Wolverton v. Taylor

Gary, J. The appellants filed a bill to enforce the liability of the appellees as directors and officers of a corporation named George H. Taylor & Company. Such liability is charged upon the ground that they consented to the creation of an indebtedness by the corporation exceeding the amount of its capital .stock, and so became liable for such excess under Sec. 16 of the act concerning corporations, approved April 18, 1872. The debts sued for were created in October, November and December, 1882, by promissory notes becoming due in March and April, 1883. The bill was filed January 12, 1888—more than five years after the debts wer.e created, but less than five years after they became due. The bill alleges that when the debts were created and matured the excess existed. A demurrer by the appellees to the bill was sustained and the bill dismissed, and from that decree this appeal was taken. The causes assigned for the demurrer were two years’ limitation, on the theory that the liability was “a statutory penalty,” or if not, then five years, on the theory that the suit is a “ civil action not otherwise provided for.” The first ground of the demurrer will be passed with but slight consideration. There is no prohibition in the statute to the creation of an excess of indebtedness, but only a consequence declared if it is done. The ground upon which the Supreme Court held in Diversey v. Smith, 103 Ill. 378, and many other cases, that the liability of stockholders in insurance companies under the 16th section of the act of 1869 concerning insurance was a penalty, fails here, for they found in that act, by construction, a prohibition of the course of business from which the liability imposed by that section followed. In Hornor v. Henning, 93 U. S. 228, it is decided that language substantially the same as that upon which this bill is framed did not impose a penalty, but was intended to create a fund for the greater security of creditors. This case is cited with approval to support the position that the remedy is only in equity against all who are liable by or on behalf of all who are creditors, in Low v. Buchanan, 94 Ill. 76; and it is decided in Queenan v. Palmer, 117 Ill. 619, that equity has no jurisdiction to enforce penalties. It follows as a necessary conclusion from these last two cases (the remedy being in equity, and equity having no jurisdiction to enforce penalties) that this liability is not a penalty. The second ground can not be disposed of so easily and satisfactorily. The argument for the appellants is that they could not sue before their debt was due, and that the statute does not begin to run before they could sue. On the other side it is urged that the appellants’ cause of action arises from the act of the appellees, and the limitation begins to run from the time the act was done. Manifestly both positions can not be correct, but the vice seems to be in the premise, or the conclusion, of the appellants. If the appellants could sue the appellees only when they could sue the corporation, then it should follow that they might sue the appellees, their assent to excessive indebtedness concurring, so long as they might sue the corporation, and therefore if the corporate debts were by written instrument made before the excess of debt, on which an action would not be barred until the lapse of ten years, the appellants would be also liable for the unexpired residue of the ten years or more. There is but one case cited, Duckworth v. Jones, 3 Daly, 159, in which a question resembling that arose, and it was there decided that the three years’ limitation of the right of action against the defendants as trustees of a corporation for failure to make a report required by statute did not begin to run when the cause of action accrued against the corporation, but when they failed to report. In that case, however, the debt was due before the default of the defendants. The case cited from Yermont, Bassett v. St. Albans Co., 47 Yt. 313, only decides that the statutory liability is not kept alive beyond the term of limitation by a judgment against the company. 'It must be true that appellees would not be liable for debts barred as to the corporation, but this would be upon the ground that it is only to the creditors that they are liable, and if the debt is extinguished by limitation, collateral remedies are gone with it. Pollock v. Maison, 41 Ill. 516, a case of a mortgage, followed in Emory v. Keighan, 88 Ill. 482. But in such case the lapse of time would not be operative as a limitation upon the action against the appellees, but would have the same effect as payrn ent or release of the debt. In the nature of things, whenever the cause of action did accrue against the appellees, it accrued as a whole—all at once—not piecemeal or by fragments. It may doubtless become greater, after it has once arisen, by further excess of indebtedness, to which there is an assent by the same officers. Very grave inconveniences may be supposed from holding that no cause of action exists against the appellees until the debt is due. If the holder of a debt may not himself sue because his debt is not due, may he come in upon a bill filed on behalf of himself and all other creditors, by one whose debt is due, or must he stand by and see the fund which is for the benefit of all, divided among a few ? If no canse of action arises until the debt is due, then suppose a corporation of §50,000 capital, with indebtedness of the same amount, incurring, upon a credit of six months, a further indebtedness of §50,000. During the six months in which this last indebtedness is maturing the corporation pays the first §50,000 and in so doing exhausts its entire assets. If the later creditors could sue at once, when the excess is created, the whole §100,000 would be paid; half from .‘the assets of the corporation, the other half from the liability of . the officers. But if no cause of action arises until the later debt is due there is no excess then for the statute to attach to, and the later creditors get nothing. Or, suppose a case more likely to happen—that a corporation with some credit, and a capital stock of §50,000, owing to the officers’ friends, debts of §15,000 or §20,000, and as much more to other people, incurring new debts, upon a credit of some months, which make an excess equal to the friends’ claims, using the proceeds from the new debts and the assets of the corporation to pay the friends, and leaving all the other creditors, new and old, out, and there is the same unjust result, if the liability dates from the maturity of the new debts. The act of consent to an excess of indebtedness does not give a separate cause of . action to one creditor, but a collective one to, or for the benefit of all; those whose debts are incurred before the excess, as well as those whose debts caused it. Buchanan v. Bartow I. Co., 3 App. 191; Low v. Buchanan, 94 Ill. 76. Can the position that whether a suit upon that collective cause of action is prematurely brought or not, depends upon which of the several creditors is the more active, be maintained ? Under the bankrupt act, the petition in case of involuntary bankruptcy, might be by a creditor whose debt was not due (Bump on Bky. 28), though the act of Congress simply said “petition of one or more of his creditors.” Ib. 403. So in the administration of estates, whether of deceased persons or insolvents, by statute, claims not due are provable. Sec. 67, Ch. 3, Sec. 10, Ch. 72, R. S. 1872. Proceedings of the character of this are the administration, in equity, by rules which the court in a great measure frames for itself, of a fund, to be apportioned among claims due and not due, as the case may be, and in principle it can make no difference which class embraces the creditor who first calls upon the court for aid. The effort of appellants to show that this cause of action is some nondescript, not included in the words “not otherwise provided for,” has made no impression upon the court. The appellees have made no written instrument. Their liability was imposed by law for acts in pais. It ended with the lapse of five years after their last act ¡of consent to an excess of indebtedness. The demurrer was rightly sustained, and the decree is affirmed. Schalucky v. Field, 124 Ill. 617, has no resemblance to this case. Decree affirmed.