Case Name: Andrew Hanson v. Cornelius Donkersley
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1877-10-02
Citations: 37 Mich. 184
Docket Number: 
Parties: Andrew Hanson v. Cornelius Donkersley.
Judges: Cooley, C. J. I assent to the foregoing conclusion -
Reporter: Michigan Reports
Volume: 37
Pages: 184–195

Head Matter:
Andrew Hanson v. Cornelius Donkersley.
Liability of Stockholders for Corporation Debts.
The Michigan statute (Comp. L., § 2852) does not make individual stockholders primarily liable for corporation debts.
The liability of a stockholder for a corporation debt is discharged by the creditor’s extending the time and accepting the note of the corporation.
Error to Marquette.
Submitted April 5.
Decided Oct. 2.
Assumpsit. The Morgan Iron Company owed Hanson for labor and he consented to extend the time of payment and accepted their note. He afterwards recovered judgment on the note, but as the execution was returned unsatisfied he sued Donkersley as a stockholder under Comp. L., § 2852, which imposes upon stockholders an individual liability for labor done for the corporation, and allows it to be enforced at any time after the return of an execution unsatisfied, or after the corporation has been declared bankrupt. The court below instructed the jury that in suing the company upon the note instead of the original claim, the plaintiff treated the note as a payment and precluded himself from recovering against the stockholders, and directed a verdict for defendant. Plaintiff brought error. The facts are stated in the dissenting opinion of Mr. Justice Marston.
Wm. H. Paries and Mitchel & Pratt for plaintiff in error.
The mere giving and receiving of a note does not of itself extinguish the original demand, unless taken for that pur pose on special agreement. Gardner v. Gorham, 1 Doug. (Mich.), 507; Hotchin v. Secor, 8 Mich., 494; Peter v. Beverly, 10 Pet., 533; 3 Pars. Cont., 634 and cases. An unsatisfied judgment cannot stand in the way of any collateral concurrent remedy. Drake v. Mitchell, 3 East., 351; Chipman v. Martin, 13 Johns., 340; Bantleon v. Smith, 3 Binney, 146. Analogous cases under statutes for mechanics’ liens have decided that the giving of a note for the work or materials does not extinguish the lien. Hopkins v. Forrester, 39 Conn., 351; Gere v. Cushing, 5 Bush (Ky.), 304; Van Court v. Bushnelt, 31 Ill., 634. The individual liability of the stockholder has been held to be an original and. primary liability, and not in the nature of a surety or guaranty. Young v. Hosenbaum, 39 Cal., 646; Conklin v. Furman, 57 Barb., 484. It is reasoned in Bohn v. Brown, 33 Mich., 357, that the cause of action for which the stockholder is made liable is identical with the original debt or demand against the corporation, and the intrinsic nature of the corporate liability is the criterion for the stockholder’s individual liability.
Ball & Owen and J. J. Storrow for defendant in error.
It is prerequisite to a suit against a stockholder under Comp. D., § 3853, that it shall have been judicially ascertained that the plaintiff has a claim for labor against the corporation, and that suit be brought either upon that judgment or upon the same cause of action. In this case the original suit was based solely upon the note. Although it may not hare been agreed that the debtor’s note be received in discharge of his liability, no suit can be maintained on the original cause of action until the maturity and dishonor of the note. Okie v. Spencer, 3 Amer. Lead. Cases, 337, 350-1. 'The creditor may elect whether he will sue upon the note or the original liability, but he is bound by his election, and if he chooses the latter, he must return the note or bring it into court to be cancelled. See The Kimball, 3 Wall., 45; Mooring v. Mobile, etc., Ins. Co., 37 Ala., 358; Tobey v. Barber, 5 Johns., 68; Holmes v. D’Camp, 1 Johns., 34; Burdick v. Green, 15 Johns., 347; Miller v. Lumsden, 16 Ill., 161: Iglehart v. Jernegan, Id., 513. If he reduces the note to a judgment upon which execution has issued he cannot return it as a note unused. Thompson v. Howard, 31 Mich., 309; Rodermund v. Clark, 46 N. Y., 354; Wetmore v. McDougall, 32 Mich., 276; Shepard v. Cross, 33 Mich., 96; Galloway v. Holmes, 1 Doug. (Mich.), 346; Smith v. Baker, 8 L. R. (C. P.), 353; 5 Eng. R., 323; Smith v. Hodson, 2 Smith’s Lead. Cases, 208-212. The' doctrine stated in Bohn v. Brown, 33 Mich., 257, that the cause of action against the stockholder is made identical with that against the company, and that the original demand against the company, and not something of a different' nature, is what the stockholder is made liable for, is-conclusive of this case.

Opinion:
Campbell, J.
This case is certainly not free from difficulty. But it seems to me that the liability of the individual members of corporations for their debts, under the statute upon which this suit was brought, cannot in any just sense be called a primary liability. The debts which they are called on to pay are in fact — as they are expressly regarded in the constitution — debts of the corporation. The statute is clear that the private parties shall not be called upon unless the corporation has failed to pay, and legal remedies are exhausted, either by unsatisfied execution or by bankruptcy legally adjudged. The right of recovering contribution by legal action is only given where the payment made by the suing party is compulsory. lie has no right to make payment without necessity, and if he does so, he must seek redress in some other way. Comp. L., § 2852.
The corporation is in law a different person from any of its members. A promise by a stockholder to pay a corporation debt is in every sense a promise to pay the debt of another. The case cannot be different merely because the obligation is statutory. It may be that the statute could be so framed as to create a joint or a joint and several responsibility which could be legislated into a primary obligation. But where the corporation is not put into such relations, and the stockholder cannot be called on until the remedy against the corporation has been tried and exhausted, it is entirely plain that they are not both original debtors, and that one is only collaterally liable, and is therefore in law a mere surety. It is still plainer where, as here, he has no right to pay in the first instance.
The constitution by making stockholders "individually liable" for labor debts does not thereby necessarily make them primarily liable. Bank corporators are made " individually liable" for bank debts contracted during their connection with the banks. Originally this was unlimited. Now it is limited. It would be impossible to regard this limited responsibility as a primary debt of the stockholders. It requires peculiar legislation to reach such cases at law at all. If the constitution could be regarded as making them primary debtors, the remedy could not be enforced except in equity, unless in very peculiar cases if'it could be at all. Here the plaintiff sued expressly under a statute which treats the stockholder in all respects as a several surety, and he must I think be so treated in determining his responsibility.
It cannot be denied that if defendant is a surety he was discharged from the debt for labor by taking the corporate note and giving time. In my view of the case no other question arises, and the judgment should be affirmed.
Graves, J.
I cannot avoid the impression that the constitutional and statutory provisions in question in this cause, necessarily result in giving to the liability imposed specially on stockholders a mere accessory or collateral relation to corporate liability.
All admit that this peculiar liability is only imposed on stockholders where there exists a real corporate liability and no one believes that these two liabilities are joint.
If it be said that the liability of the corporation and that of the stockholders arise after all simultaneously, the reply is that that circumstance is unimportant in the present consideration. The question is not whether one liability is earlier or later than the other; but it is whether in truth one is accessory and collateral to the other. Now labor is supposed to be performed "for the corporation," and at its instance, and it is rightly assumed that by the general principles of justice the world over the corporation must be originally, directly and at once liable therefor. The responsibility is immediate and unconditional. It does not turn in any way on any responsibility elsewhere. No enactment to create or impose a liability is required and none is made, — a debt arises at once against the corporation. It is a debt of the corporation. The case is different with the stockholders. To render them liable for the debt a law expressly declaring their liability is found necessary, and the institution of this law is a confession that the liability would not exist without it. The stockholders do not receive the service, and the legal obligation which in natural justice results from its reception does not devolve on them. As to them there is no spontaneous liability, and apart from the positive provisions before mentioned the debt actually exists, but it exists not as their debt at all, but as the exclusive debt of the corporation.
These distinctions concerning the nature and source of liability serve to show as I think, that the debt is originally and directly the exclusive debt of the corporation and that whilst the liability cast on the stockholders is for the .-same debt, it is a distinct liability and one purely accessorial and collateral.
The liability of the corporation is the fruit of its own contract, — is a liability for its own debt.
The liability of the stockholders is not upon a contract of theirs: it is not a liability for their debt but for that of another and the law declaring such liability virtually holds the place of an express accessory or collateral undertaking or agreement.
There may be room, perhaps, for questioning the right to sue less than the whole number of stockholders when the purpose is to enforce the specific liability.
Whether the expression, "the stockholders," ought not to be construed as meaning the collective body, and the .term "individually" be taken as signifying that they are .personally responsible, rather than as meaning that each must be sued separately, may perhaps not be beyond con troversy and I desire to reserve my opinion on the subject.
I agree with my brother Campbell in thinking the judgment ought to be affirmed.
Cooley, C. J. I assent to the foregoing conclusion -