Bank of Virginia v. Adams

1 Parsons 534 | Pennsylvania Court of Common Pleas, Philadelphia County | 1850

The following opinion was delivered by

King, President. —

In considering this case, we will first 'regard it as if the bill had been filed by the creditors of a Pennsylvania corporation, containing all formal requisites, and 'having for its object the compelling the stockholders thereof to pay certain unsatisfied instalments of the capital stock unpaid by them, in order to raise the necessary means for the liquidation of corporation debts. Which instalments of capital stock had not been paid into the corporation treasury, in consequence of tbe neglect or refusal of the directors of the company to make the necessary demand on the stockholders, and to enforce thé same according to the provisions of the charter.

In such a state of things, would a Court of Equity entertain a bill filed by a creditor on behalf of himself and others, who might afterwards become parties thereto against such defaulting stockholders, in order to coerce the proportionate payment of such unpaid instalments, to be applied by the Court to the satisfaction of the creditors of the corporation according to the exigencies of their respective equities ?

That creditors so circumstanced are not absolutely without a remedy at law, seems probable. Because, under such a state of things, a Court of law perhaps might afford some relief by mandamus, directed to the proper corporate officers, commanding them to do that which their duty and the requisitions of their charter required: to wit, to call in the unpaid instalments due by stockholders: The Queen v. The Victoria Park Company, 1 Ad. & Ell. N. S. 288; 41 Eng. Com. Law Rep. 544.

But to induce equity to refuse its aid to a suitor, it is not sufficient that he may have some remedy at law. An existing remedy at law, to induce equity to decline the exercise of its jurisdiction in favour of a suitor, must be an adequate and complete one. And where, from the nature and complications of a given case, its justice can best be reached by means of the flexible machinery of a Court of Equity, in short, where a full, perfect, and complete remedy cannot be afforded at law, equity extends its jurisdiction in furtherance of justice.

Of the superiority of the remedy in equity in cases like the present, through which payment of the fund applicable to the satisfaction of creditors may be required from the stockholders and distributed among all the former, according to the particular equities of each, it is submitted that no doubt can be entertained; even considering the question merely with regard to general con-, venience and practical usefulness. In point of authority, also, the doctrine is well sustained, that a bill may be supported against individual corporators, on a contract with the company, for the discovery and application of the funds of the corporation in their hands to the satisfaction of the contract. The question has arisen in Courts of Equity in tAvo classes of cases. The one in which no defined capital was required by the charter; the other, where the charter provided for raising by subscription a certain amount of corporation capital. The earliest case of the first class is that of Dr. Salmon v. The Hamburg Company, Chancery Cases, 206, 7, (23 Char. 2); Viner’s Abridgment, vol. 6, p. 310-11. In this case the bill charged, that the company were incorporated by letters patent, and had power to make by-laws and to assess rates upon cloths (which was the commodity they dealt in), and by poll on every member, to defray the necessary charge of the company; that the company had imposed rates accordingly, namely 4s. Qd. upon every white cloth exported, and divers others, and thereby raised ¿£8000 per annum towards the support of the common charge of the company; that they had thereby got great credit, and borrowed great sums of money by their common seal, and that particularly the plaintiff lent £2000 upon that security. That the company having no common stock, the plaintiff had no remedy at law for his debt; that their usage had been to impose taxes, and levy actions upon the members and their goods, to bear the charge and to pay the debts of their company; and that they afterwards refused to execute that power. The bill further complained against divers of the members by name, that they had refused to meet and levy taxes, pretending want of power to do so; whereas they had formerly exercised the power, and thereby gained credit, whereupon the plaintiff had lent them £2000, which was for the use and support of the company, and so ought to be made good by them; and he prayed to be relieved. The defendants demurred, and the Lord Chancellor dismissed the bill. But on an appeal to the Lords, his decree was reversed, and it was adjudged that the Chancery should issue its process to compel an answer, or to take the bill pro confesso; and should proceed to examine what the complainant’s just debt was, and should decree the said company to pay what was justly due; and upon non-payment by the corporation, then the Lord Chancellor should order and decree, that the Governor and assistants of the company should proceed to make such assessment (or leviation as it was called) on every member of the company, who was to be contributor, as should be sufficient to satisfy the sum decreed to be due, and to collect and levy the same, and pay it over to the plaintiff; and on failure of such assessment, then and from thenceforth every person -of the said company should be made liable to pay his proportion; and that such process should issue against such member refusing or delaying to pay his proportion, as is usual against persons charged by decree of the Court, for any duty in their several capacities. The company and divers particular members thereof by name, in their natural capacities, were the defendants.

The doctrine of this case was applied by Chancellor Dessaussure, in 1828, in Hume v. The Winyaw and Wando Canal Company, and his decree was afterwards affirmed by the Court of Appeals of South Carolina, in 1828: American Law Journal for October 1844, p. 94. The Winyaw and Wando Canal Company was incorporated by the legislature of South Carolina, for the purpose of constructing a canal. No specific fund was set apart or provided for as a corporate capital, either in the charter or organization of the corporators; and as the means of supplying it, the company entered into a resolution that it should be raised by assessments, to be made on the individual members, in proportion to the number of shares owned by each, according to the contracts and exigencies of the work. The company imposed an assessment on its members, which it was supposed would cover the extent of their liabilities; but some of the members refused or neglected to pay the assessment, and the company neglected to enforce such payment. The corporation being without funds, the plaintiff brought his bill against certain members of the company, to compel the payment of a balance due him on a contract entered into by the company with him for work done under the contract. To this bill the plaintiffs demurred. This demurrer was overruled by Chancellor Dessaussure, after a learned and elaborate judgment, and a decree was entered, directing a Master to examine and report when the contract was made between the company and the plaintiff, and how much was justly due to him thereon; and that the company should lay before the Master a statement of their joint stock applicable to pay the said debt, and take measures to make the same productive, by sale or otherwise; and that on failure thereof, in whole or in part, each individual member be held liable to pay his quota or proportion of the deficiency; and that on any one failing to pay his proportion, the process of the Court should issue to enforce the payment thereof, unless the money should be raised within six months after the decree, by assessments made and collected by the company or its members.

In observing on the propriety of the exercise of equity jurisdie- ■ tion in this case, Mr. Justice Johnson, who delivered the opinion of the Court of Appeals, remarks that “ there is no common-law process of which I am aware, by which the complainant could compel the corporation to enforce this demand against Mr. Matthews (that is, for the amount of assessments which had been made on him as a member of the corporation), or to compel the company to appropriate it, if raised, to the satisfaction of the complainant’s demand. As a corporation, no' proceeding at common law can operate upon them in personam, and they have no common property upon which the process of the Law Courts can act; and without the aid of the extraordinary power of a Court of Chancery, the complainant would be without a remedy.”

The case of Ward v. The Griswoldville Manufacturing Company, 16 Connecticut Reports, 593, was that of a corporation, in which the charter thereof provided for the creation of a capital stock, by subscription to shares in the ordinary manner.

The bill was filed by Ward and others on behalf of themselves, and on behalf of such other creditors of the Griswoldville Manufacturing Company as might elect to become parties to the bill, against Thomas Griswold and others, stockholders of the corporation, praying the Court to order and decree that the defendants pay into the hands of a receiver, an instalment of sixty per cent, upon their stock, or so much thereof as would be sufficient to pay the debts of the plaintiffs, and such other creditors as might elect to come in under the decree, to be applied by such receiver to the discharge of the same; or, that the Court would require the directors of said corporation to call in such instalment and apply the same to discharge such debts. The bill stated the incorporation of the company with a capital of $50,000, divisible into shares of $100 each; the authority of the directors to call in the subscriptions by instal-ments at their discretion; the fact that the company was duly organized and had commenced business, buying, manufacturing, and selling goods, &c.; that the corporation being indebted to the plaintiffs, they had commenced suits and obtained judgments against it, on which judgments executions had issued, and had been returned nulla bona. The bill then proceeded to name the president, directors, agent, and stockholders of the company, with the number of shares held by each, and averred that only forty per cent, of the capital stock had been paid into the corporation on each share, there being still due from each shareholder sixty per cent, on each share; that if said sixty per cent, were called and paid in, the said corporation would be able to discharge all its present indebtedness; but that the directors had neglected and refused theretofore so to do.

This bill was demurred to for want of equity, and because the plaintiffs had a remedy at law. The demurrer was, however, overruled ; the Supreme Court of Connecticut holding that the amount of the shares subscribed for, and not merely the amount actually paid in, constituted tbe capital stock of tbe company; that tbe unpaid balances of tbe shares were as much subject to tbe call of the directors as any debts due the company; that the directors were bound to make such call to tbe extent of tbe whole subscription of each stockholder, in order to satisfy the creditors of tbe corporation, if such whole subscription should be required for that purpose; that their negle.ct and refusal so to do, gave jurisdiction, under the circumstances disclosed in the bill, to equity, to grant the plaintiff relief; and that although the officers might at law be compelled to call in the unpaid subcriptions, yet that it was in the power of a Court of Chancery to do more ample and complete justice to the parties interested, than could possibly be done in a Court of law, and in- all respects to afford the more appropriate remedy.

The doctrine of this case had been intimated previously in the cases of Vose v. Grant, 15 Mass. 505, and Spear v. Grant, 16 Mass. 9, in which the Supreme Court of Massachusetts, while it refused aid to the plaintiffs at common law, pointed out in whát manner, and on what principle relief might be obtained in equity. The subsequent case of Wood and others v. Dummer and others, 3 Moran’s Reports, 308, was a bill on the equity side of the Circuit Court of Massachusetts, filed by the plaintiffs as holders of the bank-notes of' the Hallowell and Augusta Bank, against the defendants or stockholders, for the payment of the notes, upon the ground of an asserted fraudulent division of the capital stock of the bank by the stockholders. There was not the slightest proof of fraud, and the plaintiffs rested their case at the hearing, on the ground that the capital stock was a trust fund for the payment of the debts of the bank; and it was held “ that the capital stock tvcts a trust fund for the payment of the bank-notes, and might be followed into the hands of the stockholders; and that a bill in equity for such purpose might be maintained by some of the holders of the ba,nk-notes, against some of the stockholders; the impossibility of bringing all before the Court being deemed sufficient to dispense with the ordinary rule, making all parties in interest parties to the suit.

The principle upon which both these classes of cases rest, is well expounded in the opinion of Judge Story, in this last case. “It appears,” says he, “to me very clear upon general principles, as well as legislative intention, that the capital stock of banks is to be -deemed a pledge, a trust fund, for the payment of the debts contracted by the bank. The public, as well as the legislature, have always supposed this to be a fund appropriated for such purpose. The individual stockholders are not liable for the debts of the bank in their private capacities. The charter relieves them from personal responsibility, and substitutes the capital stock in its stead. Credit is universally given to this fund by the people, as the only means of repayment. Why otherwise is any capital stock required by our charters? If the stock may, the next day after it is paid in, be withdrawn by the stockholders without payment of the debts of the corporation, why is its amount so studiously provided for, and its payment by the stockholders so diligently required ? To me it appears so plain, upon principles of law as well as common sense, that I cannot be brought into any doubt, that the charters of our banks make the capital stock a trust fund for the payment of all the debts of the corporation. The stockholders have no rights until the other creditors are satisfied.

“ If I am right in this position, the principal difficulty in the case is overcome. If the capital stock is a trust fund, then it may be followed by the creditors into the hands of any person having notice of the trust attaching to it. As to stockholders, there can be no pretence to say that both in law and fact, they are not affected with the most ample notice of it.”

On principle and authority, therefore, it seems alike clear, that in the case of a Pennsylvania corporation, located within our jurisdiction, and having a capital stock subscribed to by stockholders, applicable to the objects of the associated enterprise, we possess the jurisdiction to compel such stockholders to pay the just creditors of the corporation, duly established to be such, in proportion to the amount of stock subscribed to by them, respectively, and remaining unpaid; where the directors of such corporation neglect and refuse to call in such unpaid capital, and apply it to the payment of corporation debts, such a jurisdiction is essentially conservative of the rights of the public, which gives credit to the corporation on the faith of their ostensible capital, and to which such capital is pledged. Any doctrine short of this would leave the general public subject to he prayed upon by reckless speculators, who will he always found ready to enter into any enterprise in which the prospect of profit seems great, and the certainties of hazard little.

Hut can we properly entertain such a hill filed hy creditors of a foreign corporation against a stockholder thereof, who has not paid up all his subscription to the capital stock of such corporation, and who may be found within our jurisdiction ? It is on this branch of the case that the doubts of the Court have arisen. We do not question but that the Bank of Virginia is as competent to maintain an action in the Courts of Pennsylvania as any citizen of or corporation created by the state of Pennsylvania. The cases of the Bank of Augusta v. Earl, 13 Peters, 520, and the judgment of this Court, confirmed by the Supreme Court, in The Kentucky Bank v. The Schuylkill Bank, ante, 226, settles that question beyond dispute. Nor is this case that of a creditor of the Rappahannock Mining Company, seeking to recover a debt due him by an attachment laid against a stockholder of the company, who has not paid up all the instalments on the stock held by him, treating such unpaid instalments as a debt due the company and attachable as such by a creditor thereof.

The grounds on which the compainants’ case rests, is, that the capital stock of this company, unpaid by its stockholders, is a trust fund applicable to the payment of its debts; and that it is such a trust as can and will be executed by the Courts of any civilized forum in which the stockholder is found. Part of this proposition has already been shown to be true; to wit, that unpaid instalments of the capital stock of such a corporation as this, are, so to say, trust funds primarily pledged to the payment of corporation creditors. It is the extent to which the second branch of the proposition is sought to be carried in this case, that produces the difference between the Court and the learned advocates of the complainants.

Undoubtedly, a Court of Chancery acts primarily and properly on the person, and at most, collaterally only on the thing. If the person be within the jurisdiction of the Court, such jurisdiction will in general be exercised, although the subject of controversy be without. But that this rule, general as it is, has its exceptions, is shown by the case of Morris v. Remington, ante, page 389, where the subject is much discussed. To induce the Court to interfere in causes of action arising in a foreign jurisdiction, it must he competent to administer the appropriate equity required by the case, and capable of giving effect to its decree.

What equity has deemed the appropriate remedy in cases analogous to the present, is found in the authorities relied upon by the complainant; and that remedy is manifestly one which can only be administered by the Courts of the country in which the corporation exists, by which it has been created, and to whose laws only it is amenable. Thus in the case of Salmon v. The Hamburg Company, the decree was, first, that the company should pay the plaintiff’s debt; second, upon non-payment thereof, that the Chancellor should order the corporation officers to make such assessment on the members thereof as should be sufficient to pay the sum due; and, third, that on failure of such assessment, process should issue, to make every member of the company contribute his quota to the payment of the plaintiff’s debt. In Hume v. The Winyaw & Wando Canal Company, the decree was that that company exhibit to the Master a statement of their joint stock applicable to pay the debt, and within six months make sale thereof for that purpose ; on failure thereof, that each individual member should be held liable to pay his quota of the deficiency, and on the failure of any member to pay such proportion, process to issue against him to enforce the payment thereof; unless within six months after the decree the money was raised by assessments made and collected by the company on its members.

In Ward v. The Griswoldville Manufacturing Company, the decree asked was in the alternative, either that the defendants should pay their unpaid instalments to a receiver, to be applied by him to the payment of the corporation debts, or that the Court would require the directors to call in such instalments, and apply the same to discharge the debts. Now there are decrees suited to reach the real justice of all such cases. Because the obligation of the stockholders to respond to the debts of the corporation, in proportion to the extent of their unpaid instalments, is but a pledge or guarantee to the public dealing with such corporation, for the faithful performance of its obligations; and like all other guarantors, the stockholders have the right to require that the first action of the Court should be directed against those primarily liable, viz. the corporation. Such decrees as those made in the eases cited could be made by us against a Pennsylvania corporation, within our jurisdiction, in an appropriate case, and could be enforced when made. But as against a foreign corporation, we can exercise no such jurisdiction. It has no legal existence out of the boundaries of the sovereignty by which it was created: Augusta v. Earle, 15 Peters, 588. It must live, and has its being there only. The circumstance that one or more of its stockholders are residents of another sovereignty, makes no difference in this respect. If its official agents should even be found within a different sovereignty, by accident or otherwise, their official functions would not follow them, so as to authorize the service of process against the corporation upon them: M’Quin v. The Middletown Manufacturing Company, 16 Johns. 6; Peckham v. The North Parish in Haverhill, 16 Pick. 286. There is therefore no means in our power to get such a foreign corporation into our county; none which could enable ns to enforce our decrees. The proceedings in .the cases relied upon were in fact as much against the corporation as the stockholders; and in that which manifestly formed the precedent followed in the others, we mean Salmon v. The Hamburg Company, the stockholders were only held liable after all remedies against the corporation were exhausted.

No trace is found of any case in which a jurisdiction identical with that invoked here, has ever been exercised by a Court of Equity; that is the case of proceedings against individual stockholders of a foreign corporation, because of the insolvency or refusal to execute its corporate duties by such corporation in the sovereignty of its creation. The inconvenience and difficulties which would arise from the exercise of such a jurisdiction are manifest. These, it is admitted, would form no just objection against the exercise of a clear jurisdiction; but they form strong reasons against the assumption of a doubtful one. Such a procedure against stockholders is founded on the theory that the proper corporate authorities have neglected or refused to perform their corporate duties, which require them to collect all unpaid instalments of the capital stock, and to apply them to the satisfaction of corporate obligations. The fact of such neglect or refusal is the predicate on which equity intervenes to make those liable immediately who are liable ultimately for the payment of the debts of the corporation. If, however, issue should be taken on the fact of such neglect or refusal, this draws with it the inquiry whether the foreign corporation has done that which its charter requires; in fine, whether the corporation has or has not been in default in its administration of corporate duties. The assumption of such a jurisdiction might draw into our Courts like inquiries, not merely affecting corporations created by our sister sovereignties, but foreign corporations, properly so called, in which a citizen, a resident, or a person temporarily in the state might be interested as a stockholder. For, the jurisdiction once admitted with reference to stockholders of corporations created by the respective states, the principle on which it rests must embrace cases of corporations, wherever existing, or by whomever created. The simple statement of such a proposition seems to us to carry with it its own condemnation. If stockholders in one state could be so proceeded against, so might they in every state of the Union of whose jurisprudence English equity formed a part. Such proceedings might even be simultaneous, and certainly could not fail to present strange conflicts of decision.

The learned counsel for the complainant have pressed upon us the exercise of tbis jurisdiction, on the ground that the complainant can nowhere else obtain relief. Because they say, that inasmuch as none of the corporate officers are residents of Yirginia, process cannot by the laws of that state be served on them, so as to place the winding up of the affairs of this corporation where it properly belongs — in the hands of a Yirginia Court of Chancery. But admit the fact, it establishes nothing except that further legislation is required in that state to provide a manner of service of process in equity against corporate officers, who, by keeping out of that commonwealth, prevent their doings being submitted to the censure of her Courts.

If a Yirginia Court of Equity could possess itself of the case of the Rappahannock Mining Company, and appoint a receiver to collect its assets, whether due by debtors or stockholders, with authority to use the name of the company, such an officer could undoubtedly sue all defaulting stockholders resident in this state, and recover unpaid instalments of stock in the same manner that the company could have done itself. In this way, the remaining assets of the company could be obtained, and be appropriated according to the laws of the state by which the Rappahannock Mining Company was chartered.

In the judgment of the Court, the defendant’s demurrer must be sustained, and the plaintiffs’

Bill dismissed, but without costs.

Case Details

Case Name: Bank of Virginia v. Adams

Court Name: Pennsylvania Court of Common Pleas, Philadelphia County

Date Published: Jul 1, 1850

Citation: 1 Parsons 534