Millaudon v. New Orleans & Carrollton Rail Road

Bullard, J. We may assume it as undoubtedly true, that no stockholder can be liable for more than a hundred dollars for each share holden by him ; and that each share is to lose an equal amount on a final liquidation of the Bank. Hence, if the whole capital shall be found to have been sunk, those who have paid but fifty per cent will remain debtors for the balance of their subscription, and those who have paid up entirely cannot be called on for any more. If, on the other hand, it should turn out that there is a loss of fifty per cent, of the stock subscribed, then those who have paid up that amount are no further liable; but there will remain a balance in favor of those who have paid up in full, unless it be admitted that one share is to lose more than the others. If Millaudon were now garnisheed by the creditors of the Bank, he might defend himself by showing that he had paid up all he was bound to pay. If a stockholder, who bad paid but fifty per cent, were sued, he would be liable towards the creditors of the institution for the balance of $50 per share. These appear self evident propositions. When Millaudon paid his shares in full, he did not suppose that he was to lose more on each share, ultimately, than any other stockholder. His position, relatively to the other stockholders, as partners, was unchanged, in our opinion, except as to the occasional dividends which he was entitled to draw in proportion to what he had paid in. Each still remained liable for the amount of his original subscription, and for neither more nor less. The only difference was, that Millaudon had anticipated the payment of all he could ever be called on to pay as a stockholder, necessarily, we think, under the tacit condition, that, if the concern should prove profitable, he should receive dividends of profits a pro rata, and, on the winding up of the concern, after the payment of its liabilities out of the surplus profits, that the whole capital stock which he had paid should be refunded to him ; and, on the contrary, if the Bank should meet with disasters, that he should lose the same proportion upon each share, as the — 505 — other stockholders, and no more. If this be not true, then the original terms and conditions of the association have been materially changed from what they appear by the charter. According to the charter, each subscriber became liable and interested in proportion to his number of shares, and was to share in the profits and losses in that proportion. The resolution of the Board, under which Millaudon paid in full, contains only the condition, that he should receive dividends in proportion to the sum paid in. Can it be imagined that another condition is implied or understood in that resolution, to wit, that if the affairs of the Bank should prove disastrous, Millaudon should lose double the amount lost by the other stockholders ; that he should lose the whole and the others only one-half of their subscription — of the capital which each stockholder engaged to put in 1 Such a construction of that resolution would be a very forced one, and involve the monstrous incongruity of one stockholder losing on the final settlement of the affairs of the Bank twice as much as another, merely because he had paid up his stock in advance. Such are the principles which apply, as among the stockholders themselves — as between Millaudon and his co-corporators. They are the elementary principles of the law of partnership, stripped of all technical phraseology, and are to be found in the various authors who have treated on the subject. Some of them have been referred to by the counsel for Millaudon. Pothier considers it of the essence of the contract of partnership, that the parties should propose to make profits, in which each shall participate in proportion to what he has brought into the concern. He considers each as a debtor to the partnership for what he had promised to bring in. It results from this principle as a necessary corollary, that if one partner has brought in more than the others, he is a creditor of the partnership for the difference. Pothier, De Société, No. 12. It is true that all the funds paid in, and all the property acquired form partnership stock, and, as it relates to creditors, stand as a pledge for the payment of all liabilities to the public. “ Each partner,” says Judge Story in his Treatise on Partnership, “ has a specific.lien on the present and future property of the partnership, not only for the debts and liabilities due to third persons, but — 506 — also for his own amount or share of the capital, stock, and funds, and for all moneys advanced by him for the- use of the firm, and also for all debts due to the firm for moneys abstracted by any partner from such stock and funds beyond his share.” Sect. 97. ■ The language of Bell in his Commentaries on the Scottish law, which sprang from the same fountain with our own, is very pithy and cogent on this subject. “ The property of the company is common, held pro indiviso by all the partners as a stock and in trust, responsible for the debts of the concern, and subject, after the debts are paid, to division among the partners according to their agreement. This is a great point in the doctrine of partnership, and important consequences are deducible from it. The common stock includes all lands, houses, ships, leases, commodities, money — whatever is contributed by the partners to the company uses. It comprehends, also, whatever is created by the joint exertions of the company, or acquired in the course of the employment of their capital, skill, and industry. All this, by the operation of law and the nature and effect of the contract, becomes common property; is held by all the partners jointly for the uses of the partnership, and is directly answerable as stock for the payment of its debts.” “ The stock, or common fund, is held by the partners pro indiviso. This pro indiviso right implies, as between the parties themselves, a right of retention in each partner over the stock, for any advances which -he may have made to the company, or for any debt due by the company for which he may be made responsible. It also implies, in relation to the public at large, creditors of the company, a trust in the several partners, as joint trustees, for the payment, in the first place, of the debts of the company.” 2 Bell, 613. There is an obvious distinction between the rights of the stockholders, inter se, and their rights and obligations in relation to the creditors of the Bank. We have found no difficulty in coming to the conclusion that, although in relation to the public, all the funds of the Bank, including what was paid in by Millaudon over and above what was paid by other stockholders, may be liable as stock to the creditors of the Bank, yet that, after their debts are paid, he would be entitled to receive double the amount which would be coming to the others. And this brings us to the inquiry, — 507 — whether the plaintiff be entitled, at this time, to withdraw what he has overpaid, or how far he may invoke the aid of the court to coerce such an administration on the part of the defendants as will secure his eventual rights, and maintain that equality in the contingent liabilities of the stockholders, which equity, as well as the charier, requires. And before entering into this part of the case, it may be premised that, as a consequence of the principles above stated, if it were now ascertained that the loss sustained by the institution would not exceed fifty per cent, Millaudon would be entitled, at once, to recover the excess paid by him on that amount. It is true that, if the Bank were yet in operation as such — if its capital were yet employed in banking, such an action would be premature; but it is admitted that the institution is in the progress of liquidation, having acceded to the terms of the act of the last legislature for that purpose. In liquidating the concerns of the Bank, the Board of Directors become the mandataries of the stockholders for that purpose, and the trustees of the creditors of the Bank. Their duties result from this twofold relation towards the stockholders and the public. They can declare no more dividends, nor subject the stockholders to any new liabilities. They are so to husband the resources of the Bank, as to meet all its existing liabilities, and preserve for the stockholders as much of the capital as possible. If, for the purpose of paying debts, a further call upon the stockholders who have not paid their subscriptions in full, should be necessary, we do not doubt the authority and obligation of the Directors to make the call. The act of 1839, upon which the counsel for the Bank rely to show that no further contribution can be required, we think does not diminish any of the original liabilities of the stockholders, and that they still remain contingently liable for the full amount of their subscriptions; but that, for purposes of banking, the capital stock, as it stood in March, 1840, was not to be changed. But if a loss should be ascertained, for example, of sixty per cent on each share, the Directors are authorized to call in ten per cent from those who have paid but fifty, and to employ, for the purpose of paying the loss, ten dollars per share of the stock paid in full by Millaudon. Equity forbids that, in such a contingency, the whole amount paid by Millaudon should be used in paying the — 508 — deficit, and that he should be turned over to his action against each stockholder to be reimbursed what he may have paid over his share. In a direct action by a creditor against the Bank, that fund would undoubtedly be a Bank fund, liable to execution, because, quoad the creditors, it is capital stock; but it does not follow that the liquidators of the institution would be justified in desisting from calling upon the other stockholders to contribute their share, and in employing what, as between themselves, belongs to Millaudon, in paying a common debt. The application of those principles to the cases before us is not free from difficulty. The two cases were consolidated. In the first, in which Millaudon is plaintiff, he shows that he is the owner of 2785 shares which have been paid rin full, one half, to wit, $139,250, over and above the other stockholders, under the resolution of the Board of Directors above alluded to. He complains that the Board has refused to call upon the other stockholders to pay the balances due by them, and thereby place all upon an equal footing, and he prays that the court would decree: first, that the whole stock be called in, and all the stockholders ordered to pay the fifty per cent remaining due ; secondly, in default thereof, or in case of inability, that the surplus paid by him, to wit, $139,250, be refunded to him; thirdly, that he be paid interest from the 1st of March, 1841, on said surplus ; fourthly, that the Bank be precluded from requiring any reduction on the loans made to him on the pledge of his stock, until all the stockholders be put on an equal footing with him; and he asks for general relief. On the other hand, the Bank sues upon sundry stock notes of Millaudon, secured by a pledge of his whole stock, and amounting in all to $82,650 ; and, in his answer, the latter sets up substantially the same grounds of defence as form the basis of his direct action, and- prays that the amount of the notes sued on may be compensated, by deducting so much from the amount paid by him over and besides that paid by, and required from, the other stockholders. The Parish Court gave judgment in favor of Millaudon for $137,500 less the amount of his stock notes, amounting to $82,650, and interest; or, in other words, Millaudon recovered the whole — 509 — amount paid by him over the fifty per cent originally called in, and the Bank has appealed. It will have been perceived, from what has already been said, that this judgment would accord with our views of the rights of the parties, if it had been ascertained that the loss sustained by the institution would amount only to fifty per cent on each share, or to less; and if the rights of the creditors, who have not yet been paid, had not been overlooked. It is liable to the further objection, that it does not reserve to the Directors the right to call back from Millaudon his proportion of stock, which may be required by the exigencies of the Bank if the losses should amount to more than the fifty per cent. It decrees a final adjustment of the matter in controversy, as if there were no debts to be provided for, or as if the creditors fiiad no privilege on the fund, and the Directors were not in duty bound to provide for those debts. This part of the case presents, therefore, two questions. First. Can the Directors, in the capacity in which they are now acting, recover on the stock notes, either absolutely or conditionally; or, is Millaudon entitled to retain that amount, at least until it be shown that it will be required to pay the creditors ? Secondly. Can the court decree that any part of the capital stock shall be called in, if necessary, to pay creditors, and to maintain equality among the stockholders 1 I. Upon the first point, it appears to us, as intimated above, that, since the Bank decided upon going into liquidation, the relations between the Directors and the stockholders have undergone a material change. While the Bank was in operation, a loan to a stockholder on a pledge of stock, was, like any other loan to a stranger, liable to be called in, or its payment coerced. Even the loan in queslion, upon stock fully paid, could not have been exempted from such liability, upon that ground. But, at this time, the position of Millaudon, who, independently of the amount due on the stock loan, has paid more than the other stockholders, appears to us to bear a strong analogy to that of a co-heir, indebted to the estate, who cannot be compelled to pay until after a final adjustment of accounts between the heirs. The necessity for the Directors to recover this sum in order to pay debts, is not shown. Why should the common mandatary receive or require from one — 510 — of his principals a larger amount than from another, to be employed for a common object ? It is a fund which can no longer be used for any other purpose than the payment of the debts of the institution. If any more than the fifty per cent already paid in by the stockholders in general, should be required for that object, why should Millaudon’s condition be rendered more onerous than that of the others ? Besides the amount of the stock notes, he has, in the hands of the liquidators, $44,850, over and above what has been advanced by other stockholders having an equal number of shares. As among the stockholders, he must be regarded as a creditor to the full amount of the surplus advanced by him ; and, as it is no longer possible to declare dividends, it is not very obvious why he should not be entitled to interest, at least since the. Bank ceased to operate as such. Millaudon must be considered as having, in his hands, an amount which, as relates to creditors, belongs to the common stock, and in case of necessity must be employed in the payment of debts, but which he is entitled to retain in his hands until that necessity be shown, in the further progress of the liquidation of the Bank. The doctrine as quoted above from Bell’s Commentaries, seems applicable to this case, to wit, that the pro indiviso right of the partners implies, as between the parties themselves, a right of retention in each partner over the stock for any advances which he may have made to the company, or for any debt due by the company for which he may be made responsible. II. As to the question, how far the court can interfere to require a calling in of stock to meet the exigencies of the Bank, and to equalize the burden of the stockholders, we may repeat, that we consider that the paramount duty of the Board; and, if they employ in paying debts any part of the fund furnished by Millaudon over and above the other stockholders, they are bound to replace it by calling in from the other stockholders such a proportion as will put all upon an equal footing, and thus be ready to account to him for the whole surplus, if the loss should not exceed fifty dollars per share on the whole stock. If the Directors should act otherwise, and throw a disproportionate burden upon him, he would have his redress, either by an action against his mandata — 511 — ries, or the other stockholders. We cannot anticipate the necessity of such an application for redress, because we will presume that the defendants will act fairly and justly in winding up the affairs of the Bank. But that system of jurisprudence would be singularly defective, which should deny to the tribunals the authority to prevent anticipated wrongs, while they are competent to afford relief after their infliction. In the administration which the defendants have assumed under the statute, they are bound to ta.ke the law as their guide; and parties interested have a right to the aid of the courts to prevent a deviation from that rule, to their prejudice. It is, therefore, adjudged and decreed that the judgment of the Parish Court be avoided and reversed; and it is further ordered and decreed, that in the case of the Bank against Millaudon upon the stock notes, there be judgment for the defendant, as in case of nonsuit; and that in the case of L. Millaudon against the Carrollton Bank, there be judgment in favor of the Bank as in case of nonsuit, reserving fo the said Millaudon his right to recover, after the payment of the liabilities of the Bank to others than stockholders, the amount he may have paid over and above other stockholders, so far as the same shall mot have been employed in the payment of such liabilities ; and provided, that the President and Directors proceed to call in from the other stockholders, such further sums per share as shall be found necessary for the payment of the debts of the institution according to the principles recognized in this decree, if the loss should exceed the fifty per cent already paid in. And it is further ordered that the costs of the Parish Court be borne by the parties equally, and those of the appeal by the appellee.* Footnotes [*] T. Slidell and Eustis, for a re-hearing. No application is made to the court to reconsider so much of its opinion as defines the liabilities of the stockholders towards the public. Those who have paid but half their stock, it is conceded, can be called upon by the creditors of the Bank to pay further instalments, should the capital, now paid in, be insufficient to discharge the debts of the Bank. But the relations of the stockholders, inter se, are widely different from their relations to the public and to creditors. As among the stockholders themselves, the paying in of stock was, by the charter, left entirely to the Board of Directors. The Board never called in more than $50 per share. But it was willing and so resolved, “ that any stockholder who shall — 512 — pay, in anticipation, a part or the full amount due on the shares held by him, shall be entitled thereon to dividends in proportion to the amount respectively paid in ; provided, that no dividend shall be made or received in favor of any instalment which should not have been paid in more than three months prior to the declaration of such dividend.” Such are the very words of the resolution of May 13th, 1836. Millaudon availed himself of this privilege. Let us strip this case of any considerations which may entangle it, from the question being one concerning a Bank and the stock of a Bank. Such considerations are important in establishing the relations of the stockholders towards the public; but, inter se, the stockholders are mere partners. Let us imagine that A, B, and C associate themselves as partners in a commercial house. That, by the articles of partnership, they agree that the capital of the house shall be limited to $300,000, of which $100,000 is to be supplied by.each partner. That they agree that each shall put in $5,000, to commence with ; and that one of the firm, elected by the vote of all, shall fix, from time to time, the amount of capital to be called in, whose decision shall be imperative upon them. That it is also agreed, that the profits shall be divided at stated periods, and that each partner may withdraw his share thereof according to the amount he has paid in. Let us suppose that A is elected to perform this duty, and let us call him the Director of the firm. The Director calls upon the partners to pay in, each to the extent of $50,000. They do so, and in doing so fulfill all that their contract of partnership required of them. For without the call of the Director, to whose discretion the matter was submitted, none were bound to advance a dollar beyond the original $5,000. In this state of things the partners agree that if any partner choose, without a call, to put $50,000 more into the firm, so as to complete at once the total amount which he could be called upon in any event to advance, he may do so, and participate accordingly in the profits.^ B avails himself of the offer, advances $50,000 more, and the partnership stock stands thus : A.....$50,000 B..... 100,000 C..... 50,000 The business of the firm proceeds ; the partnership prospers; $100,000 of profits is realized; the period for the division of profits arrives. How is this $100,000 of profits to be divided ? Undoubtedly, like the dividends under the Bank’s charter, in proportion to the amounts the partners have respectively paid into the firm. A then withdraws, for his share in the profits, $35,000 ; B for his share $50,000 ; and C receives $35,000. The business of the partnership continues, the’ original capital remaining in the same position. The firm loses to the amount of $100,000. As the partnership fund was originally but $200,000, deducting the loss there remains but $100,000. Let us now suppose that the partners determine to go into liquidation. How is this $100,000 to be divided ? We say that it should be divided according to the amounts which the partners respectively advanced ; that A and C should take one-quarter, or $25,000 each, and that B should take $50,000 ; that the profits wore divided according to this standard, and that the losses should be borne according to the same rule. Qui sentit commodum, sentiré debet ei onus. But the decision in this case declares, that B shall first deduct from these $100,000 the $50,000 which he has put in beyond — 513 — the other partners, and that the residue, to wit, $50,000, shall be divided among them, one-third, or $16,666 66 2-3, to each. What then is the true and practical result of the application of this principle in the liquidation, inter se, of the partnership affairs. A put in $50,000 ; his profits were $25,000 ; his receipts on final liquidation are $16,666 66 2-3 ; and he is thus a loser by the partnership $8,333 33 1-3. C stands exactly in the same condition as A. B put in $100,000 ; his share of profits received is $50,000 ; his receipts on final liquidation are $66,666 66 2-3. Thus estimating their relative position on the final liquidation, B has gained 16 per cent on his investment, while A and C have each lost 16 per cent. Is there any equity or justice in this 1 Is it possible that, with regard to the same subject matter, Millaudon can assume two different and inconsistent positions — that, as to profits, he should be considered a partner; but with reference to losses, a creditor ? that his stock should be considered in the double light of an investment in the partnership, and of a loan to the partnership ? The court has improperly considered Millaudon as a creditor and not a partner, and has applied to the relations of the partners, inter se, principles which, though undoubtedly true as regards the creditors of the Bank, are inapplicable to the stockholders as between themselves, and must necessarily lead to unjust results. The court has decided upon the rights of the stockholders, inter se, though not represented. The stockholders are not parties to the suit, so far as the adverse rights of their co-stockholder Millaudon are concerned. The corporation, as such, is a party to the suit against Millaudon, as its debtor upon his stock-notes. But the stockholders, as partners, are not parties to the suit; and as the decision of this court would not form res judicata, as between them and Millaudon, it ought not to prejudge the question which must hereafter arise between them and Millaudon, by establishing in this case the principles which are to govern, in the future division of the residuary assets of the partnership among its members. Re-hearing refused.