Appeal of Aultman

| Pa. | Jan 2, 1882

Chief Justice Sharswood

delivered the opinion of the court

These are appeals from the same decree, and may’ be considered and disposed of together, as the principal questions raised are the same in all. The facts, which are not in dispute, are very succinctly and clearly, stated in the opinion of the learned court and need not be repeated here. We have had the advantage of very able and elaborate arguments by the counsel, both in the printed paper book and orally at the bar.

The first question is as to the jurisdiction of a court of this state to enforce the obligation enforced upon the defendants - as stockholders of the corporation of E. Ball & Co., by the constitution and laws of the state of Ohio. The constitution, Art. xiii, § 3, provides, “Dues from corporations shall be secured by such individual liability of the stockholders and by 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, toa further sum at least equal in amount to such stock.” And the statute under which the corporation of E. Ball & Co. was organized provides, in conformity to the constitution, “ that all stockholders of any .... joint stock company organized under the provisions of this act shall be deemed and held to an amount equal to their stock subscribed in addition to said stock for the purpose of securing the creditors of said company.” It has been earnestly contended that the individual liability thus imposed on the stockholders is a penalty, and that the courts of one state will not enforce the penal laws of another. This is undoubtedly so; but was this liability thus provided for in any sense a penalty ? The defendants beqarne owners of their stock either by original subscription or by assignment from subscribers, and assumed voluntarily all the obligations imposed upon them as owners. It was a contract, express or implied, to pay not only for the stock owned or subscribed, but so much in addition as would be necessary for the purpose of securing the creditors of the company. This contract could be enforced in any state in which the defendants were amenable to the process of the courts. Upon the construction of this statute we are bound to respect if not to follow implicitly the decisions of the courts of Ohio. It has been held expressly by this court in Merrimac Mining Co. v. Levy, 4 P. F. Smith 227, that in a suit arising under a charter of another state, the decisions in that state are the best evidence of the rights and duties of the stockholders under it. In what appears to be the last decision of the supreme court of Ohio, Brown v. Hitchcock, 36 Ohio St. Rep. 667, throughout the opinion delivered by White, J., the obligation in question under this same statute is treated as a part of the contract of the owner or subscriber to the stock, and the opinion is sustained by Hawthorne v. Calef, 2 Wall. S. C. 10, in which it was held by the supreme court of the United States that a state statute repealing a former statute which made_the stock of stockholders in a chartered company liable for the corporation debts is, as respects creditors existing at the time of the repeal, a law impairing the obligation of contracts and therefore void. We have no difficulty, then, in holding that the courts of this state have jurisdiction to enforce this contract.

Assuming this, there can be no doubt that the case presented on the bill below was proper for the cognizance of a court of equity. It is not like t-he4case of Bank of Virginia v. Adam, 1 Parsons Eq. 534, the correctness of the ruling in which it is not necessary to discuss. It was there held that a court of equity can exercise no jurisdiction to compel the stockholders of a foreign corporation residing here to ]iay the stock subscribed to such company on the application of a creditor. That was a bill by the Bank of Virginia, a creditor of the Rappahannock Mining Company, on behalf of itself and such other creditors as should come in and contribute to the expense of the suit, against thirty-four stockholders. It was not alleged that the Rappahannock Mining Company was insolvent, nor was it made a party. The prerequisite of such a proceeding was the refusal or neglect of the corporation to enforce the subscription. “ If stockholders in one state,” says Judge King, “could be so proceeded against, so might they lie in every state of the Union of wliose^ jurisprudence English equity formed a part. Such proceedings might even be simultaneous and certainly could not fail to present strange conflicts of decision.” The record before us presents an entirely different case. The plaintiff is alleged to be the holder of all the indebtedness of the corporation E. Ball & Go., that corporation is a party, and the bill has been taken against it pro confesso — it is utterly insolvent, and all its assets, real and persona], are exhausted — and the defendants are all the stockholders ; they reside within the jurisdiction; were served with process, some appearing and taking defense, and the bill taken pro confesso against such as did not plead, answer or demur under a rule upon them for that purpose which was duly served. It is evident that the court had full grasp of the whole case. They could make no decree which they were not fully competent to enforce. They were not required to settle up the business of a foreign insolvent corporation. It was all settled up — the creditors paid, as far as its assets would go, by the sale of all its real and personal property. We are not called upon to say how it would be if the case were not so. The reasons against a court of equity assuming jurisdiction over the affairs of a foreign corporation are certainly very cogent, and will have to be maturely considered if such question should hereafter arise. We do not now say that the court ought not in the exercise of a sound discretion to decline to interpose at the suit of some of the creditors against some of the stockholders of such a corporation.

The next question is as to the amendment of the bill allowed, or rather advised, by the court and made by the plaintiff. It is most strenuously contended that it was an entire change of the cause of action, and therefore ought not to have been allowed. We are of a different opinion. There was no change in the cause of action, though the ground upon which the plaintiff’s equity was rested was formally changed. The original bill was by him claiming as a creditor. By the amended bill he claimed as a stockholder having paid more than his share of the debts and seeking contribution from the other stockholders. In either case the decree would have been the same. As a creditor, as is now conce'ded, he could not have recovered more than he had actually paid. A surety or accommodation jndorser, which the plaintiff originally was, who compromises with the creditor, cannot recover of his principal more than he is actually out of pocket. It appeared by the bill as originally filed that the jdaintiff, with the assistance of others, did purchase and have assigned to him all the outstanding indebtedness of the corporation. The allegation, however, of any trust in the plaintiff was wholly unnecessary. Where there is a legal plaintiff, either at law or in equity, it is not essential that his cestui que trusteed. — if he is a trustee — should be named in the action or proceeding. They are in no sense parties, except to enforce against them a liability for costs. If the plaintiff recovers, the court cannot settle the equities between him and his cestnis que trustent. That must be the subject of another proceeding between him and them. The order directing the use plaintiffs to be placed on the record was unnecessary. But it did the defendants no harm. Indeed, it gave them an additional security, as it disclosed the names of parties liable for the costs if the plaintiff’s bill was dismissed or the costs were finally for any reason imposed upon him. The defendants might perhaps have required it to be done, but they certainly have no ground to complain of it.

It has also been urged that the obligation of the stockholders under the statute was collateral only — nota primary but secondary liability — in short, that they were guarantors or sureties, and therefore, the extensions granted by the creditors to the company released them. It is not necessary to inquire into the circumstances under which these extensions were granted. Such a liability under a similar statute is said, indeed, in Patterson v. Wyomissing Co., 4 Wirght 122, to be “analogous to a case of guarantee.” That is, as there explained by Mr. Justice Loweie, “ to be enforced if the regular px-ocess in the px-incipal contract proves fruitless or if the corporation becomes insolvent.” But the analogy can be pushed no further. Nullum simile quatuor pedibus eurrit. The dii’ectors are the representatives of the stockholders in all their dealings with creditors. When they asked and accepted an extension it was an act binding on the stockholders. It was their assent. Besides which,- when the extension expired, the debt, being unpaid, was revived, and was theix a debt newly contracted as far as the then existing stockholders were concerned — and for which their liability under the statute then accrued.- The ground upon which the surety is discharged by time given by the creditor on a binding contract without his assent, is that he is thex’eby deprived of his x-iglxt to pay the debt and bi'ing suit immediately against his principal. It is evident that such a remedy would have been entirely impracticable in a case like the present.

We come now to consider the cases of those of the appellants who- claim that an exception should be made in their favor for the reason that they had assigned their stock to others before these px'oceedings were commenced. We might hold it as the law of Pennsylvania that a stockholder holding by transfer ftoxn a subscriber xnay relieve himself from liability for unpaid installments to the coi’pox-ation by a transfer duly entered on the books and accepted by the corporation, but not an original subscribei*. His obligation is débitum in jprcesenti, sol/oendum m futuro: West Philadelphia Canal Co. v. Innis, 3 Whart. 198; Pittsburg & Connelsville R. R. Co. v. Clarke, 5 Casey 146. But, however this may be, we think it very clear that a stockholder, whether original or holding by transfer, cannot rid himself of his responsibility to creditors after the corporation lias become insolvent. We think that Mr. Thompson in his Treatise on the Liability of Stockholders has correctly summoned up the doctrine of the American cases; “ A transfer of shares in a failing corporation, made by the transferor with the purpose of escaping his liability as a shareholder, to a person who from any cause is incapable of responding in respect of such liability, is void as to creditors of the company and as to other shareholders, although as between the transferor and the transferee the transfer may be out and out.” Section 215. See the cases cited by him, to which may be added our own case of Everhart v. West Chester and Philadelphia Railroad Company, 4 Casey 339. The case before referred to in the Supreme Court of Ohio — Brown v. Hitchcock (supra) — goes much further, holding that the liability of the stockholders under the statute attaches at the time the debt is contracted or the liability incurred by the corporation, and that, after such liability attaches to a stockholder, it is not discharged by the subsequent assignment or transfer of liis stock. It is upon the faith of the existing liability of the stockholders that the creditors must be presumed to trust the corporation and to allow them to get rid of their liability by a transfer of their stock would be to render the remedy of the creditor illusory. In the event of the corporation getting into financial difficulty, threatening insolvency, all the stockholders -would hasten to transfer their stock to irresponsible parties, and the creditors would be practically set at bay. W e think, then, as to Bid well, Stewart, McKee and McKee’s executors the decree was right.

In reference to Aultunln’s Appeal, it is now too well settled to be any longer a question, that when stock is transferred to a man as collateral and stands in his name, he incurs liability as a stockholder, just as if he was the actual benelicial owner: National Bank v. Case, 9 Otto 628. Most especially is this just and right as to creditors who trust to his name and have no notice of the secret trust upon which the stock is held.

The special exception of J ames H. Hopkins rests on a verbal criticism which cannot avail him. He was awarded a stock dividend which he knew in December 1868. He refused to surrender it to another party who claimed it and he still holds it. He contends that the liability under the Ohio statute is con lined to stock subscribed, and as his stock was not subscribed, ho is not responsible. Tho language of the constitution of Ohio, as we have seen, is “ stock. owned,” and it is plain that the statute is subordinate to the constitution, and must be construed in conformity with it.

It remains to consider Fawcett’s Appeal. He urges that the court below was in error in holding that as representing the Pittsburgh syndicate, he was bound to account for the profits of the purchase of the personalty made in the names of Breed and Frew, at the sale of the assets of E. Ball & Co. It is not a matter in dispute that the sale of these assets by the authority of the directors was proper and even necessary — that the nature of these assets, being principally small debts scattered over all the states of the Union, was such that they could not practically have been realized in any other way — that the sale was fair and open — that it was largely advertised — special notice sent to every stockholder — and full oppportunity given to every one to bid. If there is any case in which such a sale can be upheld as against cestuis que trusteüt, it would seem to be this case. Aslihurst’s Appeal, 10 P. F. Smith 290, is strongly relied on by the counsel for the appellant. That case, however, was decided on its peculiar circumstances — principally the laches and long-continued acquiescence of the cestuis que trustewk There the sale was in 1857 and the bill to impeach it not filed until .1865. It was held that if a trustee to sell becomes the purchaser, the purchase is.generally voidable, but the cestiii quo trust .must move in a reasonable time. Here the sale was March 31st 1874, and this bill filed March loth 1875. Non constat that the appellants knew before, that the purchase by Breed and Frew was for the Pittsburgh syndicate. But the principle that a purchase by a trustee at his own sale may, at the election of the cestui que trust, be treated as made for his benefit, is too important to be frittered away by nice distinctions. It is not in dispute that this purchase was made by the Pittsburgh syndicate. It was composed of a number of the stockholders who had associated and advanced money to settle the debts of E. Ball & Co., looking to the liability of all the stockholders for their reimbursement. The other stockholders may not have had the ability to contribute their proportion to make up the large sum of money necessary for this purpose. It ought not, therefore, to prejudice them that they had been repeatedly asked, and oven before the master, to join this syndicate, and had declined. All the authorities show that it is not a question of the honesty and fairness of the transaction, but it is put solely on the ground of policy : Webb v. Dietrich, 7 W. & S. 401; Chronister v. Bushey, Ibid. 152 ; Chorpenning’s Appeal, 8 Casey 315. Even in the case of a purchase at a public judicial sale, the same principle applies where the trustee has had any hand in bringing about the sale : Parsball’s Appeal, 15 P. F. Smith 224. The members of the Pittsburgh syndicate were joint owners with the other stockholders of the property of P. Ball & Co. They stood in such a relation to them as to forbid their taking any advantage of their position and ability to purchase : Gibson v. Winslow, 10 Wright 380. It is strongly urged on behalf of the appellant that if it had turned, out that the sale was for more than could be realized from the assets — that the purchase eventuated in a loss instead of a profit to the buyers — they could have liad no claim to call upon the stockholders to make it good. It is undoubtedly so; but this is the case in all such transactions. The trustee must bear the loss if any, though the cestui que trust is entitled to the profit.

It is believed that we have thus considered and disposed of all the points of any importance in these appeals.

Decree affirmed, and appeal dismissed at the costs of the appellants.