Liberty Female College Ass'n v. Watkins

Napton, J. — The only question in this case is upon the sufficiency of á petition to which'there was a demurrer. ' The petition alleges that plaintiff was a corporation duly organized under chapter 70, title 24, of the general [16] statutes, on the 15th day of January, 1868, that defendant on said 15th day of January, 1868, subscribed five shares of the capital stock of $100 each, aggregating $500; that this subscription was made when the 6th section of the 8th article of the constitution of 1865 was in force, and avers that by force of said constitutional provision and the law, defendant became liable to pay plaintiff, at such times and in such sums as plaintiff’s president and directors might determine, the said $500 so subscribed, and such additional sums, not exceeding $500, as might be necessary to enable plaintiff to pay off its liabilities lawfully incurred, while the said 8th article of said constitution was in force. The petition proceeds to state that previous to 1870 defendant had, upon regular calls made by the president and directors, paid up the sum of $500, his original subscription, but that by reason of purchases of lots, cost of building, apparatus, &c., and a subsequent depreciation of prices, &c., a sale of all its corporate property became necessary and ultimately, in November, 1875, it was ascertained that a debt was still due from the plaintiff of $3,000 and upwards, and only $50 of funds was left to pay it with, and, therefore, a resolution was adopted to make a call upon the stockholders for fifty per cent, over and above their original subscription, and defendant refusing to pay his $250, this suit was brought. This action by a corporation against one of its stockholders to pay, not the stock subscribed, but an additional sum to which a stockholder was made liable to creditors by the constitution of 1865, is undoubtedly a novelty. There is certainly nothing in the previous decisions of this court in which this constitutional provision has been discussed, from which such an idea could have been suggested, nor have we been referred to any decision of any other court in which it has been sustained or hinted at, nor have we been referred to any case, by either side, in which such a claim was made. This, claim in maintained on the ground that the corporation is a trustee for its creditors. [17] and a casual remark of the judge in Karnes v. Rochester J. G. V. R. R., 4 Abb. Pr. (N. S.) 107, is cited to sustain this view. That was an action brought by a stockholder' against the corporation to compel it to declare and pay á dividend from funds in hand, but the court declined to do so, and dismissed the bill on the ground that there were creditors whp had a prior claim, and in this connection remarked that the stockholders are in no sense creditors of the corporation; that they were constituent parts of the corporate body; and that, in a general sense, a corporation might be regarded as a trustee for its creditors, but not of its stockholders.” Of course this was said in reference to the case before the court, and in regard to the stock subscribed. It had no reference to the contingent liability of a stockholder to a' creditor beyond the amount of stock subscribed. Such a liability only arises when the corporation is insolvent, and the idea of an insolvent corporation being a trustee for its creditors is certainly no where suggested in this opinion. That the managers of the plaintiff have done all in their power heretofore, as is alleged in the petition, and would hereafter be faithful to such a trust as is now asked to be confided in them, we have no doubt, but courts must act on general principles and look to possible results before establishing an innovation such as is proposed in this petition. As was observed by the Supreme Court of Ohio in Umstead v. Buskirk, 17 Ohio St. 117: “If the corporation has the right'to'enforce this liability by assessments, it can exhaust it to discharge a present indebtedness and continue its business with no other security to its future creditors than its corporate liability,” and as to the supposed equity of allowing a corporation in this way to make a pro rata distribution among its stockholders, there is no reason why that cannot be done as well in a suit by a creditor since, as between the stockholders, each one is only bound to pay in proportion to his stock, though each is severally liable to all the cred [18] itors. The demurrer should have been sustained. Judgment reversed. The other judges concur, except Norton, J., not sitting.