Ewing v. Stultz

• Decision Date: 11 January 1894
• Citation: 9 Ind.App. 1,36 N.E. 170
• Parties: EWING et al. v. STULTZ et al.
• Court: Indiana Appellate Court

9 Ind.App. 1

36 N.E. 170

EWING et al.

v.STULTZ et al.

Appellate Court of Indiana.

Jan. 11, 1894.

Appeal from circuit court, Huntington county; J. S. Dailey, Judge.

Action by Jacob Stultz and others against James N. Ewing and others to compel defendants to contribute their share to the payment of a certain sum paid by plaintiffs to the employes of the Huntington Creamery Company, in which plaintiffs and defendants are stockholders. From a judgment for plaintiffs, defendants appeal. Reversed.

Lotz, J., dissenting.

J. B. Kenner and J. Q. Cline, for appellants. Spencer & Branyan, for appellees.

GAVIN, J.

Appellees filed their complaint against appellants and other defendants, alleging that the plaintiffs and defendants were the members and holders of all the shares of the capital stock of the Huntington Creamery Company, a corporation duly organized under the laws of Indiana for the manufacture and sale of butter; that all the capital stock was paid up and invested in a plant, leaving no funds on hand to carry on the business, which commenced November 1, 1885, and was continued until it ceased operations, July 1, 1888, during which time a large amount of indebtedness for current wages to the amount of $5,000 was incurred to laborers, which appellees paid from time to time, the directors having been unable to borrow money to run the business, as authorized by the stockholders upon the company's paper. It is further alleged that the company “is wholly insolvent,” and that on November 1, 1889, appellees demanded of appellants that they should contribute about 90 per cent. of the face value of their stock, which was their proportionate share of the wages so paid by appellees. The bill of particulars shows payments to numerous laborers, regularly made at various periods from December 26, 1885, to August 8, 1888. It nowhere appears that the corporation itself did not have during all this time abundant assets from which these labor claims could have been collected. No facts other than that the company had no ready money are disclosed showing any necessity for resorting to the individual stockholders at the time these payments were made. It is true, it appears that the corporation was insolvent at the time of the commencement of the suit, but this was long after the last payment made by appellees. There is no allegation of insolvency at the time the payments were made. We must assume, then, that the corporation had ample property from which these labor debts could have been collected when paid by appellees.

This statement of the facts found in the complaint is sufficiently full for the consideration of the question. We come now to the consideration of the question presented by the demurrer to the complaint. The averments that the plaintiffs and defendants were members of the company and the holders of all its shares of stock are allegations of fact, and are sufficient to show that the appellants were stockholders. The mode by which they became stockholders is a matter of evidence. Overmyer v. Cannon, 82 Ind. 457;McFarland v. Insurance Co., (Minn.) 49 N. W. 253;Butler University v. Scoonover, 114 Ind. 381, 16 N. E. 642;Railroad Co. v. Smith, (Ohio,) 31 N. E. 743. The articles of association filed with the complaint as an exhibit cannot be considered as a part of it, because the complaint is not founded upon them. The rule is well settled that a stockholder who has been compelled to pay more than his proportion of the debts of a corporation may maintain an action against his costockholders for contribution. This rule is founded upon the plainest principles of equity and right. Cook, Stock. & S. § 211; Mor. Corp. § 894; Beach, Corp. § 141; Thomp. Liab. Stockh. § 376. The question then arises whether or not the complaint shows that appellees were compelled to pay these labor debts, so as to give them the benefit of this rule of law. Section 5077, Rev. St. 1894, provides: “The stockholders and members of manufacturing and mining corporations shall only be liable for the amount of the stock subscribed by them respectively. * * * Provided that such stockholders shall be individually liable for all debts due and owing laborers, servants, apprentices and employees for services rendered such corporation.” As to the character of the liability thus imposed upon the stockholders, whether it is immediate and primary, or secondary and to a certain extent contingent, the adjudicated cases are not entirely in accord, either in our own state or in others. The purpose of the provision is plain. It is to make safe and secure the wages of the workmen and employes of the corporation. The provision is not penal in its nature, but remedial, and should receive such a construction as is reasonably calculatedto accomplish the purpose in view. If the argument by which appellees would sustain their position is tenable, then any employe working for a corporation may, whenever his wages are due, at once sue the stockholders without even making demand upon the corporation for payment, because the stockholders are primarily and immediately liable. Such a result would appear to be an unnecessarily harsh one, and yet if it is the law it must be enforced. It is urged with much vigor that the statute says the stockholders shall be individually liable for these debts, and that because the statute puts no express limitation upon the liability none exists. It is true the statute does not say they shall be liable upon any contingency, nor secondarily only, yet it does not say they shall be primarily liable, nor as principals. Should we hold that liability to be secondary, it is none the less a liability. This provision is embodied in the law for the benefit of the laborer, to enable him to be safe as to his wages. It was not intended as a means to increasing the available capital stock of the company, and thus enable it to continue in business when it would otherwise cease to operate. Mor. Corp. § 869. An examination of the authorities will disclose abundant justification for these statements. In the case of Toner v. Fulkerson, 125 Ind. 224, 25 N. E. 218, the supreme court, by Mitchell, Judge, lays down the law clearly and succinctly: “The distinguishing feature of corporate existence is that the very fact of incorporation exempts the stockholders from all individual liability after they have paid the amount of their subscriptions for stock. After the full par value of the stock subscribed for has been paid, the common law liability of the stockholder, both as respects the corporation and its creditors, is at an end. Any additional liability must be imposed by statute, or must result from the failure of the supposed corporation to become duly incorporated, whereby the members constitute a copartnership and become liable as partners. Persons who deal with a corporation must look to the company primarily for the debts due them. When the corporation becomes insolvent and fails to pay, they may then resort to any unpaid subscriptions, which constitute a trust fund for the benefit of creditors, or they may enforce any statutory liability which the law imposes.” If this be the law, then this liability of the stockholders is not primary, but secondary, to be resorted to by the creditor when the necessity therefor arises. In Beach on Corporations (section 123) the law is thus laid down: “The personal liability of stockholders for the debts of the company is secondary to that of the company itself, and does not accrue until the corporate assets have been exhausted, or clearly shown to be insufficient to meet the demands of creditors. This is the rule both in respect of their liability upon the unpaid balance of their subscriptions and as to any individual liability which may be imposed upon them by charter or statute.” See,...