Case ID: sc-eq_34/html/0025-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Curia, per Dunkin, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

James Farrow and T. Stobo Farrow, Exors., and others, vs. Dr. James Bivings and others.
    
      Corporation members liable as partners — Liability of members to contribute — Principal and Surety.
    
    A corporation, whose members, by the terms of their charter, were liable as general partners, Hied a bill for injunction against B, a member of the corporation, who had a claim against it, and gave an injunction bond, with several other members and A, who was a stranger, as sureties. After a long litigation, (pending which other creditors, whose debts had been contracted after B’s, recovered judgments against the corporation,) B obtained a decree against the corporation for a large amount. The property of the corporation was sold by the Sheriff, and the proceeds, after satisfying the older judgments, paid only about one-third of B’s decree, and he then recovered judgment at law on the injunction bond against all the sureties :— Mclcl, that B,as a member of the corporation when his debt was contracted, was liable to contribute with the other 'members towards payment of the balance due him after the effects of the corporation had been exhausted :— Meld, further, that he and other solvent members were bound to indemnify A, against his liability as surety.
    BEFORE CARROLL, OH., AT SPARTANBURG, JUNE, 1864.
    Tbe decree of bis Honor, tbe Circuit Chancellor, is as follows:
    Carroll, Cb. At tbe bearing three questions were discussed, and tbe whole argument, on both sides, was directed to them exclusively. They will be considered in tbe order in which they were proposed by the plaintiff’s counsel.
    • Pursuant to an order from this Court, in the suit of the Bivingsville Cotton Manufacturing Company vs. James Bivings, a bond had been executed- by the Company, as principal, with J. E. Henry and others, as sureties, for securing to James Bivings whatever should be found due to him upon the balance of a note held by him against that Company as maker. It was contended that, under that bond, no more was recoverable, at the uttermost, than the balance at that date ostensibly due upon the note, with the credits endorsed. The terms, it was said, as well of the bond itself as of the order requiring it, authorized and sustained that construction. What degree of plausibility or force there may be in this argument, or what countenance it may find in the decree of Chancellor Johnstone, in that case, we need not now inquire.
    The? question is deemed concluded by the decretal order, in the cause pronounced by Chancellor Wardlaw, in June, 1855, which it is understood stands unreversed and in full force. If there be any doubt as to the operation of that ■order, there can be none as to effect of the judgments recovered in the actions at law upon the bond. In the latter cases the precise question seems to have been made before the Circuit Court, and it is distinctly presented in the sixth ■of the grounds of appeal for a new trial, all of which were considered'and overruled by the Court of last resort. In the case • already mentioned — of the Bivingsville Cotton Manufacturing Company vs. James Bivings — the sum adjudged by the decree to be due by the former to the latter exceeded considerably the penalty of the bond referred to. During the years 1855 and 1856, the entire visible property of that Company was sold by the Sheriff, under judgments and executions versus them; and- of the proceeds, some f>13,000 seem applicable towards payment of James Bivings’ execution, founded upon the decree in his favor. This fund the plaintiffs contend should be regarded as having been received by James Bivings, towards payment of the portion . of the debt secured by the bond to which they are sureties; and it is urged that, ■ to that extent, the bond should be held to have been satisfied. When the property of the Company was sold by the Sheriff, no judgment had been recovered upon the bond. That was not- accomplished until more than three years afterwards, and more than four years after the entry of Dr. Bivings’ execution in the office of the Sheriff. No conceivable lien upon the proceeds of the sales in the hands of the Sheriff can be referred to the bond in question, or to the judgment and execution upon it after-wards recovered. After applying the credit from that fund to Dr. Bivings’ execution, there still remained unpaid a residue of nearly $20,000. That the Court should transfer that credit from the execution upon the decree to the bond itself, or the execution founded upon it, and to that extent render nugatory a security executed under its own order, and at the very moment when the necessity for it was made manifest, would be a proceeding wholly unwarranted by justice or reason. If, upon any imaginable ground cognizable by a Court of law, the plaintiffs were entitled to claim a payment upon their bond out of the proceeds of the sale of the Sheriff they should have asserted it in their defence to the actions upon the bond. If they did not do so, the opportunity at least was allowed them, and it cannot be recalled; and if they did, the defence was actually made and was overruled. If, in support of this claim of the plaintiffs, any thing can be advanced having the faintest hue of plausibility, it remains yet to be discovered.
    In December, 1838, the members of the Bivingsville Cotton Manufacturing Company obtained a charter of incorporation, conferring upon them every right and privilege incident to corporate bodies, but subjecting them also to all the liabilities pertaining to general partners. The Company has proved insolvent, and some of the sureties upon the bond to Dr. Bivings have been constrained to pay considerable sums in consequence of that liability. -The sureties referred to, except one of them, John T. Kirby, were members and stockholders of the Company when its debt to Dr. Bivings was contracted. They claim that the other members at that date are bound to contribute in proportion to tbe amounts of stock held by them respectively, in order to reimburse them for any excess they have had to pay above their ratable proportion of the debt, as also to relieve them of their liability under the bond for the residue of that debt.
    This claim of the bill is earnestly and stoutly resisted by the defendant, Dr. Bivings, at least in respect of himself. On his behalf it is urged that he was deposed from his office of agent and manager as early as the spring of .1844, and that he afterwards had no control or influence over the operations of the Company; that he sold and transferred all his interest in the stock as far back as February, 1846 ; that when he was removed from his post as agent, the assets of the Company were ample to pay all its debts, and were so up to 1847; that from and after that date all the business and operations of the Company were permitted to pass into the control of E. C. Leitner, under whose gross misconduct and mismanagement heavy debts were contracted, which finally brought about the insolvency of the Company ; that he had been harassed by the other stockholders since April, 1844, by a series of groundless and vexatious proceedings in this Court, which had resulted in the utter disproof of all their complaints against him, and in establishing that the Company was indebted to him largely beyond the sum ascertained by the prior accounting which they had sought to impeach; that during this period, when he could have made his debt out of the corporate property, but was prevented by the interposition of this Court, judgments were recovered against the Company upon debts of dates long posterior to his own, which judgments had been fully paid and satisfied out of the corporate property, leaving only a remnant, sufficient to pay but little more than one-third of what was due to him; and that, under such circumstances, there should be no abatement of his debt, because of any supposed liability upon him to contribute to its discharge. There is nothing to show that the proceedings in the Court, at the suit of the Company, were instituted or prosecuted against Dr. Bivings with the intention to harass or annoy him. On the contrary, we must presume that they were set on foot and conducted by the Company in good faith, though, as it turned out, in utter misconception of the facts. The Company also appears to have acted at the outset with due deliberation and caution. Before appealing to the Court, they appointed a committee of their own members to examine the accounts between Dr. Bivings and the Company. It was not until that committee had made such a report as- to leave them no other alternative, that the Company determined to proceed by suit against him. That there were gross errors, and they adverse to Dr. Bivings, in the accountings between himself and the Company, in 1842, is indisputable — a circumstance difficult to be explained, except upon the supposition that Dr. Bivings’ books of account were confusedly and un-skilfully kept. By concession on all sides, the mismanagement of the affairs of the Company, terminating in its insolvency, is to be imputed to E. 0. Leitner. It is not perceived with what show of justice or reason Dr. Bivings can claim that the other corporators shall be held responsible for the misdeeds of Leitner, while he himself is to be wholly exonerated. If they transferred their stock to E. C. Leitner, in the course of the year 1846, so did he, and they would seem to have but followed his example — his sale to Leitner having occurred as early as the 9th day of February, in that year. They respectively did no more than he in placing Leitner in the control of the corporate property. As to the corporators who were sureties upon the bond to Dr. Bivings, they in reality had even less agency than he in producing that unfortunate result, as the amount of his stock transferred to Leitner seems to have exceeded the aggregate of theirs by more than $5,000.
    The property and effects of the Company having been exhausted, the individual members at the time the debt to Dr. Bivings was incurred are, under the charter, personally liable as general partners for the corporate debts. There is no rule in law or equity which forbids a member of a corporation or partnership from contracting with it, and when the contract is made, such member is entitled to its full benefit. Railroad vs. Glaghorn,' Speer’s Equity, 562. 3 Kent, 32, and note 1. “A partner cannot exonerate himself from personal liability for the existing engagements of the partnership, by assigning or selling out his interest in the concern.” 3 Kent, 32, note A. Had the debt to Dr. Bivings been due to one not a member of the Company, in the absence of all property and effects of the Company to satisfy the debt, Dr. Bivings must undoubtedly have contributed towards payment, ratably with the other members, and in proportion to the amount of his stock. That he himself is the creditor cannot exonerate him, as we have seen, from such liability.
    His debt undoubtedly was, in its inception, and still is, a debt against the Company. In truth, it is because of its being a debt of the Company that a personal liability has attached to the members of the Company. But if Dr. Bivings be no longer bound to contribute ratably to the discharge of the debt, or (what is substantially the same thing, he being the creditor) to submit to a corresponding abatement of his debt, then it has lost its distinctive character as a debt against the Company, and the very foundation of the personal liability of the members in regard to it is taken away.
    The sum which Dr. Bivings is entitled to demand from the other members of the Company in satisfaction of his debt (the corporate property being exhausted) is the nominal amount of Ms debt, witb interest, reduced by the amount of bis own ratable contribution as a stockholder. This assuredly was all that he could claim- at the beginning of his controversy with the Company. It would be difficult to point out at what stage of the subsequent proceedings it was that he became entitled to more, nor would it be easier to show that Dr. Bivings has been in anywise prejudiced by the proceedings against him at the suit of the Company, when it appears that they resulted in an adjudication in June, 1855, that the Company was indebted to him in a sum exceeding what he supposed to be due him by more than $8,000. •
    So much has been said upon this branch of the case in deference to the earnest argument on behalf of Dr. Bivings, and not because the question discussed is regarded as difficult or doubtful.
    John T. Kirby, one of the sureties upon the bond to Dr. Bivings, is dead, and his administrators are among the parties plaintiffs. He was at no time a member or stockholder of the Company. No sufficient reason is suggested for excluding him from the indemnity which a surety is entitled to demand of his principal.
    It is ordered and adjudged that this opinion stand for the decree of the Court.
    And it is further ordered that the Commissioner inquire and report what was the amount of the debt decreed tó be due to the defendant, James Bivings, by the Bivingsville Cotton Manufacturing Company, and what payments thereon have been made, and at what dates, and how and by whom made, and what is the residue of the said debt still due and unpaid, and how much thereof is secured and how much not secured by the aforesaid bond executed to the said James Bivings, and whether any and what payments upon said bond, and at what dates respectively, were made by .the surety, J. T. Kirby, in his lifetime, or his administrators after his death, and whether any and what sums of money were paid upon the said bond, and at what dates, by any and which of the other sureties, (being members of said Company,) during their lifetime, or by their representatives after their death, in excess of their ratable contributions to the same.
    It is further ordered that the Commissioner inquire and report what persons were members of the Bivingsville Cotton Manufacturing Company when their debt to the defendant, James Bivings, was incurred, and what were the amounts of the capital stock of said Company held by them respectively, and whether any and which of the said members are insolvent, or have removed from this State, and what sums should be contributed by the survivors respectively of the said members, and by the representatives of such of them as have died, ratably and in proportion to the amount of their stock, for indemnifying the administrators of the said John T. Kirby, on account of such sums as he or they may have paid upon said bond, and what sums for reimbursing the other sureties upon said bond, or their representatives, on account of such payments as they may have made thereon in excess of their ratable contributions to said debt, and what sums for satisfaction of the residue of the said debt to James Bivings is still due and unpaid.
    The question of costs, and all other questions in the cause not hereby adjudged, are reserved until the coming in of the report.
    The defendant, Dr. Bivings, appealed from so much of the decree of his Honor as relates to an abatement of the debt to himself, to the extent of his interest as a stockholder in the Bivingsville Manufacturing Company, and also the right of the administrators of J. T. Kirby to relief, as one of the sureties on the injunction bond.
    
      1. Because the defendant, Dr. James Bivings, was prevented from recovering his entire debt of the Company, by the act of the sureties on the bond, and if he had been permitted to proceed with his action at law, the Company then had, and long afterwards had, abundant means from which his debt could have been realized.
    2. Because the property of the Company was applied to the payment of debts contracted after he ceased to have any interest in the Company, and pending the litigation. The creditors on debts thus contracted obtained prior judgments when he was enjoined, thereby appropriating the funds to which he was equitably entitled, and to that extent prejudicing the defendant Bivings.
    3. Because the obligors to the injunction bond are not entitled to contribution from Dr. James Bivings, or any of the other corporators, on account of loss sustained by reason of their suretyship.
    4. Because the administrators of J. T. Kirby are not entitled to any relief or .abatement as against Dr. Bivings, for any amount they have or may be liable to pay on the recovery.
    5. Because the decree in the particulars specified is ¿r-roneous, and against law and equity.
    
      Williams, for appellant.
    Sullivan, contra.
   Curia, per Dunkin, Ch. J.

The several points presented by the grounds of appeal appear to have been considered by the Chancellor. This Court concurs in the decree, and the appeal is dismissed.

Wardlaw and Inglis, J. J., concurred.

Appeal dismissed.