Windham Provident Institution for Savings v. Sprague

The opinion of the court was delivered by Ross, J. This case comes to this court on exceptions to the judgment of the county court on the report of a referee. The defendants were directors and stockholders in the Jamaica Leailer Company, July 12,1866, when, the plaintiff loaned that company 14,000, and took therefor a promissory note signed with the company’s name by Hammond J. Livermore, agent, and by several individuals as sureties. The money thus obtained was used by the company in paying the company’s debts. The defendants Sprague and Barnes, who alone defend, claim that, under the bylaws of the company, the agent had not power to execute promissory notes on behalf of the company, and therefore, whatever may be their liability under the charter, they cannot be made liable in this action. We think the by-laws empower the treas [509] urer, alone, to execute the promissory notes of the company. The printed case does not inform us whether the action is upon the note, or for the recovery of the money loaned in some proper form. The particular form of the declaration is rendered immaterial, by the parties’ submission of the case to a referee. This court has repeatedly held they would affirm a judgment on the report of a referee, whenever, without changing the nature of the action, the declaration could be so amended as to accommodate itself to the facts found by the referee. Ladd v. Lord & Gillett, 36 Vt., 194; Cook v. Carpenter & Cook, 34 Vt., 121; Sumner v. Brown, 34 Vt., 194. If the action is debt upon the note, as stated by counsel in argument, and if it should become necessary to uphold the note as binding upon the company, we think the company, by receiving and appropriating the money obtained upon the note executed by Hammond J. Livermore, agent, so ratified his act, though before unauthorized, that the note became the valid note of the company. Bank of Orleans v. Fassett, 42 Vt., 432. The plaintiff claims to recover the balance due on that loan of the defendants, who were then directors and stockholders, not by reason of any express contract from the defendants, but by virtue of that section in the charter of the company which provides: “ This company shall not at any time contract debts exceeding three fourths the amount of its capital stock paid in; and if such indebtedness shall exceed the amount aforesaid, the directors and stockholders shall be personally holden to the creditors of said company.” At the time the indebtedness of the company to the plaintiff was contracted, the company’s debts exceeded three fourths the amount of its capital paid in. Sprague and Barnes ceased to be stockholders before the suit was brought, at which time the company’s debts did not exceed three fourths its capital paid in. The company was then insolvent. The finding of .the referee renders it apparent that the company had sunk its entire capital stock and the amount due on this debt; that all its assets have been used in paying other claims, and that this claim remains unpaid. The main question to be decided, is the effect to be given to this clause in the company’s charter. It is apparent, the legislature, by that clause, purposed to restrain the company [510] from contracting debts to an amount exceeding three fourths its capital stock paid in, and, also, in the event that should be done, to furnish to the creditors of the company the security of the private property of the directors and stockholders, in addition to the property of the company. No means of enforcing this provision are incorporated into the charter. Most of the cases cited from New York and Massachusetts, as well as the case of Dauchy et al. v. Brown et al., 24 Vt., 197, differ in this respect from the case at bar. In those cases the remedy is provided, as well as the liability created, in the charter. This liability of the directors and stockholders does not exist at common law. If the act creating a new liability provides the remedy also, it is well established that that remedy must be followed, and is the only remedy the creditors have. It is also equally well established that where a new liability is created by the charter, but no remedy is provided, the party may resort to the common law remedy. By the common law, the language of the clause would render the directors and stockholders jointly holden for the debts of the company. We think that was the intention of the legislature also. The word ‘1 personally ” is used to distinguish their joint liability as individuals from their liability as directors and stockholders. As stockholders they were liable, only, to the amount paid in on the stock owned by each ; and as directors, they were liable, only, for some neglect or misfeasance in managing the affairs of the company. They are spoken of as one body of individuals, and as such a collection of individuals, composed of the classes named, are declared to be personally holden to the creditors of the company. They are the company. To them is entrusted the entire management and control of its business. They can keep the indebtedness of the company within the limits fixed by the legislature, or they can extend that indebtedness beyond that limit, and voluntarily take upon themselves the relation of joint debtors to the creditors of the company. This liability is to attach only when the indebtedness of the company is allowed to pass the prescribed limit, and then it attaches at once to the then directors and stockholders as joint debtors. It is apparent, the legislature did not intend that this liability should rest upon those persons who might happen to be [511] directors and stockholders at the time a suit is brought. The creation of this additional liability seems to have been intended as a check upon the directors and stockholders in the contraction of debts, and to have been imposed, in some sort, as a penalty for the infraction of that part of the clause prohibiting the contraction of debts beyond three-fourths its capital paid it. It declares that, in such a case, they shall lose the protection of their charter, and stand related to the creditors as a body of individual debtors. To visit this penalty upon any others than those who caused the infraction of the charter would be manifestly unjust as well as unintended. Those holding the relation of directors and stockholders to the company at the time the suit is brought, may not have added a farthing to the indebtedness of the company, and so be entirely innocent of any infraction of the prohibitory clause in the charter. This view is supported by Moss v. Oakley, 2 Hill, 265, and Mill Dam Foundry v. Hovey, 21 Pick., 453, where similar provisions in charters were under consideration. No case has been brought to the attention of the court conflicting with .the view we have taken, unless it be the case of Middletown Bank v. Magill, 5 Conn., 28. That was decided by a majority, only, of the court. Chief Justice Hosmer, in a dissenting opinion, maintained that the stockholders, who were such at the time the indebtedness was contracted, were holden as joint debtors, while the majority of the court held that the stockholders at the time the suit was brought were liable. By the provisions of the charter under consideration in that case, the stockholders were personally liable for all the debts of the company at all times. We are quite as well satisfied with the reasoning of the chief justice as with that of the majority of the court. That case, however, is clearly distinguishable from the case at bar, and we have no occasion to review the reasons given by the majority of the court for their decision. Judgment affirmed.