New England Commercial Bank v. Stockholders of Newport Steam Factory ( 1859 )

The main question in these cases, upon which nearly all other questions raised in them turn, relates to the nature and extent of the personal liability for the corporate debts imposed by the charter of the Newport Steam Factory upon its stockholders. This liability is claimed by the defendant stockholders to be several, not joint; to be secondary, in the sense of a mere guaranty that the capital stock, to the amount of some $45,000 or $48,000, shall be forthcoming, if needed, to the creditors of the corporation; and to be limited, as against each stockholder, to the amount of capital stock by him held, after deducting therefrom any debt which may be due to him by the corporation; and that a judgment or decree, even for this sum, cannot be rendered or entered up against him, until all the corporate property has been first exhausted.

We cannot agree to the soundness of this claim, or to the reasoning by which it is attempted to be supported.

The charter of this corporation, as it was originally granted, not only made the stockholders, who were such at the time when the contract was made or liability incurred, liable in their persons and estates therefor, in case no corporate property could be found to satisfy an execution issued to enforce the contract or liability against the corporation, but gave to the creditor the election to proceed, in the first instance, against such stockholders, precisely as if they had been mere copartners under the corporate name. It was only this right to proceed against the stockholders in the first instance, of which they complained to the general assembly, in 1840, as unusual and inconvenient, and of which, in effect, they procured the repeal. By the express terms of the act in amendment, if there should be no property upon which to levy an execution issued against the corporation, the stockholders designated in the act, were still to be "liable in their own persons and estates, as if the contract had been made, or liability incurred by them personally." Language can hardly be conceived more plainly imposing an unrestricted personal liability, both by force of the words "in their own persons and estates," and of the remaining words of the sentence, "as if the contract had been made or liability incurred by them personally." Notwithstanding the minute criticism which has been addressed to us upon the construction of this clause of the charter, we must hold the plain sense of the words "as if," in it, to be, "in the same manner and to the same extent," that is, "just as if" the corporators, instead of the corporation, had contracted the debt.

That such a liability is made conditional upon want of corporate property upon which to levy, in no way conflicts with this extent of liability when the specified occasion for its enforcement shall arise. So far from it, upon this construction, the stockholders are left precisely where their petition for the amendment request that they shall be — relieved from the "great inconvenience" of being proceeded against for the corporate debts, in the first instance, whilst, for the payment of such debts, the security of the public is undiminished.

The attempt to imply from the amount in which the corporation is authorized by the charter to assess its stockholders, a limit of their liability to that amount for the corporate debts, confounds the domestic relations of the corporation, which concern only its members, with the remedies of its creditors, which concern the public. The argument is all the other way; since, the less the corporate power to assess for the payment of debts, the greater the necessity of effectual remedies against the corporators, for their collection.

Besides, the ninth section of the charter, which was retained as a necessary part of it, notwithstanding the amendment, is utterly at war with the restricted liability contended for by the defendants. This section gives to any stockholder, whose property shall be sold for the payment of a debt of the corporation, or who shall be compelled to pay such debt, or any greater proportion thereof than is due to his stock, an action against the corporation to recover the amount so paid, and against the stockholders, to recover the amount paid by him over and above his just proportion. According to the argument of the defendants, the occasion thus provided for can never arise; since no stockholder, by their construction of the charter, can be subjected, at the suit of a creditor of the corporation, to more than his just proportion of a corporate debt.

It is true, that the common law visits no personal liability upon the members of a corporation aggregate for its contracts; but for this very reason the policy of this and other states and countries of the common law has, by express enactment, imposed such a liability, in some form, upon stockholders in incorporated trading and manufacturing companies, in order that the public may be secured against the consequences of the extravagant speculations, or even of the incautious enterprises of such bodies corporate. We may lament the private calamity which, in particular instances, has grown out of this policy; but, because we do so, have no right to pervert the clear sense of a positive enactment designed to carry it out; and if we had, should only turn from some the ruin which we should thereby bring upon others.

The same language of the charter which describes the extent, ascertains also, when construed in reference to its subject, the character of the liability thus imposed. "The stockholders, who were such at the time the contract was made or liability incurred, shall be liable in their persons and estates as if the contract had been made or liability incurred by them personally," is certainly language which imports a joint liability in the nature of that of copartners; and when it is recollected, that the liability spoken of is for debts contracted in a business carried on by all, for the profit of all, we cannot doubt but that this was the species of liability intended. To carry the analogy to copartnership still farther, by the concluding clause of the section, the stockholders are to be holden, not only for all debts incurred up to the time of the sale and disposition of their stock, but until public notice of such sale or disposition is given in some public newspaper printed in the place in which they transacted their business.

In the contingency, then, that a judgment creditor of the corporation can find no corporate property upon which to levy his execution, he is entitled to proceed against such stockholders as are liable for his debt, as joint contractors, or copartners. So far as living stockholders are concerned, his complete and appropriate remedy against them is at law, as against other copartners; his declaration stating, of course, the want of corporate property which entitles him to proceed against the stockholders liable to him, in that character.

On the other hand, in case of the death of one or more joint contractors or copartners, the liability at law remains only against the survivors; and so a creditor of this corporation, if he would pursue the estates of deceased stockholders, can only do so in equity, which, for the sake of the remedy, and to correct the form of the contract so as to carry out its substance, construes it to be several as well as joint. It is true that the law expresses, in the act of incorporation, the form of the liability of the stockholders, as well as imposes it upon them; but the same law also provides, looking to the remedy, that the stockholders shall be liable in a certain contingency for a corporate debt in the same manner as if they had personally contracted it, and thus expressly subjects the form of the liability to the ordinary equitable correction.

As the law has been settled by the leading case of Devaynes v. Noble, 1 Mer. 529; S.C. 2 Russ. Myl. 495, a creditor of the firm may pursue the estate of a deceased copartner, and so here, a creditor of the corporation, the estate of a deceased stockholder liable to his debt, for payment out of the same, without reference to the state of accounts between the copartners or stockholders and the firm or corporation, or to their solvency or insolvency; leaving the estate to seek repayment from the firm or corporation, or contribution from those liable to it. A mere equity, however, which is all that a creditor of the firm or corporation has against the separate estate of the deceased copartner or stockholder, cannot compete with an equal equity united to the legal right, of the separate creditors of the estate, to have their debts satisfied out of it; and hence, his right is only to the surplus of the separate estate after all its expenses and separate debts have been paid. Gray v. Chiswell, 9 Ves. 118; Arnold v. Hamer, 1 Freeman (Miss.) Ch. R. 509; 2 Leading Cases in Equity, Hare Wallace's notes, 317-321, and cases cited.

In case of the death of two or more of the stockholders liable, there seems to be no objection, on the ground of multifariousness, to seeking an account of, and payment from, their respective separate estates, in the same bill; or rather, the conveniences of such a joinder are deemed to overbalance the inconveniences of it; Brown v. Weatherby, 12 Sim. 6;Wilkinson v. Henderson, 1 Myl. Keene, 582; but as two or more creditors for whose claims different sets of stockholders are liable, cannot unite them all in the same bill, for the purpose of separate relief against those respectively liable to them, (Judson v. The Rossie Galena Co. 9 Paige 597, 603,) so, we apprehend that, for the same reason, the same creditor cannot enforce in the same bill, against the estates of deceased stockholders, different debts, for which all the estates pursued are not liable. Both at law and in equity, only those causes of action ex contractu can be joined in the same suit to which all the parties defendant were originally liable.

In pursuing the estate of a deceased stockholder for the payment of a corporate debt, it is obvious, that all the living stockholders and representatives of the estates of deceased stockholders liable to it, are interested in the account sought to be taken, and should be made parties to the bill; Pierson v.Robinson, 3 Swanst. 139, note; Story's Eq. Pl. §§ 166-168; whilst, on the other hand, the bill would be objectionable for the misjoinder of persons not interested in it, and as to them must be dismissed or amended. As we have no statute making the real estate of deceased persons personal assets for the payment of debts, but such estate, notwithstanding the insolvency of the deceased, descends to their heirs at law, — if the real estate of a deceased stockholder is sought to be charged, his heirs, in case of intestacy, and devisees, if there be a will, must, as well as his personal representatives, be made parties to the bill.

For the sake of brevity, we have stated in this general form the rules which govern the joinder of parties and causes of action applicable to the suits submitted to us, and which easily resolve the various questions upon those points which have been, or may be, raised. One or two questions require, however, more particular attention.

It is objected by the defendants to the bill in which the New England Commercial Bank seek to enforce their debt, earliest in date, against the estates of Weaver, Ruggles, and Gyles, that when the first portion of this debt was incurred, amounting to about forty-eight hundred dollars, George Hall, Edward King, and the firm of J. P. Rhodes were stockholders, and should have been made parties defendant to the bill. As they are not in any form sought to be charged by the plaintiffs, and are not made parties to the bill, we shall notice only this objection of their nonjoinder as defendants, upon the facts which have been stated to us as agreed in the case. In the portion of this statement which is in the handwriting of the counsel for the plaintiffs, it is said, that on the third day of February, 1852, which was after these stockholders had sold their stock, and had probably given notice that they had thereby ceased to be stockholders, "the notes held by the bank were given up by the bank, and a new loan made by the bank to the Newport Steam Factory, and new notes for said loan were given to the bank, by reason, that shortly prior to that time a change had been made in the ownership of some of the stock of the Newport Steam Factory; and intending, at the time of said loan, to make a new contract with the new stockholders. The notes given on said third day of February, 1852, are the notes upon which judgment has been obtained, and upon which this bill is filed."

If this is to be taken by us as a portion of the agreed statement of facts, it certainly disposes of the objection we are considering. The giving up by the plaintiffs of the old notes and the taking of the new, after the retiring of these stockholders, and for the express purpose of their discharge, upon every principle, and by all the authorities, operates as a complete release of the stockholders from the debt. Collyer on Partnership, §§ 539-562, and cases cited.

The defence set up by the answer of Pernissa Gyles, executrix of Charles Gyles, late of Newport, to the account sought from her, in that capacity, of the personal estate of her husband and testator, seems to us to be a good one. The facts alleged by her, and which are substantially admitted in the agreed statement, are, that on the 10th day of May, 1849, her said husband, then the holder of one share in the capital stock of the Newport Steam Factory, died, leaving a last will and testament by which she was constituted his executrix, and sole devisee and legatee; that his said will was duly proved, and letters testamentary were issued to her, and that subsequently, on the 21st day of July, 1849, she caused public notice of her appointment and qualification as his executrix to be published in the "Newport Mercury," a newspaper printed and published in said Newport; that, thereafter, she went into possession under said will of all the estate, real and personal, of her said testator, and out of the same paid all his debts, funeral expenses, and expenses of settling his estate, and, on the 21st day of April, 1851, settled with the court of probate of Newport her final account as such executrix; and that more than three years had elapsed, subsequent to the publication, as aforesaid, of notice of her appointment and qualification as his executrix, before the filing of this bill. In the absence of fraud, which is not pretended in this case, the bar of the statute limiting suits against the personal representatives of deceased persons to three years after publication of notice of their appointment, is positive and without exception; and rests upon the policy of thus enabling the speedy settlement of the estates of the dead. Rev. Stats. ch. 161, § 8; ch. 177, § 9; Pratt et al. v. Northam etal. 5 Mason, 95. It is equally applicable to suits in equity as to actions at law; and has been applied by this court as a bar to a bill brought against the administrator of a deceased shareholders in an insolvent bank, to compel payment out of the estate of the intestate of his proportion of the corporate debts.Atwood et al. v. Rhode Island Agricultural Bank et al. 2 R.I. Rep. 191. This, of course, leaves the question of Mrs. Gyles's liability, as herself a stockholder, by virtue of her husband's bequest to her of his share of the stock of the Newport Steam Factory, and her acceptance of the bequest, wholly unaffected.

How far the above defence availed of by Mrs. Gyles, in her administrative character, is available to Mrs. Mary L. Ruggles, as administratrix of her husband, Nathaniel S. Ruggles, and how far the general statute of limitations will avail both Mrs. Ruggles and Mrs. Gyles, as successors to the real assets belonging to their respective husbands, we shall reserve; since Mrs. Ruggles has not come in and answered the bill, and no argument has been submitted to us upon these points. Both bills will probably be found to require amendment as to parties, and in other respects; and if it shall prove necessary for the plaintiffs, in order to obtain satisfaction of their debts, to pursue the estates of deceased stockholders, full opportunity will thus be afforded for these and other questions to be raised and argued.

For the same reason we reserve the questions which have been incidentally raised concerning the validity and effect of the conveyances of their shares, both by Mrs. Gyles and Mrs. Ruggles, to the corporation; which, complicated with the length of time and other circumstances which have intervened since the conveyances were made, will demand distinct argument and consideration before they can, properly, be passed upon by the court.

It remains to be seen, how far what we have decided affects, in their present position, the actions at law which have been submitted to us. In the first place, it is clear, that as no legal liability for the corporate debts survives against the estates of deceased stockholders, the two actions brought by the New England Commercial Bank, and by Josiah S. Munroe, respectively, against Seth W. Macy, as administrator of Joseph Weaver, and the action brought by said bank against Samuel Allen, as executor of Samuel Allen, deceased, cannot be maintained; and, for the same reason, that the pleas, that Seth W. Macy, in his said capacity, is not joined as a party defendant to the two actions brought by said Munroe against certain living stockholders of the corporation, must be overruled. In thesecond place, that, as the stockholders who were such at the time of the contracting of a debt, are, for want of corporate property to be levied on therefor, liable for the debt as joint contractors, in the nature of copartners, this liability may be enforced against such living stockholders, and is, as against other copartners, most appropriately enforceable against them, by action at law, rather than by a proceeding in equity; and that, to defeat this right of action, it is not sufficient that the corporation should have property, in trust or otherwise, not open to seizure or levy upon execution, but that it should have property in such a condition that the execution, which must have been first obtained by the creditor, might have been levied thereon. This in effect disposes of the remaining special pleas filed in the last-named actions at law, and leaves them for trial upon the general issue. As to the two remaining actions at law, brought by the New England Commercial Bank against certain stockholders of the Newport Steam Factory, and in which the writs and declarations are missing, the actions must be dismissed unless these are found, or their loss, in some form, be supplied.