Hyatt v. Anderson's Trustee

• Decision Date: 03 June 1903
• Citation: 74 S.W. 1094
• Parties: HYATT v. ANDERSON'S TRUSTEE et al.
• Court: Kentucky Court of Appeals

74 S.W. 1094

HYATT v. ANDERSON'S TRUSTEE et al.

Court of Appeals of Kentucky.

June 3, 1903

Appeal from Circuit Court, Jefferson County, Chancery Division.

"Not to be officially reported."

Action by Mary L. Anderson's trustee and others against John J Hyatt. From a judgment for plaintiffs, defendant appeals. Affirmed as to certain plaintiffs, and reversed as to others.

Augustus E. Willson and James R. W. Smith, for appellant.

W. L Doolan, for appellee Reccius. Simrall & Doolan, for other appellees.

HOBSON J.

Appellant held 50 shares of stock, of par value of $100 each, in the John A. Etheridge Furniture Company, a corporation created under the laws of this state. On November 3, 1897, the company made a written contract with appellee Pettet, by which it leased to him a certain storehouse in Louisville for the term of five years, agreeing to pay rent therefor at the rate of $2,400 a year for the first two years of the term and at the rate of $3,000 a year for the remaining three years, payable monthly. On August 10, 1898, Hyatt sold his stock in the company to N. N. Etheridge. In January, 1899, the company failed. The rent on the house was paid as long as Hyatt was a stockholder, and in fact until May, 1899. The house remained vacant until October, 1899, and it was then leased for the remainder of the term for $2,400 a year, thus entailing a loss on Pettet of something like $2,700. He brought this suit to recover against Hyatt for this under the double liability statute, suing for himself and all other creditors of the company.

The first question to be determined is whether Hyatt is responsible, notwithstanding the transfer of his stock. Section 545, Ky. St. 1899, provides: "The shares of stock shall be transferred on the books of the corporation in such manner as the by-laws thereof may direct, and every person becoming a stockholder by such transfer shall in proportion to his share succeed to all the rights and liabilities of prior stockholders." Section 547 also provides: "The stockholders of each corporation *** shall be individually responsible equally and ratably, and not one for the other, for all contracts and liabilities of such corporation to the extent of the amount of their stock at par value in addition to the amount of such stock; *** and no transfer of stock shall operate as a release of any such liability existing at the time of such transfer: provided the action to enforce such liability shall be commenced within two years from the time of transfer." Appellee's action was begun within two years from the time of the transfer of the stock by appellant, but it is insisted that the transferee succeeded to all his rights and liabilities, and that the claim for rent under the lease was not a liability existing at the time of the transfer, within the meaning of the statute. The argument is that as Hyatt could not control the corporation after he sold the stock, and the rent monthly was the consideration for the use of the property, he is not responsible. We are referred in support of this view to Bordman v. Osborn, 23 Pick. 295; Middletown Bank v. Magill, 5 Conn. 28, and certain other authorities, but they turned on statutes of different purport from ours. In the Massachusetts case, which is more nearly in point than any of the others, Chief Justice Shaw rests his opinion on the meaning of the word "debt." Our statute does not use this word, and its meaning cannot be so restricted. One rule with us is that our revision is not to be strictly interpreted, but, on the contrary, its provisions are to be liberally construed, with a view to promote its objects. Ky. St. 1899, § 460. The purpose of section 547, above quoted, was to secure the creditors of the corporation; and, with this end in view, it was provided that the stockholders should be individually responsible for all contracts and liabilities of the corporation, to the extent of the amount of their stock, at par value, and that no transfer of stock should operate as a release of any such liability existing at the time of the transfer, if the action to enforce it was commenced within two years. The rule thus declared by the statute was intended by the Legislature to take the place of the conflicting rules adopted by the courts in other states, and, under the statute, the transfer of the stock has no effect on the liability of the stockholder, if the suit is commenced within the time limited. The contract of lease was made while appellant was a stockholder. The corporation became liable by that contract for the monthly payment of rent from the making of the contract until its expiration, five years later. This liability existed at the time appellant sold...