Mechanics' Sav Bank v. Fidelity Ins Trust & Safe-Depsoit Co.

• Decision Date: 07 May 1898
• Docket Number: 58.
• Citation: 87 F. 113
• Parties: MECHANICS' SAV. BANK v. FIDELITY INSURANCE, TRUST & SAFE-DEPOSIT CO.
• Court: U.S. District Court — Eastern District of Pennsylvania

87 F. 113

MECHANICS' SAV. BANK v. FIDELITY INSURANCE, TRUST & SAFE-DEPOSIT CO.

No. 58.

United States Circuit Court, E.D. Pennsylvania.

May 7, 1898

Russell Duane, for plaintiff.

Richard C. Dale, for defendant.

DALLAS Circuit Judge.

Section 2 of article 12 of the constitution of the state of Kansas is as follows:

'Dues from corporations shall be secured by individual liability of the stockholders to an additional amount equal to the stock owned by each stockholder; and such other means as shall be provided by law; but such individual liabilities shall not apply to railroad corporations, nor corporations for religious or charitable purposes.'

Chapter 23, p. 221, of the Compiled Laws of Kansas comprises the following:

'Sec 32. If any execution shall have been issued against the property or effects of a corporation except a railway or a religious or charitable corporation, and there cannot be found any property whereon to levy such execution, then execution may be issued against any of the stockholders, to an extent equal in amount to the amount of stock by him or her owned, together with any amount unpaid thereon; but no execution shall issue against any stockholder, except upon an order of the court in which the action, suit or other proceeding shall have been brought or instituted, made upon motion in open court, after reasonable notice in writing to the person or persons sought to be charged; and, upon such motion, such court may order execution to issue accordingly; or the plaintiff in the execution may proceed by action to charge the stockholders with the amount of his judgment.'

The plaintiff having obtained a judgment in a court of the state of Kansas against the Davidson Investment Company, a corporation of that state, upon which execution was issued and return made that no property could be found whereon to levy, brought this action to enforce the stockholders' liability averred to have devolved upon the defendant under the above constitutional and statutory provisions. The principal question in the case is: Does an action at law by a single judgment creditor lie against a single stockholder by virtue of these provisions? This question is, in my opinion, simply and solely one of construction. If the liability created is not to the creditors, but for the indebtedness, such an action cannot be upheld; but, if the liability created be directly to the creditor it must be. While in Patterson v. Lynde, 106 U.S. 519, 1 Sup.Ct. 432, the supreme court, referring to this distinction, has held that an action of this kind is not maintainable under a provision of the constitution of Oregon that 'the stockholders of all corporations and joint-stock companies shall be liable for the indebtedness of said corporation to the amount of their stock subscribed and unpaid, and no more' (article 12, Sec. 3), that court has also decided, in Flash v. Conn, 109 U.S. 371, 3 Sup.Ct. 263, that an individual creditor can sustain a suit at law against a single stockholder where the statute by which the stockholder's liability was created is in these terms: 'All the stockholders of every company shall be severally and individually liable to the creditors of the company to an amount equal to the amount of stock held by them respectively. ' In each of these cases, it will be observed, the language for consideration was free from ambiguity, and was, in the one case and in the other, so plainly different as necessarily to lead to the difference in decision which resulted. Unfortunately, the meaning of the provisions with which this court is now required to deal is not so clearly obvious. The Kansas constitution does not define the liability which it imposes, nor direct how that liability shall be enforced. It seems to have been contemplated that this omission would be met by legislation, and, accordingly, there was enacted the statutory provision which is copied at the head of this opinion. Neither does that enactment expressly describe the nature of the stockholders' liability, but in prescribing the manner of its enforcement it does, I think, clearly disclose that the liability created was to constitute an obligation directly to creditors, and not one to be enforced by or through the corporation itself. The remedy provided is twofold and alternative. A plaintiff who has obtained a judgment against an insolvent corporation may either issue execution against any of the stockholders, or he may proceed by action to charge them with the amount of his judgment. In either case the plaintiff, not the corporation, is to be the actor, and in each the proceeding authorized is one in which stockholders only are to be defendants. As was said in Howell v. Manglesdorf, 33 Kan. 194, 5 P. 759, 'The proceeding against the stockholder, whatever remedy may be employed, is an independent one;' and, as was also indicated in that case, the purpose of the final clause of this section was to give to a creditor of an insolvent corporation a remedy against stockholders residing in a state other than Kansas, which should be substantially the same as that which was provided by the first part of the section, but which could be made effective only against stockholders subject to the jurisdiction of the courts of that state. As respects both classes of stockholders, the liability was intended to be the same, and a double remedy was supplied only for the purpose of assuring means for the enforcement of that liability in all cases. The proceeding by action, it has been held, may be brought by a single creditor against a single stockholder, and is transitory. This appears...