Stone v. Chisolm - 113 U.S. 302 (1885)
U.S. Supreme Court
Stone v. Chisolm, 113 U.S. 302 (1885)
Stone v. Chisolm
Submitted January 5, 1885
Decided February 2, 1885
113 U.S. 302
A suit in equity is the proper remedy in the courts of the United States to enforce the statutory liability of directors to a creditor of a corporation (organized under the act of the legislature of South Carolina of December 10, 1869) by reason of the debts of the corporation being in excess of the capital stock. An action at law will not lie.
This is a writ of error prosecuted to reverse a judgment of the Circuit Court for the District of South Carolina, dismissing the complaint in which the plaintiff asked for a recovery for the sum of $1,050, with interest from July 1, 1883. The jurisdiction of this Court depends upon and is limited by a certificate of division of opinion between the circuit and district
judges before whom the case was tried, and is confined to the single question so certified, whether the remedy of the plaintiff below was by an action at law or by a suit in equity.
The allegations of the complaint are as follows:
"I. That the plaintiff, Roy Stone, is a citizen of the State of New York."
"II. That the defendants, Robert G. Chisolm, Samuel Lord, A. Canale, L. D. Mowry, Alfred Ravenel, and Sallie E. Conner as executrix of James Conner, deceased, are citizens of the State of South Carolina."
"III. That heretofore, to-wit, on the __ February, 1881, the Marine and River Phosphate Mining and Manufacturing Company of South Carolina was a corporation under the laws of the State of South Carolina, with a paid-up capital stock of fifty thousand dollars, and no more; that said company was, by the terms of the charter, authorized to increase its capital stock, in the manner provided by law, to an amount not exceeding two hundred and fifty thousand dollars, and, by an act amendatory of its charter passed __ December, 1882, the said company was further authorized to increase its capital stock to an amount not exceeding four hundred thousand dollars in the whole, inclusive of the stock then existing; that the company did, from time to time, between the said February, 1881, and 21st of March, 1883, increase its capital stock to the sum of three hundred thousand dollars -- that is to say, scrip for shares of capital stock to the par value of three hundred thousand dollars were issued; but, as the plaintiff is informed and believes, and so alleges and charges, of the additional amount of stock issued after __ February, 1881, only the sum of twenty-five thousand dollars, or thereabouts, was ever actually paid in; making the entire aggregate of capital stock actually paid in not to exceed, in all, the sum of seventy-five thousand dollars."
"IV. That by an act amendatory of its charter, passed 21st December, 1882, the name of said Marine and River Phosphate Mining and Manufacturing Company was changed to the Marine and River Phosphate Company."
"V. That on the 21st day of March, 1883, the said Robert G. Chisolm, Samuel Lord, A. Canale, L. D. Mowry, Alfred
Ravenel, and James Conner were directors of said company; that thereafter, to-wit, July, 1883, the said James Conner departed this life, leaving a last will, whereof he appointed his wife, Sallie E. Conner, executrix, who has duly qualified thereon."
"VI. That on said 21st March, 1883, the said Marine and River Phosphate Company was indebted in an amount not less in the aggregate than seventy-five thousand dollars."
"VII. That on said twenty-first March, 1883, in the administration of the aforesaid directors, there were issued the following bonds, being a debt contracted by the said company additional to the debt existing as aforesaid, to-wit:"
"Sixty bonds or obligations of said company, bearing date the twenty-first day of March, 1883, and each conditioned for the payment to bearer of the sum of five hundred dollars on the first day of January, 1893, with interest thereon, payable semiannually at the rate of seven percent per annum on the presentment of the interest coupons therefor, attached to said bonds, and payable on the first days of July and January of each year; that an interest coupon for the sum of $17.50 became due on each of said bonds on the first day of July last past, and the same were at maturity, duly presented for payment and payment refused, and no part of the same has been paid."
"VIII. That plaintiff is the lawful owner and holder of said bonds and coupons."
"IX. That the said bonds, so conditioned, for the aggregate sum of thirty thousand dollars, was in addition to the debt already existing as aforesaid, and constituted an indebtedness in excess of the capital stock of said company actually paid in as aforesaid."
"X. That by the 1367th section of the General Statutes of the State of South Carolina, and by the provisions of an act of the said state, approved 10th December, 1869, entitled 'An act to regulate the formation of corporations,' (under which act the said Marine and River Phosphate Mining and Manufacturing Company of South Carolina was incorporated), and by sundry other laws other laws of said state, the defendants are jointly and
severally liable to the plaintiff for the payment of the said coupons."
"XI. That the said Marine and River Phosphate Company is totally insolvent; that all its property is mortgaged to an extent far in excess of its value; that, as plaintiff is advised, its property, consisting of personalty so mortgaged, is not subject to levy under execution, and that even if it were, plaintiff alleges and charges that there is no unencumbered property of said company subject to levy, and that judgment and execution would be wholly nugatory and fruitless to effect anything, as the encumbered property, upon a sale thereof, would not bring sufficient to discharge the liens on the same, and the execution creditors would only be cast in the costs of such levy and sale."
"XII. That by reason of the premises, defendants are indebted to plaintiff, upon the coupons held by him as aforesaid, in the sum of one thousand and fifty dollars, and interest from the 1st day of July, 1883."
"Wherefore plaintiff prays judgment against said defendants for the sum of one thousand and fifty dollars, with interest from 1st July, 1883, and costs."
Thereupon the defendants demurred orally on the ground
"that the liability imposed by the statutes referred to in the complaint cannot be enforced in an action at law, but by a proceeding in equity only, and consequently that this, being a court of law, has no jurisdiction to entertain the plaintiff's case."
And this question having been fully argued before the judges aforesaid, and their opinions thereupon being opposed, the point upon which they disagree is stated as follows:
"Whether the liability imposed upon the directors of a corporation by the provisions of the statutes referred to in the complaint can be enforced by a single aggrieved creditor in an action at law against one or more directors, or whether such creditor must proceed by a creditor's bill in equity. "