Case ID: sc-eq_24/html/0225-01.html
Source: Caselaw Access Project
Author: {"author": "Dunkin, Ch.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Sackett’s Harbour Bank vs. Walter Blake and wife et al.
    
    By the general Act of New York, authorizing manufacturing incorporations, “for all debts due and owing by any such Company, at the time of its dissolution, the persons then composing such Company, shall be individually responsible to the extent of their respective shares of stock in the said Company, and no further;” the defendant had been a stockholder in such a Company, in New York, at the time of its dissolution, and the Company was then indebted to the plaintiffs; the Company being insolvent, and all other stockholders having paid debts of the Company to the extent of their liabilities, the plaintiffs filed a bill against defendant, seeking payment of their debt: Held,
    
      1. That by the Act of New York, the defendant was liable, over and above the stock held by her, to a sum equal to the amount of the stock.
    2. That, under the circumstances, plaintiffs could maintain their bill without joining the other stockholders as defendants.
    3. That defendant was not liable to creditors for interest on the amount for which she was liable over and above the stock held by her.
    
      Before Caldwell, Ch., at Charleston, June, 1849.
    The decree of his Honor, the Circuit Chancellor, is as follows:
    Caldwell, Ch. The bill states that the Sackett’s Harbour Bank was incorporated by an Act of the State of York York, and was doing business in its corporate capacity before the year 1842. That in November, 1836, a charter of incorporation was granted by the same State to certain persons, constituting them a corporation, by the name of the Jefferson Woollen Company, which became a body corporate in law and fact, and commenced business as a corporation in the village of Dexter, in Jefferson county, in the said State ; that Ann Stead Izard (who afterwards intermarried with Walter Blake) became a member of said corporation, which afterwards made two promissory notes for value received, one for four thousand dollars, payable to E. Kirby, or order, four months after date, at the Sackett’s Harbour Bank, dated Dexter, May 26th, 1842, and signed by E. Kirby, agent, and endorsed by E. Kirby, Wm. Lord & Sons, Keyes & Hun-gerford ; the other for one thousand dollars, payable to E. Kirby, or order, sixty-three days after date, dated Dexter, July 24th, 1842, signed by E. Kirby, agent, and endorsed by the same persons as the former. These notes were discounted at the Banking house of the plaintiffs, and endorsed by E. Kirby, and the amount thereof paid and advanced, less the legal discount, and afterwards when they severally became due, they were presented for payment and protested for non-payment. That in 1843, the real and personal estate and effects belonging to the Jefferson Woollen Company, were sold under execution against it, by the sheriff of Jefferson county, and the Company then and there become legally dissolved. Several of the executions against the Company have been returned by the Sheriff nulla bona, and the Company was then, and is now, altogether insolvent.
    The general Act of New York, authorizing manufacturing incorporations, was passed 22d March, 1811, and provides, “ that the stock of such Company shall be deemed personal estate, and be transferable in such manner as shall be prescribed by the laws of the Company; and that for all debts that shall be due and owing by the Company, at' the time of its dissolution, the persons then composing such Company shall be individually responsible to the extent of their respective shares of stock in the said Company, and no further; and that it shall not be lawful for such Company to use their funds, or any part thereof, in any Banking transaction, or in the purchase of airy stock of any Bank, or in the purchase of any public stock whatever, or for any other purposes than those specified in such instrument as aforesaid.”
    That the said Ann Stead Izard became a member of said corporation, in February, 1837, and subscribed for seventy shares, and became a stockholder to that extent, (or seventy shares of the capital stock,) each share being then valued at one hundred dollars, and that she remained owner of the said shares, and .a member of said Company, till the 8th of June following, when, in contemplation of a marriage with Walter Blake, she assigned and transferred the said seventy shares ivn the capital stock of said Company, amongst other property, to John Julius Izard Pringle, and Benjamin Huger, in trust, to apply the income thereof to the joint use of Walter Blake and herself forever, and after the solemnization of said marriage, during their joint lives, with certain other limitations, &c. The said deed contains a proviso, that the trustees shall not be answerable for any losses or damages which may happen in the execution of any of the trusts, or in anywise relating thereto, unless the same shall happen by or through their wilful default respectively. That the contemplated marriage took place after the 8th of June, 1837, and the seventy shares were transferred to the trustees, who therefore became, and were, members of the said corporation, and so remained until after the legal dissolution of the same.
    The bill charges, that the trustees, or the said Walter Blake, and Ann Stead Blake, became and were liable to the plaintiffs for the amount of the said several notes, with the legal interest thereon. That the said Jefferson Woollen Manufacturing Company has no assets to pay plaintiffs’s demands, and is hopelessly insolvent, and the plaintiffs have no means of procuring payment of the debt, but by seeking a remedy against the individual stockholders under the law of 1811; that plaintiffs have applied to the other stockholders of the Company for payment, and have been informed, that they have already paid to the other creditors of the Company the full amount for which they were liable ; and the bill charges, that there is no other member of the corporation known to them from whom a recovery or contribution for their demand can be had, and that neither the said trustees, or Walter Blake, or Ann Stead Blake, have paid any demand of any creditor of the Jefferson Woollen Company, or have made contribution towards the same. The bill prays for a discovery as to the facts alleged, and for an account of the assets, and of the debts of the Company, and that the assets may, if any, be applied to pay the plaintiffs, and that plaintiffs’s demand, or such part as may remain unpaid, may be paid by defendants according to their legal liability, and general relief, &c. The bill was filed 3d June, 1847. The answer of Walter Blake and Ann Stead Blake, his wife, states that they are strangers to the matters stated in the bill concerning the incorporation of the Sack-ett’s Harbour Bank ; that they are informed that the Jefferson Woollen Company was incorporated under the provisions of the Act of the Legislature of New York, relative to incorporations for Manufacturing purposes, passed in 1811. That the seventy shares were taken in Mrs. Blake’s name, and that she was governed by the advice of the late Gen. Eustis, who had intermarried with her aunt, in whose family she lived ; that she had no information as to the condition of the Company, nor the liabilities attending the acquisition of stock therein, except it was understood that the Company was duly organized by respectable persons, and that by the true construction of the Act, the members were liable for the payment of their several subscriptions, and no more. The defendants knew nothing of the relation between these corporations as debtor and creditor, except what they have learned from the statement of plaintiffs’s bill. The defendants admit they intermarried on 16th June, 1837, and the fortune of Mrs. Blake was settled by being conveyed to the trustees for the uses of the marriage, and her interest in the Company was transferred to the trustees, but whether any certificate for her shares in the Jefferson Woollen Company, which were paid for out of her funds, partly before and partly after her marriage, were ever issued, they do not know; they do not know whether all the subscribers paid up their subscriptions; the dividends or interest have been received by defendants, or as they believe, by the trustees, on account of said shares. They have heard that the Jefferson Woollen Company has ceased after becoming insolvent, but they do not know what has become of the assets, nor what debts are owing by the Company, nor to what amount the members of the Company should contribute in order to pay off such debts. Neither do they know how much the several members of the Company have contributed, nor whether they have contributed equally or in proportion to their shares, in paying off the debts of the Company, though they are informed and believe, that one member of the Company, Mrs. Patience Izard, has paid a certain sum towards the debts of the Company, over and above her subscription; they do not know whether the plaintiffs have resorted to any other member of the Company for contribution, or received satisfaction from any member of the Company for their supposed liability to the debts of the corporation ; nor the measure of such satisfaction ; and if the plaintiffs have chosen to pass by the members of the Company, who are in their neighborhood, and single out these defendants to bear the whole burden of their claim, these defendants hope their rights may not be prejudiced by the election of the plaintiffs. Defendants do not admit, but deny, that the members of the incorporation, called the Jefferson Woollen Company, by reason of any local or other law, or by changes made in the New York judiciary, are liable in their private characters for the debts of the Company, but if liable at all, they insist that the liability, according to the rules of equity and justice, is confined to the measure of a just contribution. They deny that the plaintiffs have shown any right to sue in this Court.
    The material allegations of the bill have been established by the testimony of witnesses taken by commission, and the principal question is, is Mrs. Blake’s estate, in the hands of the trustees, liable for the plaintiffs’s debt 1 . At common law, it is a well settled principle, that the debts of a corporation must be paid out of the corporate fund, and that the individual members are irresponsible beyond the amount of their respective interests therein; this extraordinary privilege and protection to the members of a corporation, constitutes the distinguishing characteristic between them and the individuals comprising a partnership, but it is constitutional and competent for the Legislature, in granting a charter of incorporation, to prohibit and withhold this protection, and to make those who become members of the corporation liable for the debts of the body corporate.
    The State 'of New York, in 1811, adopted a general law on the subject of incorporations for manufacturing purposes, and the Jefferson Woollen Company was incorporated under its provisions. The introduction of this new rule of responsibility, removed, in a great degree, the distrust of the community in such corporations, and gave additional security to their creditors, who, at common law, were left unpaid when the corporate funds were inadequate to discharge the debts. It would seem, that before the creditors can pursue their remedy under the Act, the corporation must be dissolved, as the individual members are only made liable “ for all the debts that shall be due and owing by the Company at the time of its dissolution.” The first inquiry is, has the corporation been dissolved ? The question, as to what constitutes a dissolution, has often been considered and adjudged; when a corporation ceases to act, and indicates no intention to resume their functions in a coiporate capacity, when it becomes indebted for more than it is worth, and permits all its corporate assets to be sold, and executions against it are returned nulla bona, and becomes utterly insolvent, such acts would be sufficient to frustrate the object of its institution, and is equivalent to a surrender of its corporate rights. Although there be no formal judgment of ouster or dissolution pronounced, yet the acts of the Compnny have produced a practical dissolution, so that a creditor may maintain a suit against the individual stockholders, under the Act of 1811. All these questions have been repeatedly discussed and decided, by the judicial tribunals of New York, and the construction which has there been given to the Act must govern us, unless it be palpably absurd or unconstitutional. The general comity that exists between States, to regard the construction that each State gives to its statutes, is founded upon both reason and policy; but we are bound to adopt that construction by a higher authority than mere courtesy; the Supreme Court of the United States has long since established the principle, that the decisions of the State tribunals respectively, in the construction of their statutes, shall uniformly be adopted ; the propriety and expediency of this, is manifest in cases where the decisions of the State Courts become rules of property.
    The only remaining inquiry is, what Court is entitled to exercise jurisdiction. This question has also been decided in New York, and the Court of Chancery has been held to be the proper tribunal. Independently of the more ample and adequate powers with which this Court is armed in cases of account, partnership contribution, and discovery, there is a peculiarity in this case that demonstrates that this Court ought to exercise jurisdiction ; the individual member of the corporation against whom the remedy is sought, is a married woman, and her estate is in the hands of trustees under a marriage settlement, and can only be reached by proceedings in equity. From the evidence, it appears the defendants are liable to the creditors for the sum of seven thousand dollars, against which they are entitled to set off the sum of twenty-three hundred and fifty dollars, ($2350) to which must be added interest to the time of the dissolution of the Jefferson Wollen Company, on the 29th April, 1843. The defendants were creditors for this aggregate of principal and interest at the dissolution, and they are, therefore, only liable for the balance after deducting that amount from the seven thousand dollars, with interest from the 29th day of April, 1843. It is, therefore, ordered and decreed, that it be referred to the Master to ascertain and report the balance of principal and interest due to the plaintiffs, and that the said balance be paid by the said-defendants out of the trust property of the marriage settlement aforesaid, to the said plaintiffs, in satisfaction of their demand, and that the defendants do pay the costs of this suit: the said costs to be allowed and paid out of the trust property aforesaid.
    The defendants appealed, on the following grounds.
    1st. That under the seventh section of the general manufacturing law of 1811, the members of the Jefferson Woollen Company were only liable to the extent of stock subscribed.
    2d. That the plaintiffs had no right to sue the defendants without joining all the stockholders.
    3d. That the plaintiffs had no right to a decree against the defendants for any thing more than contribution, after the accounts necessary for the purpose had been stated.
    4th. That the decree is erroneous in charging the defendants with interest on the sum of $4,272, from 29th April, 1843, because neither the sum of $7000 dollars, nor the balance of that sum, carry interest.
    
      Petigru, for appellants.
    
      Northrop, contra.
   Dunkin, Ch.

delivered the opinion of the Court.

The Court concurs with the Chancellor that in giving construction to the Statute of 1811, the decisions of New York should be followed. It has been ruled by the Court of Errors in that State that “ every stock-holder in a company of this description incurs tbe risk, under the Statute of 1811, of not only losing the amount of stock subscribed, but is also liable for an equal sum, provided the debts due and owing at the time of dissolution are of such magnitude as to require itand, again, “ the statute declares their liability without reference to the amount they have paid in on their stock.” Briggs vs. Penniman, (8 Cowen, 387).

We think, too, that the state of facts disclosed by the evidence, authorised the complainants to maintain their bill, without joining the other stock-holders as defendants.

The question of interest presents more difficulty. Strictly speaking, no contract existed between the complainants and the defendants. The defendants are no parties to the notes, nor is their liability measured by the amount of those notes. The contract is with the corporation, which has an existence as separate from the individuals who compose it, as those individuals have from each other. The defendants might not have been members of the corporation when the debt was contracted, or when the notes were dishonored. They are rendered liable by the stringent provisions of the statute, and by nothing else. This fixes their liability, and measures the extent of it. “ For all debts due by the company at the time of its dissolution, the persons then composing such company shall be individually responsible to the extent of their respective shares of stock in the said company, and no furtherAccording to the construction given to this clause by the New York adjudications, this amounts, substantially, to a forfeiture of so much beyond the original subscription — so much beyond the contract of the parties, which was only to pay a stipulated sum according to the number of shares subscribed. But this extraordinary liability cannot be enforced, unless required for the satisfaction of the debts of the corporation. It cannot be exceeded, although ninety cents in the dollar of those debts remain unsatisfied. If the defendants had entered into a bond in the penalty of seven thousand dollars, conditioned to pay the debts of the corporation, or to do any other act, the recovery is never permitted to exceed the penalty. Bonsall vs. Taylor, (1 McC. 503,) was the case of a common money bond, where this principle was recognized. And in Stroble vs. Large, (3 McC. 112,) in an action on a bond for the performance of covenants, the verdict of the jury assessing damages beyond the penalty was set aside nisi. In both these cases, the penalty was to secure the performance of the party’s own contract. The Statute of 1811 imposes a liability for the default of another, and expressly provides that it shall extend “ no further.” No recovery could be had against these defendants alone until it had been established that the corporation was dissolved, — that the debts were unpaid, and that the other stock-holders had paid in full to the extent of their liability. Those facts having been established, the complainants were entitled to a decree “ to the extent of the shares of the stock held by the defendants, and no further.” This was seven thousand dollars. But if they had been- compelled to pay to other creditors, or had made advances to the company (according to Briggs vs. Penniman) to the amount of five thousand dollars, only two thousand dollars could be recovered. The Master has fixed the amount already paid by the defendants, at twenty-seven hundred and twenty-eight dollars, leaving the sum of four thousand two hundred and seventy-two dollars as still due, in order to make up the sum of seven thousand dollars.

It is ordered and decreed, that the defendants pay to the plaintiffs, out of the trust estate, the sum of four thousand two hundred and seventy-two dollars, together with the costs of these proceedings; and that the decree of the circuit Court be modified accordingly. In all other respects the decree is affirmed.

Johnston, Dargan and Wardlaw, CC. concurred.

Decree modified.