Old Colony Boot & Shoe Co. v. Parker-sampson Adams Co.
| Decision Date | 18 June 1903 |
| Citation | 67 N.E. 870,183 Mass. 557 |
| Parties | OLD COLONY BOOT & SHOE CO. v. PARKER-SAMPSON-ADAMS CO. et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Brandeis, Dunbar & Nutter and Edwd. F. McClennen, for complainant.
Geo. J Tufts and Powers, Hall & Jones, for defendants.
This bill in equity is brought against the defendant corporation and the individual defendants, who were its directors and stockholders, to establish their personal liability for a debt of the company to the plaintiff, as shown by a judgment of the superior court entered July 5, 1898, upon which execution duly issued. All statutory requirements as to its service and return, in order to fix the liability of stockholders and directors, having been fully complied with, the defendants were held liable, and a decree in favor of the plaintiff was entered against them, and the case is here on a report of the facts by a single justice before whom it was tried. By the agreement of the individual defendants set out in the report and who alone defended the action, three questions are presented for our decision, which we proceed to consider in the order therein stated.
After judgment was recovered against the corporation, and this bill was filed, the defendant Sampson was adjudicated a bankrupt on his voluntary petition, and obtained his discharge, which he has duly pleaded in bar of this suit; and, if the claim of the plaintiff was a provable debt against his estate, the bill, as to him, must be dismissed. By Pub. St. 1882, c. 106, § 60, under which this bill is brought, it is provided, among other things, in clause 2, on which the decree is based, that the president and directors shall be jointly and severally liable 'for debts contracted between the time of making or assenting to a loan to a stockholder and the time of its repayment to the extent of such a loan.' This liability is created wholly by statute, and is unknown to the common law; and no form of procedure for its enforcement exists, except that provided by the statute which creates it. The history of previous legislation may be briefly examined, in order to determine the meaning and extent of the obligation. The first statute creating this remedy appears in Acts 1808, c. 65,§ 56, where it was provided that after judgment against a corporation, the issuing of execution thereon, and demand on the president, treasurer, or clerk for property to satisfy the same, if none was shown or exhibited which could be taken in satisfaction, then it might be levied upon the 'body or bodies and real or personal estate or estates of any member or members of such corporation.' From time to time, by statutory enactments, changes have been made as to the extent of the liability of stockholders and officers, and in the form of procedure to enforce the same. The different statutes, and several modifications of the law up to and including St. 1870, p. 154, c. 224, which was the last revision previous to Pub. St. 1882, c. 106, are collected by Field, J., in Child v. Boston & Fairhaven Ironworks, 137 Mass. 516, 517, 50 Am. Rep. 328. It clearly appears from an examination of these several enactments that from an early time the course of legislation shows the settled policy of the state to be that, in some form, and to a certain extent, stockholders and officers are to be held liable for the debts of the corporation of which they are members. In the case of the defendant Sampson, who defends solely on the ground that his discharge in bankruptcy is a bar to maintaining this bill, it becomes necessary to determine whether this statutory liability can be considered a debt, within the meaning of the law relating to insolvency or bankruptcy. It was early held, in Ripley v. Sampson, 10 Pick. 371, 372, which was a case where it was sought to charge the estate of a deceased stockholder in the hands of his administrator for a deficit in the funds of the corporation, that 'the individual liability of stockholders by the statute of 1808 was of a particular and limited character, and could only be enforced in the manner pointed out by the statute.' 'It did not constitute a charge upon the estate of a deceased stockholder,' and, because it was not a debt, the administrator could not apply the assets of the estate in payment. Following this case, in Kelton v. Phillips, 3 Metc. 61, 62, it was decided that individual liability under the same statute, being of this particular and limited character, and only to be enforced as outlined therein, was not a debt, within the meaning of our insolvent act of 1838, p. 449, c. 163, and hence was not provable against a stockholder in insolvency. See, also, Stone v. Wiggin, 5 Metc. 316, 317; Gray v. Coffin, 9 Cush. 192, 199. From these decisions it appears that the liability created by the provisions of these statutes is not direct, and does not make the indebtedness of the corporation the debt of the individual stockholder or of the officers, according to the class into which the claim of the creditor who seeks to enforce his debt may fall. He must first sue the corporation, and, unless he gets judgment against it, he cannot pursue either. And if he gets judgment, then he can maintain such suit only after the corporation neglects for 30 days after demand made, on execution, either to pay the judgment, or to exhibit real or personal estate of the corporation liable to be taken on execution sufficient to satisfy the same, and the execution is returned unsatisfied. The liability of the defendant arising in this case is for a wrong done, and consists in the misuse of the funds of the corporation, which are primarily, as between creditors and stockholders, to be used for the payment of the debts of the corporation. And the obligation of the officer or stockholder to make the creditor whole does not arise until the wrong has been established, and damages fixed by the decree on the bill brought for that purpose, though the decree may follow the judgment against the corporation in measuring the amount to be recovered. It is clear that under such conditions an action of contract will not lie, and the liability to pay must be held to be not only limited and collateral, but contingent on the failure of the corporation to satisfy the creditor, and on proof that the stockholder or officer, as the case may be, has not complied with the statutory requirements applicable to manufacturing corporations of which they are members or officers. Whenever the question has arisen, it has been held that such a liability cannot be classified as a debt, and is not provable under our state insolvent law. Bangs v. Lincoln, 10 Gray, 600, and cases cited. Lothrop v. Reed, 13 Allen, 294, 296. Under the bankruptcy act of 1867 (Act March 2, 1867, c. 176, 14 Stat. 517, Rev. St. U.S. §§ 5067, 5068), such a claim would not have been provable, because not a debt, within the meaning of that act. Fourth National Bank v. Francklyn, 120 U.S. 747, 754, 7 S.Ct. 757, 30 L.Ed. 825; James v. Atlantic Delaine Co., 13 Fed. Cas. 300 [No. 7,179]. The bankruptcy act of 1898 (Act July 1, 1898, c. 541, § 63, 30 Stat. 562, 563 [U. S. Comp. St. 1901, p. 3447]) permits the proof, among others, of '(a) debts * * * (4) founded upon an open account or upon a contract express or implied,' and provides that '(b) unliquidated claims against a bankrupt may pursuant to his application to the court be liquidated in such a manner as it shall direct, and may thereafter be proved and allowed against his estate.' It would seem that this clause does not provide for an additional class of liabilities, but for a method by which such of the liabilities described in clause 'a' as are unliquidated may be liquidated and proved. We are of opinion that clause 'b' does not mean anything more than the language used in the bankruptcy act of 1867 (Act March 2, 1867, c. 176, § 19, 14 Stat. 525), that 'when the bankrupt is liable for unliquidated damages arising out of any contract or promise, or on account of any goods or chattels wrongfully taken, converted or withheld the court may cause such damages to be assessed in such mode as it may deem best, and the sum so assessed may be proved against the estate,' and that the liability of the defendant Sampson as a director does not arise out of any contractual obligation or promise, and is not such an unliquidated claim. Fourth National Bank v. Francklyn, ubi supra. And by the express language of the act of 1898 (Act July 1, 1898, c. 541, § 17, 30 Stat. 550, 551 [U. S. Comp. St. 1901, p. 3428]), the bankrupt is not released by a discharge unless the claim is not only provable, but also a debt. Not being a provable debt at the time when his petition in bankruptcy was filed, the discharge of the defendant does not constitute a bar to the maintenance of the bill against him. Barre National Bank v. Hingham Mfg. Co., 127 Mass. 563, 568.
Different questions are presented by the defendant Parker, and it is first to be determined whether the facts set out in the report are sufficient to show that his acts as a director constituted a making of, or assent by him to, a loan to a stockholder, within the meaning of the statute. The evidence is not reported, but from the findings of fact it appears that the entire amount of capital stock, which was fixed at $100,000, had been paid in cash, and was on deposit in the name of the corporation, when of this amount the sum of $37,500 was lent to the individual defendants and one other stockholder in different sums, and by checks payable to the individual order of each. When the money was paid out, they were all at the office of the company, and the checks were delivered to each at the same time. After the money had been so lent, the directors held a meeting, at which all of the...
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