Howarth v. Lombard

• Decision Date: 28 March 1900
• Citation: 175 Mass. 570,56 N.E. 888
• Parties: HOWARTH v. LOMBARD.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

175 Mass. 570

56 N.E. 888

HOWARTH v. LOMBARD.

Supreme Judicial Court of Massachusetts, Suffolk.

March 28, 1900

COUNSEL

H. R. Bailey and John W. Saxe, for appellant.

Russell Bradford and E. G. McInnes, for appellee.

OPINION

KNOWLTON, J.

This is an action brought by the plaintiff, as receiver of the Traders' Bank of Tacoma, in the state of Washington, to recover the amount of an assessment laid by the superior court of that state upon the defendant as a stockholder. A demurrer was filed, which was sustained by the superior court, and the case comes before us on an appeal from a judgment for the defendant.

The constitution of Washington contains this provision: 'Each stockholder of any banking or insurance corporation or joint stock association shall be individually and personally liable, equitably and ratably, and not one for another, for all contracts, debts and engagements of such corporation or association accruing while they remain such stockholders, to the extent of the amount of their stock therein at the par value thereof, in addition to the amount invested in such shares.' Const. Wash. art. 12, § 11. A statute which is made a part of the plaintiff's declaration is in these words: 'Each and every stockholder shall be personally liable to the creditors of the company to the amount of what remains unpaid on his subscription to the capital stock and not otherwise, provided that the stockholders of every bank incorporated under this act, or the territory of Washington shall be held individually responsible, equitably and ratably,' etc. (then following the exact language of the constitution). 1 Hill's Ann. St. & Codes Wash. § 1511. It is averred that this statute was in force at the time of the organization and incorporation of the Traders' Bank, and has been ever since. The statutes do not more particularly define the nature of this liability, and they contain nothing as to the means of enforcing it. The meaning of the language in reference to the particular nature of the obligation and the method of enforcing it was left to be determined by the courts. Several decisions of the supreme court of Washington have been made in regard to it. In one case the court uses this language: 'It will be seen that there is no language which in express terms gives to creditors the immediate, or any, right of action. The liability is not on, but for, the contract, debt, or agreement. The liability so provided is in addition to that flowing directly from the holding of stock which has not been fully paid for. The latter, in event of the insolvency of the corporation, is held to be a trust fund for creditors, and there is no good reason why the same should not be held as to the former. No satisfactory reason can be given for holding one to be a trust fund and the other not to be. There is no principle by which the two classes of liability can be distinguished other than that one is primary and the other secondary; for while it is true that one can be enforced by the corporation itself, and the other only by creditors, yet they were both created for the benefit of the corporation in carrying on its business, and to secure to creditors the payment of its obligations. If the liability which is clearly primary must be treated as a trust fund for the benefit of all of the creditors of the corporation, greater reason exists why a liability which is secondary only, and created entirely for the benefit of creditors, should likewise be treated as such trust fund. There is nothing in our constitution which defines the method by which this liability shall be made available. Hence the method must be determined by the courts and their aim should be to prescribe one which with accomplish the object of the provision with the least inconvenience to the creditors, without unnecessary annoyance to the stockholders.' Wilson v. Book, 13 Wash. 676-679, 43 P. 939. See, also, Watterson v. Masterson, 15 Wash. 511, 46 P. 1041. It is decided that this liability cannot be enforced directly by individual creditors, but only by a receiver duly appointed, and by him only after the application of the available assets of the corporation to the payment of its debts. This construction of the statute, made by the highest court of the state in which it was enacted, is binding upon us.

The principal question in the case is whether such a liability can be enforced against stockholders in this commonwealth. It is familiar law that statutes do not extend, ex proprio vigore, beyond the boundaries of the state in which they are enacted. If they are merely penal, they cannot be enforced in another state. If they furnish merely a local remedy for the invasion of a recognized right which is protected elsewhere in other ways, they cannot be given effect in another jurisdiction. Richardson v. Railroad Co., 98 Mass. 85-89. The fundamental question is whether there is a substantive right originating in one state, and a corresponding liability which follows the person against whom it is sought to be enforced into another state. Such a right, arising under the common law, is enforceable everywhere. Such a right, arising under a local statute, will be enforced ex comitate in another state unless there is a good reason for refusing to enforce it. It will be enforced, not because of the existence of the statute, but because it is a right which the plaintiff legitimately acquired, and which still belongs to him. If the statute creating the right is against the policy of the law of the neighboring state, that is a sufficient reason for refusing to enforce the right there. In the neighboring state, in such a case, it will not be considered a right. If the enforcement of a statutory right in a neighboring state in the manner proposed will work injustice to its citizens, considerations of comity do not require the recognition of it by the courts of that state. If the right, by the terms of the statute creating it, is to be enforced by prescribed proceedings within the state, the right is limited by the statute, and can only be enforced in accordance with the statute. If it is of such a kind that, with a due regard for the interests of the parties, a proper remedy can be given only in the jurisdiction where it is created, it will not be enforced elsewhere. But if there is a substantive right, of a kind which is generally recognized, courts, through comity, ought to regard it and enforce it as well when it arises under a statute of another state as when it arises at common law, unless there is some good reason for disregarding it. These seem to be the reasons and principles which govern the action of the courts in cases of this kind. See Erickson v. Nesmith, 15 Gray, 221, 4 Allen, 233; Halsey v. McLean, 12 Allen, 436; Higgins v. Railroad Co., 155 Mass. 176, 29 N.E. 534; Walsh v. Railroad Co., 160 Mass. 571, 36 N.E. 584; Smith v. Insurance Co., 14 Allen, 336-342; Post v. Railroad Co., 144 Mass. 341, 11 N.E. 540; Bank v. Rindge, 154 Mass. 203, 27 N.E. 1015, 13 L. R. A. 56; Bank v. Ellis, 166 Mass. 414, 44 N.E. 349; Id., 172 Mass. 39, 51 N.E. 207, 42 L. R. A. 396.

The question whether the liability in cases of this kind is contractual, or only statutory, has been answered differently in different jurisdictions. In Burch v. Taylor, 1 Wash St. 245-248, 24 P. 438,-a case which has since been modified in other particulars,--it is said that the liability is contractual; and, although in the other decisions of that state we have seen no other direct statement upon the subject, we understand them virtually to hold the same thing. It is not the statute which directly and proximately creates the liability. It is the voluntary action of the stockholders under the statute, followed by action of creditors which is founded on the action of the stockholders. This statute was in existence before the Traders' Bank was organized. The stockholders subscribed for their stock with full knowledge of the statute, and they must be held impliedly to have agreed to be bound by it. The statute enters into and forms a part of their undertaking as stockholders, and their implied agreements in that relation conform to it. It is to be noticed, under this statute, that stockholders, merely by subscribing for stock, without an express promise to pay for it, are bound, in all corporations, to pay the amount of their unpaid subscriptions, if needed, and in banking corporations to pay as much more, if it is called for, to satisfy creditors. In this respect their undertaking is like that of stockholders in many other states, but unlike that of stockholders in Massachusetts, who become such under statutes which provide for the collection of stock subscriptions by selling the stock to pay the assessment upon it. See New Haven Horse-Nail Co. v. Linden Springs Co., 142 Mass. 349-354, 7 N.E. 773. Although the liability is founded on a statute, there is a contractual element entering into it. The undertaking is as if one subscribing for stock expressly agreed to take and hold it under a previously prepared contract in writing that all who should become holders of the stock should pay the amount of their subscriptions to the corporation when needed, and should pay the additional sum to create a fund for creditors if the corporation should become insolvent, and a receiver should be appointed to collect it. It was said by Mr. Justice Field in Post v. Railroad Co., 144 Mass. 341-344, 11 N.E. 545, that such an obligation 'is quasi ex contractu.' In Bank v. Hawkins, 174 U.S. 364-372, 19 S.Ct. 742, 43 L.Ed. 1010, Mr. Justice Shiras says: 'Undoubtedly the obligation is declared by the statute to attach to the ownership of the stock, and in that sense may be said to be statutory. But, as the ownership of the stock in most cases arises from...