Flash, Lewis & Co. v. Conn

| Fla. | Jan 15, 1878

The Ohiee-Justioe

delivered the opinion of the court.

Plaintiffs in error sued defendant, and alleged.that defendant was- a stockholder in the Pensacola Lumber Company, a corporation formed in the State of "New York under the provisions of an act of the Legislature of that State entitled “ an act to authorize the formation of corporations for manufacturing, mining, mechanical, or chemical purposes,” and the amendments thereto; that_ the defendant is a stockholder in said company, holding stock to the amount of. $75,000, being one-fourth of the entire amount of stock of said company; that said company did business and had an agent and office in Escambia county, Florida; that the company in 1874 was indebted to the plaintiffs in certain notes and in account stated; that in March, 1875, they recovered a judgment upon such indebtedness in said Escambia county for upwards of fourteen thousand dollars, upon which judgment execution was issued and duly returned unsatisfied for want of property on which to levy; -that by the provisions of said act of the Legislature all the stockholders of said company are severally individually- liable to the creditors of said company to the amount of stock severally held by theni for its debts until the whole amount of the capital stock shall have been paid, and a certificate thereof shall have been made, signed, and sworn to by the president and a majority of the trustees of said company, and recorded in the office of the county clerk of the county wherein the business of said company is carried on, and the declaration avers that the president and a majority of the-trustees of said company did not make, sign, swear to, and record such certificate as required by said act, to exempt the defendant from liability,, wherefore the said defendant became liable to the said plaintiffs for said debt and the contracts made by said company, &c. - '

. To the declaration the defendant demurred—first, that it does not set forth any cause of action; second, that it does not set forth a cause of action cognizable by this court. The court sustained the demurrer.

The sections of the act of the Legislature of ETew York, referred to in the pleadings and upon the argument of the cause, are as follows :

“ Sec. 10. All the stockholders of every company incorporated under this act shall be severally individually liable to the creditors of the company in which they are stockholders to an amount equal to the amount of stock held by them respectively, for all debts and contracts made by such company, until the whole amount of capital stock fixed and limited by such company shall have been paid in, and a certificate thereof shall have been made’ and recorded as prescribed in the following section :

“ Seo. 11. The president and a majority of the trustees, within thirty days after the payment of the last instalment of the capital stock so fixed and limited by the company, shall make a certificate stating the amount of the capital so fixed and paid in, which certificate shall be signed and sworn to by the president and a majority of the trustees; and they shall, within the said thirty days, record the same in the office of the county clérk of the county wherein the business of the said company is carried on.”

“ Seo. 24. Ro stockholder shall be personally liable for the payment of any debt contracted by any company formed under this act which is not to be paid within one year from the time the debt is contracted, nor unless a suit for the collection of such debt shall be brought against said company within one year after the debt shall become due ■ and no suit shall be brought against any stockholder * * until an execution against the company shall have been returned unsatisfied in whole or in part.”

The demurrant insists that “ official neglect of a duty imposed by the laws of another State is the gist of the case ‘against the defendant,” as the ease is stated in the declaration, and says the 10th section attaches to the components of the corporation certain individual liabilities—“Eirst, stockholders are severally, individually liable to the amount of each one’s stock, until the entire amount of the capital stock of the corporation is paid in and “ second, stockholders are so liable, although the entire capital stock be paid in, 'upon the failwre of the officers to file the required certificate.”

The position is that the liability is i ne created by the statute of another State, and is one imposed by such statute in consequence of the failure of certain officers to perform a required duty, and is therefore a penalty prescribed by such foreign statute, and that the courts of this State cannot enforce such penal statutes. If this deduction is correct, that this liability is a penalty, and not arising strictly out of contract, we are not prepared to deny the demurrant’s conclusion.

The ease of Bird vs. Hayden, (1 Robertson, N. Y., 383,) cited by defendant’s counsel, was a suit in New York against a director of a manufacturing corporation created under the laws of Massachusetts. A provision of the act required that the officers should annually make and file a certain certificate of the condition of the company, and in case of neglect the officers were declared by the act to be jointly and severally liable for the payment of the debts of the corporation created after such neglect and before the filing of the certificate. The court held that actions to recover penalties created by the statutes of other States, being local, are not cognizable by the courts of New York. (14 Johns., 338" court="N.Y. Sup. Ct." date_filed="1817-10-15" href="https://app.midpage.ai/document/scoville-v-canfield-5473886?utm_source=webapp" opinion_id="5473886">14 John., 338; 17 Johns., 4" court="N.Y. Sup. Ct." date_filed="1819-08-15" href="https://app.midpage.ai/document/united-states-v-lathrop-5474187?utm_source=webapp" opinion_id="5474187">17 John., 4; Story Comfl. Laws, §§620-621.) The court says there is nothing in the act of incorporation of this company which rendered the directors or stockholders liable in the first instance for the debts of the company, as there is in the general banking law and other laws of that State. There is no personal liability if the company fails to pay, and hence there is no right of action against the stockholders for any debt contracted by the company so long as the officers discharge the duties imposed upon them by law. It is. only upon, their neglect or refusal to perform their duty that they render themselves liable. The court adds: “ The personal liability of stockholders, where they are made liable by the charter or act of the Legislature, is from the inception of the debt. They became originally liable, and the happening of no event is necessary to charge them. The company is invested with a qualified corporate capacity, but no immunity or exemption from personal liability for the debts of the company. In these cases, in judgment of law, the debt is contracted upon the terms and security authorized by the statute, and the creditor having exhausted his efforts to collect from the company, may resort to a common law action directly to the stockholders, not to recover a penalty or forfeiture, nor upon a cause of action in the nature of a forfeiture, but to recover a simple contract debt for which he was liable at the time it was contracted. The action in that case is not upon the statute, and a mere reference to it is all that is necessary to show the connection of the stockholders therewith, and the liability it creates.” But in the case before it the court holds that the personal liability for the neglect or refusal to perform a duty was in the nature of a penalty or punishment, and hence no action could be maintained therefor in the courts of Mew York.

Counsel for defendant says “ he is not liable as a copartner, yet such would be the shape of the liability if it came from the common law,” and cites Woodruff & Beach Iron Works vs. Chittenden, 4 Bosworth, 417. There, it is true, the court say the stockholders are not partners; but the court was merely remarking upon the position assumed, that the plaintiff and defendants in the case were all stockholders, with a limited liability, whereas as to partners there was no limit, and, in that case, a judgment against a stockholder in a manufacturing corporation was recovered by a creditor of the company for the use of other stockholders, limited by the amount of his stock. The suit was not brought to recover a penalty, and the court held that the liability was not in the nature of a penalty. In Eaton vs. Aspinwall, (19 N.Y., 119" court="NY" date_filed="1859-03-05" href="https://app.midpage.ai/document/eaton-v--aspinwall-3609676?utm_source=webapp" opinion_id="3609676">19 N. Y., 119,) the court says the “credit was given upon the faith,' not only of the liability of the corporation as such, but ultimately of the several stockholders of its "capital. Weeks vs. Love, (50 N. Y.,) merely decides that -creditors may sue severally, and holds that when a stockholder has paid debts of the corporation equal to the amount of his stock, he is relieved from further liability. It is also remarked by the court that “ the liability is created for the security of creditors.”

The Merchants’ Bank vs. Bliss (1 Rob., 391" court="None" date_filed="1863-08-15" href="https://app.midpage.ai/document/merchants-bank-of-new-haven-v-bliss-8356876?utm_source=webapp" opinion_id="8356876">1 Rob., 391,) was an ac.tion brought to charge the trustees, not because of any original liability for the debts of the corporation, but for a neglect of duty whereby they were subject to a forfeiture,, and this was properly held to be a penal action as for an offence.

In Derickson vs. Smith (3 Dutcher, N. J., 166,) it was held that an action for a liability under section 12 of the New York manufacturing incorporation act, being a liability vm/posed by statute for the neglect-oí the defendant as a trustee to make certain reports, was a proceeding to enforce a penalty prescribed by the Legislature of another State, and the court refused to maintain the suit. The court, however, draws the distinction very plainly between such a suit and one against the individual corporators who are held to be jointly and severally liable for the debts of the corporation. In such case (said Elmer, J.,) the stockholders must be considered original parties to the debt, so that their liability attached on the consummation of the contract with the cor- . poration, and so that a provision in the acts requiring creditors first to obtaiia a judgment against the corporation simply operated to defer the remedy against them until the remedy againt the corporation should be exhausted. And Green, C. J., says: In such case it is held that the stockholders are liable in an original and primary sense, like partners, and that their liability is not created by the statute of incorporation. He assumes the liability by becoming a member of the corporation. The personal liability of the stockholder to pay the debt is the immediate and necessary consequence of the contract made by the company. It becomes by the terms of the charter his debt, otherwise of the liability which attaches as a consequence of a violation or neglect of a duty prescribed by the statute.

In Corning vs. McCullough, (1 Comst., 47,) the court, speaking of the character of these corporations, says: It is not a general, unqualified incorporation of the company imparting to the stockholders and members composing it as a legal consequence an exemption from personal liability for the debts and engagements of the body corporate. It is a legislative grant of a special qualified corporate capacity, with adequate plenary powers for the purposes of its institution, but with the personal liability of the stockholders for the debts the company shall contract and the liabilities they shall incur. And Justice Bronson, concurring, said it has been several times held that the stockholders of this and other like companies stood substantially upon the same footing as to liability as though they had been partner^ or an unincorporated association; that they wei’e answerable to the creditors of the company as original and principal debtors, though the creditors were first to exhaust their remedy against the corporation. 2 Wend., 338; 20 ib., 614; 2 Hill, 265; 3 ib., 188; 2 Denio, 119" court="N.Y. Sup. Ct." date_filed="1846-01-15" href="https://app.midpage.ai/document/harger-v-mccullough-5465171?utm_source=webapp" opinion_id="5465171">2 Denio, 119. The court in Corning vs. McCullough holds that such liability of a stockholder is not in the nature of a penalty.

The question in Lawler vs. Burt (7 Ohio St. R., 340,) was whether a statute making a stockholder liable for the circulating notes unlawfully issued by a company or corporation, other than a bank, was a penal statute, and the court held ■ that it was.

It was held it Kirtzer vs. Woodson (19 Mo., 327" court="Mo." date_filed="1854-01-15" href="https://app.midpage.ai/document/kritzer-v-woodson-7999260?utm_source=webapp" opinion_id="7999260">19 Mo., 327,) that the '.liability under the Missouri statutes, prohibiting an excess -of indebtedness over and above the' capital stock of an in•eorporated company, was penal, and not arising out of eon-traet, and a stockholder -could not recover from a director.

The suit of Jones vs. Barlow (62 N.Y., 202" court="NY" date_filed="1875-06-01" href="https://app.midpage.ai/document/jones-v--barlow-3601545?utm_source=webapp" opinion_id="3601545">62 N. Y., 202,) was against trustees for a failure to make an annual report, and not upon any original liability of the trustees. The liability was Imposed as a penalty and not assumed as a contract.

The liability in Hill .vs. Frazier (22 Penn. St. R., 320,) -.'was for unlawfully declaring a dividend as one of the directors; a penalty for wrong-doing.

In the First National Bank of Plymouth vs. Price et al., (33 Md., 487" court="Md." date_filed="1871-01-20" href="https://app.midpage.ai/document/first-national-bank-v-price-7893134?utm_source=webapp" opinion_id="7893134">33 Md., 487,) it was held that the liability imposed upon the directors and officers of a Pennsylvania corporation for -.unlawfully contracting debts beyond the amount of the capital stock, is in the nature of a penalty, and could only be enforced in Pennsylvania. I The court holds that the liability /v does not arise out of-contract, and says, that while a contract made in one State is enforced in other States agreeably to the law of the State where it is made, it is well settled that no State will enforce penalties imposed by the laws of other States. The court.remarks : “It has been decided by the courts of New York in several cases, and seems now to be there well settled, that where by a statute it is provided that the individual corporators shall be jointly and severally liable for the debts of the corporation, such liability Is not in the. nature of a. penalty, but may be enforced as a contract.”

The court in Vermont, Pickering vs. Fish, (6 Vt., 102" court="Vt." date_filed="1834-01-15" href="https://app.midpage.ai/document/pickering-v-fisk-6571596?utm_source=webapp" opinion_id="6571596">6 Vt., 102,) held that the courts of that State would not take cognizance of an official bond executed in another State, for the purpose of enforcing it in a peculiar manner unknown to the’ common law, directed by a statute of that State, for thecoiirt says “it is not a contract originating in the ordinary business transactions of men, created for private and individual purposes as evidence of private right. If it were such, it would be transitory as to the persons of the contracting parties, and would be enforced in any jurisdiction where the legal obligation of contracts is recognized. It is a general rule that courts of all civilized nations will enforce contracts executed in foreign States where the parties are within their jurisdiction ; and for this purpose will have regard, to the laws of the place where the contract may be made.”'

Thus far we have examined all the authorities cited by the defendant in error, in the order in which they are referred to in the argument, excepting the case of Halsey vs. McLean, 12 Allen, 438. We cannot take issue with any of these decisions excepting the latter, which, in our judgment, is antagonized and opposed by every other case referred to by either counsel. In that case, the defendant was sued in Massachusetts as a stockholder of a Hew York company, (organized under the same act of the Legislature of Hew York under which the present suit originated,) by a creditor of the company. The court says, referring to the sections of the incorporation act, “ These provisions, likewise, have been declared by a Hew York court (4 Bosw., 417,) not to rénder the stockholders chargeable as co-partners. The liability for non-payment of the capital stock is limited, in the case of each stockholder, to an amount equal to his stock ; and to an action founded on §10, it would be a defence available to any shareholder that he had already paid debts to that amount.” And1 the court was “ of the opinion that the liability of stockholders for debts due to laborers, * * qualified, as it is, by the provisions as to the remedy in §24, must be treated as a part of the statute system of another State, incapable of execution alieno foro” The court does not tell us why, if the shareholders are not partners, or chargeable as co-partners; or why if the liability is limited to the amount of unpaid capital stock ; or why, if the liability is limited to debts contracted to be paid ■within a specified time, and conditioned upon a suit being first brought against the company within a year after the •debt becomes due; why it must follow that the contract •cannot be executed alieno foro.

Suppose the law of New York limits the liability upon •civil contracts made in that State to the term of six years from the accruing of the cause of action, is that such a -qualification of the liability that the courts of another State will not enforce the contract within six years? Or suppose by the law of New York an action cannot be maintained against a surety, or guarantor, until a recovery :against the principal, is that such a qualification of the liability that the courts of another State will not entertain a suit against the surety after judgment against the principal'? Or if the liability is limited by statute to a certain pro rata amount of indebtedness, contracted by several individuals,- or by a corporation, is that such a qualification that the liability will not be enforced in another State ? Amdyet, if we understand the court-in Halsey vs. McLean, it- is the opinion of the court that in either of these cases the statute has so qualified the liability the courts of anoth-er State will refuse to enforce it. The court further remarks that it regards the principles laid down in Derrickson vs. Smith, (15 Gray, 221,) as applicable to all the provis. ions of the New York act, which they examined in that ■case. ,

Turning to the case of Derrickson vs. Smith, we find that the Massachusetts court refused to entertain a suit where the liability arising under the charter of a New Hampshire corporation could be enforced by the law of New Hampshire only by bill in chancery, a law which, the Massachusetts coui’ts could not recognize as binding upon them, and in the • nature of things only valid' in Hew Hampshire, as it prescribed the particular form in which the remedy must be sought, the court holding “that when a statute creates ancT prescribes a remedy, that remedy is exclusive, and no other-can be pursued.” We cannot regard the Hew Hampshire-decision as laying down any principle applicable to the ease - at bar which will preclude the courts of that State from entertaining this plaintiff’s suit. The-ruling of, the courts of Hew York, where the company was incorporated, is to the effect that the stockholders are liable by the terms of the-act of incorporation, which is the substance of their contract, in the first instance, for the dbbts of the company, not-as insisted by defendant, upon the failure of the officers to • file their certificate; but are so liable to the amount of their* stock umtil the happening of a certain event, for all the debts contracted to be paid within one year after suit and execution against the company in its corporate capacity. These terms are but limitations of the liability which was incurred by the contracting of the debt, and do not create-liabilities depending upon any other event. A statute of limitation is not a qualification of a contract, so' that the-liability depends upon the happening of" any event, but the event or lapse of time merely'relieves against a suit; the right to a remedy ceases to exist. The limitation is for the benefit of the stockholder and a means of relief,. and' not' as condition of liability.

A surety may sometimes demand that- legal'-1 remedies shall be first exhausted against his principal before he shall be compelled to pay, but this is because the surety is already bound, and not because the liability is not fixed by his contract ; that is operative already, and dependent upon nothing but its own condition. The stockholder here is a surety of the company of which he is a member, and'’ his liability* as a surety is a part of the contract entered into by becoming a member of the company. No event was necessary to charge him as a member except the contracting of a debt to be paid within one year, upon which suit must be brought within one year after the debt is due; and if this is not done he is discharged. This, and the amount of his unpaid stock, merely limit the personal liability upon the contract.

¥e have seen by the decision of the courts of New York already cited, that the personal liability of the stockholders, when they are made liable by the terms of the charter or act of incorporation, is from the inception of the debt. They are originally liable, and the remedy upon this liability may be enforced after the creditor has exhausted his efforts to collect from the company. Bird vs. Hayden, 1 Rob.; Eaton vs. Aspinwall, 19 N. Y.; Weeks vs. Love, 50 N. Y.; Derrickson vs. Smith, 3 Dutcher, N. J.; Corning vs. McCullough, 1 Comst.; Bank vs. Price, 33 Md.

In Van Riper, ex-parte, (20 Wend., 614" court="N.Y. Sup. Ct." date_filed="1839-09-15" href="https://app.midpage.ai/document/ex-parte-van-riper-5515220?utm_source=webapp" opinion_id="5515220">20 Wend., 614,) the court say : “ The charter does not confine the creditor to any particular remedy. It raises in his favor a debt against an individual, and leaves his remedy to the general methods of the law. This view also answers another objection, that the remedy given by the charter is local to the State of New Jersey. The charter, in fact, institutes no remedy. It binds Yan Riper as a debtor. It raises a debt against him, which may, in its own nature, be enforced wherever the debtor or his property can be found, according to the forms of law at the place where found.”

In a suit against a stockholder of the Rossie G-alena Company, where, by'the charter, the stockholders were “jointly and severally, personally liable for the payment of all debts or demands contracted by the said corporation,” but eould not be sued until a judgment had been recovered against the corporation, and an execution returned unsatisfied, it is held that the stockholders in their individual, as well as their corporate capacity, were principal debtors. Hayer vs. McCullough, 2 Denio, 119 ; Moss vs. Oakley, 2 Hill, 265; Bailey vs. Baucker, 3 Hill, 188.

In these cases, as in ex-parte Yan Riper, and in Corning vs. McCullough, the individual liability extended to all debts of the company, while in the case at bar the extent of the liability was limited by the charter to the amount of the capital stock owned by the defendant. In neither case is it apparent that the liability is in the nature of a penalty, and there is as much show of reason for classing it as a penalty in one case as in the other.

The defendant’s liability as a stockholder, under the articles of association, clearly rests in contract and not in tort, or dependent upon the conduct of the officers or agents of the company, but only upon the non-payment of the debt by the principal debtor, and limited by the amount of his stock. If he has paid any of the debts of the company, that is matter of defence under his contract.

Ye discover no substantial objection to the form of the allegation in the declaration. The gist of the action is the indebtedness of the company, the suit and judgment against the company unsatisfied, the amount of the defendant’s stock and the fact that the liability has not been extinguished by the making and filing of the certificate as prescribed by the articles.

The judgment must be reversed, and judgment entered in favor of the plaintiffs upon the demurrer, and such further proceedings may be had according to law and the practice of the court as the parties may be advised.

On the 16th day of March, 1878, after the adjournment of the court, which adjourned on the 13th day of March, the appellee filed the following petition for a re-hearing:

To the Judges of the Supreme Qowrt:

The appellee in the above cause, the said Adna 0. Conn, prays and petitions to your honors for a re-hearing of the above entitled cause, lately, to-wit: on the 13th day of March, A. D. 1878, decided by this court, and assigns as a ground for said petition that there was no final judgment or other judgment in the Circuit Court in the said cause from which a writ of error or appeal could legally be prosecuted or taken to this court; and that this court, in rendering its judgment and decision herein, failed and omitted to consider this fact, and to render its decision and judgment .accordingly; and that on this account and for this reason the decision and judgment of this court in said ease is, by the petitioner, under the advice of his counsel, believed and supposed to be erroneous. Your petitioner therefore humbly prays and petitions your honors for a re-hearing of the same, and will ever pray.

■ At the June Term, A. D. 1878, the following opinion denying the petition was pronounced by The Chief Justice :

Some days after the adjournment of the last term of this court, during which this cause had been fully argued by counsel on both sides, and a decision made and opinion filed therein, a petition for a re-hearing was filed at the instance of the counsel for' appellee. The ground upon which the re-hearing was prayed was that no final judgment had been entered in the Circuit Court from which an appeal or writ of error would lie.

The petition for re-hearing cannot be considered by this court, because it was not presented within the same term in which' the cause was decided, nor within any time allowed by the court for that purpose, no such extension having been asked for or allowed. (24th Rule Supreme Court, 1 Fla., 397.) Nor is this a proper ground for praying a rehearing. A re-hearing cannot be asked for except upon some ground presented to the court upon the argument. Rule 24.

Ro question was raised by either party as to the sufficiency of the judgment, or the regularity of the writ of error. Both parties assumed upon the argument that the cause was regularly before the court, and it was submitted for decision upon questions presented and argued by counsel. Immediately on hearing the decision of the court, the counsel for the losing party caused the petition for a re-hearing to be filed. This paper will be allowed to remain on file, and the parties must take such steps as may be appropriate, if it shall be found that the matter suggested in the petition is true.