Court Opinion

ID: 6411661
Source: CourtListenerOpinion
Date Created: 2022-06-25 11:53:09.469461+00
Date Added: 2024-06-11T15:51:23.726743
License: Public Domain

Bigelow, J.
The claim of the plaintiff, which he seeks to prove against the separate estates of the insolvents in the hands of the defendants as assignees, is a debt due from a manufacturing corporation of which all the insolvents were stockholders and most of them officers. To entitle him to make such proof, it is necessary that he should make it appear that it was a debt due and payable from each of them at the time of the first publication of the notice of the issuing of the warrant against their separate estates ; or a debt then absolutely due, although not payable till afterwards. If it cannot be brought within either branch of this description of debts, then it is clear that it cannot be included within the enumeration of other claims which are provable against the estates of insolvent debtors; and that it must fall within the provisions of St. 1838, c. 163, § 3, which excludes all other claims not therein specified from proof.
The case therefore raises the question, whether the liability to which the officers and members of manufacturing corporations are in certain cases made subject by the Rev. Sts. c. 38, in connection with St. 1851, c. 315, can in any just or proper sense be deemed the separate debt of each officer or stockholder.
Looking first at the provisions of these statutes, so far as they are applicable to stockholders, it is very clear that the liability which they create does not make the debts of the corporation the direct, separate and private debts of each stockholder. It is true that the liability is declared in very broad and general terms. The provision is that “the members shall be jointly and severally liable for all debts and contracts made by such company.” But how liable ? Not to an action in favor of the creditor against each or all of them as upon a debt for which they are jointly and severally liable. Such an action could not be maintained. Knowlton v. Ackley, 8 Cush. 97. To ascertain the nature of the liability, it is necessary to look at the means by which it can be enforced. These will indicate the *605nature of the right which it was the intention of the legislature to create. By proceedings at law under Si. 1851, c. 315, § 3, a stockholder can be held liable only after judgment and execution for the debt have been obtained against the corporation, and a demand has been made on them for the payment of the debt, which has been refused, and a failure to find the property of an officer of the company wherewith to satisfy the execution. Thayer v. Union Tool Co. 4 Gray, 75. Denny v. Richardson, 4 Gray, 274. Under these provisions it cannot be contended that the liability is direct, positive and absolute, as for a debt due from the stockholder. It is only limited, collateral, and contingent on the failure of the corporation and officers to pay it. How then can it be held to be. a debt due from the insolvents, in the sense of the insolvent law ? Taking the provisions of the Rev. Sts. c. 38, providing for the liability of individual stockholders for the debts of the corporation, in connection with those of St. 1851, c. 315, they are in substance very similar to those of St. 1808, c. 65, § 6, which was never held to have made the corporate debts to be due directly from the stockholders, but only to have created a special and limited liability. The case of Kelton v. Phillips, 3 Met. 61, in which it was held that a liability under that statute could not be proved as a debt against the estate of a stockholder in insolvency would seem to be quite decisive of the present case.
But it is urged very strenuously in behalf of the plaintiff, that although the remedy at law against the stockholder may ne such as to show that his liability is indirect and contingent, yet by the Rev. Sts. c. 38, § 31, a direct remedy by a bill in equity is given for the enforcement of such a claim, and that under this provision the liability may be properly regarded as constituting an absolute debt of the stockholder. There are two sufficient answers to this suggestion. It is a misconstruction of this section, to assert that it gives a direct remedy against the stockholder as on a debt or charge for which he is personally liable. No bill can be maintained under it against the stockholder until after a judgment has been obtained against the corporation for the debt. The remedy by bill in equity under § 31 is given *606instead of that provided by the preceding section, that is, in lieu of a right to levy an execution, issued on a judgment rendered against the company, on the person or property of the individual stockholder. But it is not given in the place of the judgment against the corporation. As such judgment must be obtained before the creditor could have any remedy by means of a levy of execution on the person or property of the stockholder, so also he must obtain it before he can maintain his bill under § 31, which is only a substitute for such levy.* But the better and more decisive answer is, that the statute of 1851, already cited, essentially modifies the right of the creditor to maintain a bill in equity under Rev. Sts. c. 38, § 31. Equity must follow the law. The effect of the provisions of St. 1851, c. 315, is not merely to alter the remedy of a creditor against a stockholder, or the mode of enforcing the debt, but also essentially to change the nature and character of the liability. If it could have been held to be direct and absolute under the provisions of Rev. Sts. c. 38, it is clearly not so under the subsequent enactment. The alteration in the remedy involved a material modification in the right; or, in better phrase, the legislature adapted the remedy to enforce a right which was contingent and not absolute. It would be unreasonable, if not absurd, to suppose that the intention of the statute was that a stockholder should be more directly and absolutely liable for corporate debts in one mode of proceeding than in another; that a more rigid rule should be administered for the enforcement of such debts in equity than at law. We certainly should not adopt any such conclusion unless it was the unavoidable result of the interpretation of the language of the statute. But no such construction is necessary. The different provisions of the statutes are susceptible of a much more reasonable interpretation. Being in pari materia,, the enactments are to be construed together as parts of one and the same legislative act. In this view it is clear that the right or liability is the same, whether it is sought to be enforced in law or in equity. *607The St. of 1851, c. 315, so far as it affects stockholders, is a repeal of and substitute for Rev. Sts. c. 38, § 30, which prescribed the remedy at law in favor of creditors against stockholders. The provision in § 31 is therefore to be read and construed in the same manner as if it was preceded by the provisions contained in St. 1851, c. 315. In this view, the remedy-in equity against a stockholder is in lieu of that which is given by proceedings at law, that is, he may be held liable on a bill in equity after the creditor has failed to satisfy his judgment against the corporation by levying his execution upon the corporate property or upon that of the officers of the corporation. This interpretation is consistent, with true canons of exposition, and harmonizes the different provisions of the statute. The result is that, both at law and in equity, the liability is only a qualified and limited one, and in no just sense a debt for which the stockholder is absolutely liable.
This conclusion, to which the construction of the statutes leads, is fortified by some considerations of a general nature. The proof of the debts of a corporation, for which stockholders are liable, against their separate estate in insolvency, as debts for which they were absolutely liable, would produce great confusion and embarrassment in the administration of the insolvent law, and be in some respects inconsistent with its manifest scope and purpose. The right of proof could not be confined to debts due from insolvent corporations. It would extend to all debts of every corporation, for which the insolvent might be liable under the statute, whether payable or not, whatever might be their amount, and without regard to the ultimate solvency of the corporation and their ability to pay their debts when they should fall due. If the proof were allowed, the assignees, in behalf of the estate, would have a remedy over against the corporation for the amount paid by them as a dividend thereon, or, if the corporation were unable to pay, then for contribution against the other stockholders. This might render it necessary to keep the insolvent estate open and unsettled for many years. No provision is made for set-off of debts due from the corporation to the insolvent, nor for marshalling assets in order to meet this class of *608debts. Creditors of the corporation could prove their debts against the estate, vote in the choice of assignees, decide Ihe question of the right of the debtor to his discharge, and in effect control the whole proceedings, to the practical exclusion of those who were his immediate creditors. The debtor is required to make out and deliver to the messenger a schedule of his creditors and of their place of residence, with the sum due to each, as well as of the nature of the debt and the consideration thereof, and whether it is secured by mortgage, pledge or otherwise. How can that provision be complied with, if the debts of a corporation, for which the insolvent may be liable, are to be regarded as his debts provable against his estate ? A stockholder cannot defend against a debt due from the corporation on the ground that it is not due, or that it has been paid, or that for other reasons no recovery should be had against the corporation. Holyoke Bank v. Goodman Paper Manuf. Co. 9 Cush. 576. Can the assignee, who represents the stockholders, resist the proof of such claim, and contest the debt in proceedings in the nature of a suit at law on an appeal ? These and similar considerations seem to show that the liability of stockholders for the corporate debts was not intended to be included among the class of debts which could be proved in insolvency against the estate of an insolvent stockholder.
It is urged as one ground for allowing such claims to be proved, that, if they are excluded, an insolvent debtor may be left liable to a large amount of debts from which he cannot be discharged. No doubt this is true. But there are many claims from which no discharge can be obtained under proceedings in insolvency, such as contingent debts, executory covenants, guaranties and the like. Those debts only are discharged, which are provable against the estate. Whether they are provable cannot be determined by the. inconveniences or hardships which may enure to a debtor by reason of his inability to procure a discharge from them.
Many of the considerations which have been suggested are applicable to the claim of the plaintiff to prove against the estates of the officers of the corporation. But this part of the *609case can be disposed of very briefly. If the right to make such proof is put on the provision of Rev. Sts. c. 38, §§ 19, 29, it cannot be supported, because the liability thereby created is not a debt, but a right of action in behalf of a creditor for neglect or omission to perform certain official duties. If it is put on the provision of St. 1851, c. 315, then it is a secondary liability only, by which the property of the officers is made subject to seizure on execution, if the judgment against the corporation is not first satisfied out of the corporate estate.

Decree affirmed.

See Cambridge Water Works v. Somerville Dyeing & Bleaching Co. 4 Allen, 239.