Coleman v. White

14 Wis. 700 | Wis. | 1862

By the Court,

DixoN, C. J.

Section 18 of the general banking law, chapter 71, Revised Statutes, declares: “ The stockholders in every corporation or association organized under the provisions of this chapter, shall be individually responsible, to the amount of their respective share or shares of stock, for all its indebtedness and liabilities of every kind.” This is an action at law founded upon this section, instituted by the plaintiff as a creditor of the City Bank of Racine, a corporation organized under the act, against the defendant, an individual stockholder, to recover a debt due from the bank; and the questions presented relate to the nature of the liability imposed and the form of remedy to be pursued. Other questions are presented by the case, but the disposition we make of these renders their consideration unnecessary.

We are of opinion that the liability is primary and absolute, and attaches the moment the debt is contracted by the bank — that it is a liability of all the stockholders to all the creditors, on the principle of co-partnership, the stockholders standing on substantially the same footing as though they were partners or an incorporated association, save only that the responsibility of each is limited to a sum equal to his share or shares of stock. Subject to this limitation they are answerable as original and principal debtors, and their liability more nearly resembles that of co-partners than any other with which it can be compared. These positions, it is believed, are fully sustained by the following authorities:— Marcy vs. Clark, 17 Mass., 330; Allen vs. Sewall, 2 Wend., 327; Sewall vs. Allen, 6 Wend., 335; Moss vs. Oakley, 2 Hill, 265; Hager vs. McCullough, 2 Denio, 119; Corning vs. McCullough, 1 Coms., 47; Matter of Empire Bank, 18 N. Y. 218; Mokelumne Co. vs. Woodbury, 14 Cal., 265; Wright vs. Field, 7 Porter’s Ind., 376; Planter’s Bank vs. Bivingsville Man. Co., 10 Rich. Law, 95; and cases hereafter cited.

W'e are persuaded that-the remedy should be by suit in in which all the creditors should join, or one or more 0f them should sue for the benefit of all, and that the action should be against the bank and all the stockholders, unless it be impossible or impracticable to bring them all before the court, or some other sufficient cause for the omission be shown. This conclusion, we think, follows necessarily from the nature of the obligation imposed, it being a liability on the part of all the stockholders, in proportion to the amounts of their respective shares, to all the creditors according to the sums severally due them. It is an indebtedness which a court of law has no power to regulate and adjust, and to which the jurisdiction and powers of equity are peculiarly and exclusively adapted. The creditors should all join, be cause they have a common interest in the funds to be realized ; or if the action be commenced by one or more of them, the complaint should be so framed that the others may come in and prove their claims before the court or a referee, and share in the distribution of the moneys received. All the stockholders should be made defendants, because they too have a common interest, and without their presence it is impossible to adjust their rights and liabilities, and protect them from unequal and oppressive burdens. The same reasons exist for making all the stockholders parties to such actions as in proceedings against delinquent stock subscribers to compel them to contribute towards the payment of the debts of an insolvent or bankrupt corporation. See Adler vs. Milwaukee Pat. Brick Co., 13 Wis., 57. The corporation should be joined, unless it has been dissolved, or its assets wholly exhausted, for the reason that both creditors and stockholders are interested in closing its affairs and in having its available property appropriated to the payment of debts, without which there can be no final settlement and adjudication of the rights and liabilities of the parties.

In coming to these conclusions in opposition to the decisions of the courts of New York in Bank of Poughkeepsie vs. Ibbotson, 24 Wend., 273, and subsequent cases, we have yielded to what we deem the better considered and more rational and satisfactory decisions of the Supreme Court of ■Massachusetts upon similar statutes. In Harris vs. Dorchester, 23 Pick., 112, it was held that an action at law would not lie in favor of a creditor of a bank against a stockholder, to enforce a provision of statute, that if any loss or deficiency should arise from the official mismanagement of the directors, the stockholders should, in their individual capacity, be liable to pay the same ; but the remedy was by bill in equity. In the late case of Crease vs. Babcock, 10 Metcalf, 525, it was determined, under a statute creating a similar liability, that the bill holders could not severally maintain a bill in equity against the stockholders to compel payment and redemption of the unpaid bills held by them respectively, but that all of them must join in one bill, or one or more of them must file a bill for the benefit of all, against all the stockholders. The reasoning of the court in the first case covers the whole ground, and is to our minds quite conclusive. After adverting to the well known principle upon which the courts of New York place the right of each creditor to maintain a separate action, that when a statute creates a right but does not establish any particular remedy, the common law, to effectuate the purposes of the statute, interposes and supplies a convenient and adequate remedy, the court says : “If actions at law will lie, suits may be multiplied to an indefinite extent. Each bill holder or other creditor must have his separate suit, and each stockholder must be sued separately. Again, suits between stockholders to adjust their contributions would be interminable. If a credit- or’s demand be larger than the amount of stock owned by any one, he must have several suits against several individuals on the same cause of action, or lose a part of his just demand. If any one stockholder owned more stock than was needed to meet any one claim made upon him, he would be liable to several suits. It may happen, and probably has happened in this instance, that a bank owes more than the amount of its whole capital. In such case there must either be a pro rata division among the creditors, of what maybe recovered, which would be impracticable in suits at law, or those who sue first must recover the whole of their debts, leaving others totally remediless, which would be palpably unjust.— q^e ev£s ancj inconveniences of attempting to enforce this section by suits at common law would be incalculable; and suc1i remedy would be inadequate, vexatious and mischievous. The only proper means of giving effect to this provision is by a process in equity; and this, of all cases which can arise, seems to call most loudly for a chancery jurisdiction. To a bill in equity all persons, however numerous, might be made parties; and all the relative and conflicting claims of the many creditors and stockholders settled, and their proportionate rights to recover, and liabilities to contribute, adjusted in a single suit. We are all, therefore, of opinion, that this case comes within the equity jurisdiction of the court, and that an action at law will not lie.”

It is worthy of observation that these decisions are placed entirely upon the provisions of statute creating the liability, and were made without reference to any other statute indicating that the proceeding in equity was that intended by the legislature; it being considered, from the nature of the obligation imposed, that the equitable remedy alone was applicable, and that the legislature impliedly adopted it. We are not required to go so far, since we have a statute which plainly points to the equitable process as that which the legislature designed should be used. Sections 21 to 82 inclusive, of chapter 148 of the Revised Statutes, clearly refer to proceedings of this nature, and point out the several steps to be taken, which must be in a court of equity. These provisions were in force at the time the banking law was enacted, as sections 9 to 20 of chapter 114 of the Revised Statutes of 1849, and it must be presumed that in creating the liability the legislature intended to adopt the remedy prescribed by them.

Although we do not intend to criticise the opinions of the courts of New York, we may with propriety suggest that the inconvenience and delays suffered by the smaller creditors in consequence of being deprived of their action at law, and compelled to resort to equity, are perhaps compensated by the certainty which they have of receiving their due proportion of the funds realized. The door to favoritism and preferences, as between stockholders and different creditors, is closed, and tbe doctrine of equality among all the creditors firmly established. This we believe to be in with the intention of the legislature. If the delays of a court of chancery are considered as a hardship, the loss by the creditor of his entire demand may possibly be regarded as a greater; and though the protection of the stockholders alone might not be a sufficient ground for proceedings in equity, yet the combined benefits resulting both to them and the creditors may be.

Note. — The ease of Garpeniei' vs. The Marine Swnh and others, decided at the same term, was, as stated in the opinion of the court, “an action at law to enforce the provisions of the 18th section of chapter 71, R. S., instituted for the sole benefit of the plaintiff against the bank and three of the stockholders.”— The court followed the decision in the above case of Goleman vs. White, holding that “ the action should have been commenced forthe benefit of all the creditors of the bank, and all the stockholders should have been joined as defendants;” and on that ground aflirmed the decision of the circuit court, sustaining a demurrer to the complaint for defect of parties. Rep.

We are of opinion that this action cannot be maintained, and that the judgment of the circuit court must be reversed, and the cause remanded with directions that it be dismissed.