Wait v. Ferguson

Hilton, J. The fourth defence is, in substance, that from the time of the organization of the railroad company referred to in the complaint, under the general railroad law of the State of Illinois, the plaintiff was, and still is, a stockholder and member thereof, and therefore not a creditor within the meaning and intent of the 14th section of that law, which declares that all such stockholders shall be severally individually liable to the creditors of such company, 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 the capital stock shall have been paid in, and a certificate thereof shall have been made, filed, and recorded, as therein prescribed. Every combination of persons for the purpose of carrying on business of any kind for mutual profit maybe denominated a partnership, and each member thereof is jointly and severally liable for all obligations which may be incurred in the prosecution of the business thus entered upon. Thus, an incorporated company is a species of partnership, but its shareholders are not liable in their individual capacity, unless it is so expressly declared in the act of incorporation; this exemption being one of the principal objects for which the incorporation is procured, and, it should be assumed, is only granted in those cases where the undertaking is of an important nature, embracing public as well as private interests and benefits. In the present case, it seems the Legislature of the State of Illinois, by their general railroad law, did not intend to exempt' companies from this individual liability incident to all partnerships, until all the capital stock had been paid in, and a certificate to that effect had been filed and recorded; but when it was filed, and the entire capital had become devoted to the objects specified in the articles of association, then the company thus formed became a full-fledged corporation, possessed of all the immunities and privileges incident to such statutory creations. Here it appears the company never arrived at this state of [385] perfection, the capital stock never having been paid in, and hence the stockholders never acquired this exemption from personal liability incident to the perfect corporate existence contemplated by the general statute .under which the company was organized. They should, therefore, in my opinion, be regarded as quasi partners—at least as between themselves—and subject, upon prosecuting each other, to all the provisions of law attaching to that relation; one of those rules being that one member of a partnership cannot maintain an action against his copartners for a debt due from all. (Story on Part., §§ 220, 221.) And, although in one aspect this statute differs from the common-law rule respecting partners, in giving an action against stockholders severally, yet, as was said by Judge Bronson, in Bailey a. Bancker (3 Hill, 188), I do not perceive that this alters the principle. It is still the case of one partner suing another for a debt due from the whole partnership. (Moss a. Oakley, 2 Hill, 265; Allen a. Sewall, 2 Wend., 327 ; Story on Part., §§ 76, 77; Andrews a. Murray, 33 Barb., 354; Collyer on Part., §§ 10, 81, 3 Am. ed.; Harger a. McCullough, 2 Den., 119; Pierce a. Kearney, 5 Hill, 82 ; Marquand a. Webb, 16 Johns, 89.) The case of Woodruff & Beach Iron Works a. Chittenden (4 Bosw., 406) proceeds upon the authority of Simonson a. Spencer (15 Wend., 548), which I regard as virtually overruled, certainly widely departed from, in Bailey a. Bancker and Moss a. Oakley, supra. (See, also, Mann a. Pentz, 3 N. Y., 415 ; Englis a. Furniss, 4 E. D. Smith, 587, 599 ; Andrews a. Callendar, 13 Pick., 484.) For these reasons, I think the fourth defence set up in the answer a valid one, and the demurrer to it should be overruled. The fifth defence pleaded by the answer, and which is likewise demurred to, is in substance, that by the same G-eneral Railroad Law of the State of Illinois it is declared that every officer of a railroad company who signs a certificate, report, or public notice given in pursuance of the provisions of that act, which contains any material false representation, shall be liable for all the debts of the company contracted while he' is a stockholder or officer thereof. The defendant then alleges that the plaintiff, being one of the directors of such company, made and swore to an affidavit or certificate which was attached to the articles of association required by the general law, to be made [386] and verified at the time of the formation of any company under it, wherein it was falsely stated that $16,000 had been actually paid in, being ten per cent, upon the capital of the proposed company. That at the time of mating such affidavit no actual n and bona-fide payment had been made to the directors mentioned in the articles, and therefore the plaintiff becomes liable for all the debts contracted while he was a stockholder, and especially for the indebtedness sued upon in this action. It cannot, I think, be denied that this affidavit .was made in pursuance of the requirements of the general law, and that it contained a material false representation. It was in effect a false certificate as to a fact which was required to be established by oath as a condition precedent to the persons signing the articles of association becoming in any sense a corporation, and as a punishment for this false representation, the law imposed upon the officer in making it, a liability for all the debts of the company contracted while he was a stockholder or officer, and which would include the claim or indebtedness in suit. I admit that this is a highly penal provision, and should not be extended by construction to any cases not fairly within its language. (Garrison a. Howe, 17 N. Y., 458.) Yet I think this case is clearly one within its plain intent and import. It is not material to whom the debt shall become owing; it is sufficient if the'company contracts it while the officer making the false representation continues to be a stockholder or officer. For all such debts he is liable. To hold that this penal provision had no application to debts contracted by the company with the officer who should thus violate the law, would certainly be an extraordinary interpretation of plain and positive language, and ■would be in effect, awarding a premium for criminality. Assuming, then, that the plaintiff has in this manner become liable for the payment of this debt, in whosoever hands it may be, it would follow that permitting a recovery by the plaintiff would subrogate the defendant to his rights as a creditor, and thus we would have them suing each other indefinitely for the same debt. (See Bailey a. Bancker, and Andrews a. Murray, supra.) There is nothing in the law which would sanction a recovery leading to a litigation so endless and fruitless. The demurrer to the fifth defence is not, in my judgment, well taken, for the reasons stated. [387] The remaining demurrer is to the sixth defence, which is interposed as such, and also “ as a set-off or counter-claim.” It alleges that the plaintiff, at the time this debt was contracted, was, and still is, the owner of forty shares of the capital stock of the company, of the par value of $2,000, and for which he subscribed ; that no part of such subscription had been paid by him, and that he was, and still is, indebted therefor to the company. Assuming the views I have already expressed are correct, it follows thal; some of the facts stated in this defence are proper to be interposed in bar of any recovery in an action of this nature between two stockholders or quasi partners. There is, however, a technical objection to the entire defence being stated as a counter-claim or set-off, but it may be amended in that respect. (Code, § 150.) . It is not a demand existing in favor of the defendant against the plaintiff for which a recovery can be had, but the defence, as stated, contains matter in bar of the plaintiff’s right of action, although it might be more properly pleaded in connection with the averments contained in the fourth defence. It may be that the fact respecting the non-payment of this subscription is immaterial, and that the only substantive fact is the statement as to the number of shares which the plaintiff holds. But the demurrer being to the whole of the defence set up, I cannot say that it is altogether bad. If the plaintiff desires to strike out any part of it as immaterial or irrelevant, his remedy is by motion for that purpose. Judgment for the defendant on the demurrers, with costs.