A state statute repealing a former statute which made the
stock of stockholders in a chartered company liable to the
corporation's debts is, as respects creditors of the
corporation existing at the time of the repeal,
a law impairing the obligation of contracts, and void. And this
is so even though the liability of the stock is in some respects
conditional only, and though the stockholder was not made, by the
statute repealed, liable in any way in his
person or
property generally for the corporation's debts.
The Constitution of the United States ordains that "No state
shall pass any law impairing the obligation of
contracts."
With this provision in force, the State of Maine, on the 1st April,
1836, incorporated a railroad company the charter providing that
"The
shares of the individual stockholders should be
liable for the
debts of the corporation." "And in case of
deficiency of attachable corporate property or estate,"
the provision went on to say,
"the
individual property, rights, and credits of any
stockholder shall be liable to the
amount of his stock, for all
debts of the corporation contracted prior to the transfer
thereof, for the term of six months after judgment recovered
against said corporation, and the same many be taken in
execution on said judgment in the same manner as if said
judgment and execution were against him individually, OR said
creditor, after said judgment, may have his
action on, the
case against said individual stockholder, but in no case shall
the
property, rights, and
credits of said
stockholder be taken in execution, or attached as aforesaid, beyond
the
amount of his said stock."
Another section provides that if sufficient corporate property
to satisfy the execution could not be found, the officer having the
execution should certify the deficiency on the execution and give
notice thereof to the stockholder whose
property he was about
to take, and if such stockholder should show to the creditor
or officer sufficient attachable
corporate property to
satisfy the debt, "his
individual property, rights, and credits
shall thereupon be exempt from attachment and execution."
The plaintiff, Hawthorne, who had supplied the corporation,
Page 69 U. S. 11
then embarrassed and insolvent, with materials to build its
road, having obtained judgment as a creditor against
it,
and being unable to get from
it satisfaction (the company
having, in fact, no property), sued the defendant, Calef, who was a
stockholder, both at the time when the debt was contracted and when
judgment for it was rendered, and no transfer of whose stock had
been made. A few months
after the debt was contracted, the
Legislature of Maine passed a statute repealing the "individual
liability" clause of the charter.
On a question before the Supreme Court of Maine -- the highest
court of law in that state -- whether such repeal was or was not
repugnant to the clause, above cited, of the Constitution, that
court held that it was not, that the original provision -- not
making the stockholder personally liable in any way -- did not
constitute a "contract" between the creditor and him, within the
meaning of the Constitution, and that while, but for the repealing
act, the plaintiff would have been entitled to recover of the
stockholder individually to the extent of his stock, this repealing
act had taken away and destroyed such right.
Judgment being given accordingly, by the said court in favor of
the state statute, the correctness of such judgment was now, on
error, before this Court.
Page 69 U. S. 21
MR. JUSTICE NELSON delivered the opinion of the Court.
The question upon the provisions of the charter of the railroad
company -- in connection with the sale of the property by the
plaintiff to the corporation, out of which this debt accrued -- is
whether a contract, express or implied, existed between him and the
stockholder?
It is asserted in behalf of the latter that a contract existed
only between the creditors and the corporation and that the
obligation of the stockholder rests entirely upon a statutory
liability, destitute of any of the elements of a contract.
Without stopping to discuss the question upon the clause of the
statute, we think that the case falls within the principle of
Woodruff v. Trapnal, [
Footnote 1] and
Curran v. State of Arkansas,
[
Footnote 2] heretofore decided
in this Court.
In the first of these cases, the charter of the bank provided
that the bills and notes of the institution should be received in
all payment of debts due to the state. The bank was chartered 2
November, 1836. On the 10th January, 1845, this provision was
repealed, and the question was whether or not, after this repeal,
the bills and notes of the bank outstanding at the time, were
receivable for debts due to the state. The Court held after a very
full examination that the clause in the charter constituted a
contract with the holders of the bills and notes on the part of the
state, and that the repealing act was void as impairing the
obligation of the contract.
Page 69 U. S. 22
In the second case, the charter of the bank contained a pledge
or assurance that certain funds deposited therein should be devoted
to the payment of its debts. It was held by the Court that this
constituted a contract with the creditors, and that the acts of the
legislature withdrawing these funds were void as impairing the
obligation of the contract.
Now it is quite clear that the personal liability clause in the
charter, in the present case, pledges the liability or guarantee of
the stockholders, to the extent of their stock, to the creditors of
the company, and to which pledge or guarantee the stockholders, by
subscribing for stock and becoming members of it, have assented.
They thereby virtually agree to become security to the creditors
for the payment of the debts of the company, which have been
contracted upon the faith of this liability.
This question has been repeatedly before the courts of the State
of New York, and they place the obligation of the stockholders upon
two grounds. The
first is that of contract. In
Corning
v. McCullough, [
Footnote
3] Chancellor Jones, then in the Court of Appeals, observes
that the liability of the defendant, upon which the action is
grounded, is for the payment of a debt of the company incurred by
the purchase of merchandise of the plaintiffs, for the use and
benefit of the company, and wherein the defendant, as one of the
members, was interested, and for which he thereby, and under the
provisions of the charter, became and was, concurrently with the
company, from the inception of the debt, personally liable. It is,
he says, virtually and in effect, a liability upon a contract and
the mutual agreement of the parties -- not, indeed, in form an
express personal contract, but an agreement of equally binding
obligation, consequent upon and resulting from the acts and
admissions or implied assent of the parties. The
second
ground is upon the view that the legislature, by subjecting the
stockholders to personal liability for the debts of the company,
thereby removed the corporate protection
Page 69 U. S. 23
from them as corporators, and left them liable as partners and
associates as at common law. [
Footnote 4]
There is another view of the case, involving a violation of the
principal contract between the creditors and the corporation, which
we think equally conclusive against the judgment of the court
below. This view rests upon a principle decided in
Bronson v.
Kinzie, [
Footnote 5] and
the several subsequent cases of this class. There, Kinzie executed
a bond mortgage to Bronson, conditioned to pay $4,000 on the 1st of
July, 1842, and covenanted, that in case of default, the mortgagee
should sell the premises at public auction, and convey them to the
purchaser. Subsequently to the execution on the mortgage, the
legislature passed a law that mortgagors on a sale of the premises,
under a decree of foreclosure in chancery, should have a right to
redeem them at any time within twelve months from the day of sale.
By another law it was provided that when the premises were offered
for sale, they should not be struck off unless at two-thirds of a
previous valuation. The court held that these acts so seriously
affected the remedy of the mortgagee as to impair the obligation of
the mortgage contract within the meaning of the Constitution, and
declared them void. Now, applying the principle of this class of
cases to the present one, by the clause in the charter subjecting
the property of the stockholder, he becomes liable to the creditor,
in case of the inability or insolvency of the company for its
debts, to the extent of his stock. The creditor had this security
when the debt was contracted with the company over and above its
responsibility. This remedy the repealing act has not merely
modified to the prejudice of the creditor, but has altogether
abolished, and thereby impaired, the obligation of his contract
with the company.
We are of opinion, upon both of the grounds above recited, that
the court below erred.
Judgment reversed.
[
Footnote 1]
51 U. S. 10 How.
190.
[
Footnote 2]
56 U. S. 15 How.
304.
[
Footnote 3]
1 Comstock 47, 49.
[
Footnote 4]
Conant v. Van Schaick, 24 Barbour 87.
[
Footnote 5]
42 U. S. 1 How.
311.
