Maine Trust & Banking Co. v. S. Loan & Trust Co.

• Decision Date: 30 January 1899
• Citation: 92 Me. 444,43 A. 24
• Parties: MAINE TRUST & BANKING CO. v. SOUTHERN LOAN & TRUST CO. et al.
• Court: Maine Supreme Court

43 A. 24

92 Me. 444

MAINE TRUST & BANKING CO.

v. SOUTHERN LOAN & TRUST CO. et al.

Supreme Judicial Court of Maine.

Jan. 30, 1899.

(Official.)

Report from supreme judicial court, Kennebec county.

This was a creditors' bill, in equity, by the Maine Trust & Banking Company against the Southern Loan & Trust Company and others, heard on bill, answers, and proofs, to enforce the liability of the stockholders of the Southern Loan & Trust Company under section 6 of its charter, which reads as follows: "The shareholders of this corporation shall be individually responsible, equally and ratably, and not one for the other, for all contracts, debts and engagements of said corporation to a sum equal to the amount of the par value of the shares owned by each, in addition to the amount invested in said shares."

Briefly stated, the case is this: The Southern Loan & Trust Company borrowed $14,300 of the plaintiff, giving to it three mortgages to secure the same. After plaintiff had paid off incumbrances on the property, the existence of which was not known by the parties at the time of making the loans, and exhausting the collateral security by sales, there remained due to the plaintiff, as appears by the judgment recovered, a balance of $11,875.17, for which it had no security; and it was not denied that the defendant corporation had no assets out of which the debt could be collected. Bill dismissed as to defendant Jordan.

Argued before PETERS, C. J., and HASKELL, WHITEHOUSE, STROUT, SAVAGE, and FOGLER, JJ.

H. M. Heath, C. L. Andrews, J. W. Symonds, D. W. Snow, and C. S. Cook, for plaintiff.

W. R. Anthoine, T. L. Talbot, G. E. Bird, W. M. Bradley, and B. D. & H. M. Verrill, for defendants.

STROUT, J. The Southern Loan & Trust Company was chartered by an act of the legislature in 1889 (Priv. Laws 1889, c. 443).

Among other powers, it was authorized "to borrow money, to loan money on credits or real estate or personal security, and to negotiate loans and sales for others, * * * to hold by grant, assignment, transfer, devise or bequest any real or personal property, * * * and to hold and enjoy all such estates, real, personal and mixed, as may be obtained by the investment of its capital stock or any other money or funds that may come into its possession in the course of its business and dealings, and the same sell, grant, mortgage and dispose of," except property or money held in trust; and "to do in general all the business that may lawfully be done by a trust or banking company."

The capital stock was $50,000, in shares of $100 each. It was provided in section 5 that the corporation should not commence business until stock to the amount of $25,000 had been subscribed for and paid in, in cash.

Section 6 provided an individual liability of stockholders for debts of the corporation.

On the 22d of August, 1889, defendant company borrowed of plaintiff $1,800, for which it gave a note, and as collateral a mortgage upon certain real estate in Denver, Colo. At this time only $13,000 of stock had been subscribed and paid for. On August 25, 1890, defendant company borrowed of plaintiff another sum, of $6,500, for which it gave its note, and a mortgage on certain lots in Wyman's addition to the city of Denver; and on October 1, 1890, it borrowed another sum, of $6,000, of plaintiff, for which it gave its note, and a mortgage on other lots in Wyman's addition.

At the time of the two last loans, it appears that defendant company's capital stock had been taken to the amount of $25,000.

All the mortgages contained warranties of title. They were represented to be first claims upon the property, and taken as such by plaintiff, without examination of the records. An abstract of title to these lots in Wyman's addition, down to March 5, 1890, was shown plaintiff, by which it appeared that the title at that date was in Wilbur S. Raymond. On that day Raymond conveyed them to defendant company. At the time the mortgages on these Wyman lots were given plaintiff, there was an existing mortgage upon them and other lots for $12,500, given by defendant company to Raymond for part of the purchase money; the entire price being about $18,000. The existence of this mortgage was unknown to plaintiff, and it did not acquire knowledge of the fact till February, 1894.

To protect its interest in the Wyman lots, plaintiff paid $8,700 on June 2, 1894, in satisfaction and discharge of that mortgage then existing on those lots. It is admitted that plaintiff has legally sold all the real estate covered by its three mortgages, and that the sum realized therefrom failed to satisfy the three mortgage debts, by the sum of $11,863.15, for which it obtained judgment against the loan company on March 27, 1896. The execution thereon was returned wholly unsatisfied. It is admitted that defendant corporation has no assets.

This is a creditors' bill to compel the stockholders ratably to contribute to the corporate debts, under the liability provided in section 6 of the charter. It is resisted upon several grounds.

There is no merit in the suggestion that the remedy is not in equity. On the contrary, the most appropriate, if not the exclusive, remedy is in equity. In that forum the rights of all creditors can be ascertained and adjusted, and the ratable liability of stockholders determined, in one suit, without the vexation and expense of multiplied suits at law. Pollard v. Bailey. 20 Wall. 521; Hatch v. Dana, 101 U. S. 205; Crease v. Babcock, 10 Metc. (Mass.) 525; Mills v. Scott, 99 U. S. 25.

So the objection that defendant corporation commenced business and made the first loan before $25,000 was subscribed to its capital stock cannot avail the stockholders. They had control of the corporation, and are responsible for its acts. They cannot set up the illegal acts of the directors, their agents, to defeat an executed contract of the corporation, within its chartered powers, made with an innocent party, nor to relieve themselves from legal liability as stockholders to such party. Newcomb v. Reed, 12 Allen, 362; Wiswell v. Starr, 48 Me. 405; Perkins v. Railroad Co., 47 Me. 573; Walworth v. Brackett, 98 Mass. 100.

Although the loan company never exercised all the powers granted by the charter, they did buy real estate, borrow money, and execute mortgages, all of which were authorized by It The stockholders' liability provided by section 6 of the charter applied to all "contracts, debts and engagements" of the corporation, and cannot be limited to its banking features. But it is strenuously urged that the complainant's debts were mortgage debts, and that, as to them, no liability attached to the stockholders; and reliance is placed upon Rev. St. c. 46, § 47.

...