Corporation, Liability of stockholder. Contract, What constitutes. Equity Pleading and Practice, Parties.
A statute of another State, providing for the incorporation of associations "organized for the purpose of constructing railways, maintaining and operating the same," contained the following provision: "Each stockholder of any corporation formed under the provisions of this act shall be held individually liable to the creditors of such corporation to an amount not exceeding the amount unpaid on the stock held by him, for any and all debts and liabilities of such corporation, until the whole amount of the capital stock of such corporation so held by him shall have been paid." Held, that one, who voluntarily became an original stockholder in such a corporation and did not pay for his shares, was liable to a creditor of the corporation, in an action of contract brought in this Commonwealth, on proof of those facts and of the debt of the corporation to the plaintiff, although the plaintiff had obtained no judgment against the corporation, the liability being made direct by the statute and not enforceable through the corporation.
In a suit in equity under R.L.c. 159, § 3, cl. 7, to reach and apply equitable assets in the hands of divers defendants alleged to be held for the benefit of the principal defendant, it appeared that the debt from the principal defendant consisted of his liability under a statute of another State as a stockholder of a corporation organized in that State to the plaintiff as a creditor of such corporation, and that the language of the statute made the principal defendant directly liable to the plaintiff on proof that the plaintiff was such a creditor of the corporation and that the principal defendant was a stockholder who had not paid for his shares, without showing that any judgment had been obtained against the corporation. Held, that neither the corporation nor other delinquent stockholders were necessary parties to the suit, and that there was no occasion for the appointment of a receiver to wind up the affairs of the corporation and distribute its assets, so that the plaintiff could have recovered from the principal defendant in an action of contract, had not the reaching and application of equitable assets given ground for equitable relief.
BRALEY, J.
The defendants have demurred, and the question is, whether the bill, the allegations of which are admitted, states a case. It is alleged, that, by the laws of Illinois providing for the incorporation of associations "organized for the purpose of constructing railways, maintaining and operating the same, . . . Each stockholder of any corporation formed under the provisions of this act, shall be held individually liable to the creditors of such corporation to an amount not exceeding the amount unpaid on the stock held by him, for any and all debts and liabilities of such corporation, until the whole amount of the capital stock of such corporation so held by him shall have been paid." The defendant became a stockholder in a corporation organized under this act, and the nature and measure of his liability to corporate creditors is to be defined and determined by the language of the statute. It must affirmatively appear in a suit to enforce the statute that the corporation is indebted to the plaintiff, and that the defendant stockholder, while the holder, has failed either partially or wholly to pay into the treasury of the corporation the capital represented by the shares issued to him at its organization. Kelly v. Killian, 133 Ill. App. 102, 107. These essential requirements are complied with by the allegations of the existence of an unsatisfied indebtedness of the corporation to the plaintiff for instalments of accrued rent, and that, with the exception of six shares, the entire capital stock consisting of one thousand shares of the par value of $100 each, for which he has not paid, were issued to the defendant and have been continuously held by him.
But the defendant contends that, before he can be made responsible, judgment for the debt must be obtained against the corporation. The liability imposed is contractual. Putnam v. Misochi, 189 Mass. 421, 423. Converse v. Ayer, 197 Mass. 443, 453, and cases cited. Converse v. Nichols, 202 Mass. 270, 274. Bernheimer v. Converse, 206 U.S. 516. The corporation came into existence by virtue of the statute, and its stockholders were charged with notice of the provisions of the act, which was equivalent to a charter of incorporation. In voluntarily joining as an original stockholder, the defendant must be presumed to have known, that if he did not pay for his shares, creditors could compel him to pay to them the money he justly should have contributed to its capital for the stock he had received, and which would have enhanced its assets. Converse v. Ayer, 197 Mass. 443. The justice and expediency of the statute are not before us. Its evident purpose is to give a direct remedy to the creditor to obtain payment for his debt out of the unpaid capital, and in no event can the defendant be made to pay more than he owes. Fleischer v. Rentchler, 17 Ill. App. 402. Hatch v. Dana, 101 U.S. 205. If this liability had been made enforceable through the corporation, a judgment against it would have been indispensable before the stockholder could be reached. E. Remington Sons v. Samana Bay Co. 140 Mass. 494, 496. Train v. Marshall Paper Co. 180 Mass. 513. By the statute, however, a judgment not having been required, none is necessary. The defendant's liability instead of having been made secondary, as provided in the foreign statutes involved and construed in Hancock National Bank v. Ellis, 166 Mass. 414, Broadway National Bank v. Baker, 176 Mass. 294, and Bearse v. Mabie, 198 Mass. 451, is expressly declared to be unconditional under the law of the place of contract, which must control. Electric Welding Co. v. Prince, 195 Mass. 242. Hager v. Cleveland, 36 Md. 476. Gebhard v. Eastman Gibson, 7 Minn. 56. Trippe v. Huncheon, 82 Ind. 307. Morrow v. Superior Court, 64 Cal. 383. Liverpool Great Western Steam Co. v. Phenix Ins. Co. 129 U.S. 397.
The suit for the creditor's benefit furthermore is not made dependent upon either the joinder of other delinquent stockholders or of the corporation, or the appointment of a receiver to wind up the affairs and distribute the assets, and, if contribution from his co-stockholders and the remedy over against the corporation are deemed by him valuable rights, the defendant can establish and enforce them by appropriate proceedings. Cary v. Holmes, 16 Gray, 127. Putnam v. Misochi, 189 Mass. 421. Montgomery Door Sash Co. v. Atlantic Lumber Co. 206 Mass. 144, 157. Allen v. Fairbanks, 45 Fed. Rep. 445.
If an exclusive remedy for the enforcement of the liability had been provided by the statute, it would have to be followed, and might not have been adapted to our remedial law. But if the remedy is not prescribed, the statutory personal liability of a stockholder according to our recent decisions may be enforced by any appropriate legal procedure of the State of his domicil. Hancock National Bank v. Ellis, 172 Mass. 39. Putnam v. Misochi, 189 Mass. 421, 423. Converse v. Ayer, 197 Mass. 443, and cases cited. See also Perkins v. Church, 31 Barb. 84; Aldrich v. Anchor Coal Co. 24 Or. 32; Hatch v. Dana, 101 U.S. 205; Flash v. Conn, 109 U.S. 371; Whitman v. Oxford National Bank, 176 U.S. 559. The adjustment of equities, if any, between the corporation and its stockholders, or between the stockholders themselves, not being a preliminary requirement, the plaintiff could have sued in an action of contract, but as the bill seeks to reach and apply property of the defendant which cannot be seized on execution, it can be maintained for the establishment of the debt, and for equitable relief. Hancock National Bank v. Ellis, 172 Mass. 39. Broadway National Bank v. Baker, 176 Mass. 294. Flash v. Conn, 109 U.S. 371. R.L.c. 159, § 3, cl. 7.
A majority of the court is of opinion that the decree overruling the demurrer should be affirmed.
Ordered accordingly.