Case ID: ohio-st_17/html/0105-01.html
Source: Caselaw Access Project
Author: {"author": "White, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Elijah Umsted v. Henry A. Buskirk et al.
    1. The liability imposed by section 78 of the act for the creation and regulation of incorporated companies in this state, on the stockholders of certain corporations therein named, in addition to their stock subscribed, is a security provided by law for the exclusive benefit of the creditors, over which the corporate authorities have no control. Wright el al. v. McCormack et al., ante p. 86.
    2. The liability on the part of the stockholders is several in its nature, but the right arising out of this liability is intended for the common and equal benefit of all the creditors.
    8. The suit of a creditor to enforce such liability should, under the statute, be for the benefit of all of the creditors; and the stockholders whose liability is sought to be enforced, have 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 sháres of stock.
    •4. The right of contribution grows out of the organic relation existing among the stockholders. As between them and the creditors, each stockholder is severally liable to all the creditors; as between themselves, each stockholder is bound to pay in proportion to his stock.
    *5. Where a judgment creditor of an insolvent corporation commences an action to obtain satisfaction of his judgment by the enforcement of the statutory liability of the several stockholders, and, for aught that appears in the record, the plaintiff is the only creditor, and the defendants the only stockholders of the corporation, and the petition contains the necessary averments to charge the defendants as such stockholders — the sustaining of a demurrer to, and the dismissal of the petition, on the sole ground that it does not show a cause of action against the defendants, is erroneous.
    ■fi. The corporation ought to have been made a party, but the omission, not having been objected to in the court below, constitutes no objection to the reversal of the judgment.
    Error to the court of common pleas of Seneca county. Reserved in the district court.
    April 23, 1864, Umsted filed his petition in the court of common pleas of Seneca county, against Buskirk and fourteen other persons, stating in substance:
    That, October 21, 1862, he recovered a judgment against the American Central Railway Company, for the sum of $4,186.87 and $75.03 costs, on an order for $5,917.13, drawn by the company on its treasurer, July 1, 1859, payable to the order of Charles L. Johnson. That execution, issued on the judgment, was returned— do goods or chattels, lands or tenements, found whereon to levy ; and that the company had, in fact, no property subject to execution from which the judgment, or any part of it, could be made. That the judgment remained in full force and wholly unpaid, and, with the interest thereon, was due to the plaintiff..
    That the American Central Railway Company was a corporation incorporated November 2, 1853, under and in pursuance of the act of May 1, 1852, “ to provide for the creation and regulation of incorporated companies in the State of Ohio.” That at the time the indebtedness accrued, for which the order was given, and when it was given, the defendants held and owned of the capital stock of the company a certain number of shares respectively (the number and amount of the shares arc stated), which they took in the company when it was incorporated, except a few shares one of the defendants (named) purchased in addition to what he originally subscribed for. That the defendant Shawhan paid upon his subscrijffion of 100 shares, amounting to $5,000, only $2,500, and that certain ^installments (stated) of his subscription remain due and unpaid.
    That by reason of the premises the defendants are liable to him (Umsted) in a sum equal to the amount of the stock held and owned by each; and that defendant Shawhan is liable to him, in addition to this, in the sum'remaining unpaid on his stock.
    A recovery is prayed accordingly, and that the plaintiff might have execution against the defendants to the full satisfaction of his judgment against the railway company.
    To this petition the defendants demurred, on the ground that it does not state facts sufficient to constitute a cause of action against them.
    The common pleas sustained this demurrer, at the November term, 1864, and dismissed the petition ; and plaintiff filed his petition in error in the district court.
    The cause was reserved for decision here.
    
      James Pillars, for plaintiff in error:
    These defendants in error, as stockholders, are additionably liable to an amount equal to the amount of their stock, on account of the judgment of the plaintiff. Take away that judgment, and no such additional liability exists. This additional liability exists, then, for the benefit of the plaintiff, and for the purpose of paying his judgment. This liability is, in the language of the statute, “ for the purpose of securing the creditors of the company,” which, in this case, is the plaintiff. Then this liability, this “security,” belongs, in equity, to the plaintiff, and he can subject it to the payment of his judgment (on account of which it exists), according to the principles and proceedings of equity. The defendants being liable, on account of the judgment, to the plaintiff, and for that judgment, and “ for the purpose of securing ” the payment of 'that judgment to the plaintiff, therefore the liability directly to the plaintiff.
    There is no provision in the statute for this railway company to-make calls or assessments on its stockholders, upon their stock, for any purpose whatever, after they have paid up their stock. But suppose the company could do so; then, *upon the plainest principles of equity, the plaintiff may, through a court of equity, compel that same money to be paid to him directly, and in the first instance, without having to await the motion of the company in making the collections, or run the risk of its honesty or solvency, in paying the money over to him after it had collected it.
    Any security or means which this company has, or may be able to draw upon or command, or which may in any way exist for the purpose of paying this judgment of the plaintiff, he is himself entitled to in equity, and may, by his own action, subject the same to his judgment, and thus accelerate its payment. 2 Story’s Eq. Jur. (8 ed.), sees. 1216c, 1244, 1250, 1252 ; A. & A. on Corporations (6 ed.), sec. 602.
    
      J. K. Hord, for defendants in error:
    The only reasonable conclusion to be drawn from a critical examination of all the acts fixing the extent of the individual and personal liability of stockholders in corporations, is that it has never been the intention of the general assembly to make the stockholders in railroad companies individually liable to the creditors of the company. As stockholders they are liable to be assessed pro rata, until, if necessary, they have paid an amount equal to their stock, over and above such stock. .
   White, J.

The original petition in this case is in the nature of a bill in equity, and is filed by a judgment creditor of an insolvent corporation, to obtain satisfaction of his judgment, by the enforce■ment of the statutory liability of the sev.eral stockholders, and of the liability of one of them on an unpaid stock subscription.

No objection is made on the ground of a defect of parties; and, for aught that appears in the record, the plaintiff is the only creditor, and the defendants the only stockholders of the corporation.

The only ground assigned for the demurrer is, that the petition .does not contain facts sufficient to constitute a cause of action.

The corporation of which the defendants are stockholders, was ^organized under the act of May 1, 1852; and the liability of the stockholders in question, is provided for in section 78, which, ■as originally passed, is as follows:

“All stockholders of any railroad, turnpike, or plank-road, magnetic telegraph, or bridge company, shall be deemed and held liable to an amount equal to their stock subscribed, in addition to said stock, for the purpose of securing the creditors of such company.” 50 Ohio L. 296; 3 Curwen’s Stat. 1897.

The subsequent amendment of April 17, 1854; did not alter the section in respect to railroad companies. 1 S. & C. Stat. 310; 4 Curwon’s Stat. 2582.

The counsel of the defendant in error claims to support the judgment below on the ground that it was not the intention of the legislature “ to make the stockholders in railroad companies individually liable to the creditors of the company; ” but that as stockholders they •are subject to be assessed pro rata by the corporation to the extent of this statutory liability.

This claim was made in Wright et al. v. McCormack et al. (decided at the present term), and overruled. It was held in that case •that this liability of the stockholders was a security provided by law for the exclusive benefit of the creditors, over which the' corporate authorities had no control.

If the corporation has the right to enforce this liability by assessments, it can exhaust it to discharge a present indebtedness, and ■continue its business with no other security to its future creditors than its corporate liability.

This would neither be in accordance with the design of the constitutional provision, nor of the statute. The intention, doubtless, was to provide an ultimate security to which the creditors might resort on the failure and insolvency of the corporation.

Nor will it follow, as counsel suppose, from the denial of the right to the corporation of enforcing this liability, that it may be enforced against part of the stockholders, at the election of the creditor, without the right on their part to call on their co-stockholders for contribution.

*The liability on the part of the stockholders is several in its nature, but the right arising out of this liability is intended for the common and equal benefit of all the creditors. The suit of a creditor under this statute should, in our opinion, be for the benefit of all the creditors; and the stockholders, whose liability is sought to be enforced, have 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.

The right of contribution grows out of the organic relation existing among the stockholders. As between them and the creditors, each stockholder is severally liable to all the creditors; as between themselves, each stockholder is bound to pay in proportion to his-stock.

The corporation ought to have been made a party, but the omission was not made an objection; and the demurrer was sustained, and the action dismissed, on the sole ground of the petition not showing a cause of action against the defendants.

The omission to make the corporation a party is, therefore, no objection to the reversal of the judgment. .

The judgment sustaining the demurrer and dismissing the action, is reversed, and the cause remanded for further proceedings.

Day, C. J., and Welch, Brínkerhoee, and Scott, TJ., concurred.. 
      
      Ante, p. 86.