Clark v. Knowles

• Decision Date: 22 November 1904
• Parties: CLARK et al. v. KNOWLES.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

187 Mass. 35

72 N.E. 352

CLARK et al. v. KNOWLES.

Supreme Judicial Court of Massachusetts, Bristol.

November 22, 1904

COUNSEL

Homer W. Hervey, for appellants.

E. D Stetson, for appellee.

OPINION

KNOWLTON C.J.

The plaintiffs, 425 in number, averring that they are the only known creditors of the Colorado State Bank of Grand Junction a corporation, bring this bill, in behalf of themselves and all other creditors, against the defendant, as a stockholder in the bank. It is alleged that the corporation is insolvent that proceedings to wind up its affairs have been taken, that a receiver has been appointed under the laws of Colorado, and that certain dividends have been paid. It is said that a large amount of indebtedness is still unpaid, while there is but little property of the corporation that can be used to pay it.

The statute of Colorado, found on page 264 of the Session Laws of 1885, is as follows: 'Section 1. Shareholders in banks savings banks, trust deposit and security associations, shall be held individually responsible for debts and engagements of said associations, in double the amount of the par value of the stock owned by them, respectively.' It is averred that the construction, interpretation, and meaning of this statute, as determined by the court of last resort in Colorado, are in substance as follows: 'Each shareholder of record at the date of the bank's failure is individually and severally liable for the debts and obligations of the bank, in an amount equal to twice the par value of the stock so held by him; and this liability is in addition to, and independent of, any liability on account of his original subscription for the stock. This liability in double the par value of his stock is in the nature of additional security to the creditors in dealing with the bank, and constitutes a fund for the benefit and protection of all creditors. It should properly be recovered in an action brought by one or more of the creditors for the common benefit of all creditors. Neither the bank nor the assignee is interested in this fund, nor can either enforce the liability, nor is either a proper or necessary party to any action brought to enforce such recovery. The aforesaid fund is exclusively for the benefit of the creditors, and forms no part of the assets of the corporation. While in the first instance the assets of the bank or corporation may constitute the primary or regular fund for the payment of corporate liabilities, when by reason of dissolution or insolvency an action against the corporation would be unavailing, or when the remaining assets, if any, consist of worthless or doubtful claims, or claims in litigation, the creditors are not required to await the collection of such. The shareholders must pay promptly, and take upon themselves the onus and risk as to all such claims, looking to the assignee for whatever may be realized on remaining assets.' This statute, so interpreted, apart from the statement that neither the bank nor the assignee is a necessary or proper party to an action brought for recovery under it, of which we will speak more particularly later, shows that on the establishment of such a corporation a fund is created, in addition to the assets of the corporation, as a guaranty to creditors that the corporation's debt will be paid. It is to be collected for the protection of all creditors, each one of whom has an interest in it. While each stockholder is individually and severally liable for the payment of his share, his liability is like that of all other stockholders, and ultimately each should pay only his proper proportion, according to his ownership of stock. But this liability outside of and in addition to the liability of the corporation itself, is only collateral to it; the corporation being under the primary obligation to pay. It follows that if the stockholders, or any of them, should pay corporate debts more than the excess of the indebtedness above the amount which the assets of the corporation are sufficient to pay, they oculd recover back the excess of their payment from the corporation, or, if any one of the stockholders, should pay more than his proper proportion, he would have a right to a contribution from other stockholders to reduce his loss to its proper proportion. In all essential particulars, therefore, in reference to the proper mode of giving a remedy and of adjusting the rights of the parties in interest, this statute calls for procedure similar to that referred to in many cases, namely, by a suit in equity, to which the corporation is a party, brought for the benefit of all the creditors against all the stockholders. Hadley v. Russell, 40 N.H. 109; Erickson v. Nesmith, 4 Allen, 233; Post v. Toledo, etc., Railroad Co., 144 Mass. 342, 11 N.E. 540, 59 Am. Rep. 86; New Haven Horse Nail Co. v. Linden Spring Co., 142 Mass. 349, 7 N.E. 773; Hale v. Allinson, 188 U.S. 56, 23 S.Ct. 244, 47 L.Ed. 380 Finney v. Guy, 189 U.S. 335, 23 S.Ct. 558, 47 L.Ed. 839; Terry v. Little, 101 U.S. 216, 25 L.Ed. 864; Elkhart National Bank v. Northwestern Guaranty Loan Co., 87 F. 252, 30 C. C. A. 632; Marshall v. Sherman, 148 N.Y. 9, 42 N.E. 419, 34 L. R. A. 757, 51 Am. St. Rep. 654. Ordinarily such a bill cannot be maintained elsewhere than in the state where the corporation is organized. There must be jurisdiction of the corporation as well as of the stockholders. The general principles which lie at the foundation of the decisions in the cases above cited are controlling in the present case. Accordingly it was held in Bates v. Day, 198 Pa. 513, 48 A. 407, 82 Am. St. Rep. 811 (a decision under the statute now before us made since the decision in Zang v. Wyant, 25 Colo. 551, 56 P. 565, 71 Am. St. Rep. 145, interpreting the statute), that the personal liability of a stockholder in Pennsylvania could not be enforced by a bill in equity, because the corporation and the other stockholders were not made parties defendant. A like decision was made by the Supreme Court of Rhode Island in Miller v. Smith, 58 A. 634, which was also since the decision in Zang v. Wyant;...