Buchanan v. Bartow Iron Co..

• Decision Date: 28 February 1878
• Parties: WILLIAM C. BUCHANANv.BARTOW IRON COMPANY.
• Court: United States Appellate Court of Illinois

3 Ill.App. 191

3 Bradw. 191

WILLIAM C. BUCHANAN

v.BARTOW IRON COMPANY.

Appellate Court of Illinois, Fourth District.

February Term, 1878.

OPINION TEXT STARTS HERE

APPEAL from the Circuit Court of St. Clair county; the Hon. WILLIAM H. SNYDER, Judge, presiding.

Mr. CHARLES W. THOMAS, for appellant.

Mr. JAMES M. DILL, for appellee.BAKER, J.

Appellant was president of the Belleville Nail Mill Company, a corporation organized under the general law of 1857, and judgment was recovered against him in the Circuit Court by appellee, in an action of assumpsit for a debt of $4,935.37, contracted by the said nail company with the assent of appellant.

The supposed liability of appellant is predicated upon § 16 of the general incorporation law of 1872, Rev. Stat. 288. That section reads as follows: “If the indebtedness of any stock corporation shall exceed the amount of its capital stock, the directors and officers of such corporation, assenting thereto, shall be personally and individually liable for such excess to the creditors of such corporation.”

In this case the first count of the declaration avers an indebtedness of $100,000, and the second and third counts aver an indebtedness of $150,000 in excess of the capital stock of the company, and the proofs show an indebtedness of over $100,000 in excess of the capital stock of the company, thus indicating that there are creditors other than appellee.

We are of the opinion that the liability of the appellant under this section, if he be liable at all, is solely and only in a court of chancery, and is to the creditors as a whole, and is not to any individual creditor for the amount of his individual debt. We think that this is so, from a consideration of the several provisions of the statute itself, from the reason, justice and very nature of the case, and from the authorities.

Upon examination of the several sections of this act that impose liabilities upon parties other than the corporation itself, we find it is provided in the eighth section that each stockholder and assignee of stock shall in a certain contingency be liable for the debts of the corporation, to a certain specified extent; that it is provided in the eighteenth section that any pretended officers or agents of any real or pretended corporation, shall in a certain contingency be jointly and severally liable for certain specified debts and liabilities; that it is provided in the nineteenth section that directors, officers or agents of corporations shall in a certain other specified event be jointly and severally liable for certain other specified debts; and that it is provided in the twenty-first section that certain officers of corporations shall, in a still other specified event, be jointly and severally liable for all damages. These three first mentioned sections fix a liability for the debts themselves, and ex necessitate rei a liability to the persons to whom the debts are owing. The last mentioned section imposes a liability for damages suffered, and of course to be recovered by the party damnified. Sec. 16 is otherwise. It provides that in a certain contingency the directors and officers of a corporation shall be liable for an excess of indebtedness over capital stock, personally and individually, to the creditors of the corporation. The liability is not for any debt or debts, as in the cases of the other sections, but is for an excess of indebtedness, and the liability is not to the persons who hold the contracts of indebtedness in excess, and is not, as in the other sections, to certain specified creditors, or to specified persons damnified, but to the creditors as a class. It appears to us that the use of a phraseology in this section, so variant from the language of the other sections, is evidence of a legislative intent as to cases falling under this sixteenth section, different from the legislative intention in regard to the cases of the other sections.

We do not claim, however, that under the declaration this case falls within the twenty-fifth section of the same act, where provision is expressly made for a suit in equity. But this latter section, in its full scope and import, is fully in accord with our interpretation of § 16, and provides in express terms for the cases of that section the same remedy that it impliedly provided for the case of the sixteenth section.

It is not readily seen why, in the event the company has ceased to do business, or has failed to pay an execution for ten days after demand, the legal title to the excess should be vested in the creditors as a whole, whereas otherwise the cause of action should be in an individual creditor. No legislative intention to make such difference is expressly indicated in reference to the liability imposed by this section.

The reason, justice and equity of the case lead us to the same conclusions. Granted it is eminently proper that, in the event of an excess of indebtedness over capital stock, the directors or officers assenting thereto should be individually and personally liable for such excess. But why should this excess belong to one creditor more than another? The interests of the particular creditor whose indebtedness was last contracted are not more jeopardized than the rights and interests of those prior creditors whose debts were contracted before the limit was reached, and who have no lien or claim against the property representing the capital stock that the last creditor of them all has not. Why in reason should this last creditor have all the security that other creditors have, and at the same time exclusively have this personal liability in addition? His equities are no greater, if so great, as theirs, and the statute has given this right to the excess in express terms, not to him, but to the creditors of the corporation.

If this liability is to be considered simply as a penalty, and not as intended also to furnish an equitable fund for the payment of the debts of the corporation, then the right to recover this penalty either belongs to the creditors as a whole, or to that creditor who first sues therefor. If it can be recovered by one creditor alone, then it belongs to one creditor as much as another, and without regard to priority of indebtedness. If a penalty only, then the penalty should be in gross for the total amount of the excess, and that creditor who first sues, be he a creditor within or without the limit, can...