156 Mass. 490 | Mass. | 1892
This is a bill in equity, brought by judgment creditors of the defendant corporation to enforce the liability of its president and directors to the extent of the excess of its debts over its capital, as provided in Pub. Sts. c. 106, § 60, cl. 3, § 62, et seq. The case was heard upon a master’s report, and the plaintiffs, Thacher and Company, had a decree for the amount of their judgment, and also for the amount of a simple contract debt due to them, with interest. The claim of another creditor, the New England Leather Company, was rejected. This company and the defendants appeal, and present certain questions raised by the master’s report, which we shall state.
The fundamental question is whether these debts of the corporation did exceed its capital on January 30, 1889, the time of the commencement of the suit in which Thacher and Company recovered judgment. This depends on the question whether debts due from the corporation to one of the defendant directors are to be counted among the debts for this purpose. It is argued for a director, that if such debts cannot be proved in this suit they ought' not to be counted for any purpose; ■ that the statute contemplates no distinction between the “ debts ” mentioned at the beginning of § 60, for which the directors are liable, and the “debts” which exceed the capital, in clause 3 of the same section; that it is held in New York that such debts cannot be proved; Easterly v. Barber, 65 N. Y. 252; Knox v. Baldwin, 80 N. Y. 610, 612; and that the conclusion argued for is drawn in McClave v. Thompson, 36 Hun, 365.
We cannot assent to the foregoing argument. Whether debts due to the directors can be proved in this suit or not, they may be lawful debts. When they are so, they stand on an equal footing with other debts as against the corporation, and therefore go to diminish the primary fund which the creditors look to, and to create the need for the personal liability imposed by the statute.
A part of the defendant corporation’s indebtedness to the defendant King, as found by the master, was $9,960.44, for advances made by his firm as selling agents of the corporation. Of course they were expected to pay themselves for their advances out of the goods in their hands, and in fact they did receive and apply from goods on hand on January 30, 1889, but not sold, or sold but not paid for, the sum'of $7,385.77. The next question raised is whether the defendants are entitled to have this latter sum deducted from the former in determining how much the debts exceed the capital. It is suggested that this proceeding is so far analogous to proceedings in insolvency that what is the debt of the corporation should be ascertained on the principle of mutual credits applied there. Brown v. New Bedford Institution for Savings, 137 Mass. 262, 265. We shall not deal at length with the plausible arguments which conceivably might have induced the master to find differently, or the Legislature to adopt a complex instead of a simple system. The master has found that the larger sum was the amount of' money due to King and his partner on January 30. If they had a right to demand that amount in cash, it was none the less a debt because both parties expected that they would not do so, but would apply the property in their hands for sale as far as it would go. If that amount was the amount of the debt, due in •a popular and ordinary legal sense, it was the' amount of the debts within § 60, cl. 3. The Legislature saw fit to use plain words, which we must take plainly as we find them.
A suggestion was thrown out that Thacher and Company could prove only their judgment debt, and not the further sum due them on simple contract. But § 64 only requires that a judgment should have been recovered, and an execution returned unsatisfied, as provided in § 62, and when that condition exists any creditor may file the bill, and it is to be on behalf of himself and all other creditors. Even if it be necessary that the plaintiff bringing the bill should have recovered the judg
The remaining question concerns the right of the New England Leather Company to prove. This corporation is made up by the creditors of Bryant and King, the firm of which the defendant director King was a member, and it seeks to join as a plaintiff on the ground that it has taken an assignment of all the assets of Bryant and King, and that these include claims of the latter against the defendant corporation. We do not think the corporation stands any better than Bryant and King would have done had they presented their claims in person, or that Bryant and King would stand any better than King would have stood. Thayer v. Union Tool Co. 4 Gray, 75, 79. Potter v. Stevens Machine Co. 127 Mass. 592, 593. The case of Hayes v. Heyer, 35 N. Y. 326, stands upon the statute of that State, which differs somewhat from our statute.
The question remaining is, whether, where debts exceed the capital, a director who is a creditor can share with other creditors who are not directors in the amount which he, or he and other directors, may be compelled to pay towards the debts in consequence of such excess. The argument that he can do it is, first, that the statute makes no difference between him and any other creditor; secondly, that the debt due him is counted to make up the excess, and should therefore be counted in the distribution; and thirdly, that such construction will enable a director to ascertain at any time the limit of his liability, and to settle, if he desires to do so, without waiting for a suit in equity.
The liability which we are considering is wholly a statutory one, and is based on the idea that, if directors choose to contract debts in excess of the capital, they should be liable for the debts to the extent of the excess. This would seem to imply of itself that they are to have no share in such excess as creditors of the corporation. The statute enacting the liability is found, as to directors, in the Pub. Sts. c. 106, § 60, and as to stockholders, in § 61. Section 60 provides that “ the officers . . . shall be jointly and severally liable for its [the corporation’s] debts and
Whether, under any circumstances, a director might have a right to be subrogated to a creditor’s proof, need not be considered here. Perhaps he might. But that does not affect the construction to be given to the statute upon the question which we are now considering.
As to the second ground taken, that the debt is counted in ascertaining the excess, and should therefore be counted in distribution, that would seem to be disposed of by what has already been said. The statute cannot reasonably be construed in any other way than as meaning that, as to the fund realized from the excess of indebtedness, the director is not regarded as a creditor at all. That belongs entirely and absolutely to the creditors who are not officers. It is for their benefit, and theirs alone, that the officers are compelled to pay it. To hold that the officers
As to the last ground, no doubt it might be advantageous to a director to know at all times the exact limit of his liability. But, as Bigelow, 0. J. says, in Merchants' Bank v. Stevenson, 7 Allen, 489, 493, “ A liability of this sort is necessarily indefinite in amount, and can only be determined at the suit of a creditor or creditors, seeking to enforce the remedy in their own behalf and in behalf of other corporate creditors.” It results from the act of the directors, and they cannot justly find fault if they are held strictly to the statutory liability.
Decree affirmed.