Norris v. Wrenschall

• Decision Date: 20 June 1871
• Parties: RICHARD NORRIS, JR., v. JOHN C. WRENSCHALL.
• Court: Maryland Court of Appeals

34 Md. 492

RICHARD NORRIS, JR., v. JOHN C. WRENSCHALL.

Court of Appeals of Maryland

June 20, 1871

APPEAL from the Superior Court of Baltimore City.

The appellee in this case having recovered judgment against The Baltimore City Concrete Stone Company, (incorporated under the provisions of Article 26 of the Code, relating to manufacturing companies,) for services rendered the company as superintendent, instituted on the 23d of June, 1870, an action under the Act of 1864, ch. 6, against the appellant, a stockholder, to enforce his individual liability for the debt, under section 52 of Article 26 of the Code. The plaintiff filed with his declaration an account verified by affidavit, together with a short copy of the judgment. The writ of summons was made returnable on the second Monday of July, 1870, the next return day prescribed by the Act, after the suit was commenced; on the return day the defendant appeared and demurred to the declaration. At the following September Term, the first term thereafter, the plaintiff entered a motion for judgment by default, for want of a plea verified by affidavit; on the 16th of December following, the Court overruled the demurrer and entered judgment by default for want of a plea and affidavit of defence, and on the same day assessed the damages and entered final judgment thereon. From this judgment the defendant appealed.

The cause was argued before BARTOL, C.J., MAULSBY, MILLER and ALVEY, J.

Robert J. Brent, for the appellant.

The judgment from which this appeal was taken was erroneous because it was based on the Act of 1864, ch. 6, and by the 6th section of that Act, the summary proceedings thereunder are only authorized where the cause of action is a contract express or implied. Act of 1864 ch. 6, secs. 6, 7, 8.

As this was a judgment based on no contract whatever, but on a right of action to enforce what was in its nature a statutory penalty, no color can be given to it by the Act in question. This action is not ex contractu, but penal in its character. First National Bank of Plymouth vs. Price, et al., 33 Md., 487; 4 Allen, 579.

Nor is the judgment authorized by the 8th section of the Act, the filing of the docket entries of a judgment being not provided for by that section; nor does the affidavit filed in this case state any debt beyond the $918 and interest, and it would not warrant a judgment on the 16th of December, 1870 for more than $973.08--while this judgment is for $981.48, including manifestly the costs of the old judgment not covered by the affidavit.

The Act of 1864, ch. 6, prevents the filing of a plea setting forth facts without an affidavit, and it does not apply to a demurrer.

The declaration is defective in not showing a sufficient cause of action, under the 52d section of the 26th Article of the Code, by omitting to state how much of the capital stock was not paid in, so as to measure and limit the personal responsibility of the defendant.

The stockholder is in no sense privy to the primary corporate liability, but his responsibility being merely secondary, contingent and collateral to that of the principal debtor, he stands in the light of a guarantor. His individual liability, therefore, cannot be enforced until he has notice of the default of the corporation, and a demand is made on him for the precise amount of the creditor's claim, as to which he is an entire stranger. This principle is well sustained by all the authorities which require that the plaintiff should aver and prove notice of the corporate default, and a demand on the stockholder as a condition precedent to the suit. Hicks vs. Burns, 38 New Hampshire, 145, 153; 4 Allen, 577. And such is the rule in this State in analogous cases. Oyster vs. Annan, 1 G. & J., 456; Scott vs. Ducker, 2 Md., 284; Dent vs. Maddox, 4 Md., 529.

It is not shown by the narr. that there are no other creditors who are entitled to enforce pari passu with the plaintiff, the liability of the defendant.

The statute of Massachusetts is analogous to the Maryland Code, for the former provides that "if any loss, &c., shall arise from official mismanagement, &c., the stockholders, at the time of such mismanagement, shall, in their individual capacities, be liable to pay a sum not exceeding the amount of stock actually held by such stockholder at the time." Yet it was held in a masterly opinion, that an action at law would not lie by a creditor against the stockholder where other debts were shown to exist, and all the cases are reviewed. Harris vs. First Parish in Dorchester, 23 Pick., 112, 114, 115. And such seems to be the principal of Mann vs. Pentz, 3 N. Y., 422, 423; Crease vs. Babcock, 10 Metcalf., 532, 533; 1 Hopkins, 305; Erickson, et al. vs. Nesmith, 15 Gray, 222.

The question is now for the first time presented in Maryland, "whether an action at law by one creditor can be maintained against a single stockholder." The case of Matthews vs. Albert, 24 Md., 536, cannot be considered as an adjudication on this point; as that was a case in equity where the Court ordered a general account and contribution. Nor does the reference in that case to the New York cases, merely to establish the liability of the stockholder to the full amount of his stock, whether paid for or not, commit this Court to the other points ruled in those cases touching matters not then before this Court.

The 52d section of the 26th Article of the Code, declares that "the stockholders shall be severally and individually liable to the creditors," but as it is silent as to the forum, there is no difficulty in filing a creditors' bill in equity against any one stockholder, as was done by the original bill in Matthews vs. Albert, 24 Md., 534. That would be enforcing the several liability of each stockholder for the equal benefit of all the creditors, who upon notice, could come in and equally participate. Or there could be no difficulty in filing a general creditors' bill against all the stockholders, and obtaining a decree, binding each defendant severally to the extent of his stock, as provided in the Act of 1868, ch. 471, section 214.

In all these suits, the corporation should be made a co-defendant, as it is most interested in denying the debt, and most capable of showing payments, &c. See 7 N. Y., 147.

Thomas Rowland, for the appellee.

The 52d section of Article 26 of the Code, is identical with the ninth section of the Act of 1852, ch. 338, which was construed by this Court in the case of Matthews vs. Albert, 24 Md., 527.

As to the nature of the liability of the stockholder, therefore, there can be no further question. But the appellant contends that a single creditor cannot be permitted to sue a single stockholder at law; and that the only remedy of the creditor is in equity. This question was distinctly presented in the case of the Bank of Poughkeepsie vs. Ibbotson, 24 Wend., 473. The question there arose upon the construction of the New York Act of 1811, relative to manufacturing companies, an Act recognized by this Court in 24 Md., 536, as similar to our own. This Act made stockholders "individually responsible to the extent of their respective shares of stock." Act of 1811, ch. 67, sec. 7, 2 Revised Statutes of N. Y., 654 of 5 th Ed.

It was decided that the creditor might elect whether to proceed at law against a single stockholder, or in equity against all. This case was decided in 1840. In 1848, the Legislature of New York passed a new Act in relation to manufacturing companies, (the basis of our Act of 1852, ch. 338; Code, Art. 26, sec. 40, &c.) by which stockholders are made, as in our Act, " severally individually liable, &c." Act of 1848, ch. 40, sec. 10, 2 Revised Statutes of N. Y., 660 of 5 th Ed.

The construction placed upon the Act of 1811, in 24 Wend., was recognized as applicable to the Act of 1848, in Garrison vs. Howe, 17 N. Y., 462, (cited in 24 Md., 536.)

Our Act of 1852 is evidently modelled upon the New York Act of 1848, and it was passed at a time when the construction of the New York Acts was well settled. The individual liability sections of the two Acts are almost identical. Matthews vs. Albert came up upon appeal from a Court of Equity, but the existence of a concurrent remedy at law was distinctly recognized in that case, and the New York cases were relied upon in the construction of our Act of 1852. Bank of Poughkeepsie vs. Ibbotson, 24 Wend., 473; Garrison vs. Howe, 17 New York, 462; Abbott vs. Aspinwall, 26 Barb., 207; Paine vs. Stewart, 33 Conn., 516, 529; Corning vs. McCullough, 1 N. Y., 47; Bullard vs. Bell, 1 Mason, 297; Angell & Ames on Corporations, secs. 611, 624-626.

The remedy by bill in equity would be slow, tedious and expensive. It would be necessary to make all the stockholders and all the creditors parties. A great deal of crosslitigation would arise in such a suit. Issues of fact would be sent to a Court of Law. The stockholders could protract the suit indefinitely. The insolvency of any stockholder, pending the suit, would render a new account and contribution necessary. Different stockholders would be responsible to different creditors, they being responsible only for debts "created while they were stockholders." Matthews vs. Albert, 24 Md., 537; Moss vs. Oakley, 2 Hill, 265.

But the creditors had a remedy in equity, before the Act of 1852, covering the very case provided for in the individual liability clause of that Act. Independently of any statute the creditors of a corporation, whose capital stock is not fully paid up, may file a bill in equity against the individual stockholders, and compel the appropriation of the unpaid capital to the satisfaction of their claims. This individual liability in equity has been recognized and acted upon ever since the time of Charles...