First Nat. Bank v. Price

• Decision Date: 20 January 1871
• Citation: 33 Md. 487
• Parties: THE FIRST NATIONAL BANK OF PLYMOUTH, PENNSYLVANIA v. AUGUSTUS M. PRICE, Bentley C. Bibb, and Others.
• Court: Maryland Court of Appeals

33 Md. 487

THE FIRST NATIONAL BANK OF PLYMOUTH, PENNSYLVANIA v. AUGUSTUS M. PRICE, Bentley C. Bibb, and Others.

Court of Appeals of Maryland

Jan. 20, 1871

Appeal from the Superior Court of Baltimore City.

The cause was argued before BARTOL, C.J., STEWART, MAULSBY GRASON, MILLER and ALVEY, JJ.

Wm. S. Waters and Geo. W. Woodward, for the appellant.

The law of the place where the contract is made, or the obligation incurred, gives the force and efficacy to the contract. The particular facts have such effect to bind parties as is prescribed by the lex loci. Story's Con. Laws secs. 266, 558, etc.; Thrasher v. Everhart 3 G. & J. 242; Trimbey v. Viginer, 1 Bing. N. S. 151; Bank v. Blake, 3 Rich. Eq. 225.

The court of no State, however, will enforce penalties inflicted by the laws of other States, and the only question is: Is the responsibility incurred by the acts of the directors, stated in the declaration, a penalty inflicted by the laws of Pennsylvania? Story's Con. Laws, sec. 619, etc.

The responsibility of the directors arises out of their making or assenting to the contract, and is simultaneous with it. It does not arise from anything collateral to it, or from any subsequent act or breach of, or failure to discharge duty. The law simply declares that the amount of the debts of the corporation (other than the capital stock) shall never exceed "its capital actually paid in." It is against law that it should be so. And if a director, where this is the case, contracts a debt or assents to such contract, he shall be individually liable? Why liable? Because he has made or assented to a contract as agent for a principal, under circumstances which make him personally liable for the debt. The law is, in effect, this: If you, as agent, contract or agree to bind your principal for a debt when the principal is insolvent, you shall be bound yourself. The obligation has all the essential elements of a contract, and is in no sense a penalty imposed as a punishment for crime. Primarily, the party who makes the contract is bound to perform it; and if, in contracting, he represents himself as agent, he must produce a principal, or be bound himself. The responsibility here incurred is allied to this. Morgan v. R. R. Co., 10 Paige, 290; Angell & Ames on Corp. secs. 579-604, 605-611; Corning v. McCullough, 1 Com. 66, 68, 70, 71; Ex-parte Van Riper, 20 Wend. 616; Van Hook v. Whitlock, 3 Paige, 415; Allen v. Sewell, 2 Wend. 339; Marsh v. Clark, 17 Mass. 334.

Individual liability is in contrast with corporate liability. Prima facie, all the stockholders and directors would be liable for all the debts of the company. A corporation is but a partnership qualified by law. The stockholders and directors are partners, and responsible as such, except in so far as the statute relieves them from this position. It is not the statute which creates the liability. The liability existed at common law, except in so far as the statute restricts it. Bayley v. Bancker, 3 Hill, 189, and cases previously cited.

John Carson and John Stewart, for the appellees.

The liability imposed upon the directors and officers of certain corporations by the statute under which the appellees are sought to be held responsible, does not arise ex contractu; the statute is penal in its character, and imposes a penalty for its violation; the action is, therefore, to recover a penalty given under a Pennsylvania statute, and cannot be enforced in Maryland.

The courts of Pennsylvania have held similar laws as penal provisions. Bank v. Commonwealth, 26 Pa. St. 451.

Analogous statutory provisions making officers and directors of corporations liable for all the company's debts, when they contract debts in excess of capital stock, or fail to file certificate, or publish an annual statement, have all been held to be penal statutes, creating no liability ex contractu. State v. B. & O. R. R. Co., 12 G. & J. 432; Garrison v. Howe, 17 N.Y. 458; Lawler v. Burt, 7 Ohio, St. 341; Kritzer v. Woodson, 19 Mo. 329, 330; Cable v. Cune, 26 Mo. 380; Boughton v. Otis, 21 N.Y. 261; Chambers v. Lewis, 28 N.Y. 454.

The courts of Pennsylvania, in reference to the liability imposed by the statute in question, say that the director is a wrong-doer; that he has no right to recover from the company; that there is no right of contribution between the directors, and that the liability is imposed for neglect of duty. Hill v. Frazier, 22 Pa. St. 320; Brinham v. Wellersburg Coal Co., 47 Pa. St. 43.

To the same effect are the following cases: Andrews v. Murray, 33 Barb. 354; Shaler & Hall Quarry Co. V. Bliss, 34 Barb. 309; Squire v. Brown, 22 How. Pr. 45; Stow v. Fenno, 6 Allen, 579; Pearson v. Skalton, 1 M. & W. 504.

That the liability is statutory, ex delicto, and not ex contractu, and is to recover a penalty, and that such penalty can only be enforced in the State enacting the statute, has been expressly decided by the States of New York, New Jersey, Massachusetts and New Hampshire, in the following cases, all of which are identical with the case at bar; Halsey v. McLean, 12 Allen, 438; Erickson v. Nesmith, 4 Allen, 233; Derrickson v. Smith, 3 Dutch. 166; Bird v. Hayden, 1 Robertson, 383; Bank v. Bliss, 1 Robertson, 391; Erickson v. Nesmith, 46 N.H. 371, 378.

It was contended, in behalf of the appellant, that the New York cases lay down another doctrine, viz.: that where the stockholders or directors of a corporation are liable for the debts of the company, under its charter, or by the terms of the law authorizing the charter, there they are responsible at common law under their original liability, and that it is only a quasi corporation.

Admitting, for the sake of the argument, the correctness of the New York cases, they do not apply to this case; they were all cases where the stockholders or directors were liable for all the debts of the company. Under this Pennsylvania statute, the directors are not liable at all for the debts of the company, eo nomine; they are only liable for the excess of debt over capital, and that excess may be much more or less than the debt sued on; secondly, it is not merely the directors, who contract the debts, who are responsible for the excess aforesaid; any director afterwards assenting thereto is liable under the statute; the debt qua debt cannot be recovered under this statute--only the excess. The New York cases, therefore, even if good law, do not apply to the case at bar.

The law of the New York cases is not the law of Pennsylvania; there the court holds a liability as given by this statute to be a penal one. They also hold the liability to be statutory and not at common law. They also hold their own construction of their laws to be conclusive; and no rule of comity requires the liability to be more extensive in Maryland, where the statute does not operate proprio vigore, than it is held to be in Pennsylvania, where it is declared to be statutory and penal. Halsey v. McLean, 12 Allen, 438.

The statute system of another State, in reference to the liability of stockholders and directors of foreign corporations, will not be enforced in this State. Erickson v. Nesmith, 4 Allen, 233; Halsey v. McLean, 12 Allen, 438; Erickson v. Nesmith, 46 N.H. 371, 378.

Bartol C.J., delivered the opinion of the court.

This suit was instituted by the appellant against the appellees, as officers and directors of "The Consumers' Union Coal Company," a corporation created under the laws of the State of Pennsylvania.

The case comes before us upon general demurrer to the declaration, and the only question to be decided is whether the liability for the debts of the corporation imposed upon the officers and directors by the law of Pennsylvania, of March 30th, 1860, can be enforced by an action of debt in this State?

The provisions of the statute, which are substantially set out in the declaration, are as follows:

"In order the better to limit and restrict the amount of liabilities to the actual capital of all companies formed under the Act, to enable joint tenants, tenants-in-common and adjoining owners of mineral lands in this commonwealth, to manage and develop the same, approved the 21st of April, 1854, and to provide for the protection of both the creditors and stockholders thereof, the total amount of the debts and liabilities (other than its capital stock) of any such company, shall never exceed the amount of its capital actually paid in; and if any debts or liabilities shall be contracted exceeding the said amount, the directors and officers contracting the same, or assenting thereto, shall be jointly and severally liable, in their individual capacities, for the whole amount of such excess, and the same may be recovered by action of debt as in other cases."

It is alleged in the declaration that the indebtedness of the corporation to the appellant was, at the time the same was contracted, "in excess of the capital stock actually paid in, and that the defendants were then directors and officers of the corporation and assented to the contracting of said debts."

The case stated comes within the provisions of the statute, and if this suit had been instituted in Pennsylvania, there could be no doubt of the right of the plaintiff to recover. But the question here is, can the liability imposed by the statute be enforced out of the limits of Pennsylvania? This depends upon the nature of the liability, and the manner in which it is created. Does it arise upon contract? or is it in the nature of a penalty created by the statute, and imposed upon the defendants as wrong doers?

The decision of the case turns upon the proper solution of these questions; for while a contract made in one State, is enforced in other States agreeably to the law of the State where it is...