1. Where the Constitution of a state makes each stockholder in a
corporation "individually liable for its debts over and above the
stock owned by him" in a further sum at least equal in amount to
such stock, and the corporation incurs debts, and is then
authorized to obtain subscriptions for new stock, but does not now
obtain them, and the constitution of the state is afterwards
amended and declares that "in no case shall any stockholder be
individually liable in any amount over or above the amount of stock
owned by him," and the corporation then for the first time issues
the new stock, the holders of such new stock are not personally
liable under the first constitution.
2. The amended constitution does not impair the obligation of
the contract between the corporation and its debtor made under the
first constitution.
A Constitution of Missouri adopted in 1865, under a provision
relating to the debts due by corporations having stockholders, thus
enacted:
"In all cases, each stockholder shall be individually liable
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over and above the stock by him or her owned, and any amount
unpaid thereon in a further sum at least equal in amount to such
stock."
This clause of the Constitution of 1865, commonly called "the
double liability clause," being in force (with a statute also
prescribing a method of giving effect to it), the Alexandria &
Nebraska City Railroad Company -- a Missouri company, with a
paid-up capital of $2,000,000 -- in May, 1869, became indebted to
one Ochiltree. That company soon afterwards incorporated itself, as
railroad companies are allowed in Missouri to do, with another
railroad company -- the Iowa Southern -- this last having a paid-up
capital of $1,500,000, the two companies forming a third one under
a new name, and this new one being, by the terms of consolidation,
bound to pay the debts of the old ones. The capital of the new
company was to consist of $13,000,000, of which the conjoint
$3,500,000 of the two old companies made the part paid in, and
there remained, of course, $9,500,000 of stock in the new company
to be yet subscribed for.
In this condition of things, the state of Missouri, A.D. 1870,
amended its constitution. By the amended constitution, "the double
liability clause was abrogated," and the following exactly opposite
provision substituted:
"Dues from private corporations shall be secured by such means
as may be prescribed by law, but in no case shall any stockholder
be individually liable in any amount over or above the amount of
stock owned by him or her."
This new provision being in force, a railroad company wholly
independent of the others, to-wit, the Iowa Railroad Contracting
Company, subscribed and paid for eight thousand nine hundred and
sixty shares, of the value of $100 -- in other words, subscribed
and paid for stock to the amount of $896,000.
In this state of things, Ochiltree's debt not being paid, on
execution issued, by anyone of the companies, he sued the Iowa
Railroad Contracting Company in one of the state
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courts of Missouri, as a stockholder in the new company, his
suit being founded on the double liability clause of the
Constitution of 1865, and his assumption being that though the Iowa
Railroad Contracting Company had subscribed for its stock after the
adoption of the Constitution of 1870, yet as his debt accrued
before its adoption and while the Constitution of 1865 was
in force, he could proceed personally against all stockholders, and
that "the single liability" provision in the Constitution of 1870
was null and void as to his rights in the case because, in
depriving him of his remedy against stockholders under the law in
force when his debts were contracted and the consolidated company
became liable therefor, the said provision impaired the obligation
of the company's contract with him within the meaning of the
Constitution of the United States.
The court in which he brought his suit was not of this opinion,
and gave judgment against him, and this judgment being affirmed by
the Supreme Court of Missouri, he brought the case here.
MR. JUSTICE DAVIS delivered the opinion of the Court.
It is quite apparent that considerations of public policy
induced the adoption of the double liability clause in the
Constitution of 1865, and equally apparent that in the minds of the
framers of the amendment of 1870, this provision had operated
injuriously to the interests of the state and that sound policy
dictated its repeal. It is not difficult to see, with this
provision in force, that great public improvements, in some of the
states of the Union at least, could not be successfully
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carried on. Instead of inviting capital, it would repel it.
There are few persons who would consent to take stock in such
enterprises if subject to the double liability provision. Although
willing to risk the loss of their stock, they would be unwilling to
involve their estates beyond it. Especially would this be so if
they were invited to take part in the completion of works greatly
in debt and which had languished for years. It is therefore
important to determine not only for this case, but all others
similarly situated, whether the change of policy on this subject,
as manifested by the change in the organic law, is effectual to
accomplish the desired object.
The supreme court of the state having construed the amendment of
1870 so as to relieve stockholders in corporations subscribing
after it went into operation from the effects of the former
constitution as to debts contracted prior to the amendment, the
only question at issue here is whether the amendment, thus
interpreted, has the effect of impairing the obligation of the
plaintiff's contract within the meaning of the Constitution of the
United States.
It would serve no useful purpose to restate the views of this
Court on this general subject, nor to review the cases, which are
neither few nor unimportant. It is enough to say that the law of
the contract forms its obligation, and that legislation which
materially impairs the remedy is void.
The law of the contract in this case undoubtedly gave the
plaintiff the right to subject existing stockholders in the
corporation, with whom the debt was contracted, to the double
liability provision. This provision could be invoked so soon as the
assets of the corporation were exhausted. The plaintiff trusted
this corporation and the members composing it at the time the
contract was made. It cannot be said that he gave credit beyond
this, for what right had he to assume that other stock would be
taken? It may be that he expected this would be done and that
thereby his security would be increased, but the obligation of a
contract within the meaning of the Constitution is a valid
subsisting obligation, not a contingent or speculative one. It was
no part of
Page 88 U. S. 253
the obligation of the contract that future stock should be
taken. The value of it would be enhanced if this were done, but the
obligation of it would be the same whether the stock were taken or
not. If taken, it subjected the holder to the personal liability
imposed by the law at the time of the subscription, and to the
extent of this additional responsibility, the plaintiff is
benefited. But suppose no additional stock were taken, the
plaintiff has all that he trusted, and has no right to complain
that his contract is not as valuable as he thought it would be. If,
then, the credit was given to the corporation, and the personal
liability of the members composing it at the date of the contract,
how does the repeal of the double liability clause impair the
plaintiff's contract? It is true, while unrepealed, he had the
opportunity to accumulate securities for the payment of his debt,
but is this opportunity to be continued after experience has proved
that the policy on which it rested was injudicious and should be
abandoned? Such a doctrine would tie up legislation in order that
the speculative expectancies of creditors may be protected. It was
the object of the national Constitution to protect rights, and not
mere incidental advantages which may affect the contract
indirectly. The incident of individual liability attached to and
formed a part of the contract as long as it lasted, but its repeal
did not deprive the plaintiff of any of the rights secured to him
when the contract was made. They still exist, and the remedy to
enforce them remains the same. If the corporation itself cannot
pay, the members who composed it at the time of the repeal are
unaffected by it, and there is nothing in the way of subjecting
them to the double liability provision. Instead of the plaintiff's
being injured by the repeal, he is benefited by it, for it cannot
be supposed that the defendant would have taken stock with the
burden imposed by the old law, and the subscription made by it
increased by capacity of the company to pay its debts very largely,
as it is agreed that it owns eight thousand nine hundred and sixty
shares of stock, each share being for $100. This stock was paid for
and risked in the general enterprise, and, like other assets,
liable for the
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debts of the company; but the plaintiff seeks to place upon the
defendant a liability beyond this, which it cannot be believed it
meant to assume, as the law did not impose the liability upon it
when the stock was taken.
The plaintiff contracted with the Alexandria & Nebraska
company, authorized to issue two millions of stock. In the absence
of any evidence on the point, it is fair to presume the stock was
absorbed when the contract was made. This corporation he trusted,
and the persons who held its stock were undoubtedly liable to him
in case he could not get his debt out of the company. He not only
holds this security, but in addition to it the assets of the Iowa
Southern Company, and the liability of the holders of one and a
half millions of stock in it. Beside this he has the obligation of
the consolidated company to pay his debt. It is difficult to see
how these things have tended to impair his contract or lessen its
value. But he seeks to increase his security by embracing the
stockholders of the consolidated company, who were not parties to
the contract to pay his debt but who subscribed after the amended
liability law went into operation. This he cannot do. His remedy
under the law as it existed at the date of his contract is not
impaired because the consolidated company increased its stock, as
it was authorized to do, and was enabled to sell it by reason of
the withdrawal of the burden of personal liability.
It is claimed by the plaintiff that the law under which his debt
was contracted made all who were stockholders on the issue of the
execution liable to contribute personally to the payment of his
debt, and two cases in Missouri are cited to support this
proposition.
* These cases arose
before the repeal of the law, and were controversies between the
holders of stock when the debt was contracted and the actual
holders of it at the date of the execution. It was conceded that
one class or the other were liable, and the court decided that the
liability attached to the stock, and followed it in the hands
Page 88 U. S. 255
of the assignee, and that therefore those stockholders only were
liable who were such at the date of the execution. This is the full
force of the decisions referred to, and they give to the plaintiff
the right to seek his remedy against anyone who held stock subject
to the incident of individual liability, at the date of the
execution against the corporation.
But as the incident of individual liability has been repealed
and neither the law nor his contract makes the defendant liable for
the debts of the company beyond the amount of its stock, it follows
that the decisions of the Supreme Court of Missouri on the point
invoked are not applicable.
And so, doubtless, thought that court in its decision of this
case, as the point is not noticed in the opinion.
Judgment affirmed.
*
McLaren v. Franciscus, 43 Mo. 452;
Miller v.
Republic Insurance Co., 50
id. 50.
