Elsbree v. Burt

• Citation: 53 A. 60,24 R.I. 322
• Parties: ELSBREE v. BURT.
• Decision Date: 18 July 1902
• Court: United States State Supreme Court of Rhode Island

53 A. 60

24 R.I. 322

ELSBREE

v. BURT.

Supreme Court of Rhode Island.

July 18, 1902.

Action by Arathusa V. Elsbree against William A. Burt Plaintiff demurs to pleas. Sustained in part.

Argued before STINESS, C. J., and DOUGLAS and BLODGETT, JJ.

Frederick A. Jones, for plaintiff.

Harry C. Curtis, for defendant.

DOUGLAS, J. This is an action of debt alleging that the plaintiff is a judgment creditor of the Crown Carpet Lining Company, a Rhode Island corporation, against which execution has been taken out and returned wholly unsatisfied, and that the defendant was a stockholder therein who became liable to pay the debts upon which the judgment was obtained under certain orovisions of chapter 180 of the General Laws.

The declaration is in three counts, the first and second alleging liability accruing at different times under the provisions of sections 1 and 13, the third alleging liability under sections 11 to 14 of that chapter. The case comes up on demurrer to certain of defendant's pleas, claiming that they are severally insufficient in form or substance.

1. The first plea sets up in bar to the whole declaration an adjudication in bankruptcy of the corporation prior to the commencement of this suit, and that the cause of action declared upon accrued to the plaintiff prior to such adjudication in bankruptcy. This pica erroneously concludes to the country instead of with a verification as it should, since it sets up new matter. But we are of the opinion that it is bad in substance, the fact of the corporation's bankruptcy being no defense to this action against a stockholder. An express provision of the bankrupt act of 1898 is: "Sec. 16. The liability of a person who is a co-debtor with or guarantor, or in any manner a surety for a bankrupt shall not be altered by the discharge of such bankrupt." It is the evident intent of the bankrupt law to preserve to a creditor all his remedies against persons secondarily liable, barring only the claim against the bankrupt. In the case In re Marshall Paper Co., 2 Am. Bankr. R. 653, 95 Fed. 419, it was said by Judge Lowell: "The bankrupt act of 1898 not only does not expressly provide that directors and stockholders shall be released from their individual liability, but it expressly provides the contrary;" referring to section 16, and explaining its application to stockholders who are, in a broad sense, sureties for the corporation. Upon this point the United States circuit court of appeals, Colt, J., approves the position of Judge Lowell, 43 C. C. A. 38, 102 Fed. 872. He says: "The theory of a discharge, as well as this express provision of the act, forbid that the secondary liability of the directors of a corporation, under the Massachusetts statute, should be affected by the corporation's discharge in bankruptcy. Such a discharge does not prevent creditors from taking judgment in the state court against the corporation in such limited form as may enable them to reap the benefit of the...