1. Creditors of an incorporated company who have exhausted their
remedy at law can, in order to obtain satisfaction of their
judgment, proceed in equity against a stockholder to enforce his
liability to the company for the amount remaining due upon his
subscription, although no account is taken of the other
indebtedness of the company and the other stockholders are not made
parties, although, by the terms of their subscriptions, the
stockholders were to pay for their shares "as called for" by the
company, and the latter had not called for more than thirty percent
of the subscriptions.
2.
Pollard v.
Bailey, 20 Wall. 520, and
Terry v. Tubman,
92 U. S. 166,
distinguished from the present case.
On April 12, 1871, Charles A. Dana recovered a judgment in the
Circuit Court of the United States for the Northern District of
Illinois against the Chicago Republican Company, a corporation
organized and existing under the laws of the State of Illinois, for
the sum of $6,419.17 and costs.
An execution issued upon this judgment was by the marshal of the
United States for that district returned
nulla bona.
Thereupon, on Aug. 23, 1871, Dana, on behalf of himself and all
other creditors of the company who might come in and seek relief by
and contribute to the expense of the suit, exhibited in the Circuit
Court of the United States for the Southern District of Illinois
his bill in equity against the company, Hatch, Williams, and other
resident stockholders, averring the incorporation of the company in
February, 1865, with a capital stock of $500,000, divided into
shares of $100 each; that at a meeting of the incorporators, held
in Chicago in April, 1865, certain stock subscriptions were made,
Hatch and Williams each subscribing for one hundred shares; that a
complete organization of the company was effected, and an
assessment of twenty percent declared upon the stock subscribed,
the company thereupon commencing business; that eighty percent of
the subscriptions to stock so made still remains unpaid; that in
October, 1870, the company so organized sold and transferred all
its tangible property, credits, and subscription lists to a
corporation of a very similar name, and thereupon
Page 101 U. S. 206
ceased to do business; that the company is wholly insolvent;
avers the recovery of the judgment aforesaid, the issue and the
return unsatisfied of an execution thereon; that there are no other
unpaid creditors than the complainant. It prays that, upon an
accounting of the amount unpaid upon the stock subscriptions of the
stockholders named as defendants, they may be decreed to pay so
much of the balance found unpaid on their respective subscriptions
as will be sufficient to pay the ascertained debts of the
corporation, including the judgment aforesaid, and for general
relief.
The complainant dismissed the bill as to all of the defendants
except Hatch and Williams. They, in their answer, admit the
incorporation and organization of the company as alleged in the
bill; do not deny that they were of the original stockholders
therein to the amount alleged in the bill, but aver that they paid
in thirty percent of the amount subscribed by them; admit the sale
of its property in October, 1870, and that since then it has done
no business; do not know whether it is indebted to the complainant
or any other person, or whether or not it is insolvent; deny the
recovery of the said judgment and call for full proof thereof, but
admit that if such judgment was lawfully rendered, it still remains
in full force and unsatisfied; aver that about Aug. 1, 1866, the
company determined to reduce its capital stock from $500,000 to
$200,000, and did so, calling in all existing certificates and
reissuing to the holders thereof new certificates for two-fifths of
the amount which they originally held, since which time various
transfers of portions of the new or substituted stock have been
made, but the respondents do not know to whom or by whom they have
been made; state the names of certain persons who, together with
the defendants, are holders and owners of portions of the stock;
and ask that all said persons be made parties and that an
accounting be had in conformity with the prayer of the bill.
A replications to the answers was filed.
The facts of the case are set out in the complainant's bill. A
decree was rendered Jan. 6, 1879, that the complainant, Charles A.
Dana, recover of Hatch and Williams the sum of $9,398.72, being the
amount due on that day upon the said
Page 101 U. S. 207
judgment, and that they pay the costs of the suit to be taxed,
it being provided, however, that of the sum so decreed to be paid
not more than $7,000, together with interest thereon from the date
of the decree, at the rate of six percent per annum, shall be made
and collected from either said Hatch or Williams, the said sum of
$7,000 being the amount the court finds each of them to owe and be
indebted to the Chicago Republican Company.
From this decree Hatch and Williams appealed.
Page 101 U. S. 210
MR. JUSTICE STRONG delivered the opinion of the Court.
This bill is an ordinary creditor's bill the sole object of
which is to obtain payment of the complainant's judgment. It is
true it is brought on behalf of the complainant and all other
creditors of the corporation who might choose to come in and seek
relief by it, contributing to the expense of the suit. But no other
creditors came in, and it does not appear that there is any other
creditor, unless it be one of the stockholders, who was made a
defendant, and who filed a cross-bill which he afterwards
dismissed. All the stockholders were not made defendants.
The bill was not a bill seeking to wind up the company. It
sought simply payment of a debt out of the unpaid stock
subscriptions.
That unpaid stock subscriptions are to be regarded as a fund
which the corporation holds for the payment of its debts is an
undeniable proposition. But the appellants insist that a creditor
of an insolvent corporation is not at liberty to proceed against
one or more delinquent subscribers to recover the amount of his
debt without an account being taken of other indebtedness and
without bringing in all the stockholders for contribution. They
insist also that by the terms of the subscriptions for stock made
by these appellants, they were to pay for the shares set opposite
their names respectively, "as called for by the said company;" that
the company made no calls for more than thirty percent; that
therefore, this company could not recover the seventy percent
unpaid without making a previous call; and that a court of equity
will not enforce the contract differently from what was
contemplated in the subscription.
These positions, we think, are not supported by the authorities
-- certainly not by the more modern ones -- nor are they in harmony
with sound reason when considered with reference to the facts of
this case. The liability of a subscriber for the capital stock of a
company is several, and not joint. By his
Page 101 U. S. 211
subscription, each becomes a several debtor to the company, as
much so as if he had given his promissory note for the amount of
his subscription. At law, certainly, his subscription may be
enforced against him without joinder of other subscribers, and in
equity his liability does not cease to be several. A creditor's
bill merely subrogates the creditor to the place of the debtor and
garnishes the debt due to the indebted corporation. It does not
change the character of the debt attached or garnished. It may be
that if the object of the bill is to wind up the affairs of this
corporation, all the shareholders, at least so far as they can be
ascertained, should be made parties, that complete justice may be
done by equalizing the burdens and in order to prevent a
multiplicity of suits. But this is no such case. The most that can
be said is that the presence of all the stockholders might be
convenient, not that it is necessary. When the only object of a
bill is to obtain payment of a judgment against a corporation out
of its credits or intangible property -- that is, out of its unpaid
stock -- there is not the same reason for requiring all the
stockholders to be made defendants. In such a case, no stockholder
can be compelled to pay more than he owes.
In
Ogilvie v. Knox Insurance
Company, 22 How. 380, the question was considered.
That was a case in which several judgment creditors of a
corporation had brought a creditor's bill against it and thirty-six
subscribers to its capital stock. The bill alleged that the
complainants had recovered judgments against the company, upon
which executions had been issued and returned "no property;" that
the other defendants had severally subscribed for its stock; and
that the subscriptions remained unpaid, payment not having been
enforced by the company. The prayer of the bill was that these
other defendants might be decreed to pay their subscriptions and
that the judgments might be satisfied out of the sum paid. It was
objected, as here, that the bill was defective for want of proper
parties; but the court held the objection untenable. In delivering
the opinion of the court, Grier, J., said:
"The creditors of the corporation are seeking satisfaction out
of the assets of the company to which the defendants are debtors.
If the debts attached are sufficient to pay their
Page 101 U. S. 212
demands, the creditors need look no further. They are not bound
to settle up all the affairs of this corporation, and the equities
between its various stockholders, corporators, or debtors. If A. is
bound to pay his debt to the corporation in order to satisfy its
creditors, he cannot defend himself by pleading that these
complainants might have got their satisfaction out of B. as well.
It is true, if it be necessary to a complete satisfaction of the
complainants that the corporation be treated as an insolvent, the
court may appoint a receiver, with authority to collect and receive
all the debts due to the company and administer all its assets. In
that way, all the other stockholders or debtors may be made to
contribute."
The court therefore directed a decree against the respondents
severally for such amounts as appeared to be due and unpaid by each
of them for their shares of the capital stock.
This case is directly in point, and it does not stand alone. In
Bartlett v. Drew, 57 N.Y. 587, it was ruled that when the
property of a corporation had been divided amongst its stockholders
before all its debts had been paid, a judgment creditor, after the
return of an execution unsatisfied, might maintain an action in the
nature of a creditor's bill against a stockholder to reach
whatsoever was so received by him, and that he was not required to
make all the stockholders parties to the action; that he had
nothing to do with the equities between the stockholders unless he
chose to intervene to settle them. This is much beyond what the
complainant needs in this case. It is enforcing against
stockholders in severalty what the corporation could not enforce,
without any regard to the equities of one against the others.
So in
Pierce v. The Milwaukee Construction Co., 38 Wis.
253, which was a proceeding analogous to a creditor's bill, and
brought to enforce payment to a judgment creditor of the company of
unpaid subscriptions to its capital stock, it was ruled that the
complaint was not bad because all the stockholders were not made
defendants. This, it is true, was a proceeding under a statute, but
it was a statute enacting substantially this equity rule.
In
Marsh v. Burroughs, 1 Woods 468, a bill of certain
creditors who had recovered judgments against a bank to
Page 101 U. S. 213
recover from some stockholders who had not paid in full their
subscriptions, nonjoinder of parties was set up in defense. Mr.
Justice Bradley said:
"A judgment creditor who has exhausted his legal remedy may
pursue in a court of equity any equitable interest, trust, or
demand of his debtor, in whosesoever hands it may be. And if the
party thus reached has a remedy over against other parties for
contribution or indemnity, it will be no defense to the primary
suit against him that they are not parties. If a creditor were to
be stayed until all such parties could be made to contribute their
proportionate share of the liability, he might never get his
money."
The case of
Wood v. Dummer, 3 Mas. 308, upon which the
appellants largely rely, was not an attempt to reach unpaid stock
subscriptions. It was sought to follow the property of a
corporation paid over to its shareholders before its debts were
paid. But even in that case the bill was sustained though all the
shareholders were not made defendants. Those not sued appear to
have been treated only as convenient, not as necessary parties.
The cases of
Pollard v.
Bailey, 20 Wall. 520, and
Terry v. Tubman,
92 U. S. 156, are
not in conflict with
Ogilvie v. Knox Insurance Company.
They arose under statutory provisions imposing upon the
stockholders of banks a liability for the debts of the corporation,
"in proportion to their stock held therein." It was this liability
beyond the stock subscription which was sought to be enforced, and
as it was only a proportional liability, its extent could be
ascertained only when the obligation of the other shareholders was
taken into consideration. Hence it was ruled that the proper mode
of proceeding was by bill in equity in which an account of the
debts and stock could be taken and a pro rata distribution could be
made. Not a hint was given that the latter case was intended to be
questioned or qualified. Indeed,
Pollard v. Bailey and
Terry v. Tubman have little analogy to it or to the case
we have now before us. They were both suits at law. The debt due by
these appellants to the corporation of which they are members is a
fixed and definite one, and it is neither more nor less because
other debts may be due to the company from other stockholders.
Page 101 U. S. 214
We hold therefore that the complainant was under no obligation
to make all the stockholders of the bank defendants in his bill. It
was not his duty to marshal the assets of the bank or to adjust the
equities between the corporators. In all that, he had no interest.
The appellants may have had such an interest, and, if so, it was
quite in their power to secure its protection. They might have
moved for a receiver or they might have filed a cross-bill,
obtained a discovery of the other stockholders, brought them in,
and enforced contribution from all who had not paid their stock
subscriptions. Their equitable right to contribution is not yet
lost.
That the appellants are not protected by the fact, if such was
the fact, that their subscriptions for stock were payable "as
called for by the company" we think is clear. Assuming that such a
clause in the subscription meant more than an agreement to pay on
demand and that it contemplated a formal call upon all subscribers
to the stock of the company, the subscriptions were still in the
nature of a fund for the payment of the company's debts, and it was
the duty of the company to make the calls whenever the funds were
needed for such payment. If they were not made, the officers of the
company violated their trust, held both for the stockholders and
the company. And it would seem to be singular if the stockholders
could protect themselves from paying what they owe by setting up
the default of their own agents. But in this case, the company went
out of business before the complainant obtained his judgment, and
it does not appear that since that time it has had any officers who
could make the calls. Before that time, its president was dead.
However this may be, it is well settled that a court of equity may
enforce payment of stock subscriptions though there have been no
calls for them by the company. In
Henry v. Railroad
Company, 17 Ohio 187, a suit brought by a judgment creditor of
a corporation to enforce payment by its stockholders of their
unpaid subscriptions, for which calls had not been made, it was
held that when a company ceases to keep up its organization and
abandons all action under the charter, a proceeding at the instance
of the creditor becomes indispensable. It was further said:
"When a company, becoming insolvent, as in this case,
abandons
Page 101 U. S. 215
all action under its charter, the original mode of making calls
upon the stockholders cannot be pursued. The debt therefore from
that time must be treated as due without further demand."
This means, of course, as between the debtor and the creditor of
the corporation. After all, a company call is but a step in the
process of collection, and a court of equity may pursue its own
mode of collection so that no injustice is done to the debtor.
In the English courts, a mandamus is sometimes awarded to compel
the directors to make the necessary calls.
Queen v. The
Victoria Park Co., 1 Ad. & El.N.S. 544;
Queen v.
Ledgard, id., 616;
The King v. Katharine Dock Co., 4
Barn. & Ad. 360. But this remedy can avail only when there are
directors. The remedy in equity is more complete, and it is well
recognized.
Ward v. The Griswoldville Manufacturing Co.,
16 Conn. 593. In such cases, it is nowhere held, so far as we know,
that a formal call must be made before a bill can be filed. Indeed,
the filing of the bill is equivalent to a call. Before it is filed,
the court has no jurisdiction of the matter. In bankruptcy, an
assessment or a call may be made, for the assignee of a bankrupt
corporation succeeds to its rights and becomes the legal owner. Not
so in equity.
In
The Dalton &c. Railroad Co. v. McDaniel, 56 Ga.
191, a creditor's bill very like the present was filed. It was
objected by the stockholders, who were defendants, that it was for
the directors of the company and not for the court to call in the
stock subscriptions, and that their contract only obligated them to
obey a call emanating from the company, but it was ruled that
"principle and sound reason accord with authority that equity will
grant relief in all such cases."
In view of these considerations, we think none of the
assignments of error are sustained.
Decree affirmed.
