Morley v. Thayer

• Decision Date: 30 September 1880
• Citation: 3 F. 737
• Parties: MORLEY and others v. THAYER and others.
• Court: U.S. District Court — District of Massachusetts

3 F. 737

MORLEY and others v. THAYER and others.

United States Circuit Court, D. Massachusetts.

September 30, 1880

J. E McKeighan and J. D. McCleverty, for complainants.

Sidney Bartlett and Russell & Putnam, for defendants.

In Equity.

CLIFFORD C.J.

Section 44 of the State Statutes provides that if a corporation be dissolved leaving debts unpaid, suits may be brought against any person or persons who were stockholders at the time of such dissolution, without joining the corporation in such suit; and if execution issue, and judgment be satisfied by the parties sued, then those parties may sue all who were stockholders at the time of such dissolution for the recovery of the portion of such debt for which they were liable. Provision is also made by the forty-fifth section of the same article for the recovery of all voluntary payments of any debt of the corporation, made by any of its stockholders, to the amount due on his stock, and an additional amount equal to the par value of his shares. Corporations under that statute may be dissolved-- First, by the expiration of the time limited in its charter; second, by a judgment of dissolution rendered by a court of competent jurisdiction; and the state statute makes no provision for such a dissolution in any other mode.

Shares in the capital stock of the Fort Scott Coal & Mining Company to the number alleged in the bill of complaint, are owned by the respective respondents; and the complainants allege that the company was duly organized with a capital of $200,000 that they carried on a very large and extensive business until the eleventh of April, 1874, when the company, on the petition of certain creditors, was adjudged bankrupt, and that the persons named in the record were appointed assignees of the company's estate; that they accepted their appointment, and received the usual conveyance of the property and effects of every kind and description belonging to the bankrupt company. Due proceedings were subsequently taken by the creditors to establish their claims, and they proved the same to the amounts specified in the bill; and the allegation is that since that time the company has not had any office or place of business in the state. Wherefore, the complainants allege and charge that the corporation has become and is wholly dissolved, and that the stockholders have become and are liable, as well by the constitution as by the laws of the state, to pay the debts and liabilities of the company. Such is the substance of the material allegations of the bill, and the complainants pray that an account may be taken of the assets of the company, and the debts due to the complainants, and all others who may become parties to the suit, and of the stock in fact held by the respondents, and of the amount which each should contribute towards the payment of such debts and liabilities. Service was made, and the respondents appeared and demurred to the bill for the following causes: First, that the complainants have not made such a case as entitles them to the discovery or relief prayed, or to any relief touching any of the matters and things alleged; second, that it appears by the bill that the assignees in bankruptcy and the corporation are necessary parties, and that they are not joined.

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 liability shall not apply to railroad corporations, nor corporations for religious or charitable purposes. State Const. art. 12, Sec. 2. Appropriate allegations are contained in the bill that the property of the company is insufficient to pay their debts, and that an assessment for that purpose was made by the district court,-- the debts amounting to $100,000, while the assets do not exceed the sum of $12,000; that the payment of the assessment was successfully resisted by the respondents because not seasonably enforced, which litigation was the cause of the delay in filing the present bill. Three principal propositions are submitted by the complainants, as follows: First. That suit may be maintained by virtue of the provision of the constitution already referred to, without reference to the statutes of the state providing specific modes of enforcing the liability of the stockholder under special circumstances. Second. That the liability in question is an independent, absolute liability, co-existent with the corporation; that it is in the nature of a contract, assumed by the stockholder when he became the owner of any portion of the capital stock of the company. Third. That the statutes of the state make provision for enforcing the constitutional liability of the stockholder, which is applicable in cases where the corporation is dissolved; that such statutes do not create a new or different liability from that established by the constitution, but are passed in aid of that provision, to remove any doubt which might arise as to the enforcement of the same after the corporation is dissolved.

Enough appears in the constitutional provision itself to show that the view of the complainants, that the article is self-enforcing, cannot be sustained. It ordains that '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 by such other means as shall be provided by law. ' Cases undoubtedly arise where the provision of a constitution operates immediately, as when the object is to suppress an existing evil; but when the provision points to something more to be done, and looks to some future time for the accomplishment of what is required, the general rule is that it contemplates legislation to carry it into effect. Power is plainly given to the legislature in this case to pass laws to render stockholders individually liable for the debts of the corporation, and it doubtless makes it their duty to do so; but it by no means follows that the stockholder is made liable where there is no statute creating such liability, or prescribing the means or mode of its enforcement. Beyond doubt it looks to legislation, nor does it contain a word to justify the conclusion that the framers of the provision supposed that they were completing the end in view, as no attempt is made to provide any other means for its accomplishment than legislation. Groves v. Slaughter, 15 Pet. 449, 500. Even if the rule would be otherwise, in case the legislature had failed to comply with the constitutional mandate, still it is clear that the statutes passed in fulfilment of that requirement constitute the unmistakable rule of decision, and furnish the only basis of judicial action. Fusz v. Spaunhorst, 67 Missouri, 256, 269; Railroad v. Buchanan, 39 Missouri, 485, 489; French v. Teschemaker, 24 Cal. 518.539.

Stockholders are not in general liable at common law for the debts of the corporation; nor are they in any case, unless where there has been a fraudulent conveyance of trust property, or where they are indebted to the corporation on account of stock subscribed which remains unpaid, or where there has been a dividend in liquidation or other distribution of the capital stock among the members, leaving the creditor unpaid, or where the stockholders are made liable by some explicit act of the legislature. Gray v. Coffin, 9 Cush. 192 199; Thompson on Liability of Corporations, Sec. 14. Statutes providing such a liability create a new right and impose a new obligation; and it is a familiar doctrine that the remedy prescribed in such a case is exclusive-- that it must be strictly followed. Erickson v. Nesmith, 15 Gray, 221; Windham Prov. Inst. v. Sprague, 43 Vt. 502, 510; Priest v. Manuf'g Co. 115 Mass. 380, 382; Shaft Co. v. Evans, 72 Pa.St. 331-4. Owners of shares in a corporation may be made liable for the debts of the corporation to the extent of their stock, as prescribed by the charter of the company, or by some subsequent valid legislative act. By the act of becoming stockholders they assent to the terms and assume the liabilities imposed by the act creating the corporation. Obligations thus assumed are limited by the charter, and cannot be extended by implication beyond the terms of that instrument as reasonably interpreted. Where the individual liability of the stockholder is created by statute, the remedy of the creditor is confined to the cause of action prescribed by the statutory regulation. Lowry v. Inman, 46 N.Y. 119, 120, 127. Whether the obligation is imposed and the remedy given solely by the statute, or rests upon the assent of the stockholders to the terms and conditions of the act, the result is the same; the obligation or liability and the remedy are inseparable, and the party interested is confined to the remedy prescribed by the act and assented to by the stockholder. If the liability rested solely upon the contract, and the contract provided an adequate remedy, the parties would be restricted to that remedy, and every other would be excluded by necessary implication. Statutes of the kind create a new remedy, and the statute prescribes the mode of proceeding to enforce it; the rule being that the statute remedy must be exclusively followed. Dauchy v. Brown, 24 Vt. 197, 203; Thompson on Liability of Stockholders, Sec. 56; Knowlton v. Ashley, 8 Cush. 93; Cambridge Water-works v. Dyeing & Bleaching Co. 4 Allen, 239. When no remedy is provided by statute, the courts of Massachusetts restrict the remedy to a suit in equity, and refuse to sustain an action at law. Actions at law, or suits in equity, are sometimes maintained in the courts of New York; but the courts of both these states agree that where the...