Kimbrough v. Davies

• Decision Date: 28 April 1913
• Docket Number: 16,016
• Court: Mississippi Supreme Court
• Parties: J. H. KIMBROUGH v. FRANK DAVIES

61 So. 697

104 Miss. 722

J. H. KIMBROUGH v. FRANK DAVIES

No. 16,016

Supreme Court of Mississippi

April 28, 1913

APPEAL from the chancery court of Sunflower county, HON. E. N THOMAS, Chancellor.

Suit by J. H. Kimbrough against Frank Davies. From a judgment for plaintiff, defendant appeals.

The facts are fully stated in the opinion of the court.

Affirmed.

Frank E. Everett, for appellant.

A demurrer was interposed by the appellant and others to the bill of complaint, setting up a nonjoinder of defendants stockholders in the Indianola Compress & Storage Company, and also setting up want of jurisdiction in the chancery court in this kind of a proceeding.

The case of Vick v. Lane Hazlehurst & Co., 56 Miss. 682 and sections 909 and 923 of the Code of Mississippi, 1906 are authorities on this demurrer.

Section 909 of the Code of 1906 is as follows: "In all corporations each stockholder shall be individually liable for the debts of the corporation contracted during his ownership of stock, for the amount or any balance that may remain unpaid for the stock subscribed for by him, and may be sued by any creditor of the corporation; and such liability shall continue for one year after the sale or transfer of the stock."

Section 923 of the Code of 1906 provides: "No part of the capital stock in any corporation shall be withdrawn or diverted from its purpose, nor a dividend declared, when the company is insolvent, or would be rendered insolvent by such withdrawal on the payment of such dividend; and the directors who assented to such withdrawal, or declared and paid such dividend, as well as the stockholders who received it, shall be jointly and severally liable to creditors whose debts then existed, to the extent of such withdrawal or dividend and interest." These statutes give an independent action to the creditors of a corporation against the stockholders of the corporation, which right of action is maintainable in a court of law and not maintainable in a court of equity. Under section 909 of the Code each man subscribing for stock and only pays a portion of the value of that stock, is liable in an action at law to any creditor of the corporation for the amount that is still due and unpaid for the stock subscribed for by him and when the amount of the stock subscribed for by him has been paid, either to the corporation or to a creditor of the corporation by suit under said section, then his liability, or the individual liability of that particular stockholder, ceases under that section and he cannot be made to contribute under section 609 to any other creditor of the corporation and by this statute that suit is maintainable only in a court of law. See Vick v. Lane Hazelhurst & Co., supra.

Second: This brings us now to a discussion of section 923 of the Code of 1906, which we quoted above. At common law there was no liability individually on the part of the stockholders for the debts of the corporation. A liability exists, however, in most of the states now, but it is created by statute; therefore a statute creating a liability on stockholders for the debts of the corporation is a penal statute, and a liability does not extend beyond the plain language or unambiguous meaning of the statute creating such liability.

Stockholders in a corporation are liable according to the plain terms employed by the legislature and not otherwise. Carroll v. Green, 92 U.S. 509, 23 L. Ed., 739. And this liability cannot be extended beyond the words use in the statute. Brunswick Terminal Co. v. National Bank of Baltimore, 192 U.S. 386, 48 L.Ed. 493.

The only possible way this suit can be maintained in a chancery court to recover from the stockholders under section 923, is by a bill for the benefit of all the creditors filed against all of the directors of the corporation, or all of the stockholders of the corporation who received a dividend while the company was insolvent, or which dividend rendered it insolvent. One creditor cannot maintain a bill in the chancery court against two or three individual stockholders, under the section on which this suit is founded. After declaring that no part of the capital stock shall be withdrawn or diverted from its purpose, no dividend declared when the company is insolvent, or would be rendered insolvent thereby, the statute, specifically provides as follows: ". . . and the directors, who assented to such withdrawal, or declared and paid such dividend as well as the stockholders who received it, shall be jointly and severally liable to creditors whose debts then existed, to the extent of such withdrawal or dividend and interest." The very lagnuage of the statute makes it perfectly plain that all of the directors declaring the dividend or assenting to the withdrawal, are liable to all of the creditors of the company, or all of the directors are jointly liable with all of the stockholders to all of the creditors to the extent of the withdrawal, or the dividend paid. The purpose of that statute is not to give one man or one creditor a right to sue an individual stockholder or director for the amount of his debt, which the company owed, but it is to create a fund by making the directors who declared the dividend or assented to the withdrawal and the stockholders who received it liable to all of the creditors jointly, that they might all participate in the fund derived from the statutory liability created, share and share alike in accordance with their several indebtedness and not to give one man a right over the remaining creditors. This principle is clearly set out in the case of Terry v. Little, 101 U.S. S.Ct. 25 L. Ed., 864, where in discussing the provisons of a charter of the Merchants Bank of South Carolina, which provided that "each stockholder should be individually liable for the debts of the corporation for an amount not exceeding twice the amount of his or her shares of stock." In discussing that case, Mr. Chief Justice WAITE, in delivering the opinion of the court, said: "The individual liability of stockholders in a corporation is always a creature of statute. It does not exist at common law. The first thing to be determined in all such cases is, therefore, what liability has been created. There will always be difficulty in attempting to reconcile cases of this class in which the general question of remedy has arisen, unless special attention is given to the precise language of the statute under consideration. . . . If the object is to provide a fund, out of which all creditors are to be paid, share and share alike, it needs no argument to show that one creditor should not be permitted to appropriate to himself, without regard to the rights of others, that which is to make up the fund."

"The language of this charter is peculiar. The stockholders are not made directly liable to the creditors. They are not, in terms, obliged to pay the debts, but are liable and held bound for any sum not exceeding twice the amount of their shares. This, we think, means that on the failure of the bank, each stockholder shall pay such sum, not exceeding twice the amount of his share, as shall be his just proportion of any fund that may be required to discharge the outstanding obligations. The provisions are, in legal effect, for a proportionate liability of all stockholders. Undoubtedly the object was to furnish additional security to creditors, and to have the payments, when made, applied to the liquidation of debts. So to, it is clear that the obligation is one that may be enforced by the creditors; but as it is to or for all creditors, it must be enforced by or for all. The form of the action, therefore, should be one adapted to the protection of all."

The language used in section 923 of the Code declaring that directors assenting to the withdrawal or declaring and paying such dividend as well as the stockholders, shall be jointly and severally liable to creditors whose debts then existed to the extent of the withdrawal or the amount of the dividend, is plain and unmistakable. The legislature in framing this section employed plural terms when referring to directors, stockholders or creditors, and using singular terms when it refers to "withdrawal" or "dividend." It is clearly meant by the terms of this statute that the liability created by this statute is to create a fund for the benefit of all the creditors whose debts existed at the time of the withdrawal or the declaring of the dividend. And I submit that no one creditor can, under this section of the Code, sue any one or more stockholders for the purpose of collecting his debt, but all of the creditors must join in that suit, or it must be for the benefit and protection of all of the creditors whose debts then existed.

Davis & Price, for appellee.

In addressing myself to the first contention of counsel for appellant, the demurrer interposed to complainant's bill in the court below should have been sustained: First, for nonjoinder as defendants of the stockholders of the Indianola Compress & Storage Company, we beg to call the court's attention to section 923 of the Annotated Code of Mississippi of 1906, one of the sections relied on in this action, which is as follows:

"No part of the capital stock in any corporation shall be withdrawn or diverted from its purpose nor a dividend declared when the company is insolvent or would be rendered insolvent by such withdrawal on the payment of such dividend, and the directors who consented to such withdarwal or declared an unpaid dividend, as well as the stockholders who received it, shall be jointly and severally liable to the creditors whose debts then existed to the extent of such withdrawal or dividend and interest."

It will be seen from this section that the directors and stockholders who withdraw the...