Case ID: ohio-np_4/html/0435-01.html
Source: Caselaw Access Project
Author: {"author": "SMITH, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

(Greene County, O., Common Pleas.)
    October Term, 1897.
    O. W. WYATT v. W. G. MOOREHEAD.
    A special remedy provided by the laws of Kansas against stockholders of corporations of that state, whereby an individual creditor may maintain an action against a single stockholder will not be enforced in Ohio.
    Such special remedy will not be enforced on the ground of comity.
    If the statutory liability of a stockholder of a foreign corporation may be enforced in this state, it must be by such modes of procedure as like liabilities are enforced here, or after appropriate proceeding's have been had by a court of competent jurisdiction, to determine the proportionate share of the corporate debts to be borne by each solvent stockholder.
   SMITH, J.

This action is brought by plaintiff, a creditor of the Bank of Garnett, Kansas, against defendant, a stockholder, to enforce the statutory liability provided by the laws of Kansas.

Plaintiff avers in his petition the incorporation of said bank under the laws of Kansas, the payment of the stock subscribed at the tinie of the organization, the carrying- on a general banking business by said bank until October 21, 1895, at which time it ceased to do business and became insolvent. On November ], 1895, a receiver was appointed who having duly qualified, took charge of all the assets of said bank, and ever since has had the possession and control thereof, and is still acting- as such in the discharge of said trust. Said bank was organized and incorporated with a capital stock of $50,000, divided into 500 shares of $50 each. At the time said bank ceased to do business, defendant was, and now is, the owner of seven and one-half shares of said stock. Said bank is indebted to plaintiff in excess of said capital stock so held by defendant, which said indebtedness is fully set forth. No action has been brought against any of the stockholders of said bank for the collection of plaintiff’s said claim. No part of said indebtedness has been paid except certain small payments made in 1896, set forth in said petition.

The plaintiff alleges that the laws of the state of Kansas, provide, and at the time of the incorporation of said bank, provided that stockholders of a corporation organized under the laws of said state, shall be deemed and held liable, in addition to the amount due on their stock, in an amount equal to the stock owned by them for the payment of the debts of the corporation, and that any creditor of such corporation may prosecute suits against the stockholders thereof, to enforce their individual liability if it be shown that such corporation has suspended business for more than one year prior to the commencement of any action against any stockholder. A copy of said provisions of the statutes of Kansas, is attached to the petition. Plaintiff prays judgment against defendant for $750, the full amount of his statutory liability.

Defendant demurs to the petition.

By the constitution of the state of Kansas, it is provided that “dues from corporations shall be secured by individual liability of stockholders to an additional amount — equal to the stock owned by each stockholder — and such other means as shall be provided by law.’-

This provision is not self-executing. Legislation is contemplated. It is for the legislature to declare when such liability shall attach, as well as to provide the remedy.

Tuttle v. Bank, 161 Ill., 497, and cases cited.

Marshall v. Sherman, 148 N. Y., 9.

The statutes of Kansas respecting a stockholder’s liability so far as they apply to this case, are as follows:

“No stockholder shall be liable to pay debts of the corporation beyond the amount due on his stock, and an additional amount equal to the stock owned by him.”
“If any corporation created under any statute of the state of Kansas, except railroad and charitable or religious corporations, be dissolved leaving debts unpaid, suits may be brought against any person or persons who were stockholders at the time of the dissolution, without joining the corporation in such suit, and if judgment be rendered and execution satisfied, the defendant or defendants, may sue all who were stockholders at the time of the dissolution, for the recovery of the portion of such debt for which they were liable, and the execution shall clirect the collection to be made from the property of such stockholders respectively; and if any number of the stockholders defendant in the case shall not have property enough to satisfy his or their portion of the execution, then the amount of the deficiency shall be divided equally among all the remaining stockholders, and collections made accordingly, deducting from the amount a sum in proportion to the amount owned by the plaintiff at the time the corporation dissolved.”
“Acorporation is dissolved by the expiration of the time limited in its charter-second, by a judgment of dissolution rendered by a court of competent jurisdiction; but any corporation shall be deemed to be dissolved for the purpose of enabling any creditors of such corporation to prosecute suits against the stockholders thereof, to enforce their individual liability if it be shown that such corporation has suspended business for more than one year; or that any corporation now so suspended from business, shall for three months after the passage of this act, fail to resume its usual and ordinary business.”

In Abbey v. Grimes Dry Goods Company, 44 Kansas, 415,it was held that the liability of stockholders to the creditors of a corporation is several and not joint, and each must be sued separately.

In Howel v. Manglesdorf, 33 Kansas, 194, it was held that the liability though statutory, is one which arises upon the contract of subscription to the capital stock of the corporation, and an action to enforce the same is transitory, and may be brought in any court of general jurisdiction in the state where personal service can be made upon the stockholder.

Under the statutes of Kansas and the construction of the same by the supreme court of that state, this action is properly brought. Can the remedy there provided be enforced here? Can a creditor enforce such liability against a single stockholder in this state?

There is no common law liability of a stockholder to creditors of a corporation.

Carr v. Engleheart, 3 Ohio St., 457.

Prior to the enactment of see. 3260, Rev. Stats, of Ohio, which provides the manner of enforcing a stockholder’s liability, and when the only statutory provision relating to such liability was that the stockholders of a corporation shall be deemed and held liable, in addition to their stock, in an amount equal to the stock by them subscribed or otherwise acquired to the creditors of the corporation to secure the payment of the debts and liabilities of the' corporation, (sec. 3258.) it was held by the supreme court of the state, that the liability on the part of the stockholders was several in its nature, but that the right arising out of this liability, is intended for the common benefit of all the creditors; that the suit of a creditor to enforce such liability should be for the benefit of all the creditors, and that the stockholders whose liability was sought to be enforced, had the right to insist on their co-stockholders being made parties for the purposes of a general account and to enforce from them contribution in proportion to their shares of stock.

It was further held, that the liability thus imposed upon stockholders, was not the primary resource or fund for the payment of debts, that it was collateral and conditional, and that no creditor could acquire priority or institute a separate suit for the enforcement of such liability on his own behalf.

Wright v. McCormack et al., 17 Ohio St., 86.

Umsted v. Buskirk, 17 Ohio St., 113.

The subsequent legislation respecting the remedy was simply declaratory of the principles announced in said decisions.

It therefore appears, that prior to the enactment of any provisions as to .the manner of enforcing such statutory liability, the supreme court of this state, had decided that no creditor could acquire priority or institute a separate suit for the enforcement of such liability.

The right to maintain this action must depend solely upon the ground that the Kansas statutes provide for a separate action against any stockholder, and that such liability is contractual, and not penal. Assuming that the liability is in the nature of an implied contract to pay in accordance with the provisions of the law under which the corporation was created, it does not follow that the courts of this state will enforce the remedy provided by the laws of Kansas.

In Young v. Farwell, 139 Illl, 326, it was held that an action at law could not be maintained to enforce a remedy provided by the statutes of Oregon, for the collection of unpaid stock-subscriptions, for the reason that a complete settlement required a bill in equity with all the parties before the court, so that conflicting equities and rights could be adjusted.

A remedy provided by the statutes of the state of Missouri, to creditors of a corporation against the stockholders, was held not enforcihle in New York.

Christensen v. Eno, 106 N. Y., 97.

In Griffith v. Mangan, 73 N. Y., 611, it was held that an action was not maintainable against a single stockholder of a, foreign corporation, that an action in equity was necessary.

In May v. Black, 77 Wis., 101, (45 N. W. Rep., 949,) it was held that the remedy provided by the statute of Michigan, against stockholders of a corporation of that state, was exclusive and could not be enforced in Wisconsin against a resident of that state.

The Court say: “But it is a principle of law that does not appear to be questioned, that where a special remedy against stockholders is prescribed by the statute under which the corporation is formed, it must be enforced in the courts of that state exclusively.”

Tn Bank v. Gustin Mining Co., 42 Minn., 327, it was held that the statutory liability in a foreign corporation created by the statute of a foreign state, may be enforced by creditors whenever they can obtain jurisdiction of the necessary parties. The remedy however is governed by the law of the forum.

In Tuttle v. Bank, 161 Ill., 497, it was held that “a special statutory remedy against stockholders unknown to the common law provided by the state, of 'such corporations domicile cannot be enforced beyond the jurisdiction which creates it. Such special remedy will not be enforced upon the principle of comity.” •

“An individual creditor of an insolvent Kansas Bank, cannot maintain an action in this state for his debt against an individual stockholder of the Bank bv virtue of the Kansas constitution and statutes. ’ ’

“Until by an appropriate proceeding-in the Kansas courts, the relation of creditors, stockholders and corporation to each other, are determined, and the proportionate share of the indebtedness borne by each solvent stockholder, has been ascertained, no remedy can be had against a stockholder in this state. ’ ’

In a similar case, Fowler v. Lampson, 146 Ill., 472, the court say: “There is also the further insuperable objection to this proceeding that it is an attempt to enforce the individual liability of the defendants in a jurisdiction other than that in which the corporation exists, the rule being, that when a special remedy is given creditors of a corporation against its stockholders, the liability cannot be enforced in another state. The reason for this rule is forcibly illustrated by the above quoted statute of Kansas, providing a remedy in case of the dissolution of a corporation, which remedy it must be conceded could only be enforced in the state of Kansas, where presumably, the stockholders of the corporation reside. ’ ’

In Marshall v. Sherman, 148 N. Y., 9, in an action by an individual creditor against an individual stockholder of a Kansas Bank, the court held that the action if maintainable at all in that state, must be in such form and by such modes of procedure as stockholders’ liabilities created under the statutes of New York are enforced against citizens of that state.” In no event can the liability be enforced in an action at law by a single creditor against a single stockholder for the recovery of a specific sum of money in this state, whore a stockholder’s statutory liability can be enforced only by a suit in equity brought by or on behalf of all the creditors against all the stockholders wherein the amount of the liability and all the equities can be ascertained and adjusted. A right of action to enforce á personal liability of a stockholder for the debts of a corporation given and created only by the statutes of the state of the corporation’s domicile, is not enforcihle in another state upon any obligation of comity.”

In Russell v. Pacific R. R. Co., 113 Cal., 258, (34 Lawyers Reports Annotated, 747,) in an action to enforce unpaid stock subscriptions to the capital stock of an Illinois corporation under the remedy provided by the Illinois statute, the court say:

“The law creating the liability, prescribes the particular mode of enforcing it, the mode limits the liability, and such liability cannot be enforced in another state. The Illinois remedy cannot be imported here.”

In Bank v. Rindage, 154 Mass., 203, it was held, that although the laws of Kansas provide that if a judgment creditor of certain corporations is unable to find property whereon to levy execution, he may proceed by action to charge the stockholders with the amount of his judgment a resident of New York holding- an unsatisfied judgment against a Kansas corporation which has no place of business in Massachusetts, cannot maintain an action in the latter state against a resident of California, to establish his personal liability as a stockholder in such corporation where no proceedings have been taken in Kansas to establish such liability.

In a similar case in Post v. Railroad Co., 144 Mass., 341, the court say:

“This court does not take jurisdiction of a suit to enforce this liability of stockholders in a foreign corporation, not because it would be a suit to enforce a penalty, or a suit opposed to the policy of our laws, but because it is a suit against a foreign corporation which involves the relation between it and its stockholders and in which complete justice only can be done by the courts of the jurisdiction where the corporation was created.”

See also New Haven Nail Co. v. Linden Spring Co., 142 Mass., 349. Erickson v. Nesmith, 4 Allen, 233.

In a. recent case, however, Bank v. Ellis, 166 Mass., 414, it was held that a declaration which set forth that according to the law of Kansas, the defendant stockholder of a corporation organized under the laws of that state, is liable to a judgment creditor of the corporation as upon contract which is suable anywhere is good.

The court say: “We now have a case where the declaration as we interpret it, sets forth that according to the law of Kansas, the defendant is liable to a judgment creditor of the corporation as upon contract which is suable anywhere. The facts alleged in this respect are different from those in any case heretofore presented to this court, (see Bank v. Rindge, 154 Mass., 203,) and the alleged liability of stockholders is of a different character from that which exists in this commonwealth.”

This case does not overrule the cases above cited, and it is difficult to determine the present position of that court upon this question.

In Lowrey v. Inman, 46 N. Y., 119-130, in an action to enforce the statutory liability of stockholders in a Georgia corporation, the court say: “The remedy is necessarily confined to the sovereignty of Georgia, and can have no recognition or effect beyond the boundary of that, state. The charter creates no right and imposes no obligation disconnected with the prescribed remedy which is local in its character and not capable of being enforced without the state of Georgia. A foreign tribunal cannot, enforce it.”

In Nimick Co. v. Iron Works, 25 W. Va., 184, it was held, that the statute law of Ohio under which the corporation was created imposing on such stockholders such individual liability,'not only conferred upon its creditors a new right but also prescribed the remedy whereby the same may be enforced'. That. the. remedy so prescribed for the ascertainment of this liability, must be, pursued in the. courts of the state of Ohio where the corporation was located, and by the local statutes of which alone the liability exists.

In Aultman’s Appeal, 98 Pa. St., 505, an action in equity was sustained where it appeared that the corporation was a party, that judgment had been taken against it, that it was insolvent, that the. corporate property had all been sold and that defendants constituted all the stockholders, resided in the jurisdiction and had been served with process.

While, some of the courts refuse to enforce such liability, and others enforce it under certain conditions, yet they are nearly uniform in holding that an action cannot be maintained by a single credit- or of a corporation against a single stockholder.

The law of comity between different, states, 'does not require the enforcement of the liability according to the special remedy provided by the laws of another state.

The courts of a state where the laws of a foreign state are sought, to be enforced, will use a sound discretion as to the extent and mode of that comity.

Nimick & Co. v. Iron Works, 25 W. Va., 198.

By the law of comity between different states, the lex loci contractus controls as to the validity and construction of personal contracts, though not as to the remedy or rule of evidence; nor where it clashes with the rights of our own citizens or the policy of our own laws.

Kanaga v. Taylor, 7 Ohio St., 134.

In Pickering v. Fisk, 6 Vermont, 102, it was held that the courts of that state would not take cognizance of an official bond executed in another state for the purpose of enforcing it in a peculiar manner unknown to the- common law according to the statutes of that state. 8uch a statute relates to a remedy as regulating judicial proceedings, and is local in its operations.

The stockholders of this Kansas Bank, are not equitably liable for any greater sum than may be necessary to discharge-the debts after all the property of the corporation has been applied. All who are solvent should contribute, in proportion to the. amount of their stock. The liability of a stockholder ig not to any individual creditor, but to contribute to a fund out of which all creditors are to be paid alike, and to which they are entitled to resort after the property of the corporation has been exhausted.'

Plaintiff does not claim that defendant is equitably liable for the full amount of the stock owned by him, but bases his action on the remedy provided by the law of the corporation’s domicile.

Until in a proper proceeding,- the relation of the bank and its creditors and stockholders has been determined, and the amount which each solvent stockholder should contribute has been ascertained, plaintiff ought not to be permitted to enforce the remedy provided by the laws of Kansas.

The remedy sought to be, enforced is inconsistent and at variance with the mode of procedure here. It is inequitable. Defendant should not be compelled to pay a greater sum than he is equitably bound to contribute. Defendant not being liable to any individual credit- or, the latter ought not to be permitted to recover to the full extent of the former’s liability, and compel him to institute a suit in another state, or it may be several suits in several states for contrilmtion from the other stockholders.

<3. H. Kyle, for Plaintiff.

Little &■ Spencer, for Defendants.

It is contrary to the policy and spirit <>f the laws of this state, that a single creditor acquire any priority over the creditors in enforcing' the statutory liability of stockholders.

The law of comity does not require the enforcement of this liability against defendant according to the special remedy provided by the laws of Kansas, when it clashes with the rights of our own citizens and the policy of our laws.

The. demurrer is sustained.