Child v. Boston and Fairhaven Iron Works

• Decision Date: 05 September 1884
• Citation: 137 Mass. 516
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: Cyril C. Child v. Boston and Fairhaven Iron Works & others

137 Mass. 516

Cyril C. Child v. Boston and Fairhaven Iron Works & others

Supreme Court of Massachusetts

September 5, 1884

Suffolk.

Bill dismissed.

C Browne, for the defendants.

C. E Washburn, for the plaintiff.

Field J. Devens & Colburn, JJ., absent.

OPINION

Field, J.

The plaintiff's case, as stated in this bill in equity, is that the defendant corporation, during the years 1869, 1870, 1871, and 1872, was engaged in manufacturing printing-presses, in violation of the rights secured to the plaintiff by letters patent of the United States; that on December 17, 1872, he filed his bill of complaint against the corporation in the Circuit Court of the United States for the District of Massachusetts, wherein it was adjudged that the letters patent were valid; and that the corporation had infringed the plaintiff's rights under the same, by the manufacture of printing-presses; that on March 23, 1880, he obtained a final decree against the corporation for $ 5640.26 damages and $ 1778.88 costs, as the profits which had accrued to the corporation from the manufacture of the printing-presses; that execution issued therefor, and was returned unsatisfied, whereupon the plaintiff brought this bill, for himself and all other creditors of the corporation, against the corporation and five persons who were officers and directors of the corporation during the years 1869, 1870, 1871, and 1872. The bill also alleges, that, on December 17, 1872, when the bill in equity in the Circuit Court was filed, the debts of the corporation contracted by these officers in its management exceeded by $ 9000 its capital stock; and that, in 1871, 1872, and 1873, these officers, or some of them, knowingly signed and filed false certificates of the assets and liabilities of the corporation.

The defendants have demurred to the bill; and the question raised by the demurrer is whether the defendants are liable to the plaintiff under the St. of 1870, c. 224, § 38, cl. 3, 4. (See Sts. 1863, c. 169; 1870, c. 224, §§ 13, 33.) This is to be decided by determining whether the profits to be accounted for by the defendants in suits in equity for an infringement of patents, under the U.S. Rev. Sts. § 4921, constitute a "debt" or "contract," within the meaning of the St. of 1870, c. 224, § 38. See Pub. Sts. c. 106, § 60, cl. 3, 5. For the prior legislation on this subject, see Sts. 1863, c. 246, § 2; 1862, c. 218, § 1; Gen. Sts. c. 60, §§ 18-21, 25, 27, 30; c. 61, § 11; St. 1851, c. 133, § 11; c. 315; Rev. Sts. c. 38, §§ 17-19, 23, 28, 30; Sts. 1829, c. 53; 1826, c. 137; 1821, c. 38; 1817, c. 183; 1808, c. 65.

There are two sets of provisions in our statutes, one making the officers of a corporation, and the other its members, liable, in the cases specified, for the debts and contracts of the corporation. Many of the early charters in this Commonwealth made the persons and property of the members of the corporation liable in all cases to be taken on an execution against the corporation, apparently following the analogy of inhabitants of towns. See, for example, the St. of 1791, c. 32, § 4, passed February 23, 1792, incorporating the Proprietors of the Locks and Canals on the Connecticut River; the St. of 1794, c. 55, § 1, passed February 27, 1795, creating a corporation for the purpose of bringing water into the town of Boston; the St. of 1797, c. 67, § 7, passed March 1, 1798, incorporating the Massachusetts Mutual Fire Insurance Company; the St. of 1800, c. 63, § 8, passed March 6, 1801, incorporating the Ossapee Mining Company; the St. of 1803, c. 61, § 6, passed June 23, 1803, incorporating the Danvers and Beverly Iron Works Company; and the St. of 1804, c. 139, § 8, passed March 16, 1805, incorporating the Amesbury Nail Factory Company.

The early charters of insurance companies usually did not make the members liable for the debts of the corporation, but contained a provision, that if, after losses had occurred that should be equal to the amount of the capital stock, the president or directors, knowing such losses, should subscribe to any policy, their estates jointly and severally should be accountable for the amount of any loss that should take place under policies thus subscribed. See, for an example, the St. of 1803, c. 42, § 12, passed June 22, 1803, incorporating the Portland Marine and Fire Insurance Company.

The first general statute was the St. of 1808, c. 65. By § 6, an execution issued on any judgment in any civil action against a manufacturing corporation, if the corporation did not within fourteen days after demand show to the officer sufficient property to satisfy the judgment, could be levied upon the body or upon the real or personal estate of any member of the corporation. By the St. of 1817, c. 183, if the corporation did not, before the return day of any execution, issued on any judgment in any civil action against a manufacturing corporation, show to the officer sufficient property to satisfy the judgment, an alias execution might be taken out and levied upon the body or estate of any member of the corporation, or upon the body or estate of any person who was a member of the corporation at the time when the debt accrued "upon which such writs or executions may have issued."

The St. of 1821, c. 38, provided "that every person who shall become a member of any manufacturing corporation, which may hereafter be established within this Commonwealth, shall be liable, in his individual capacity, for all debts contracted during the time of his continuing a member of such corporation."

The general liability of members of corporations established by the St. of 1808, c. 65, for all manufacturing corporations thereafter created, was limited to special cases by the St. of 1829, c. 53, as to all manufacturing corporations created after this act, with a provision that manufacturing corporations already existing might adopt the act, § 13, and thus render their members not liable thereafter to have their persons or property taken on writs or execution against the corporation, "except for the causes, and in the manner, herein provided." This statute, by §§ 6, 9, 10, made the officers personally liable for claims and demands against, or debts of, the corporation, under special circumstances. See Rev. Sts. c. 38, § 27; Gen. Sts. c. 60, § 28.

Whatever reason once existed for giving a liberal construction to the word "debt" in the earlier statutes, on the ground that a stockholder in every manufacturing corporation was liable to have his property taken to satisfy any judgment in any civil suit against the corporation, has now ceased to exist, when the stockholders and officers are only liable under special provisions of statute.

The word "debts," and the words "debts and contracts," do not in their legal sense ordinarily include liabilities for torts not reduced to a judgment. There is nothing in the statutes indicating that, for the causes stated, the officers were to be made responsible for all the liabilities of the corporation. Gray v. Bennett, 3 Met. 522. Chase v. Ingalls, 97 Mass. 524. Lowell v. Street Commissioners, 106 Mass. 540. Zimmer v. Schleehauf, 115 Mass. 52. Heacock v. Sherman, 14 Wend. 58. Esmond v. Bullard, 16 Hun 65. Archer v. Rose, 3 Brewst. 264. Cable v. McCune, 26 Mo. 371. Dryden v. Kellogg, 2 Mo.App. 87. Bohn v. Brown, 33 Mich. 257, 263.

It was said by Chief Justice Shaw, in Gray v. Coffin, 9 Cush. 192, 199, that "to create any individual liability of members for the debt of a corporation, a body politic, created by law, and regarded as a legal being, distinct from that of all the members composing it, and capable of contracting and being contracted with as a person, is a wide departure from established rules of law, founded in considerations of public policy, and depending solely upon provisions of positive law. It is, therefore, to be construed strictly, and not extended beyond the limits to which it is plainly carried by such provisions of statute."

In Mill Dam Foundery v. Hovey, 21 Pick. 417, 455, a case arising under the St. of 1829, c. 53, Chief Justice Shaw said: "For, though a question was made whether such a claim for unliquidated damages is a debt, within the meaning of the statute, we do not think it admits of a reasonable doubt, that all such claims for damages were intended to be included in the term 'debts.'" The claim there was of unliquidated damages for the breach of a contract by the corporation. See also Byers v. Franklin Coal Co. 106 Mass. 131; Hawes v. Anglo-Saxon Petroleum Co. 101 Mass. 385.

In Carver v. Braintree Manuf. Co. 2 Story 432 one Edson was excluded as a witness on the ground that he was interested in the event of the suit. The action was case for the infringement of a patent. The defendant was created a corporation by the St. of 1823, c. 45, and was made subject to the St. of 1808, c. 65, and the several acts in addition thereto. Edson was a stockholder at the time of the alleged infringement, although it seems he had sold out his stock before the action was brought. Mr. Justice Story said: "I follow out the doctrine of the case of Mill Dam Founder v. Hovey, 21 Pick. 455, which, as far as it goes, disclaims the interpretation of the word 'debt' as limited to contracts for the payment of determinate sums of money. Passing that line, it does not seem to me easy to say, that...