72 Vt. 33 | Vt. | 1899
The allegations in the bill show, among other things, that the Yermont Investment and Guarantee Company was organized under a special act of the Legislature of this State, approved November 10, 1881, section nine of which reads:
“ This corporation shall not transact business until at least twenty-five thousand dollars of its capital stock has been actually paid in; and no part of the capital stock shall be withdrawn so long as the corporation has any unpaid or outstanding indebtedness or liability; and for any injury or damage coming to any person or party from a violation of the provisions of this act, the stockholders shall be personally liable, and such injury or damage may be recovered by such person or party in an action on the case, founded on this statute, and the stockholders shall be personally liable for the indebtedness of the corporation beyond their stock, to an amount equal to the par value of their stock.”
That the company did business until the first of May, 1893, when it became wholly insolvent and unable to pay its debts, and having a large number of creditors in this and many other states, among whom were the orators; that at the June Term, A. D. 1893, of the Court of Chancery in the County of Addison, upon proper proceedings for that purpose brought by a creditor and stockholder of the company, E. J. Ormsbee was duly appointed receiver of said company', accepted the appointment, duly qualified, and took possession, by order of the court, of all the assets of the company which he has thus hitherto held; that, under an order of the court therein providing that creditors of the company who wished to become parties to the suit and share in the assets of the company should, on or before June 1,1891, file with the receiver a statement of their several claims against the company, verified by oath, the orators presented their several claims for proof and allowance in accordance with the order, and the same were allowed
The defendants, under their demurrer, contend, among other things, that this provision of the charter was repealed by No. 79, of the Laws of 1886, and therefore that the bill is without equity.
Such a repeal was not in express terms, and can only have been, if at all, by implication. By the law of 1886, all private corporations organized under special acts of the Legislature were made subject to the provisions of sections 3291, 3292, and 3293, B. L. By section nine of the charter, the corporation could not transact business until at least twenty-five thousand dollars of its capital stock had been actually paid in, and no part of the capital stock could be withdrawn so long as the corporation had any unpaid or outstanding indebtedness or liability, and for any injury or damage coming to any person or party from a violation of those provisions, the stockholders were personally liable in an action founded on that statute. By section 3291, B. L., one half
It becomes important to determine what effect this repeal had upon the rights of creditors under the provision in question.
The law making stockholders personally liable for the indebtedness of the corporation is wholly statutory, and may be contained in a special charter under which the corporation is
To take away the rights of creditors to enforce the payment of the prior indebtedness of the corporation, under this provision by its repeal, would be an impairment of the obligation of contracts which is prohibited by the Federal Constitution. Hathorn v. Calef, 2 Wall. 10; Ochiltree v. Iowa etc. Co. 21 Wall. 249; Shreveport v. Cole, 129 U. S. 36.
The allegations in the bill show that the original capital stock of the company was fixed at fifty thousand dollars and that after its organization and before its insolvency the capital stock was increased to three hundred thousand dollars ; but whether this or any increase therein was made before the repealing act of 1886 took effect, does not appear. Creditors trusted the company and the members composing it only on the basis of the capital stock and the personal liability incident thereto, at the time the contracts were made. Beyond this the personal liability clause was no part of the law of the contracts made by the company and its repeal was not within the inhibition of the constitution. Persons dealing with the company had no right to assume that other stock would be taken. “The obligation of a contract within the meaning of the constitution is a valid, subsisting obligation, not a contingent or speculative one. It was no part
The defendants contend, as a second ground of demurrer, that they are not liable under the charter provision, unless they were stockholders when the respective debts to the orators were incurred. With this we are unable to agree.
The fund subscribed by the stockholders at the time of the formation of the company was expected to be the company’s sole working capital — a subsequent increase of stock might be voted —and the means of satisfying its creditors. The personal liability of the stockholders in no wise increased the working capital or the capital stock of the corporation. When a person became a stockholder by subscription, this liability rested upon him as an incident to his stock. He had a right, in good faith, to sell and transfer his stock and thereby relieve himself from liability as a stockholder, and, as such incident, this liability would follow the stock into the hands of the purchaser. It was inseparable therefrom. Story v. Furman, 25 N. Y 214.
The corporation was a distinct legal entity, managing its affairs by officers and agents. Within the limits of the charter, it could hold property the same as an individual. It could contract debts, and in no sense were they the debts of the stockholders. It was the duty of the corporation to pay its debts, and if the stockholders are individually forced to pay them, they will be entitled to reimbursement from the corporate assets, if such there are. As between the corporation and the stockholders, the former is primarily liable for its debts; it is just and equitable that they should be paid from its assets, in the first instance; and to save circuity of actions, equity requires the creditors to resort to the primary debtor’s assets first and to exhaust them before resorting to the liability of the stockholders. Morawetz on Cor. sec. 883 ; Dauchy v. Brown, 24 Vt. 197; 2 Eq. Lead. Cases, 273.
The debts of an insolvent corporation may have been largely contracted at a time when other persons were stockholders and
Nor is the case of Windham Provident Institution v. Sprague, 43 Vt. 502, relied upon by the defendants in support of their contention in this regard, in conflict with the construction here given. In that case the plaintiff sought to recover its debt of the defendants under a section of the charter of the corporation in which they were directors and stockholders, which provided that the company should not at any time contract debts exceeding three-fourths the amount of its capital stock paid in; and if such indebtedness should exceed that amount, the directors and stockholders should be personally holden to the creditors of the company. The creation of this additional liability was held
The third ground of demurrer is that the action, if any, should be at law. The liability of the stockholders is not to the-creditors, but for the indebtedness of the corporation, to an amount equal to the par value of their stock. In proportion to-their stock, they must contribute to a common fund to be apportioned among the creditors entitled thereto, according to the relative amount of their debts proved. In the enforcement of this liability and the apportionment of the fund, there are equities among the creditors, among the stockholders, and between the creditors and stockholders, to be adjusted. A complete, convenient, and comprehensive remedy can be had only in a court of equity where the rights of all parties can be considered and relief requisite to meet the ends of justice granted in a single action. Crown v. Brainard, 57 Vt. 625; Pollard v. Bailey, 20 Wall. 520; Terry v. Little, 11 Otto 216; German National Bank v. Farmers' and Merchants' Bank, 74 N. W. Rep’r 1086.
Were it possible to determine the questions involved in a court of law, the interference of a court of equity would be justified upon the ground that a comprehensive decree covering the whole controversy can there be made and thus avoid a multiplicity of suits that would certainly arise. Smyth v. Ames, 169 U. S. 466; 1 Pom. Eq. Jur. secs. 268, 269.
But, as their fourth ground of demurrer, defendants contend that if a suit in equity can be maintained, it should be by the receiver appointed and in the discharge of his duties before the commencement of this action. With this contention we
Of the stockholders at the time of the insolvency of the corporation, some have since died, letters of administration were taken upon their estates, commissioners were appointed to receive, examine, and adjust the claims and demands against the estates and in offset thereto, the times for presenting claims have expired, and claims which, by law, should have been thus presented for allowance but were not, are barred. Sec. 2436, Y. S. But it is said by the orators that the nature of the liability in question is such that commissioners have no jurisdiction over claims for its enforcement and, therefore, they are not barred by a failure thus to present them.
Creditors have a priority of right to satisfaction, and if the estates of such deceased stockholders have been received by heirs-at-law or legatees, the assets may be followed in equity, into whosesoever hands they come. Newman v. Barton, 2 Vern. 205; Noel v. Robinson, 1 Vern. 90; 1 Story Eq. Jur. 92. And as such heirs and legatees have an interest in the assets thus •sought to be refunded, they are necessary parties to the bill. Mitford’s & Tyler’s PL & Pr. in Eq. 36.
But it is urged that Farrington and Thayer as assignees of the insolvent estate of G-. & F. E. Briggs, under appointment of the Court of Insolvency, were improperly made parties and that the assets of the insolvent estate can be distributed only in •accordance with the insolvency laws, under the direction of the court of insolvency ; that it having seized the assets for distribution to creditors, no other court could subsequently interfere therewith, and reference has been made to many authorities in support of this position.
Without expressing any opinion as to the general law applicable thereto, we think the provisions of the insolvency law, and the decisions of this court ^construing the same, are controlling.' The liability of the partnership as stockholder, for the indebtedness of the Yermont Investment & Guarantee Company, could not be proved against the insolvent firm in the ordinary way of proving debts and claims in the insolvency court. The fact that
In Thomas v. Carter it was expressly held that the bringing of a suit was not prohibited, and that the protection to the debtor was by application to the court for a stay of the suit. When such application is made, it is within the province of the court to allow the suit to proceed to judgment to ascertain the amount due, if it is in dispute. The assignees were properly made parties.
F. E. Briggs, one of the members of the partnership, died after the filing of the petition against it in insolvency, and thereby the proceedings against his separate estate were discontinued, leaving it to be settled like other estates of deceased persons. Sec. 2170 V. S.; Bartlett v. Walker, 65 Vt. 594. And, although the claim under the charter provision, against the partnership, would be joint as to the members, it is provable against his estate the same as it would be, were the liability joint and several. Sec. 2440 V. S. With the claim thus proved, independent of other considerations, it would stand ratably with other .debts against the estate. But, under the insolvency law (sec. 2164, V. S.), and also
Defendants further eontend that debenture holders are not unsecured creditors, and are misjoined.
It is not necessary to consider what the effect would be did it appear that they were secured. The name does not necessarily imply a secured debt or claim. A “debenture” is defined in the Century Dictionary as, “ A writing acknowledging a debt; specifically, an instrument, generally under seal, for the repayment of money lent; usually if not exclusively used of obligations of corporations or large moneyed copartnerships, issued in a form convenient to be bought and sold as investments. Sometimes a specific fund or property is pledged by the debentures, in which case they are usually termed mortgage debentures.”
It would seem from this definition, that to have a specific fund or property as security for the payment is an exception to the rule, rather than the rule itself. No misjoinder of parties in this regard is disclosed by the allegations in the bill.
Decree dismissing the bill affirmed with costs to the defendants in this court, and cause remanded.