95 F. 419 | D. Mass. | 1899
The Marshall Paper Company is a corporation organized under the laws of Massachusetts, which has been adjudged bankrupt upon an involuntary petition. It has filed two petitions: First, for a discharge; and, second, that a certain creditor be enjoined from proceeding to judgment in a suit brought against it before the commencement of proceedings in bankruptcy. The trustees in bankruptcy have also filed a petition seeking to enjoin the same creditor from proceeding to judgment.
Two interesting questions have been argued: First, under the bankrupt act of 1898, is a corporation entitled to a discharge in bankruptcy? To discharge a corporation in bankruptcy or insolvency is almost or quite unprecedented. What useful object will be accomplished by the discharge is hard to imagine. Although it is now generally held, after some conflict of decision, that bankruptcy or insolvency does not work the corporation’s dissolution, yet in several states insolvency affords sufficient ground for proceedings commenced by a creditor to dissolve a corporation. See Stim. Am. St. Law § 8341. Everything of pecuniary value which belonged to the corporation, and could be transferred by it, must be applied for the benefit of its creditors, — good will;, trade-marks, whether registered or not; all transferable franchises; and in some cases, by statute, even the franchise to be a corporation. McClain’s Code Iowa, § 1636. A discharge in bankruptcy is granted to an individual in order that, being freed from his debts, he may have a new start in life; but to attribute this condition to a corporation is to use a mere figure of speech. If there is anything of pecuniary value in a corporation apart from the energy of the individuals concerned in it, to that, speaking generally, the corporation’s creditors are entitled. These and other arguments against granting a discharge in bankruptcy to a corpora-
‘‘Good and sufficient reasons may be given for granting a discharge from prior indebtedness to individua 1 bankrupts which do not exist in the case of corporations, and equally good and sufficient reasons may be given for withholding such a discharge from corporations which do not in any sense apply to individual bankrupts. Certificates of discharge are granted to 1he individual bankrupt ‘to free his faculties from the clog of his indebtedness,’ and to encourage him to start again in the business pursuits of life with fresh hope and energy, unfettered with past misfortunes, or with the consequences of antecedent improvidence, mismanagement, or rashness. Many corporations, it is known, are formed under laws which affix to the several stockholders an Individual liability to a greater or less extent for the debts of the corporation, which, in ease certain steps are taken by the creditors, become in the end the debts of the stockholders. Such a liability docs not, in most cases, attach to the stockholder until the corporation Jails to fulfill iis contract, nor in some eases until judgment is recovered against the corporation, and execution issued, and return made of nulla bona. Stockholders could not he held liable in such a case if the corporation is discharged, nor could the creditor recover judgment against, the corporation as a necessary' preliminary step to the stockholder’s indi\ ¡dual liability. Consequences such as these were never contemplated by Congress: and the fact that they would flow from the theory of the defendants, if adopted, goes very far to show that the theory itself is unfounded and unsound.”
These considerations would be decisive in interpreting the present law, Mere it not for other considerations which are of some weight. Tin; bankrupt relies upon section 1, subd. 19, of the bankrupt act: ’Persons shall include corporations, except when otherwise specified;” and section 14a: “Any person may * * ® file an application for a discharge.” Moreover, section 37 of the act of 1867 (Rev. St. § 5122) expressly excluded corporations from a discharge; and this provision, we should suppose, was present in the minds of the framers of the present law. Unless these intended to permit the discharge of a corporation, it is hard to say why they did not insert a similar excluding clause in the present act. Yet again, some earlier drafts of section 14 of the present act — -drafts which, in other respects, resemble almost literally the section as passed — began with the words, “Any person not a corporation.” See S. 1694, 52d Cong., 1st Sess., § 50; H. R. 9348, 52d Cong., 1st Sess., § 13; S. 1035, 55th Cong., 2d Sess., § 13 of the substitute, in Ihe process of redrafting, the three words, “not a corporation,” were stricken out; for what reason it is hard to perceive, unless their omission was intended to permit the discharge of a corporation, almost meaningless and unprecedented as such a discharge would be. See, also, the similar change made in drafting section 14 of the act of 1898. Finally, later decisions of the supreme court, and particularly Hill v. Harding, 130 U. S. 699, 9 Sup. Ct. 725, have thrown some doubt upon the unqualified statement of Mr. Justice Clifford, just quoted, that “stockholders could not be held liable In such a case iJf the corporation is discharged, nor could the creditor recover judgment against the corporation as a necessary preliminary step to the stockholder’s individual liability.” It may be that this objection to discharging a corporation has been obviated, partially at least. The Inconvenience and apparent uselessness of discharging a corporation, the lack of precedent for such a discharge
The second question argued in this case concerns the effect of proceedings in bankruptcy upon the right of a corporation’s creditors to enforce the statutory liability of its directors. Upon the general answer to this question there can be no doubt. As has just been said, the corporation’s discharge in bankruptcy may not necessarily bar its creditors from recovering against it a judgment which will afford a sufficient basis for the enforcement of the individual liability of its directors and stockholders; but the reasoning of Mr. Justice Clifford has lost none of its force as directed against any theory that a bankrupt act is intended to free directors and stockholders from this liability. The secondary liability of directors and stockholders in certain cases, within certain limits, and for certain classes of debts, is abundantly established as a general principle of statutory corporate law in the United States, though the precise provisions of that law vary greatly in the several states. Stim. Am. St. Law, §§ 8140, 8142, 8143, 8161, 8232, 8240, 8241, 8553. Suddenly to abolish this sec-' ondary liability under the pretense of enacting a bankrupt law, to deprive certain classes of creditors of what often is a most valuable means, and is sometimes the only means, of collecting debts due them by the corporation, would be an act of monstrous injustice, even if it were held to be within the constitutional power of congress. That congress intended to deprive the creditors of insolvent corporations of their statutory claim against the officers and stockholders,— to deprive operatives, for example, of the claim'against stockholders given them by statutes like those of Massachusetts as a proper protection to the poor and ignorant in dealing with corporations, — is not to be admitted. In Mohr v. Elevator Co., 40 Minn. 343, 41 N. W. 1074, the case most favorable to the petitioner which has been found, the creditor had voluntarily released the corporation pursuant to Laws Minn. 1881, c. 148, § 1. The principal contention of the bankrupt, as appeared in the argument of this case, though not in the papers filed, is that, by the operation of the bankrupt’s discharge, its directors will escape from their statutory liability through the impossibility of obtaining a judgment against itself. But the statutes imposing a limited individual liability upon the directors and stockholders of corporations differ in their prerequisites for enforcing this liability. Most statutes, like those of Massachusetts, require a pre
It was urged by the bankrupt’s counsel that a discharge obtained after the judgment was rendered would not avail the bankrupt in resisting an execution upon its property acquired since the filing of the petition. Assuming that a discharge should, under some circumstances, be granted a corporation, and assuming that a court is compelled to choose between the misfortune of the bankrupt above supposed and the escape of its directors from their statutory liability, the former alternative should be accepted without hesitation; but it seems that the bankrupt’s escape is not barred. The discharge, whenever granted, will discharge the bankrupt from all its provable debts, with certain irrelevant exceptions. Provable debts include those “founded upon a contract express or implied” (section 63, subd. 4), and this debt was so founded. That the debt which has been merged in a judgment is still the same debt was decided in Boynton v. Ball, 121 U. S. 457, 466, 7 Sup. Ct. 981. That case also decided that, when the judgment was recovered after proceedings in bankruptcy had been begun, and .before discharge, the discharge might be set up to stay the issue' of execution. If, therefore, this bankrupt shall hereafter obtain its discharge, and acquire property, it will be able to protect that property from a levy to satisfy a judgment founded upon the debt now sued upon by the creditor Train.
The petition of the trustees for an injunction raises no question not hereinbefore considered. The respondent has already dissolved his attachment upon the property of the bankrupt which he obtained by mesne process before the commencement of proceedings in bankruptcy. There is, therefore, no reason to suppose that the