L. F. Wehrman & Co. v. Reakirt

Taft, J. The most important question to be decided in the case is, whether the creditors are entitled to enforce their claims against the solvent stockholders to the extent of the amount of their stock, if such enforcement is necessary in order to pay the creditors in full, although they should be unable to collect anything from other stockholders who are insolvent or beyond the jurisdiction of the court. It is claimed for the defendants that one stockholder is not a surety for another, and that each is liable only for his proportional share of the debt, although his — 233 — statutory liability (to an amount equal to Ms stock) should not be exhausted, and the creditor should not be fully paid. This is a question of great importance under our constitution and laws. The constitutional provision on the subject is contained in section 3 of article 13, viz: “ Dues from corporations shall be secured by such individual liability of the stockholders and other means as may be prescribed by law; but in all cases each stockholder shall be liable, over and above the stock by him or her owned, and any ' amount unpaid thereon, to a further sum at least equal in amount to such stock.” The Cincinnati Home Insurance Company was organized under the act to provide for the creation and regulation of incorporated companies in the State of Ohio, passed May 1, 1852, as amended April 17, 1854, section 78 of which provides, that “all stockholders of any railroad, turnpike, or plank road, magnetic telegraph, or bridge company, or any joint stock company organized under the provisions of this act, shall be deemed and held liable to an amount equal to their stock subscribed, in addition to said stock, for the purpose of securing the creditors of such company.” 1 S. & C. 310; 4 Curwin’s Stat. 2582. The Supreme Court, in Bright v. McCormick, 17 Ohio St. 95, held that this liability of individual stockholders is collateral to the principal obligation of the corporation “ and is to he resorted to by the creditors only in case of the insolvency of the corporation, or where payment can not be enforced against it by the ordinary process.” This liability is several in its nature, because the constitution provides that “ each stockholder shall be liable to a further sum at least equal in amount to his stock.” We ax-e of opinioxx that the insolvency, on the happening of which the individual liability of the stockholders can be enforced, is not necessaxily the absolute exhaustion of all the assets of the corporation. It may be evidenced by — 234 — a failure to make the money on the ordinary process of execution against the company. The majority of the court are also of opinion, that each stockholder, to the extent of his stock, is legally liable for the entire indebtedness. But between the stockholders, there is an equity to have a contribution in proportion to the amount of stock owned by each. This equity will be respected by the court, so as not to put upon any stockholder the trouble, expense, and risk of bringing a new suit to compel other stockholders to refund moneys which they ought to contribute in the first instance, so far as it can be done,.without prejudice to the rights of the creditors. But this equity between the stockholders is not paramount to the right of the creditors to be paid, and if it is not possible to reach all the solvent stockholders, or subject them to the jurisdiction of the court without unreasonable delay, those who are found within the jurisdiction of the court may bé required to pay the indebtedness of the company to the extent of their individual liability, without prejudice to their right to subject their co-stockholders to a contribution by other subsequent proceedings. In the present case, the majority of the court is satisfied that the evidence sustains the finding of the referee on this point, and that the stockholders should be required to pay the entire amount of their additional liability under the constitution and statute already referred to. The evidence shows that the aggregate liability of the solvent stockholders will not be sufficient to pay the indebtedness, and it would be unjust to the creditors to make longer delay in rendering judgment against those who are before the court. The absence from the jurisdiction of the court, or the insolvency of one stockholder, is no defense for another, nor any reason for delay on the part of one who is solvent, to pay the indebtedness of the corporation to the extent of his liability. This, we think, is consistent with the ruling of the Supreme Court in the cases of Wright v. McCormick and Umsted v. Buskirk, re — 235 — ported in 17 Ohio St. 86 and 113; and necessary, by any reasonable construction of the' constitution and statute. If there were others within the jurisdiction of the.court not served with process or not parties, they would have to be brought in and made to contribute. But it is conceded that such is not the case. It is insisted that the Supreme Judicial Court of Massachusetts has decided differently, and that the cases of Crease v. Babcock, 10 Met. 525, and Grew v. Andrews, Breed & Co., in 10 Met. 569, are authorities against the position we have announced. The statute of Massachusetts, under which those decisions were made, provided “ that the holders of stock in any bank at the time when its charter should expire should be liable in their individual capacities for the payment and redemption of all bills which may have been issued by said bank, and whieh should remain unpaid, in proportion to the stock they may respectively hold at the dissolution of the charter.” The court held under that statute, that each stockholder was liable only for his own proportion of the unpaid bank notes, and that every other stockholder was liable for his own share or proportion, and that one was not liable for the share or proportion of any other. This construction turned upon the language of the act. There was no constitutional provision on the subject. Our constitution has no such limitation on the individual liability of stockholders, nor has the statute. By our constitution, “ each stockholder shall be liable over and above the stock by him or her owned” “to a further sum at least equal in amount to such stock;” and by the statute “ all stockholders ” “ shall be deemed and held liable to an amount equal to their.stock subscribed, in addition to said stock, for the purpose of securing the. creditors of such company.” The liability is several, and collateral to the principal indebtedness, but it is legally without any other limit than — 236 — the amount of the stock owned by the stockholder on the one hand, and the entire indebtedness of the coi’poration on the other. The liability is necessarily several, because it is for different sums depending upon the respective amounts of stock owned. No joint judgment could be rendered ; but each is liable for all, to the extent of his stock. Bank of Poughkeepsie v. Ibbotson, 24 Wend. 479, is an authority, Thompson, J., giving the opinion. In Erickson v. Nesmith, 46 N. H. 371, it was held, under a statute providing for the filing a petition in equity to subject stockholders, in order to make all contribute, that the plaintiff might have a decree against the stockholders individually who had been served, or who had become voluntarily parties and who were found solvent, for the whole amount of their debt and costs, to be apportioned among them pro rata, each paying such proportion of the whole debt, as his stock bears to the whole amount of stock owned by the solvent stockholders who were parties to the suit. This is the rule we have indicated as the true one under our statute, and applicable to the present case. Patterson v. Wyomissing Co., 40 Pa. 117; Paine v. Stewart, 33 Conn. 516; Dauchy v. Brown, 24 Vt. 197; Coleman v. White, 14 Wis. 700. We think that the facts before the referee show that, upon the principle above indicated, the plaintiffs are entitled to a decree against the defendant stockholders respectively, for the full amounts of their individual liability. It is claimed by Overdick, one of the defendants, who is charged as owner of stock to the amount of $5,000, that he had transferred $4,000 of his stock before the insolvency of the company in good faith, and was not therefore chargeable as owner of the stock so transferred. The transfer was not entered on the company’s books of transfer. In a very few' days after the transfer the insolvency .of the company was developed, and an assignment was made under an assignment law of the State. — 237 — We think that the fact that the transfer was not entered ' on the books of the company and accepted, is not decisive against the validity of the transfer. But there are two objections to this transfer, as a defense to this aetion. First, that the sale and transfer were made just before the1 assignment as an insolvent, and for a nominal consideration. The presumption is strong under the circumstances that the transfer was made merely for the purpose of getting rid of the liability. But the decisive objection to this defense is, that the liabilities of the company were incurred in the time of the ownership by the defendant Over dick. If there were any liabilities contracted after this transfer, they were of very small amount. The finding of the referee on this point appears to be sustained by the evidence that Overdiek is liable as an owner of $5,000 of. the capital stock in the company. J. G. Tucker, another defendant, claims to be relieved from his liability as owner, because h e transferred his stock on the 7th March, 1864. This transfer seems to have been bona fide, at 33 per cent., to Eber Jones. In this case, also, the new certificate had not been issued to Jones. This transfer was made about six months earlier than that in the Overdick case. But the liabilities had been incurred which have now to be paid, or a great majority of them, and we conclude that we have no sufficient ground to set aside the finding of the referee on this point. Barber, Choate & Naber are also charged by the referee as stockholders in tbe amount of $3,000. The evidence in the case of these defendants satisfies the Court that they were never actual stockholders, although their names did appear upon the books of the corporation for a short time. The contract with Bennett, under which they were to own the stock, never went into effect, and. was rescinded. We conclude that the liability on account of that stock rested upon Bennett, and not upon Barber, Choate & Naber, and the finding of the referee will be corrected in that respect. An objection is taken to the proof of claims as allowed — 238 — and stated by the referee, on tbe ground that he has taken the proof of allowance by the assignee, as evidence. There seems to be no serious question, except as to the $38,800 for unearned premiums due to the policy holders, who are entitled to have their policies canceled, and the unearned part of their premiums returned. The proceeding of the assignee, is by publishing a notice to claimants to present their claims. The claims for losses, appear to have been presented in response to such a notice. But it is presumed and argued that such was not the case with the unearned premiums. It is claimed that the sums were so small, being from a few cents to a hundred dollars, that it is to be presumed that a large portion of these policy holders will never present their claims for return of premium, and that, therefore, it is not necessary to provide for their payment. We think that the proper course to have been pursued was to notify by publication the creditors and claimants to present their claims, and we might regard the omission of such a notice as an adequate reason for postponement of proceedings against stockholders as to their individual liability, if it did not appear that an amount of valid claims was already presented, sufficient to absorb the liability of all the solvent stockholders. It appears from the referee’s report'that a very large part of the stockholders are not solvent, a majority of whom have gone also beyond the jurisdiction of the court. There is, for instance, D. M. Bennett holding stock to the amount of............................................$30,000 On which $20,100 are unpaid.............................. 20,100 $50,100 There is a Mrs. Standart holding.........................$10,000 On which are'unpaid......................................... 6,700 And C. M. Ransom holding.....................$10,100 On which is unpaid................................. 6,767 -$16,867 — 239 — And many others holding smaller amounts, all gone beyond our reach and reported insolvent. There are many excellent names among the stockholders, who will undoubtedly pay promptly whatever shall be found to be their share of the load. They have been imposed upon by these delusive holders of stock not paid for, whose individual liability is a cheat and a sham. In amount, these non-paying nominal men are in a majority, or nearly so. The consequence is, that the amount of stock held by men whose individual liability is solid or reliable is less than the amount of the debts in whatever way we estimate them. The consequence is unavoidable, that a decree should go against the stockholders for the full amount of their additional liability. This result is in some respects unsatisfactory, because it requires the solvent stockholders to pay indebtedness, which ought to be paid by those who are not solvent. But we can not deny to the creditors tlieir rights under the constitution and the law. A question has been made as to the time from which the additional liability of the stockholders shall bear interest, the plaintiffs claiming that it should commence with the date of the original liability of the company, and the defendants claiming that it should be regarded as a penalty ■of a bond, and carry no interest until judgment rendered against the stockholder for his additional liability. In Sedgwick on Damages, 425, the author says, that “ the American rule from all the cases seems to be that against a surety in debt on bond, nothing shall be recovered beyond the penalty,” citing Clark v. Bush, 3 Cowen, 151; Rayner v. Clarke, S. C. 581. ■ In the following cases, however, viz: Fraser v. Little, 13 Mich. 195, and Brainard v. Jones, 18 N. Y. 35, it was held that after the default of a surety in a bond for the payment of money, the debt carries interest against the surety and the judgment may in that manner amount to more than the penalty-in the bond. — 240 — And on that principle, it was held, in Burr v. Wilcox, 22 N. Y. 551, that “where the stockholders of a corporation are by statute severally individually liable to the creditors of the company, to an amount equal to the amount of stock held by them respectively, this liability, from, the time of the commencement of a suit for a debt exceeding the principal of the defendant’s stock, brought to enforce it, is fixed for the specific sum equal to the amount of the stock, and the debt carries interest, although the amount of the creditor’s recovery thereby exceeds the stockholders’ original liability.” In the present ease we conclude that the same rule is applicable, and that the individual liability should bear interest only from the commencement of this suit. A question has been made upon two items allowed by the judge at Special Term against the stockholders, viz: for the fee of the plaintiff’s counsel and for the cost of the reference by which the amount of indebtedness and of stock was ascertained, in order to determine the amount which each defendant, stockholder should contribute. We have concluded that the counsel fee, and the fee of the referee, were expenses incident to the ascertainment of the extent of relief to be claimed or granted for tíre benefit ofi plaintiffs, as well as of the defendants, and should be charged to the fund, and the order at Special Term may be set aside as to these two items, and corrected by charging the same items to the fund in the hands of the receiver.