Kilton v. Providence Tool Co.

• Decision Date: 26 April 1901
• Citation: 48 A. 1039,22 R.I. 605
• Parties: KILTON et al. v. PROVIDENCE TOOL CO. et al.
• Court: Rhode Island Supreme Court

48 A. 1039

22 R.I. 605

KILTON et al.

v. PROVIDENCE TOOL CO. et al.

Supreme Court of Rhode Island.

April 26, 1901.

Bill by Kilton, Warren & Co. against the Providence Tool Company and others. Dismissed.

Tillinghast & Tilllnghast, for complainants.

Augustus S. Miller, Bassett & Mitchell, Edwards & Angell, James M. Ripley, John D. Thurston, Herbert Almy, John Henshaw, Cooke & Angell, John A. Tillinghast, W. W. & E. W. Blodgett, and Alexander L. Churchill, for respondents.

DOUGLAS, J. The complainants are Judgment creditors of the Providence Tool Company, and having issued an execution against said company, which has been returned "nulla bona," bring this bill, alleging that the defendants were stockholders of the tool company at the time when the complainants' debts were contracted; that the company never made any return of its organization or any return of its standing, as required by its charter and the statute to which its charter is made subject; and that, therefore, the defendants are jointly and severally liable to satisfy the judgment against the company. An analysis of the bill is given in the opinion rendered January 30, 1896 (19 R. I. 360, 33 Atl. 876), which overrules the demurrers filed by the several defendants, and reserves the defenses offered, holding that they may be set up by answer and determined on the final hearing of the bill. Another opinion, December 12, 1896 (19 R. I. 656, 35 Atl. 1041), was rendered after hearing upon pleas of several defendants, who, being executors or administrators of deceased stockholders, pleaded the special statute of limitations applicable to them, and sustained the pleas. January 11, 1897, the bill was dismissed by consent as against Arthur Knight, Wilmarth H. Thurston, Cornelia R. Thurston, John R. Gladding, and John O. Thurston, and February 24, 1897, a decree was entered dismissing the bill as against Pallas S. Wheeler, Elizabeth G. King, and Elizabeth V. Andrews, upon the ground stated in the opinion of December 12, 1896. The remaining defendants set up in their answers various defenses. Among them the statutes of limitation are pleaded in various forms: First, as barring the present suit against the stockholders; and, secondly, as a defense which might have been pleaded to the action of assumpsit wherein judgment was obtained against the corporation. There was some contention in the argument of the case as to what statute the alleged liability of the defendants should be founded upon.

The charter granted at the June session, 1847, by its terms imposed upon the corporation and its stockholders the liabilities set forth in the general law applying to manufacturing corporations passed at the same session, but not taking effect till after adjournment. The latter statute contains a provision that it may be amended from time to time, and it was amended before the contracting of the debts in question. At that time the law upon the subject was contained in chapter 600 of the Public Laws, passed March 27, 1877, and the same provisions are now found in sections 1, 12, 13, and 22 of chapter 180 of the General Laws of 1896. We have no doubt that the new provisions apply to stockholders under this new charter. The language of chapter 555, Pub. Laws 1876, is: "The liability of a member of an incorporated manufacturing company provided by sections 1 and 12 of chapter 142 of the General Statutes, and of the members of such corporations under other statutory provisions for the debts of such company hereafter contracted, or for obligations hereafter incurred, shall be and hereby is limited," etc. Section 2 of chapter 600 of the Public Laws is identical with section 22 of chapter 180 of the General Laws, and reads as follows:

"Sec. 2. All proceedings to enforce the liability of a stockholder for the debts of a corporation shall be either by suit in equity conducted according to the practice and course of equity, or by an action of debt upon the Judgment obtained against said corporation; and in any such suit or action such stockholder may contest the validity of the claim upon which the judgment against such corporation was obtained upon any ground upon which such corporation could have contested the same in the action in which such Judgment was recovered."

This section gives no action to the creditor against the stockholders until he has exhausted his remedy against the corporation. It was so argued in Bank v. Angell, 18 R. I. 1, 29 Atl. 500, where the court say: "Presumably the plaintiff has by his former suit exhausted his remedies against the corporation, or he would not be proceeding against the stockholders." And it was expressly so decided in Allen v. Arnold, 18 R. I. 809, 31 Atl. 268. The second clause of the section clearly implies that the judgment against the corporation shall precede the action or suit against the stockholders.

It is argued by some of the defendants that the liability of the stockholder, at least under section 1, is primary and absolute from the time of contracting the debt, and that, therefore, the statute of limitations begins to run in his favor immediately. Such would doubtless be the case if an action against him were given immediately, as in some of the cases cited by counsel. In Stilphen v. Ware, 45 Cal. 110, the statute in force (St. 1850, c. 127, § 30) provided: "The preceding sections of this act shall not affect actions against directors or stockholders of a corporation to recover a penalty or forfeiture imposed or to enforce a liability created by law, but such actions must be brought within three years after the discovery by the aggrieved party of the facts upon which the penalty or forfeiture attached or the liability was created." It is further provided (St. 1850, c. 128, § 32): "Each stockholder of any corporation shall be individually and personally liable for a portion of all its debts and liabilities proportioned to the amount of stock owned by him." The case held that in a suit upon a debt due from a corporation the liability of the stockholder "was created" when the debt became due. Hardman v. Sage, 124 N. Y. 25, 26 N. E. 354, holds that, where the statute made stockholders liable only for such corporation debts as were payable within one year from the time they were contracted, the extension of time of payment beyond a year released the stockholders from liability. Bassett v. Hotel Co., 47 Vt. 314, was a bill in equity against a corporation and its officers, not to enforce the liability of a stockholder. Sullivan v. Manufacturing Co., 20 S. C. 79, was an action against the officers of a corporation who had failed to make returns. The case is not in point, but the court say, among other things (page 90): "The consideration of the plea of the statute of limitation comes next When the statute is applicable at all, it commences to run at the accrual of the right of action." The liability attaches to the stockholder when the debt is incurred, but no statute of limitation begins to run in his favor until a right of action against him is acquired by the creditor. Bank v. Dallam, 4 Dana, 574; Hawkins v. Furnace Co., 40 Ohio St. 507; Bronson v. Schneider, 49 Ohio St. 438, 33 N. E. 233; Handy v. Draper, 89 N. Y. 334; Powell v. Railway Co., 38 Fed. 187; Longley v. Little, 26 Me. 162; 2 Mor. Priv. Corp. 22, note 3; 1 Cook, Stock, Stockh. & Corp. Law, §§ 195, 225f. The debt might be in the form of a note or bond, payable more than six years after its date, and it would be absurd to hold in such a case that the statute of limitations begins to run when the liability begins. Chapter 600 did not, indeed, alter the obligation of the stockholder to pay the existing debts of the corporation, but it did very materially alter the remedy, and, among other things, postponed the creditor's right of action until he should have failed to obtain satisfaction from the corporation. The words "primary and direct" contrasted with "secondary," when spoken of an obligation, refer to the remedy provided by law for enforcing the obligation, rather than to the character and limits of the obligation itself. When Judge Durfee in Moies v. Sprague, 9 R. I. 541, said the obligation was primary and direct, the law gave the creditor the right to sue the stockholder simultaneously with the corporation. The remedy was direct and immediate, and hence the obligation was properly called "primary." When the remedy was changed, while the stockholders remained liable for the same debts in the same amount and for the same omissions as before, the court might well say, as in Re Penniman, 11 R. I. 333, that the essential character of the obligation had not been changed, though, since the recourse of the creditor to the stockholder had been limited to a circuitous proceeding instead of a direct one, the obligation with respect to the remedy could no longer be called "primary and direct."

The statutes of limitation likewise affect remedies, not ohligations. The creditor, under our statute, cannot bring debt on judgment until he has obtained the judgment, and when his right of action accrues the statute of limitations begins to run against him.

It is argued, again, that the liability imposed by the provisions of the law is penal, and hence that the action or suit brought against the stockholder must be begun within one year from the time it accrues. But the statute of limitations which these defendants refer to has no application to "civil actions," strictly so called. Section 8 of chapter 288, which is referred to, is as follows: "All suits or prosecutions founded upon any penal statute which are wholly or in part for the use of the prosecutor, shall be brought within one year, and all other suits and prosecutions on such statute within two years after the commission of the offense, unless otherwise provided." A glance at the chapter in which these words appear will show that they refer to the recovery by action of debt of fixed pecuniary penalties which the...