Pettibone v. Toledo, C. & St. L.R. Co.
| Decision Date | 02 January 1889 |
| Citation | 148 Mass. 411,19 N.E. 337 |
| Parties | PETTIBONE et al. v. TOLEDO, C. & ST. L.R. CO. et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
John Lowell, James H. Flint, and Morse Thane, for plaintiffs.
H.D Hyde and W.A. Sargent, for defendants.
The first ground on which the plaintiffs contend that the bill may be maintained is that the subscriptions of the defendants, which are described in the bill, are analogous to subscriptions for the capital stock of a corporation, and that such subscriptions constitute a trust fund for the benefit of the creditors of the corporation. It has been held that all persons who deal with a corporation deal with it on the faith that its capital stock will be applied, if necessary, to the payment of its debts; and that, if the statutes [PETTIBONE V TOLEDO C & ST LR CO 19 N.E 337(1889)] of a state permit a corporation to do business before the whole amount of its capital stock has been paid in, the money which subscribers for stock have agreed to pay in for the stock they have taken is regarded as a part of the capital stock of the corporation. The admission of the subscribers as stockholders is the consideration for their promises to pay, and the corporation can recover the amount agreed to be paid, not merely as a debt due to the corporation, but as a part of the capital stock which the subscribers have agreed to furnish and put at the risk of the business. The unpaid subscriptions are a trust fund held for the benefit of the creditors of the corporation, and any creditor whose debt has been reduced to a judgment, and who has been unable to obtain satisfaction of it from the corporation, may, under the general jurisdiction of a court of chancery, maintain a bill to apply these subscriptions to the payment of his judgment. County of Morgan v. Allen, 103 U.S. 498; Hatch v. Dana, 101 U.S. 205; Sawyer v. Hoag, 17 Wall. 610; Bartlett v. Drew, 57 N.Y. 587.
If we assume that this is the law in this commonwealth, it is necessary to examine the nature of the subscriptions set out in the bill. The bill alleges that in December, 1882, "certain holders of the first mortgage bonds of said railroad company made and entered into an agreement under seal with said railroad company whereby they subscribed and agreed to pay respectively to said railroad company a certain sum of money as called for, the first call to be for fifteen per centum of said subscription, and no subsequent call to exceed ten per centum thereof in any one month; the subscribers to receive therefor the debenture bonds of said railroad company, payable in five years, with option on the part of the company to pay after two years from that date, and bearing interest at the rate of eight per cent. per annum, payable semi-annually," etc. The bill also alleges that the persons named as defendants signed this agreement, with others whose names the plaintiffs are unable to state; that the company has called for the payment of certain installments of the money agreed to be paid; that the defendants have not paid the sums called for, and now owe the company these sums, and that they also under said agreement owe the company certain additional amounts not yet called for.
It thus appears that the defendants are holders of the first mortgage bonds of the railroad company, and have agreed to lend the company certain amounts of money, and to take in payment therefor bonds of the company, such as have been described. They are creditors of the company who have agreed to make an additional loan. Even if the agreement be construed to be an agreement to purchase bonds of the company, as the bonds are obligations of the company to pay money, the transaction would be equivalent to a loan.
The distinction between a creditor and a stockholder of a corporation is plain. The position of a stockholder is not only not like that of a creditor, but it more nearly resembles that of a debtor of the creditors of a corporation. In a partnership the copartners are debtors in solido; in corporations the artificial body is the debtor; but the property of the corporation, which must be applied to the payment of its debts, belongs equitably to the stockholders, and they are virtually the debtors of the creditors of the corporation, so far as it may be necessary to take this property to pay such creditors. If these defendants should lend the money as they have agreed, and should receive the bonds of the company, they would be entitled to have the bonds paid out of the property of the company when they matured, or, if the company was insolvent, to share with other creditors in this property. The defendants have no other control over the corporation than that which a creditor has over the property of his debtor, nor have they put or agreed to put their money at the risk of the business in any other sense than that in which every creditor puts the money he lends at the risk of the solvency of his debtor. If the capital stock of a corporation is a trust fund for the benefit of its creditors, and if subscribers to stock who have not paid their subscriptions are regarded as trustees of this fund to the extent of the subscription unpaid, then these defendants have agreed to become cestuis que trustent of this fund. We think there is no foundation for the analogy suggested.
It is clear that the bill does not set out any special trust in favor of the plaintiffs. The defendants have made no promises to the plaintiffs, nor has it been agreed between the defendants and the company that the money should be paid and received upon a trust in favor of the plaintiffs. The plaintiffs have furnished railroad supplies, and the defendants have agreed to lend money to enable the company to complete its railroad, but this does not constitute a trust for the plaintiffs.
The remaining ground on which the plaintiffs contend that the bill may be maintained is that by this agreement the defendants have become indebted to the company, and that this indebtedness can be reached and applied to the payment of the plaintiff's claim, under Pub.St. c. 151, § 2, cl. 11, and St.1884, c. 285. The first statute on this subject was St.1851, c. 206. This gave a remedy in equity "to reach and apply in payment of a debt due from any debtor not residing in this commonwealth any property, right, title, or interest, legal or equitable, of such debtor within this commonwealth, which cannot be come at to be attached or taken on execution in a suit at law against such debtor." This statute was amended by St.1858, c. 34, by striking out the words "not residing in this commonwealth," and the two statutes have become incorporated in Pub.St. c. 151, § 2, cl. 11. Full equity jurisdiction was first conferred upon this court by St.1857, c. 214, and until that statute was passed, the court had jurisdiction in equity only upon special subjects described in the statutes. It has often been held that the intention of St.1884, c. 285, was not to give jurisdiction over "creditors' 'bills,' in the sense in which these words were used in the practice of the courts of chancery." Chapman v. Publishing Co., 128 Mass. 478.
The words "creditors' bills," are commonly used in the English chancery to describe bills brought by the creditors of the estates of a deceased person for the administration of the estate, or by creditors and claimants of a trust fund for the distribution of the fund. Such bills may be brought by many several creditors jointly, or, if brought by one creditor, must be brought for the benefit of himself and all other creditors interested in the estate or the fund. But the words are also used to describe bills brought by creditors who have obtained judgments at law, and who have in vain attempted at law to obtain satisfaction of the judgments, and who sue in equity for the purpose of reaching property which could not be taken on execution at law. Such bills could be maintained by a single creditor without joining others. It is obvious that the legislature had in mind, in passing this statute, suits substantially of the latter description; and such suits or similar suits must be considered, if any help is to be derived from analogy. There was valuable property...
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