Case Name: Hawkins v. Furnace Co.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1884-01
Citations: 40 Ohio St. 507
Docket Number: 
Parties: Hawkins v. Furnace Co.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 40
Pages: 507–515

Head Matter:
Hawkins v. Furnace Co.
1. Where to a petition against several defendants an amendment is filed setting out new matter intended as another and'different cause of action against one only of the defendants, and - such new matter is not sufficient to constitute a cause of action, there is no misjoinder of causes of action, hut such amendment should be disregarded or stricken out as irrelevant.
2. An action by a creditor of a manufacturing company organized under the act of May 1, 1852, to enforce the individual liability of the stockholders in an action upon a liability created by statute named in section 14 of the Code (S. & C., 948; sec. 49S1, Rev. Stats.), and must be brought within six years after the cause of action accrues.
Error to the District Court of Jackson County.
In September, 1878, Hawkins brought suit against the Iron Yalley Furnace Company and its surviving stockholders and the administratrix of a deceased stockholder.
The petition set forth the due organization of the company in the year 1858, its indebtedness to the plaintiff, and averred that the plaintiff did not know the amount of stock subscribed and owned by each of the defendants “ excepting that the defendant Newton Brailey was the owner of seven shares of $100 each.” It further averred that in the course of its business the company became largely involved in debt, and became insolvent in the year 1860. And that afterwards, in the year 1865, the said, Brailey and all the other stockholders conveyed their stock to William McGhee (the stockholder since deceased) in consideration that he would save them harmless against the debts of the company. The prayer was for an account of thé indebtedness d.ue plaintiff, and for discovery of the ■ amount of the capital stock subscribed, paid up and owned by the defendants severally, and that the administratrix of said deceased stockholder be required to pay the amount due plaintiff, or that the stockholders be required to contribute ratably sufficient to pay the same, and for other relief.
It does not appear that there were at the commencement of the action creditors of the company other than the plaintiff.
The indebtedness of the company to the plaintiff is upon eleven promissory note's made by it to sundry persons and by them transferred, and which are all set out by copy. The earliest' matured in March, 1859, the latest in . September, 1860.
An amendment intended to be taken as inserted in the body of the petition was filed in 1877. It reads:
“ And the said plaintiff further saith that, after said corporation became involved as aforesaid, the said corporation made a lease or pretended-lease of said furnace property, and delivered. 140,000 of personal to the said William McGhee and William Radcliff; said McGhee was a member of said corporation, and the stock in the name of James McGhee, a son of said William McGhee, was, in fact, the stock of said William McGhee; and that the lease was made on or about the moffth of February, A. D. 1861; and that said parties ran said furnace and made a large amount of money, but failed to apply the same to pay the debts of said corporation, and that about the year A. D. 1864, the stockholders sued said William McGhee, said Radcliff being out of said business, claiming that the money so made was the money of said corporation, and liable for the payment of the debts of the same; and that such proceedings were had in said case, that the same was compromised by and between said parties, whereby all of the real estate of said corporation was vested in said William McGhee, as well as said sum of forty thousand dollars of personal property; and all profits - made, with which said William McGhee was to pay off the debts of said corporation; and in consideration thereof, the said William McGhee gave the other stockholders of said corporation said. agreement of indemnity against the debts of said corporation. Yet, said William McGhee did not pay said corporation debts,' but kept, and his estate still keeps unapplied for that purpose, the said sum of forty thousand dollars -of personal property so received; and said profits which said William McGhee took and received as a fund with which to pay the debts of said corporation; that said William McGhee, in his lifetime, did not out of said funds pay the debts above stated, but claimed, or pretended to claim said large sum of 140,000, and said profits amounting to a still larger sum, as his own private property, and that the same was not liable for the payment of said debts; and that neither said creditor nor said plaintiff had a knowledge of said arrangement or agreement between said stockholders whereby said William McGhee received said personal and real estate in trust to pay said debts, and save the other parties harmless from all liability to pay the same. And the plaintiff avers that he has in equity a right to be subrogated to the rights of said parties so indemnified by the said William McGhee against said debts of said incorporation.
“And said personal property, so delivered to said William McGhee, remained in the hands of said William McGhee, unexhausted in the payment of the debts of said corporation, at the time of his decease; and now remains in the hands of the said Electa McGhee, his administratrix, unexhausted, and, in equity, bound to be applied to the payment of said claims above named.”
To the petition as amended the defendant, James McGhee, and the administratrix severally filed demurrers alleging defect of parties, misjoinder of actions, limitations of six and seven years, and no cause of action.
In the common pleas the demurrers were sustained.
On appeal, the district court sustained the demurrers and dismissed the action,
The object of the present proceeding is to reverse the judgment of the district court.
W. W. Johnson and .Simeon Nash, for plaintiff in error.
The limitation is not six-years, but the limitation attached to the nature of the claims. The limitation of six years is limited to an action upon- a liability created by statute, other than for a forfeiture or penalty. The last two words mean the same thing. Now, is this a liability created by statute in the sense of the statute? The Constitution, art. Ill, sec. 3, 1 S. & C., St. 50, declares that “ dues from corporations shall be secured by such individual liability of the stockholders as may be prescribed by law,” not less than a sum equal to the stock held by the stockholders. This liability is provided to secure the creditors of corporations. When must the limitation begin to run as to the stockholders ? Can it be possible that a delay of six years from the date of the debt relieves the stockholder, while the debt itself may have fifteen and twenty years to run ? It is the debts of the corporation that they are to be made liable for. While, then, these are corporate debts against the corporation for which it is liable, there must exist an individual liability on the part of the stockholders. And to reach this personal liability of stockholders, there must be a petition in chancery to settle up the condition of the corporation as to debts, to ascertain who are stockholders and what percentage each is liable to pay. I say, then, that this is not a liability created by statute, but one created by the Constitution and for the 'benefit of creditors. It is created by the charter, which is a contract between the state and the stockholders. And to make it effectual for the benefit of creditors, this liability must exist as long as there are debts due and owing by the corporation. Wright v. McOormielc, 17 Ohio St., 86-95, involves the taking of an account of the debts of the corporation, the ascertaining of who are the stockholders, and the amount of stock held by each, and the percentage each has to pay in order to raise a fund sufficient to pay all debts, if this sum does not exceed the amount of stock held by the stockholders.
Parties are misled by the- New York decisions. The statute of New York is .wholly unlike ours. By that law, the stockholders are made liable when the debts are contracted, and declared liable to be sued when an execution against corporation has been returned not satisfied.
The New York statute of limitations is also wholly unlike ours. The charter, or act, of corporation, under our statute, does not point out" how this liability is to be enforced, and, I. think, it can only be enforced- by a petition in equity, as I have above stated.
If there is any limitation, save this limitation of the debts themselves, then the question arises, when does this limitation begin to run ? It is impossible to tell. The court say that this liability is collateral and conditional to the original obligation. If this ‘is so,-, it must exist as long as the debt exists. The incident must await on' and follow the principal obligation. An adjudication' of insolvency may, if any fact can, be a date from which the statute of six years might begin to run, if that statute applies to this liability. But no such fact has here taken place, nor are these claims, any of them, bound by any other clause of the statute.
Samuel A. Nash, also for plaintiff in error.
W. A. Hutchins and O. F. Moore, for defendants in error.
I. It has always been the law, that as to causes of action, not created by the contract of the parties, but by the positive requisitions of a statute, that limitation acts do not apply, except (as in Ohio), where the statute itself expressly makes such provision. Angelí on Limitations, 80-83. In this connection, several cases are referred to as to what are statutory causes of action. One of the old oases was an action of debt on the statute of tithes, and this was held to he a cause of action created by statute, and hence, the limitation act did not apply. So an action for an escape was beld, not to be reached by the statute, “ both because it was not founded upon any lending or contract, and was founded on a specialty, namely, on statute law.”' Angelí on Limita.-, tions, 80; Shepherd v. Hill, 32 Eng. L. & E.; Jones v.; Pope, 1 Saund. R., 38; Ward v. Reeder, 2 H. & McH., 154; Lane v. Morris, 10 Geo., 162; Thompson on Liability of Stockholders, § 56; Brinham v. Coal Co., ,47 Pa. St., 49; Ballard v. Bell, 1 Mason, 243; Duchy v. Brown, 24 Vt., 197; Hoard v. Wilcox, 47 Pa. St., 51; Frielcson v. Nesbit, 15 Gray, 222. But then many cases, and probably the weight of authority now is, that an action against stockholders, to enforce their individual liability, is upon an implied contract obligation. • Caroll v. Creen, 92 U. S., 509; Corning v. Horner, 1 Comst., 58; Baker v. Bank, 9 Met., 182; Commonwealth v. Bank, 8 Allen, 42; Terry v. Anderson, 95 U. S., 628.
II. When did the cause of action accrue? That the cause of action accrues when in fact the company is insolvent, or when its property is insufficient to pay the judgment, there can be no doubt. The time when a party may first discover that the firm property is insufficient, is not. material. Kerns v. Shoemaker, 4 Ohio, 814; Parsons on Contracts, 372; Wright v. McCormick, 17 Ohio St., 95.

Opinion:
Martin, J.
The original petition was intended to enforce the individual liability of the stockholders. The representative of the only deceased stockholder, and all the surviving stockholders are defendants and relief is asked against them all. The amendment was filed about four years after the suit was brought, and seems to count on an alleged agreement of McGhee to indemnify his co-stockholders against loss on account of the corporate indebtedness. It assumes that the plaintiff, who is a simple contract creditor of the company, had a right to appropriate to the payment of his claim the corporation property which had passed to McGhee as consideration for that agreement and to trace its avails to his estate. It is not a creditor's bill. It shows no breach of the alleged agreement. None that would be available to the direct parties to it. We consider it an attempt to inject into the petition a cause of action against only one of the defendants, which could not be prop-, erly joined with the action against the stockholders. But as its averments do not constitute a cause of action, it must be disregarded here as irrelevant.
We proceed to consider the issues raised by the demurrer to the petition. Counsel have confined the discussion to those setting up limitations. It is contended for the plaintiff that -the limitation attaching to his notes as against the company (15 years) is applicable. If this claim be correct the action is not barred. It is claimed on the part of the stockholders and administratrix that the cause of action is. either an implied promise or a liability created by statute and falls under the b.ar of six years, and that it appears from the face of the petition that the action accrued in 1860, when the company became insolvent. If this position be sound the action is barred. We are first to determine the nature of the plaintiff's cause of action.
The company was organized in 1858 under the provisions of the act of May 1, 1852, and its amendments. The 78th section reads:
"All stockholders 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."
The petition seeks to enforce the obligation imposed by this section.
In Wright v. McCormick, 17 Ohio St., 86, this section received a construction which has been followed and approved. It is there held that " The liability thus imposed upon stockholders is not a primary resource or fund for the payment of the debts of the corporation. It is collateral and conditional to the principal obligation which rests on the corporation, and to be resorted to by the creditors only in case of the insolvency of the corporation or when pay-' ment cannot be enforced against it by the ordinary process. It is a security provided by law for the exclusive benefit of creditors, over which the corporation authorities can have no control." To repeat what is here said or inferred. The liability of the stockholder is to pay the debt of the corporation, not his-own debt. His obligation is distinct and dehors that of the company. Being a mere collateral security or promise it must have a fixed limitation. We cannot accede to the proposition- that the limitation is shifting and diverse, corresponding identically to the unexpired periods of limitation on the corporation debts.' If the statute had made the liability primary and direct, thus binding the stockholder to the very terms of the corporation debt, a suit to enforce the liability would be virtually against J^im as original debtor, ^,nd upon the debt, and its proper limita tion would apply. But as has already been stated, no such liability is imposed. On the contrary, as we have seen, the provision is secondary and in the nature of, if not purely, a suretyship clearly definable and not at all coincident with the principal obligation.
Whether a judgment creditor only can, in analogy to a creditor's bill, maintain the action, is a question that has not been argued before us, and upon which we express no opinion. The theory of the petition is that when the company is insolvent and the debt is due the action accrues. This theory is the more favorable one for plaintiff in considering the demurrer, and we adopt it. His cause of action arose when the company became insolvent. He has his action in virtue of the statute. Without the statute there is no right of action. Is this statute liability within the six years' limitation either as a liability created by statute or an implied promise ?
The action is governed by the limitation act of 1852 (S. & C., 948). One of its provisions is this:
" Within six years.
" An action upon a contract not in writing, express or implied.
"An action upon a liability created by statute other than a forfeiture or penalty."
We think the action falls within this limitation, and is properly of the class described in the latter clause. It also embraces the elements of an implied contract.
The terms "forfeiture and penalty," though generally regarded as synonyms, are not such in this provision. The statute was prepared with care and skill, and repetitions are avoided. The terms are used in contrast, and effect must be given, if possible, to each. A penalty in its original and legal sense means a penal punishment. Crabb's Tech. Diet.; Webster's Diet. Like corporal punishment, it is inflicted by or in right of the public, and a recovery enures in^whole or in. part to the public. A forfeiture is more comprehensive in its signification, yet it generally accrues to individuals, and may well be so limited in a statute requiring strict construction.
By the employment of both terms all penalties and all forfeitures are excluded. Whereas, if either alone had been used, the clause would have been open to a construction that would let in the other. The clause thus restricted is of rare application, and we think further restriction by construction is inadmissible.' We therefore interpret the phrase, " a liability created by statute," to mean a liability which would not exist but for the statute. The stockholder, it is true, may be said to impliedly assume statute burdens previously imposed; and if the parol promise only could'furnish a bar, we would for the reasons stated be bound to apply it.
And such was the situation in Carrol v. Green, 92 U. S., 509. That case was as follows: The Exchange Bank of Columbia, S. C., failed in 1865, and thereupon a creditor's bill was exhibited to enforce an individual liability of the stockholders under a charter stipulation. The defense was a limitation in the act of 1712 applying a bar of four years to an implied assumpsit. For the creditor it was claimed that the liability was created by statute, and was therefore a debt by specialty which was not barred by any act of that state. The court held that the stockholder impliedly assumed the individual liability imposed by the charter, and that the action was barred in four years.
In that case there was but the one limitation. In this case we find a promise running with the statute liability. Both are barred by statute. The assumpsit is an incident to the statute liability. But the inherent and superior force of the statute creates the obligation without regard to the promise raised by implication. There was no error, therefore, in sustaining the demurrer.
Judgment affirmed.