights of the corporation, the stockholder, and all the creditors can be adjusted in one...