This bill in equity is brought against the defendant corporation and the individual defendants, who were its directors and stockholders, to establish their personal liability for a debt of the company to the plaintiff as shown by a judgment of tbe Superior Court entered July 5, 1898, upon which execution duly issued. All statutory requirements as to its service and return in order to fix the liability of stockholders and
By the agreement of the individual defendants set out in the report, and who alone defended the action, three questions are presented for our decision, which we proceed to consider in the order therein stated.
After judgment was recovered against the corporation, and this bill was filed, the defendant Sampson was adjudicated a bankrupt on his voluntary petition and obtained his discharge, which he has duly pleaded in bar of this suit, and if the claim of the plaintiff was a provable debt against his estate the bill as to him must be dismissed. By Pub. Sts. c. 106, § 60, under which this bill is brought, it is provided in clause two on which the decree is based that the president and directors shall be jointly and severally liable “ For debts contracted between the time of making or assenting to a loan to a stockholder and the time of its repayment, to the extent of such loan.” This liability is created wholly by statute and is unknown to the common law, and no form of procedure for its enforcement exists except that provided by the statute which creates it. The history of previous legislation may be briefly examined in order to determine the meaning and extent of the obligation.
The first statute creating this remedy appears in St. 1808, c. 65, § 6, where it was provided that after judgment against a corporation the issuing of execution thereon and demand on the president, treasurer or clerk for property to satisfy the same if none was shown or exhibited which could be taken in satisfaction, then it might be levied upon the “ body or bodies, and real and personal estate or estates of any member or members of such corporation.” From time to time, by statutory enactments, changes have been made as to the extent of the liability of stockholders and officers, and in the form of procedure to enforce the same. The different statutes and several modifications of the law up to and including St. 1870, c. 224, which was the last revision previous to Pub. Sts. c. 106, are collected by Field, J., in Child v. Boston & Fairhaven Iron Works, 137 Mass. 516, 517. It clearly appears from an examination of
It was early held in Ripley v. Sampson, 10 Pick. 371, 372, which was a case where it was sought to charge the estate of a deceased stockholder in the hands of his administrator for a deficit in the funds of the corporation, that “the individual liability of stockholders, created by the statute of 1808, was of a particular and limited character, and could only be enforced in the manner pointed out by the statute. It did not constitute a charge upon the estate of a deceased stockholder ” ; and because it was not a debt the administrator could not apply the assets of the estate in payment. Following this case, in Kelton v. Phillips, 3 Met. 61, 62, it was decided that individual liability under the same statute, being of this particular and limited character and only to be enforced as outlined therein, was not a debt within the meaning of our insolvent act of 1838, c. 163, and hence was not provable against a stockholder in insolvency. See also Stone v. Wiggin, 5 Met. 316, 317 ; Gray v. Coffin, 9 Cush. 192, 199. From these decisions it appears that the liability created by the provisions of these statutes is not direct and does not make the indebtedness of the corporation the' debt of the individual stockholder or of the officers, according to the class into which the claim of the creditor who seeks to enforce his debt may fall. He must first sue the corporation, and unless be gets judgment against it he cannot pursue either. And if he gets judgment then he can maintain such suit, only after the corporation neglects for thirty days after demand made, on execution, either to pay the judgment or to exhibit real or personal estate of the corporation liable to be taken on execution sufficient to satisfy the same, and the execution is returned unsatisfied.
Under the bankruptcy act of 1867 (U. S. Rev. Sts. §§ 5067, 5068), such a claim would not have been provable because not a debt within the meaning of that act. Fourth National Bank v. Francklyn, 120 U. S. 747, 754. James v. Atlantic Delaine Co. 13 Fed. Cas. 300.
The bankruptcy act of 1898, § 63 (30 U. S. Sts. at Large, c. 541), permits the proof among' others of “ a Debts . . . (4) founded upon an open account, or upon a contract express or implied”, and provides that “b Unliquidated claims against the bankrupt may, pursuant to application to the court, be liquidated in such manner as it shall direct, and may thereafter be proved and allowed against his estate.”
It would seem that this clause does not provide for an additional class of liabilities, but for a method by which such of the liabilities described in clause a as are unliquidated may be liquidated and proved. We are of opinion that clause b does not mean anything more than the language used in the bankruptcy act of March 2, 1867, c. 176, § 19, that “ Where the bankrupt is liable . . . for unliquidated damages arising
Different questions are presented by the defendant Parker, and it is first to be determined whether the facts set out in the report are sufficient to show that his acts as a director constituted a making, or assent by him to, a loan - to a stockholder within the meaning of the statute. The evidence is not reported, but from the findings of fact it appears that the entire amount of capital stock which was fixed at $100,000 had been paid in cash and was on deposit in the name of the corporation, when of this amount the sum of $37,500 was lent to the individual defendants and one other stockholder in different sums and by checks payable to the individual order of each. When the money was paid out they were all at the office of the company and the checks were delivered to each at the same time. After the money had been so lent, the directors held a meeting at which all of the individual defendants were present, and it was then voted that these loans be ratified.
No other reasonable inference is open but that the defendant Parker knew that he and the other defendants were receiving the money of the corporation. And as the company does not appear to have been indebted to either of them, their taking of the money must stand on one of two grounds: either it was a wrongful appropriation of the funds of the corporation, or a loan to each one who received the various amounts specified by the checks and set out in the report. No sufficient reason appears
Afterwards the defendant company, becoming financially embarrassed, made a voluntary assignment for the benefit of its creditors, to which the plaintiff assented, proved its claim and received a dividend. This instrument contained among other provisions a covenant or agreement that all creditors who assented to its terms should by so doing be held to accept whatever dividend might be paid in full satisfaction and discharge of their debts, and that the assignment could be pleaded in bar of any suit subsequently brought on such claims.
In the original suit brought by the plaintiff, after proof of its debt and receipt of a dividend, the defendant company appeared and in its answer set up the assignment as a bar to the maintenance of the claim. But when the case came on for trial in its order the defendant was defaulted and judgment for the plaintiff was thereafter entered on the default. At the time when the action was brought and when the case went to judgment, the defendant Parker was absent from the State and had no knowledge of the proceedings. Under his answer he now claims that it is open to him to show that the plaintiff’s claim was discharged by its assent to the assignment, and there being no debt due it from the corporation, the judgment so obtained is not binding on him, and as the obtaining of such judgment is one of the conditions precedent to the maintenance of this bill, the decree against him was not warranted and must be reversed.
Pie further contends that this defence is open to him under St. 1883, c. 223, now R. L. c. 173, § 28, permitting an equitable defence to be made to an action at law. And in his argument he asks us either to distinguish this case from Thayer v. New England Lithographic Steam Printing Co. 108 Mass. 523, 528, or overrule that case upon the ground that the decision is not supported by previous cases cited in the opinion.
Originally the property of every stockholder might be directly levied on to satisfy an execution on a judgment against a domestic corporation of which he was a member. No opportunity was given him to appear or contest this liability until St. 1851, c. 315, § 1, re-enacted in Gen. Sts. c. 60, § 32, that for the first time provided that when a corporation was sued a summons was
The law continued unchanged until St. 1862, c. 218, when the remedy of the creditor to determine the liability of officers or stockholders of a manufacturing corporation, and to reach and apply their property in payment of a debt, was finally limited to a bill in equity after judgment had first been obtained against the corporation and demand duly made on its officers to pay the amount due or exhibit real or personal estate of the corporation that might be taken on execution to satisfy the judgment. The provisions of Gen. Sts. c. 60, §§ 31-34, inclusive, and all other inconsistent laws were repealed. Ro provision, however, was made whereby a stockholder or officer could appear and defend the suit in the name of the corporation. It was not until St. 1867, c. 36, § 1, re-enacted in St. 1870, c. 224, § 48, and- in Pub. Sts. c. 106, § 70, that the qualified right to appear and defend in such a suit might be granted on petition to the court in which the case was pending. Byers v. Franklin Coal Co., ubi supra. This final result of a long period of legislative action in which the liability of officers and stockholders for the debts and contracts of manufacturing corporations and the procedure to enforce
The plaintiff cannot be called upon to lose a statutory right simply upon the ground that the defendant did not know of the suit at law when the latter was bound reasonably to anticipate and provide for the consequences that might arise from his illegal conduct. If it be said that if he knew of the common law assignment, he might rely on its terms as relieving the corporation, and hence himself indirectly, he is not helped. The corporation was not bound to plead its release under the assignment against the plaintiff who had not been paid in full. By its terms it was anticipated that suits might be brought as the creditors were not fully paid, and such suits were not only deemed probable but guarded against in the provision that the assignment could be pleaded in bar as to all creditors who had assented to it and received a dividend.
If he intended to leave the State there is no greater hardship to him in holding that he should have provided in some way for such a probability than there would be in holding that the plaintiff who apparently did not know of his absence should not be allowed to retain his judgment when he had in good faith followed the statute. The defendant in such a case, in order to avoid the judgment,' must show something more than that as between himself and the plaintiff the equities are equal.
Independently, however, of these considerations the question cannot be treated as an open one under our decisions. The Superior Court in which the judgment was rendered had jurisdiction of the subject matter and of the parties, and it is not claimed that the judgment was obtained by fraud or collusion. And whether the defendant is treated as a privy or a stranger to the judgment, it cannot be collaterally impeached or reversed in this suit. Hawes v. Anglo-Saxon Petroleum Co. 101 Mass. 385. Wood v. Mann, 125 Mass. 319, 320. Fall River v. Riley, 140 Mass. 488, 489.
This question was last before this court in Thayer v. New England Lithographic Steam Printing Co., ubi supra. Following an unbroken line of authorities, the rule was reaffirmed in these words: “We believe the decisions in relation to individual liability for corporate debts have been, in all aspects in which the question has been presented, uniform in sustaining the conclusiveness of the judgment against the corporation, as establishing the existence of the debt for which it is rendered,” and citing the cases to which we have referred. See to the same effect Norfolk v. American Steam Gas Co. 108 Mass. 404, 406. These two decisions were made under St. 1862, c. 218, re-enacted in St. 1870, c. 224, § 38, Pub. Sts. c. 106, § 60, which dealt with the liability of officers and stockholders. And as St. 1867,' c. 36, §§ 1, 2, which permits stockholders and officers to intervene, was passed before the debts were contracted which were the subject of the suits, the cases are authority that though the act permits such intervention, yet when stockholders or officers do not, or cannot intervene to defend the original suit, the validity of the judgment is not affected. This rule is but the application of the general principle of the conclusiveness of judgments, and the only exception to be made is the one provided by statute.
The principle is not broken in upon by the case of Brown v. Eastern Slate Co. 134 Mass. 590, much relied on by the defendant Parker. At the time when the note sued on in that case was made it was delivered under an agreement with the corporation “ that there should be no personal liability on the note,” and whether made with the corporation or with stockholders it was held that the plaintiff could not pursue “the members of the corporation in a court of equity through and by means of a
We find no sound legal reason for disturbing what has been apparently the settled law of the State as applied to proceedings of this kind, and it must be held that it is not open to the defendant Parker to impeach the judgment rendered against the corporation.
Decree affirmed.