Flynn v. Am. Banking & Trust Co.

• Decision Date: 21 April 1908
• Citation: 69 A. 771,104 Me. 141
• Parties: FLYNN v. AMERICAN BANKING & TRUST CO. et al.
• Court: Maine Supreme Court

69 A. 771

104 Me. 141

FLYNN

v. AMERICAN BANKING & TRUST CO. et al.

Supreme Judicial Court of Maine.

April 21, 1908.

Exceptions from Supreme Judicial Court, Androscoggin County, in Equity.

Bill in equity by Martin Flynn against the American Banking & Trust Company and others. The cause was first heard on bill, answers, demurrer, and evidence by the justice of the first instance, who overruled the demurrer, sustained the bill, and referred the cause to a special master in chancery. Certain of the defendants excepted. Decree that the report of the master be accepted and confirmed, and certain of the defendants except. Exceptions overruled.

Bill in equity, brought by the plaintiff, a creditor of the defendant corporation, the American Banking & Trust Company, in behalf of all the creditors of the defendant corporation and against sundry of the shareholders of the defendant corporation, to enforce the liability of its shareholders imposed by the provisions of chapter 349, p. 543, Sp. Laws 1889, amendatory of its original charter, whereby its shareholders were made "individually liable, equally and ratably, and not one for another, for all contracts, debts and engagements of said corporation, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares."

The bill was taken pro confesso against certain of the defendants, including the American Banking & Trust Company. Other defendants answered, and one defendant both demurred and answered. Certain amendments to the bill were allowed during the various proceedings; also eventually the bill was dismissed as to certain of the defendants named therein.

The cause was first heard on bill, answers, demurrer, and evidence by the justice of the first instance, who overruled the demurrer, sustained the bill, and referred the cause to a special master in chancery, "to hear, determine, and report upon all claims of creditors which are claimed to be secured by the statutory liability of the shareholders of the American Banking & Trust Company, giving the grounds of all claims owned, respectively, December 29, 1896, and the equal and ratable amounts for which each shareholder is liable." Different defendants then excepted to certain rulings made by the aforesaid justice.

Upon the coming in of the report of the master several defendants filed various exceptions thereto. A hearing was then had on the acceptance of the report by the aforesaid justice, who, after the hearing, overruled all the exceptions, ordered that the report be accepted and confirmed, and made and entered final decree.

Different defendants then took exceptions to the ruling overruling their exceptions "to the report of the special master filed in said cause, confirming said report, and entering final decree in accordance therewith."

The case appears in the opinion.

Argued before EMERY, C. J., and WHITEHOUSE, STROUT, SPEAR, and CORNISH, JJ.

Harry E. Coolidge and Newell & Skelton, for plaintiff. W. W. Bolster and Oakes, Pulsifer & Ludden, for defendants Bolster et al. Reuel W. Smith, for defendant Redman. John A. Morrill, for defendant Auburn Savings Bank. Geo. H. Winn and C. Vey Holman, for defendant Holman. W. H. Judkins, for defendant Monmouth Academy.

EMERY, C. J. The American Banking & Trust Company, a Maine banking corporation, stopped payment by vote of its directors December 22, 1896. Seven days afterward the bank examiner filed a bill in equity against the corporation for the sequestration of its assets and the appointment of a receiver to administer them. Two days later, December 81, 1896, the decree of sequestration was signed and a receiver appointed, who took possession of all the assets of the corporation. These assets were in time fully administered and distributed to the creditors of the corporation. There was no surplus.

The corporation was chartered and began business in 1887 as the Maine Mortgage Loan & Investment Company, but in 1889 it changed its name to American Banking & Trust Company. By an amendatory act (Sp. Laws 1889. p. 543, c. 349) additional powers as a banking company were granted the corporation, and by section 6 of the act its shareholders were made "individually liable, equally and ratably; and not one for another, for all contracts, debts and engagements of said corporation, to the extent of the amount of their stock therein at the par value thereof, in addition to the amount invested in such shares." The present bill in equity is brought by a creditor of the corporation, in behalf of all the creditors, against sundry of its shareholders to enforce that liability. The case was heard upon bill, answers, demurrer, and evidence by a single justice, who made findings and rulings, and made a decree sustaining the bill and referring the case to a master. No appeal was claimed from his findings of fact, but several exceptions were taken by different defendants to his rulings of law, and the case is before the law court upon those exceptions only. The various exceptions have been exhaustively argued, with numerous citations of cases, by the several counsel for the defendants and by the counsel for the plaintiff. Of course, all the briefs and the cases cited, numerous as they are, have been studied, but to answer every argument and comment on every case cited would consume so much space, and make this opinion so very long, the parties and counsel must be content with our conclusions and briefly stated reasons therefor.

The Exceptions to the Rulings of the Single Justice.

1. Some of the defendants contend that there is not sufficient evidence that the amendment creating that liability of the shareholders was ever accepted by them. The fact that after the enactment of the amendment the shareholders allowed their corporation to continue in business and exercise the new powers provided in the amendment, and to make contracts, debts, and engagements therein authorized, is sufficient evidence of their acceptance of the liability imposed upon them. No shareholder appears to have objected at the time. It is too late to object now, after the contracts, etc., have been made. Stanley v. Stanley, 26 Me. 191.

2. The corporation stopped payment December 22, 1896. Its assets were sequestered by decree of the court December 31, 1896. This bill was not filed until September 17, 1904. The defendants contend that this suit is therefore barred by the general six-year statute of limitations.

Upon the question when the statute of limitations begins to run against a creditor seeking to enforce the statutory liability of shareholders for his debt against the corporation, there have been numerous, various, and even conflicting decisions in other jurisdictions; but our duty is to construe our own statute in harmony with our own decisions and with what we think the better reason, even though we come to conclusions different from those of other courts.

Of course, the statute of limitations does not begin to run against the creditor and in favor of the shareholder when the debt or other obligation is incurred by the corporation, but only when the shareholder becomes subject to a suit to enforce his liability. When does the shareholder become subject to such suit? is therefore the determining question. One view is that it is when the corporation fails to pay, or, at least, when its assets are sequestered so it cannot pay. The other view is that it is when the creditor's remedies against the corporation and the assets of the corporation have been exhausted. Under the former view the creditor, immediately upon default of the corporation, can ignore the corporation and its assets, can pursue the shareholders alone, collect of them his debt against the corporation, and leave them to bring their own suits against the corporation for recoupment, though it might in the end appear that the corporate assets were ample to pay all the corporate debts, and hence that the suits against the shareholders were unnecessary and vexatious. Individuals and corporations often default for want of ready cash to meet obligations when due, though they have ample assets to eventually pay all their obligations in full. Under the latter view the creditor cannot ignore the corporation, his direct and principal debtor, upon its default, and cannot burden the shareholders with suits until the necessity therefor is shown by an exhaustion of the corporate assets. Evidently the liability of the shareholder is heavier and more severe under the former than under the latter view.

We think the latter view is the correct one to take of the statute imposing the liability in this case. The statute imposes a new liability before nonexistent, and hence, if susceptible of more than one construction, it should receive that imposing the lightest burden. The shareholder is not made liable "on" the contracts, debts, and engagements of the corporation, but only "for" them. He cannot be joined in any suit against the corporation on such contracts, etc., because he is not a party to them; nor can the corporation or its receivers sue him, since his liability is not to them or for them, but only "for" the creditors. It is no part of the corporate assets. It is a liability apart and distinct in origin and character from that of the corporation. The creditor's claim is primarily against the corporation, and only secondarily against the shareholder. The creditor's remedy against him, to use a military metaphor, is a reserve force, to be brought into action only when necessary, only when it becomes apparent that the remedy against the corporation has failed.

We hold, therefore, that under the statute in this case the shareholder is not to be vexed with suits, and hence the statute of limitations does not begin to run until the assets of the debtor corporation are fully exhausted, nor until it has been judicially ascertained in proceedings against the corporation that a resort to the...