The liability of a corporate stockholder may be enforced only in
the mode prescribed by the statutes of the state of
incorporation.
Page 120 U. S. 748
This was an action at law, brought December 10, 1879, by a
national bank against the executor of Edwin Hoyt, a stockholder in
the Atlantic De Laine Company, to recover the amount of a debt for
upwards of $100,000 due from that corporation to the plaintiff on
promissory notes made and payable in December, 1873, and January,
1874. The parties duly waived a jury, and submitted the case to a
referee under a rule of court, and also agreed in writing upon "a
statement of certain of the facts in this action," which defined
the amount of the debt due from the corporation to the plaintiff,
and the material parts of the rest of which were as follows:
The Atlantic De Laine Company was a manufacturing corporation,
established in the State of Rhode Island, under a charter granted
in 1851 by the General Assembly of that state, which fixed and
limited its capital stock at $300,000, and by § 8 of which
"the liability of the members and officers of this corporation
for the debts of the company shall be fixed and limited by, and the
corporation, its members and officers, shall in all respects be
subject to, the provisions of an act"
mentioned below. Laws R.I. May Sess. 1851, pp. 33-36.
"Fourth. In and by an act entitled 'An act in relation to
manufacturing corporations,' passed at the June session of 1847 by
the aforesaid General Assembly of the State of Rhode Island, it was
provided, among other things, as follows:"
" The members of every manufacturing company that shall be
hereafter incorporated shall be jointly and severally liable for
all debts and contracts made and entered into by such company until
the whole amount of the capital stock, fixed and limited by the
charter of said company, or by vote of the company in pursuance of
the charter, shall have been paid in, and a certificate thereof
shall have been made and recorded in a book kept for that purpose
in the office of the city or town clerk of the city or town wherein
the manufactory is established, and no longer, except as
hereinafter provided."
"It was also therein provided that"
"When the stockholders in a manufacturing company shall be
liable, by the provisions
Page 120 U. S. 749
of this act, to pay the debts of such company, or any part
thereof, their persons and property may be taken therefor, on any
writ of attachment or execution issued against the company for such
debt, in the same manner as no writs and executions against them
for their individual debts. The person to whom said officers or
stockholders may render themselves liable as aforesaid may, instead
of the proceedings aforementioned, have his remedy against said
officers or stockholders by a bill in equity in the supreme
court."
"[Laws R.I. June Sess. 1847, pp. 30, 35.] The foregoing
provisions were substantially continued in force by chapter 128 of
the revision of the statutes of the State of Rhode Island of 1851,
and by chapter 142 of the revision of said statutes of 1872, and
continued to be, and at all times mentioned and set forth herein
were, and still are, in full force and effect as statutes of the
State of Rhode Island."
"The whole amount of the capital stock of the Atlantic De Laine
Company was never paid in, nor a certificate filed, as required by
these provisions. Hoyt was a resident of New York, and stockholder
in that company from its incorporation until his death in May,
1874. He left a will, under which letters testamentary were issued
to the defendant in New York, but it was never proved in Rhode
Island, nor were letters testamentary or of administration upon his
estate ever issued there."
"Tenth. No writ of attachment or execution has ever been issued
against the Atlantic De Laine Company for or on account of the
claim of the plaintiff upon the aforesaid promissory notes, and no
suit in equity has ever been begun in the Supreme Court of Rhode
Island against any of the officers or stockholders of the Atlantic
De Laine Company founded upon the plaintiff's claim herein. Upon
the 30th day of March, 1874, the said Atlantic De Laine Company was
duly adjudicated a bankrupt by the United States District Court for
the district of Rhode Island."
The referee found the facts as agreed by the parties, and,
against the objection and exception of the plaintiff, admitted in
evidence the reports of the cases, adjudged in the Supreme
Page 120 U. S. 750
Court of Rhode Island, of
New England Bank v. Stockholders
of Newport Factory, 6 R.I. 154, and
Moies v. Sprague,
9 R.I. 541, as proof of the law of Rhode Island, and found the
following as an additional fact:
"Twelfth. Prior to the making of the aforesaid notes, it had
been judicially determined by the Supreme Court of the State of
Rhode Island, that court being the highest judicial tribunal of the
said state, that the remedies provided in favor of creditors of
corporations therein referred to against their stockholders by said
Act of June session of 1847 were exclusive of, and did not include,
the remedy of an action in favor of such creditor against such
stockholder."
"Upon the foregoing facts," the referee reported as a conclusion
of law that the defendant was entitled to judgment. The court
confirmed his report, specially found the facts as stated by him,
and gave judgment for the defendant. The plaintiff sued out this
writ of error.
Page 120 U. S. 751
MR. JUSTICE GRAY, after stating the case as above reported,
delivered the opinion of the Court.
This was an action at law, brought in the Circuit Court of the
United States for the Southern District of New York, by a creditor
of a Rhode Island manufacturing corporation against the executor of
a stockholder in that corporation to enforce the liability which
the statutes of Rhode Island impose upon stockholders in such
corporations for the corporate debts. In the court below, statutes
and decisions of Rhode Island were agreed or proved and found as
facts, in seeming forgetfulness of the settled rule that the
circuit court of the United States, as well as this Court on appeal
or error from that court, takes judicial notice of the laws of
every State of the Union.
Hanley v. Donoghue, 116 U. S.
1,
116 U. S. 6, and
cases there collected. No reference was made to the statute of 1877
(c. 600), to which the plaintiff has now referred, and which
repeals and modifies in some respects the statutes agreed and found
in the record to be still in force, and it is contended for the
defendant that this Court should not review a judgment on a ground
which was not presented to the court below. That is doubtless the
general rule.
Klein v.
Russell, 19 Wall. 433;
Badger v. Ranlett,
106 U. S. 255. But
it would be unreasonable to apply it when the effect would be to
make the rights of the parties depend upon a statute which, as we
know and are judicially
Page 120 U. S. 752
bound to know, is not the statute that governs the case. And
under either statute, the result is the same, as will appear by a
sketch of the history of the legislation and of its judicial
construction, and a consideration of the principles upon which that
construction rests.
The statutes of Rhode Island upon which the case was argued and
decided in the circuit court were sections 1 and 14 of the
Manufacturing Corporation Act of 1847, reenacted in the Revised
Statutes of 1851, c. 128, §§ 1, 19, 20, and in the General Statutes
of 1872, c. 142, §§ 1, 20, 21. By the first section of each of
those statutes, the members of every manufacturing company
afterwards incorporated "shall be jointly and severally liable for
all debts and contracts made and entered into by such company"
until the whole amount of the stock shall have been paid in, and a
certificate thereof made and recorded in a certain public office,
and by the other sections, when the stockholders shall be so liable
to pay the debts of the company, or any part thereof,
"their persons and property may be taken therefor, on any writ
of attachment or execution issued against the company for such
debt, in the same manner as on writs and executions against them
for their individual debts,"
or the creditor may, instead of such proceedings, have his
remedy against the stockholders by bill in equity. These provisions
were substantially copied from the Revised Statutes of
Massachusetts of 1836, c. 38, §§ 16, 30, 31, as clearly appears on
a comparison of the statute books of the two states and as has been
expressly recognized by the Supreme Court of Rhode Island.
Moies v. Sprague, 9 R.I. 541, 544.
The provisions of the Revised Statutes of Massachusetts, as well
as the similar provisions of the earlier statutes therein embodied
and reenacted, were always construed by the Supreme Judicial Court
of Massachusetts to allow the stockholders to be charged for the
debts of the corporation by no other form of proceeding than that
given by the statutes themselves. This was clearly laid down,
before the enactment of the statute in Rhode Island, in judgments
delivered by Chief Justice Shaw as follows:
"The individual liability of stockholders
Page 120 U. S. 753
created by the statute of 1808, was of a particular and limited
character, and could only be enforced in the manner pointed out by
the statute."
Ripley v. Sampson (1830), 10 Pick. 370, 372.
"The construction uniformly put upon Stat. 1808, c. 65, § 6, has
been that it was a new remedy, given by statute, and as the mode of
pursuing it was specially pointed out, that mode must be pursued;
that it did not create a legal liability, to be enforced by an
action."
Kelton v. Phillips (1841), 3 Met. 61, 62.
"This liability of an individual to satisfy an execution on a
judgment to which he was not a party and to which he had no
opportunity to answer is created and regulated by statute, and is
not to be extended by construction beyond the plain enactments of
the statute, as found by express provision or necessary
implication."
Stone v. Wiggin (1842), 5 Met. 316, 317.
See also
Gray v. Coffin (1852), 9 Cush. 192, 199. That court
accordingly held in
Ripley v. Sampson, above cited, as
well as in the earlier case of
Child v. Coffin (1820), 17
Mass. 64, and in the later case of
Dane v. Dane Manufacturing
Co. (1860), 14 Gray 488, that an execution against a
corporation could not be levied on the estate of a stockholder who
died before the commencement of the action; in
Kelton v.
Phillips, above cited, as well as in
Bangs v. Lincoln
(1858), 10 Gray 600, that the statute liability of a stockholder
was not a debt provable against his estate in insolvency; in
Stone v. Wiggin, above cited, that the estate of a
stockholder, though attached on mesne process in an action against
the corporation, could not be taken in execution on the judgment in
that action without first making a demand upon the officers of the
corporation for payment or satisfaction of the execution, and in
Knowlton v. Ackley (1851), 8 Cush. 93, in accordance with
the opinion of Chief Justice Shaw in
Kelton v. Phillips,
above cited, that a creditor of a corporation could not maintain an
action at law against a stockholder.
In 1869, before the debt was contracted on which this action was
brought, the Supreme Court of Rhode Island, in accordance with
Knowlton v. Ackley and the other Massachusetts cases above
referred to, applied to the statute of Rhode Island
Page 120 U. S. 754
the rule that "when a statute creates a right or liability, and
prescribes a remedy, the remedy prescribed is the only remedy,"
and, while leaving open the question whether the statute liability
of a deceased stockholder survived in any manner at law against his
estate, adjudged that at all events his estate could not be charged
either at law or in equity except in the mode of proceeding
prescribed by the statute, and therefore such a liability could not
be proved before commissioners on the insolvent estate of a
deceased stockholder.
Moies v. Sprague, 9 R.I. 541. So, in
the Circuit Court of the United States for the District of Rhode
Island, Judge Shepley and Judge Lowell held that the liability of a
stockholder under that statute, unless liquidated and ascertained
by a decree in equity, was not a debt that could be proved against
his estate under the Bankrupt Act of the United States, and Judge
Lowell's decision was affirmed by this Court without any contest
upon that point.
James v. Atlantic Delaine Co., 11 N.B.R.
390;
Garrett v. Sayles, 1 F. 371, 377, and
110 U. S. 110 U.S.
288.
The statute of Rhode Island of March 27, 1877, c. 600, is as
follows:
"An act defining and limiting the mode of enforcing the
liability of stockholders holders for the debts of
corporations."
"SEC. 1. No person shall hereafter be imprisoned, or be
continued in prison, nor shall the property of any such person be
attached, upon an execution issued upon a judgment obtained against
a corporation of which such person is or was a stockholder."
"SEC. 2. All proceedings to enforce the liability of a
stockholder for the debts of a corporation shall be, either by suit
in equity, conducted according to the practice and course of
equity, or by an action of debt upon the judgment obtained against
such corporation, and in any such suit or action such stockholder
may contest the validity of the claim upon which the judgment
against such corporation was obtained, upon any ground upon which
such corporation could have contested the same in the action in
which such judgment was recovered."
"SEC. 3. All acts and parts of acts inconsistent here with are
hereby repealed. "
Page 120 U. S. 755
"SEC. 4. This act shall take effect from and after the date of
the passage thereof."
This statute permits the alternative remedy by suit in equity --
whether before or only after recovering judgment against the
corporation we need not now inquire -- and modifies the previous
statutes in no other respect than by abolishing the right to take
the person of a stockholder for the debt of the corporation; by
substituting, for the taking of his property on attachment and
execution against the corporation, a new form of remedy, by action
of debt against him upon a judgment obtained against the
corporation, and by authorizing him, when so sued, either in equity
or at law, to make any defense that the corporation might have
made. As it does not undertake to annul the liability of the
stockholders for the debts of the corporation, but only modifies
the form of remedy and the rules of evidence, it is not doubted
that it is a constitutional exercise of the power of the
legislature, even as applied to debts contracted by the corporation
before its enactment.
Hawthorne v.
Calef, 2 Wall. 10;
Penniman's Case,
103 U. S. 714,
aff'g 11 R.I. 333;
Ogden v.
Saunders, 12 Wheat. 213,
25 U. S. 262,
25 U. S. 349;
Webb v. Den,
17 How. 576;
Curtis v.
Whitney, 13 Wall. 68;
Tennessee v. Sneed,
96 U. S. 69.
Under either statute of Rhode Island, the debt must be
established by a judgment recovered against the corporation, before
the creditor can proceed against the stockholder. The execution
under the earlier laws, and the action against the stockholder
under the existing statute, must be founded on that judgment. In
short, it is only a judgment creditor of the corporation who can
collect a corporate debt from its stockholders at least at law.
What state of facts would be necessary to support a bill in equity
by a creditor of the corporation against one or all of its
stockholders is a question not before us.
See Combridge
Waterworks v. Somerville Dyeing & Bleaching Co., 4 Allen
239;
New England Bank v. Stockholders of Newport Factory,
6 R.I. 154;
Smith v. Railroad Co., 99 U. S.
398;
Case v. Beauregard, 101 U.
S. 688.
The question of the manner in which the liability of
stockholders,
Page 120 U. S. 756
under the statutes of the state which creates the corporation,
may be enforced in the courts of the United States is not a new one
in this Court.
In the leading case of
Pollard v.
Bailey, 20 Wall. 520, under a statute of the State
of Alabama incorporating a bank, and providing in one section that
the stockholders should "be bound respectively for all the debts of
the bank in proportion to their stock holden therein," and in other
sections that they might be charged by bill in equity, it was held
that the remedy prescribed in these sections was the only one, and
a creditor of the bank could not maintain an action at law against
the stockholders in the circuit court of the United States, and the
Chief Justice, in delivering judgment, affirmed the following
principles, which have been constantly adhered to in subsequent
cases:
"The individual liability of stockholders in a corporation for
the payment of its debts is always a creature of statute. At common
law it does not exist. The statute which creates it may also
declare the purposes of its creation, and provide for the manner of
its enforcement. . . . The liability and the remedy were created by
the same statute. This being so, the remedy provided is exclusive
of all others. A general liability created by statute, without a
remedy, may be enforced by an appropriate common law action. But
where the provision for the liability is coupled with a provision
for a special remedy, that remedy, and that alone, must be
employed."
20 Wall.
87 U. S.
526-527.
Pursuant to these principles, this Court has repeatedly held not
only that suits either at law or in equity in the circuit court by
creditors of a corporation to enforce the liability of stock
holders under a state statute are governed by the statute of
limitations of the state,
Terry v. Tubman, 92 U. S.
156;
Carrol v. Green, 92 U. S.
509;
Terry v. Anderson, 95 U. S.
628, but also that the question whether the remedy in
the federal courts should be by action at law or by suit in equity
depends upon the nature of the remedy given by the statutes of the
state,
Mills v. Scott, 99 U. S. 25;
Terry v. Little, 101 U. S. 216;
Patterson v. Lynde, 106 U. S. 519;
Flash v. Conn, 109 U. S. 371.
See also Blair v. Gray, 104 U. S. 769;
Chase v. Curtis, 113 U. S. 452,
113 U. S.
460.
Page 120 U. S. 757
The case of
Flash v. Conn, 109 U.
S. 371, upon which the learned counsel for the plaintiff
greatly relied, is in principle quite in line with the other cases,
and was decided in favor of the plaintiff because of essential
differences between it and the case at bar.
In
Flash v. Conn, the statute of New York there in
question did not direct that the stockholder should be charged by
execution or action upon a judgment against the corporation, and
thus in effect limit the right of proceeding against a stockholder
to judgment creditors of the corporation, but it allowed any
creditor, after bringing a suit against the corporation and having
an execution returned unsatisfied, to bring an independent action
against the stockholder upon his original liability, and the Court
of Appeals of New York had decided, in
Shellington v.
Howland, 53 N.Y. 371, that the fact that a corporation had
been adjudged bankrupt was a sufficient excuse for not proceeding
against it, before suing a stockholder, under that statute. In
short, this Court upheld a suit in the circuit court of the United
States in Florida upon exactly the same conditions on which it
appeared that it would have been sustained in the courts of New
York.
In the case at bar, on the other hand, neither of the statutes
of Rhode Island gives any action at law against the stockholder
upon his original liability, or any right whatever of proceeding
against him at law, except by execution or action upon a judgment
recovered against the corporation. Before the passage of the Rhode
Island statute of 1877, it had been determined by a decision of the
Court of Appeals of New York nearly contemporaneous with that in
Shellington v. Howland, above cited, and affirmed by this Court as
well as by a decision of the Supreme Judicial Court of
Massachusetts, that proceedings in bankruptcy against a corporation
do not dissolve it or discharge if from its debts or prevent any
creditor from suing it for so much of his debt as remains unpaid
and recovering a judgment against if for the purpose of charging
its stockholders.
Ansonia Brass & Copper Co. v. New Lamp
Chimney Co., 53 N.Y. 123, and
91 U. S. 91 U.S.
656;
Chamberlin v. Huguenot Manufacturing Co., 118 Mass.
532. And
Page 120 U. S. 758
there is no decision in Rhode Island or elsewhere, so far as we
are informed, that under such a statute, a creditor of a
corporation can sue a stockholder without first establishing, by
judgment against the corporation, its liability for the debt with
which it is sought to charge him.
In
Burgess v. Seligman, 107 U. S.
20, the question was whether the defendant was such a
holder of stock in a corporation as to be liable for its debts, and
no question of the form of the remedy was presented or
considered.
In
Garrett v. Sayles, 1 F. 371, and
110 U. S. 110 U.S.
288, the remedy against stockholders was sought by bill in equity,
under the Rhode Island statute, after obtaining judgment against
the corporation.
In all the diversity of opinion in the courts of the different
states upon the question how far a liability, imposed upon
stockholders in a corporation by the law of the state which creates
it, can be pursued in a court held beyond the limits of that state,
no case has been found in which such a liability has been enforced
by any court without a compliance with the conditions applicable to
it under the legislative acts and judicial decisions of the state
which creates the corporation and imposes the liability. To hold
that it could be enforced without such compliance would be to
subject stockholders residing out of the state to a greater burden
than domestic stockholders. The provision of the Rhode Island
statutes which made the stockholders of the Atlantic De Laine
Company liable for its debts was coupled with provisions
prescribing the form of remedy, which still remain in force except
so far as they have been modified by the later statute of the same
state. By the decisions of this Court as well as by those of the
courts, both state and federal, held within the State and District
of Rhode Island, and of the highest court of Massachusetts, where
these provisions had their origin and their first judicial
construction, this liability can be enforced only in the mode
prescribed by the statutes of Rhode Island. The present suit,
therefore, not being a bill in equity or an action upon a judgment
against the corporation, which are the only forms of
Page 120 U. S. 759
remedy authorized by these statutes, but being an independent
action at law upon the original liability of the stockholder,
cannot be maintained, and the circuit court rightly so held.
Judgment affirmed.
MR. JUSTICE BLATCHFORD did not sit in this case or take any part
in its decision.