The liability imposed upon stockholders in corporations by the
provision in the Constitution of the State of Kansas that
"dues from corporations shall be secured by individual liability
of the stockholders to an additional amount equal to the stock
owned by each stockholder, and such other means as shall be
provided by law, but such individual liabilities shall not apply to
railroad corporations, nor corporations for religious or charitable
purposes,"
and by the statutes of that state which are referred to in the
opinion of the Court in this case, though statutory in origin, is
contractual in its nature, and an action on this liability, not
being one to enforce a penal statute of Kansas, but only to secure
a private remedy, can be maintained in any court of competent
jurisdiction, whether federal or state.
This was an action brought in the Circuit Court of the United
States for the Southern District of New York by the National Bank
of Oxford, a national banking association, incorporated and
established under the laws of the United States and doing business
at Oxford in the State of Pennsylvania, against George L. Whitman,
a citizen of the State of New York, asserting his liability, under
the provisions of the Constitution and laws of the State of Kansas,
for a debt of more than $2,000 due to the plaintiff from the
Arkansas City Investment Company, a corporation of the State of
Kansas, in which the defendant was a stockholder.
Page 176 U. S. 560
The Constitution of the State of Kansas of 1859 provided, in
article 12, section 2, as follows:
"Dues from corporations shall be secured by individual liability
of the stockholders to an additional amount equal to the stock
owned by each stockholder, and such other means as shall be
provided by law; but such individual liabilities shall not apply to
railroad corporations, nor corporations for religious or charitable
purposes."
The General Statutes of 1868 of that state, chapter 23,
contained the following provisions:
"SEC. 32. If any execution shall have been issued against the
property or effects of a corporation, except a railway or a
religious or charitable corporation, and there cannot be found any
property whereon to levy such execution, then execution may be
issued against any of the stockholders to an extent equal in amount
to the amount of stock by him or her owned, together with any
amount unpaid thereon; but no execution shall issue against any
stockholder except upon an order of the court in which the action,
suit, or other proceeding shall have been brought or instituted,
made upon motion in open court, after reasonable notice in writing
to the person or persons sought to be charged, and, upon such
motion, such court may order execution to issue accordingly; or the
plaintiff in the execution may proceed by action to charge the
stockholders with the amount of his judgment."
"SEC. 40 (as amended in 1883). Laws 1883, c. 46, p. 88. A
corporation is dissolved -- first, by the expiration of the time
limited in its charter; second, by a judgment of dissolution
rendered by a court of competent jurisdiction; but any such
corporation shall be deemed to be dissolved for the purpose of
enabling any creditors of such corporation to prosecute suits
against the stockholders thereof to enforce their individual
liability if it be shown that such corporation has suspended
business for more than one year, or that any corporation now so
suspended from business shall for three months after the passage of
this act fail to resume its usual and ordinary business."
"SEC. 44. If any corporation created under this or any general
statute of this state, except railway or charitable or
religious
Page 176 U. S. 561
corporations, be dissolved, leaving debts unpaid, suits may be
brought against any person or persons who were stockholders at the
time of such dissolution, without joining the corporation in such
suit, and if judgment be rendered and execution satisfied, the
defendant or defendants may sue all who were stockholders at the
time of dissolution for the recovery of the portion of such debt
for which they were liable, and the execution upon the judgment
shall direct the collection to be made from property of each
stockholder, respectively, and if any number of stockholders
(defendants in the case) shall not have property enough to satisfy
his or their portion of the execution, then the amount of
deficiency shall be divided equally among all the remaining
stockholders, and collections made accordingly, deducting from the
amount a sum in proportion to the amount of stock owned by the
plaintiff at the time the company dissolved."
The complaint alleged, and the plaintiff at the trial introduced
evidence of, the following facts: the Kansas corporation was duly
formed under the general laws of the State of Kansas in 1886 for
the purpose of a general banking and real estate business; had its
only place of business at Arkansas City in that state; was not a
railway, religious, or charitable corporation, and had a capital of
$200,000, divided into 2,000 shares of $100 each, of which the
defendant, from the time of the formation of the corporation and
ever after, owned one-half. In December, 1890, that corporation
made a general assignment for the benefit of its creditors, and
from that time wholly suspended business. About four months before
its failure, it endorsed and guaranteed for value two promissory
notes, together amounting to $4,875, which were discounted by the
plaintiff. In 1895, the plaintiff brought an action to recover the
unpaid balance of those notes in a district court of the County of
Cowley and State of Kansas, against the corporation, and, after its
general appearance and subsequent default, recovered judgment
against it for the sum of $3,449; an execution thereon against the
corporation was issued to the sheriff of the county, who returned
it wholly unsatisfied because he could not find any property on
which to make a
Page 176 U. S. 562
levy, and the corporation had in fact no assets of any kind.
The defendant moved the circuit court of the United States to
direct a verdict in his favor upon the ground that it had no
jurisdiction to enforce a statutory remedy of the State of Kansas.
The court denied the motion, directed a verdict for the plaintiff,
overruled a motion for a new trial, and entered a final judgment
for the plaintiff. 76 F. 697. That judgment was affirmed by the
circuit court of appeals. 83 F. 288. The defendant thereupon
applied for and obtained this writ of certiorari. 168 U.S. 710.
MR. JUSTICE BREWER delivered the opinion of the Court.
By section 2 of article 12 of the Constitution of Kansas, a
certain definite liability is cast upon each stockholder in other
than railway, religious, and charitable corporations. This
liability is for the dues of the corporation and to an amount equal
to the stock owned by him. The word "dues" is one of general
significance, and includes all contractual obligations. Whether
broad enough to include liabilities for torts, either before or
after judgment, is not a question before us, and upon it we express
no opinion. The words, "shall be secured" are not merely directory
to the legislature to make provision for such liability, but of
themselves declare it. To this extent, the Constitution is
self-executing.
Willis v. Mabon, 48 Minn. 140. The
discretion of the legislature extends beyond this, as indicated by
the clause "and such other means as shall be provided by law." A
failure of the legislature to create courts or prescribe modes of
procedure may, it is true, make ineffective this constitutional
provision, but does not destroy the liability, nor is it created by
the act of the legislature
Page 176 U. S. 563
prescribing the mode of its enforcement. This is the obvious
meaning of the constitutional provision. "The simplest and most
obvious interpretation of a constitution, if in itself sensible, is
the most likely to be that meant by the people in its adoption."
Lamar, Justice, in
Lake County v. Rollins, 130 U.
S. 662,
130 U. S.
671.
But this constitutional provision does not stand alone. The
Legislature of Kansas has acted on the subject matter, and the
constitution and the statutes are to be taken together, as making
one body of law, and it serves no good purpose to inquire what
rights and remedies a creditor of a corporation might have, or what
liabilities would rest upon a stockholder, if either constitution
or statutes stood alone and unaided by the other.
In section 32 of chapter 23 of the General Statutes of that
state, passed before the organization of the corporation referred
to, the legislature prescribed the mode of enforcing this
constitutional liability, and if such were needed declared, to what
extent it could be enforced. It may be either by motion in a case
in which judgment has been rendered against the corporation and
execution thereon returned unsatisfied or by a direct action by the
plaintiff in such judgment. Neither remedy can be made effectual in
the courts of Kansas against a stockholder unless, by due service
of process, he is brought within the jurisdiction of such courts.
Wilson v. Seligman, 144 U. S. 41;
Howell v. Manglesdorf, 33 Kan.194, 199.
Whatever else may be said about the remedy, it is direct,
certain, and available to every creditor of a corporation, and
leaves to the stockholders the adjustment between themselves of
their respective individual shares of the corporate obligations. In
view of the present tendency to carry on business through corporate
instrumentalities and the freedom from personal liability which
attends ordinary corporate action, it cannot be said that this
limited additional remedy is open to judicial condemnation.
The liability which by the constitution and statutes is thus
declared to rest upon the stockholder, though statutory in its
origin, is contractual in its nature. It would not be doubted that,
if the stockholders in this corporation had formed a
partnership,
Page 176 U. S. 564
the obligations of each partner to the others and to creditors
would be contractual, and determined by the general common law in
respect to partnerships. If Kansas had provided for partnerships
with limited liability, and these parties, complying with the
provisions of the statute, had formed such a partnership, it would
also be true that their obligations to one another and to creditors
would be contractual, although only in the statute was to be found
the authority for the creation of such obligations. And it is
nonetheless so when these same stockholders organized a corporation
under a law of Kansas which prescribed the nature of the
obligations which each thereby assumes to the others and to the
creditors. While the statute of Kansas permitted the forming of the
corporation under certain conditions, the action of these parties
was purely voluntary. In other words, they entered into a contract
authorized by statute.
Flash v. Conn, 109 U. S. 371, is
much in point. In that case, a corporation was organized in the
State of New York under an act of the legislature which contained
this provision:
"SEC. 10. All the stockholders of every company incorporated
under this act shall be severally individually liable to the
creditors of the company in which they are stockholders to an
amount equal to the amount of stock held by them respectively for
all debts and contracts made by such company, until the whole
amount of capital stock fixed and limited by such company shall
have been paid in, and a certificate thereof shall have been made
and recorded as prescribed in the following section."
An action was brought in Florida against one of the
stockholders, and, on error to this Court, it was held that the
stockholder was liable, the Court saying (p.
109 U. S.
377):
"We think the liability imposed by section 10 is a liability
arising upon contract. The stockholders of the company are by that
section made severally and individually liable, within certain
limits, to the creditors of the company for its debts and
contracts. Everyone who becomes a member of the company by
subscribing to its stock assumes this liability, which continues
until the capital stock is all paid up and a certificate of that
fact is made, published, and recorded. "
Page 176 U. S. 565
And again, after noticing the rulings of the Court of Appeals of
the State of New York (p.
109 U. S.
379):
"If this were a case arising in the State of New York, we should
therefore follow the construction put upon the statute by the
courts of that state. The circumstance that the case comes here
from the State of Florida should not leave the statute open to a
different construction. It would be an anomaly for this Court to
put one interpretation on the statute in a case arising in New York
and a different interpretation in a case arising in Florida. Our
conclusion, therefore, is that this action was not brought to
enforce a liability in the nature of a penalty."
"The right of the plaintiffs to sue upon this liability in any
court having jurisdiction of the subject matter and the parties is
therefore clear.
Dennick v. Railroad Co., 103 U. S.
11."
And finally, in reference to the objection that the action was
one at law against a single stockholder, instead of in equity
against all (p.
109 U. S.
380):
"But in this case, the statute makes every stockholder
individually liable for the debts of the company for an amount
equal to the amount of his stock. This liability is fixed, and does
not depend on the liability of other stockholders. There is no
necessity for bringing in other stockholders or creditors. Any
creditor who has recovered judgment against the company and sued
out an execution thereon which has been returned unsatisfied may
sue any stockholder, and no other creditor can. Such actions are
maintained without objection in the courts of New York under
section 10 of the statute relied on in this case.
Shellington
v. Howland, 53 N.Y. 371;
Wiles v. Suydam, 64 N.Y.
173;
Handy v. Draper, 89 N.Y. 334;
Rocky Mountain Nat.
Bank v. Bliss, 89 N.Y. 338."
In
Richmond v. Irons, 121 U. S. 27, in
which the question presented was whether the individual liability
of a stockholder in a national bank survived as against an
administrator, it was said (p.
121 U. S.
55):
"Under that act, the individual liability of the stockholders is
an essential element in the contract by which the stockholders
became members of the corporation. It is voluntarily
Page 176 U. S. 566
entered into by subscribing for and accepting shares of stock.
Its obligation becomes a part of every contract, debt, and
engagement of the bank itself -- as much so as if they were made
directly by the stockholder, instead of by the corporation. There
is nothing in the statute to indicate that the obligation arising
upon these undertakings and promises should not have the same force
and effect, and be as binding in all respects, as any other
contracts of the individual stockholder."
In
Concord First National Bank v. Hawkins, 174 U.
S. 364,
174 U. S. 372,
in which one national bank was sought to be charged as stockholder
in another national bank, was this declaration:
"In the present case, it is sought to escape the force of these
decisions by the contention that the liability of the stockholder
in a national bank to respond to an assessment in case of
insolvency is not contractual, but statutory."
"Undoubtedly the obligation is declared by the statute to attach
to the ownership of the stock, and in that sense may be said to be
statutory. But as the ownership of the stock, in most cases, arises
from the voluntary act of the stockholder, he must be regarded as
having agreed or contracted to be subject to the obligation."
Similar are the views entertained by the Supreme Court of
Kansas.
In
Abbey v. Dry Goods Co., 44 Kan. 415, 418, we find
this statement:
"The nature of this liability is peculiar; it seems to have been
created for the exclusive benefit of corporate creditors; the
liability rests upon the stockholders of a corporation to respond
to the creditors for an amount equal to the stock held by each, and
it has been held that the action to enforce this liability can only
be maintained by the creditors themselves, in their own right and
for their own benefit."
And again, in
Pumb v. Bank of Enterprise, 48 Kan. 484,
486:
"Under our Constitution and statutes, the individual liability
stands as a sort of surety for the corporate liability, and
creditors of the corporation are supposed to contract with
reference to the individual responsibility of the stockholders.
"
Page 176 U. S. 567
In
Achenbach v. Pomeroy Coal Co., 2 Kan. App. 357, 359,
is this language:
"The liability of a stockholder in an insolvent corporation is
of the nature of a liability on contract, and survives against the
legal representatives of a deceased stockholder."
And while the word "statutory" is sometimes found in the
opinions of that court as descriptive of the stockholder's
liability, evidently the word is so used to indicate the origin,
rather than the nature of the liability. Thus, in
Howell v.
Manglesdorf, 33 Kan.194, 199, it was said:
"While the liability is statutory, it is one which arises upon
the contract of subscription to the capital stock of the
corporation, and an action to enforce the same is transitory, and
may be brought in any court of general jurisdiction in the state
where personal service can be made upon the stockholder."
Obviously this recognizes the contractual nature of the
obligation, as well as its statutory origin. Again, in
Pierce
v. Topeka Commercial Security Co., 60 Kan. 164, it was held
that a stockholder, sued by a judgment creditor of the corporation,
might set off against that claim the indebtedness of the
corporation to him, accruing before he became liable as
stockholder, the court saying (p. 166):
"Where the statute creates a liability against stockholders
which is personal and several, and actionable by any creditor
against any stockholder, it is generally held that a stockholder
may in such a proceeding brought against himself set off debts due
to him from the company."
Thus, while the statutory origin of the obligation is asserted,
its contractual nature is recognized in that the right of set-off
is affirmed.
That an action upon this liability is not one to enforce a penal
statute of Kansas, but only to secure a private remedy, is not open
to question since the decision in
Huntington v. Attrill,
146 U. S. 657.
And as this liability is one which is contractual in its nature,
it is also clear that an action therefor can be maintained in any
court of competent jurisdiction.
Dennick v. Railroad
Company, 103 U. S. 11;
Huntington v. Attrill, 146 U. S. 657.
Page 176 U. S. 568
Similar views have been expressed by the highest courts of
several states in like actions based upon the same Kansas
constitutional and statutory provisions.
Ferguson v.
Sherman, 116 Cal. 169;
Bell v. Farwell, 176 Ill. 489;
Hancock National Bank v. Ellis, 172 Mass. 39;
Western
National Bank v.Lawrence, 117 Mich. 669;
Guerney v.
Moore, 131 Mo. 650.
See also Paine v. Stewart, 33
Conn. 516;
Cushing v. Perot, 175 Pa. 66;
Rhodes v.
United States National Bank, 66 F. 512;
Bank of North
America v. Rindge, 57 F. 279;
McVickar v. Jones, 70
F. 754;
Mechanics' Saving Bank v. Fidelity Insurance
Company, 87 F. 113;
Dexter v. Edmands, 89 F. 467;
Brown v. Trail, 89 F. 641.
We see no error in the judgment of the circuit court of appeals,
and it is therefore
Affirmed.
MR. JUSTICE PECKHAM dissents.
