Court Opinion

ID: 6574835
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:33:16.593461+00
Date Added: 2024-06-11T15:57:02.921205
License: Public Domain

Williams, Ch. J.
The objections to this bill, are, that it does not disclose sufficiently a right of action at law, — at least,, not against these defendants; nor that the plaintiffs intend to bring such a suit, nor against whom.
1. It is claimed, that the facts stated do not show, that capital has been withdrawn contrary to the charter : that the charge and assumptions by the company of expenditures by the defendants for land and buildings, is substantially the mode taken in banks and other business corporations.
The object of the act was, that by investments made by the stockholders, or moneys actually paid in, there should be and remain a capital equal to the sum certified to be the capital paid in ; and that the public might always be apprized what that was, a certificate was to be lodged in the town-clerk’s office, signed by the proper officer of the company. This was intended to guard the public from giving unbounded credit, and to apprize them how far they might confide in the responsibility of the corporation. This is the price the corporation is to pay to avoid private responsibility. If they do not fairly comply with this, then the directors at least, shall be responsible in their private capacity. The obligation imposed is to be fairly *405carried into effect; and if the directors will not submit to the terms, they must be content to become personally responsible.
Upon the facts disclosed in this bill, has the sum of 20,000 dollars capital of this corporation, or has any part of it, been withdrawn ?
The bill charges, that to constitute this sum the defendants and Luther Spalding conveyed sundry pieces of land to the corporation, on one of which the establishment is placed ; that these, with the machinery, constituted a considerable part of the capital stock paid in and certified ; and that the moneys and expenses so invested were charged over to and assumed by said corporation, by the procurement of the defendants, and fraudulently, to deceive and injure the bona fide creditors of said corporation ; and were thus actually withdrawn, or constituted the basis of the claim, or a large part thereof, on which said attachments issued. Now, it is very doubtful whether this can be considered as an investment of capital at all. If the corporation owe the individual stockholders, for the amount of capital stock, they can hardly be said to have that amount of stock ; at all events, it is merely nominal. Nothing in fact is contributed, by the stockholders, to form this capital; and a certificate that they have a capital stock of 20,000 dollars, if they owe the individual stockholders 20,000 dollars for it, is entirely delusive, and calculated to produce the very effect the certificate was intended to guard against; calculated to induce the public to believe, that the corporation set out in business with an un-embarassed capital of 20,000 dollars, when in fact the corporation was worth nothing. But as this is not the charge in the bill, it is not necessary to examine that question further.
The bill in fact admits, that the corporation had the capital, but charges that it has been improperly withdrawn, by the defendants.
The defendants, as directors, permitted these claims to be made, and for the purpose of carrying them into effect, instituted suits, by which the corporation property was all, or nearly all, attached. If, under these attachments, this property had been taken and sold, or set off on execution, there can be no doubt that it would have been a withdrawal of capital from the corporation. For these stockholders would thus take back into their own hands the very property which they had invested as capital; and the corporation would be in the same situation as they would have been, had not this estate ever belonged to *406the corporation. This property has not been taken upon the execution, and sold under it directly ; but the same thing has been effected in another way. By consent of the creditors, the corporation property has gone into the hands of the defendants and Spalding, to be sold to pay the defendants 1800 dollars, and then to divide the remainder among all those creditors who should enter into the arrangement. The defendants have thus consented, after covering the property by their attachments, that it shall be withdrawn from the capital stock, and appropriated to the payment of debts. This, the Court think, is a withdrawal of capital, by the consent or procurement of the defendants, both within the letter and spirit of the proviso. It does not, indeed, appear, that the liens by the attachments were ever enforced ; but it does appear, that by means of them, this arrangement was effected, and the property diverted from the capital stock.
It is said, that the plaintiffs are in the same situation as before the attachments issued, and therefore, cannot complain. This is not so; for by the writing of the 15th of July, 1830, they assign to said Gad and Martin all their claim against said company. It is also stated, that all the personal estate, soon after said agreement, was transferred to said Gad and Martin ; and the real estate was also conveyed to them. But even if the property did remain in the same situation as before, yet if the defendants had so conducted as to be liable as traders in company under this proviso, the plaintiffs would not be obliged to give up their claim against them as traders in company, because the corporation might have some estate which they might attach.
Nor can the defendants say, that the plaintiffs were parties to that agreement, and therefore, cannot complain. If it be true, as stated, that the plaintiffs were then wholly ignorant of the facts herein stated, and the defendants made representations, which were fraudulent and untrue, with design to deceive and defraud them of their just claims and demands against said corporation, and the plaintiffs were thus drawn into this agreement, as stated in the bill, such representations might lead this Court to set aside the contract, if it had been closed. Of course, the consent of the plaintiffs to such a contract, under the circumstances disclosed in this bill, will have no effect upon their *407rights. The objections, therefore, to the bill, on this ground, cannot prevail.
It was also objected, that the bill was insufficient, because it does not shew against whom an action is to be brought, or that the plaintiffs intend to bring any action. This Court has holden, that it could not direct a discovery, when it was apparent, that the defendants were not interested in the subject of it. The Middletown Bank v. Russ & al. 3 Conn. Rep. 135. 139. Here, the claim is, that the defendants and Spald-ing were directors, and by their procurement, the capital was withdrawn. It can hardly be said, then, that the plaintiffs are not interested in this subject.
But it is said, that the plaintiffs do not show against which of the defendants, or whether against any of them, they mean to bring a suit; and the opinion of Lord Eldon, in The City of London v. Levy, 8 Vesey, 404-5. is cited. The facts in that case clearly warrant the result to which the court arrived. It was a bill filed against Z. Levy and three other persons, who were partners, claiming duties on certain goods, stating that one of the partners made an entry of certain goods, in the name of another of the partners, as importers ; that in fact the goods were the goods of Levy, not a partner, but an alien, which goods were liable to the payment of the duty which the plaintiffs were entitled to receive of the defendants, or some of them ; that the defendants did not admit the goods to be the property of Levy, or any alien, or discover where they are ; suggesting an intention to commence an action. The Lord Chancellor held the bill to be insufficient, and, among other things, remarked, that “ it had never been laid down, that you can file a bill not venturing to state who are the persons against whom the action is to be brought, nor stating such circumstances as to enable the court, which must be taken to know the law, and therefore the liabilities of the defendants, to judge ; but stating circumstances, and averring that you have a right to an action against the defendants, or some of them. That, of necessity, admits, that some of the defendants may be only witnesses.” “ The fraud is not charged as against the third partner. l?ou have no right to a discovery, except against the person against whom you aver that you mean to bring your action. Upon that ground, this demurrer is good to all the de. fendants. Some of them are not alleged to have done a single *408act in furtherance of the thing, or even to have had knowledge -of it.”
In that case, it did not appear whose duty it was, to pay this alien duty. The plaintiffs had not averred it; nor had they shown such facts as that the court could see it ; of course, they showed no cause of action whatever. Here, the plaintiffs show, that the capital has been withdrawn, by the procurement of the defendants ; and that they were directors. That Spald-ing was also a director, and aided them, can make no difference ; for they may have other evidence against him, — perhaps his own confessions. The Chancellor’s remarks relative to shewing the persons against whom the suit is to be brought,, must be taken in connection with the facts before him, and with his next remark that such circumstances must be shown as to enable the court to see against whom suit may be brought. The opinion, then, is, that you must either show expressly against whom your action may be brought, or such facts as that the court can see against whom it may be brought, or they cannot see the necessity for the discovery. Stating circumstances, and averring that you have a right of action against them, or some of them, is not enough. He afterwards goes on to shew the fatal defect in the bill ; that it did not appear who was liable to the duty ; of course, they could have no right to a discovery, except against the persons against whom they meant to bring the action ; and some of these defendants, he says, are not alleged to have done a single act in furtherance of the thing, or even have knowledge of it. It is believed, therefore, that the Lord Chancellor did not mean to change the rule. “ that where an action is brought, or where the necessary effect in law of the case stated by the bill, appears to be, that the plaintiff has a right to bring an action, he is entitled to a discovery to aid that action, or which he appears to have a right and an intention to bring.” 1 Mad. Chan. 163.
Here it is alleged, that the plaintiffs intend to commence and prosecute a suit or suits, for the recovery cf the said debts, against all, or some of those, who now are, or heretofore have been, directors, &c. Here is a prima facie ground of action, stated, against the defendants and Sjoalding, which the plaintiffs mean to pursue against them, or some of them ; but as it is claimed, the evidence is in the knowledge of the defendants, they cannot tell which of them they shall pursue, until they *409have that testimony. Moodamay v. Morton, 1 Bro. Ch. Ca. 469. 471. This seems to be all that they could safely aver. It-is certainly all that a prudent man would choose to aver; and it is not believed, that the case cited requires more.
It is said, that the court cannot, upon the allegations in this bill, determine whether the discovery would be available or not. In the view the court have taken of this case, the reverse of this proposition is true. The bill states facts, which, if true, will give the plaintiffs a right of action against the defendants and Spalding. They now call on the defendants to say, if they are true. If they admit them, then surely they go to prove a right of action against them. If one only of them admits them, they go to prove a right of action against him. In either event, then, the discovery may be available to the plaintiffs, in the action which they intend to bring, and support by this discovery.
The superior court are, therefore, advised to overrule the demurrer.
All the Judges concurred in this opinion.
Demurrer to be overruled.