Knickerbocker Trust Co. v. Myers

• Decision Date: 30 November 1904
• Parties: KNICKERBOCKER TRUST CO. v. MYERS.
• Court: U.S. District Court — Middle District of Pennsylvania

133 F. 764

KNICKERBOCKER TRUST CO. v. MYERS.

United States Circuit Court, M.D. Pennsylvania.

November 30, 1904

W Calvin Chesnut and C. E. De Lone, for plaintiff.

Nevin M. Wanner and C. E. Ehrhardt, for defendant.

Action at law to enforce the liability of a stockholder of a corporation imposed by statute in favor of creditors. Verdict was taken for plaintiff for $4,000 subject to the following points of law which were reserved:

(1) Whether there was any evidence on which the plaintiff is entitled to recover, with leave to enter judgment in favor of the defendant notwithstanding the verdict if the court should be of the opinion that, upon the law, it should be so entered. (2) But if the court should be of opinion that the plaintiff was entitled to recovery, then subject to the further point whether the verdict should not be reduced from $4,000 to $2,000, in view of the admitted fact that the defendant on May 9, 1900, prior to the time when any liability had accrued to the plaintiff in the premises, had sold to one Jacob Slagle 100 of the 200 shares of the stock of the City Trust & Banking Company, on which the defendant's liability is claimed, and had delivered the certificate for such shares to said Slagle, duly indorsed but had failed to have the shares transferred on the books of the company as required by its rules.

ARCHBALD District Judge.

It is not disputed that at the time the City Trust & Banking Company of Baltimore, Md., became indebted to the plaintiff on April 20, 1903, as well as in June following, when it became insolvent and passed into the hands of a receiver, the defendant, J. Wesley Myers, was a stockholder in the company owning 100 shares, at least, of the par value of $1,000. He was credited on the books with double that number, which was the extent of his original holdings, acquired in March, 1900, but he had sold one-half of what he had in May of that year to one Jacob Slagle, turning over to him one of the two certificates into which he had had his stock divided for the purpose; no entry of this, however, having been made on the books of the company, as required by the terms of the certificate and the rules. The charter of the company, by express provision, was made subject to the Acts of the General Assembly of Maryland of 1892, p. 153, c. 109, wherein, in section 851, it is ordained with regard to corporations of this character that 'each stockholder shall be liable to depositors and creditors * * * for double the amount of stock at the par value held by' him, and it is upon this that the responsibility of the defendant in the present action is predicated.

The liability so imposed is absolute, direct, and several, and any stockholder may be pursued by action at the instance of a creditor, and judgment recovered to the full extent fixed by the statute, so far as it is necessary to satisfy his claim, provided the stockholder has not already paid other corporate debts, for which, so far as he has, he is entitled to credit pro tanto. Not only is this the general law (8 Cycl.Law Proc. 678, 679; 26 Am. & Eng. Encycl. Law (2d Ed.) 1021, 1041; Dreisbach v. Price, 133 Pa. 560, 19 A. 569), but it is that which prevails in Maryland, on which the liability of the defendant primarily depends (Matthews v. Albert, 24 Md. 535; Norris v. Johnson, 34 Md. 485; Hammond v. Straus, 53 Md. 1; Colton v. Mayer, 90 Md. 711, 45 A. 874, 47 L.R.A. 617, 78 Am.St.Rep. 456; Cahill v. Original Big Gun Ass'n, 94 Md. 353, 50 A. 1044, 89 Am.St.Rep. 434). In Norris v. Johnson, 34 Md. 485, the question was whether the liability could be enforced against an individual stockholder by one creditor, where others were shown to exist, or whether resort must be had to equity to obtain relief; and, in disposing of it, the court says:

'They (the members) become stockholders in these corporations voluntarily, and risk their money in them for expected gain to themselves, and with full knowledge of the nature and extent of the liability (which) the law says they shall assume in so doing. In this way credit is given to the corporation that contracts the debts, and, when debts are thus contracted, we see no objection to permitting any creditor to seek out any responsible stockholder, and sue him at law for the debt, and place on him the burden of proceedings in equity to obtain contribution from others equally liable with himself. The creditors, as amongst themselves, may here, as in other cases, be well left to a race of diligence in the recovery of their claims, especially when the extent of recovery as against any one stockholder is limited, and he can show that the limit has been reached, as a defense to any further suits. It is true, he may be thus compelled to pay more than his share, looking to the like responsibility of other stockholders, but for this he has his remedy in equity for contribution.'

Supplementing this, it was held in Colton v. Mayer, 90 Md. 711, 45 A. 874, 47 L.R.A. 617, 78 Am.St.Rep. 456, not only that the liability ran directly to creditors, to be enforced in an action at law by a creditor against a particular stockholder, but that it could not be enforced by a receiver of the company for the benefit of all creditors generally.

Without disputing these principles, the defendant relies upon certain changes in the statute law of Maryland by which he claims to have been relieved. By act of March 25, 1904, p. 179, c. 101, section 851 of Acts 1892, p. 153, c. 109, which is the basis of the defendant's liability, was repealed, and re-enacted so as, in substance, to provide that, in corporations like the one here, stockholders should be individually responsible, equally a nd ratably, and not one for another, for the debts and engagements of the corporation, to the amount of their stock at its par value, in addition to such stock; such liability to be an asset of the corporation for the benefit of all creditors, so far as necessary to pay the debts, and to be enforced only by appropriate proceedings by a receiver, assignee, or trustee of the corporation, acting under the orders of a court of competent jurisdiction. But as it is expressly provided that the rights and remedies of any creditor under existing laws against the stockholders of the corporation who were liable to such creditor at the time of the passage of the act shall remain unaffected thereby, it needs no further notice. There is another modification, however, which is of more significance. By act of April 12, 1904, p. 597, c. 337, a section to be known as 8511 was added to the statute, whereby it is provided that the exclusive remedy for the enforcement of liability, under the law as it stood before the repeal and re-enactment of the section referred to, should, as against stockholders residing in the state of Maryland, be by bill in equity in the nature of a creditors' bill by one or more creditors in behalf of all, in a court having jurisdiction within the limits of the county or the city of Baltimore, in which, as the case might be, the principle office or place of business of the corporation then was, or had last been, to which bill stockholders residing beyond the limits of the state might becomes parties defendant, and thereupon should not be proceeded against in any other state or territory in respect to any liability imposed by the section as it stood before its repeal. This amendment was made operative as of the 1st of January, 1903, and was, as it is declared, to cause the abatement of all actions which had been brought against stockholders since that date to enforce the statutory liability created by the section under discussion as it stood before its repeal, with a saving provision, however, as to the operation of the statute of limitations, for the interim, as to any plaintiff in any such abated action who should within 60 days from the passage of the act become a party to the creditors' bill; the costs of such action to be transferred to, and taxed in, the equity proceedings. Availing himself of the privilege given by this enactment, the defendant, on his own petition, a few days before the present case was called for trial, was made a party defendant to a creditors' bill pending in circuit court No. 2 of Baltimore City, brought against the stockholders of the insolvent City Trust & Banking Company, to enforce the liability imposed by the statute by virtue of which it is contended that the present action falls.

The liability assumed by the defendant in becoming a stockholder according to the law as it stood at the time he took stock in the corporation in question, in March, 1900, as well as in April, 1903, when the loan was obtained by it from the plaintiff company, was in the nature of a contract with prospective creditors (26 Am. & Eng. Encycl. Law (2d Ed.) 1020; Matthews v. Albert, 24 Md. 535; Norris v. Wrenschall, 34 Md. 492), and could not as such be impaired in any essential particular by state legislation (Hawthorne v. Calef, 2 wall. 10, 17 L.Ed. 776; Flash v. Conn, 109 U.S. 371, 3 Sup.Ct. 263, 27 L.Ed. 966; Richmond v. Irons, 121 U.S. 27, 7 Sup.Ct. 788, 30 L.Ed. 864; Huntington v. Attrill, 146 U.S. 657, 13 Sup.Ct. 224, 36 L.Ed. 1123; Concord National Bank v. Hawkins, 174 U.S. 364, 19 Sup.Ct. 739, 43 L.Ed. 1007; Whitman v. Oxford National Bank, 176 U.S. 559, 20 Sup.Ct. 447, 44 L.Ed. 587). It ran moreover, as we have seen, directly from the stockholder to the creditor. Colton v. Mayer, 90 Md. 711, 45 A. 874, 47 L.R.A. 617, 78 Am.St.Rep. 456. And the obligation thus became a part of every contract, debt, and engagement of the corporation, as much as if severally made with the stockholder himself. Richmond v. Irons, 121 U.S. 27, 7 Sup.Ct. 788, 30 L.Ed. 864. If this be so, it is difficult to see how the statutory changes to which reference...