Court Opinion

ID: 6413579
Source: CourtListenerOpinion
Date Created: 2022-06-25 11:54:29.304277+00
Date Added: 2024-06-11T15:51:27.528698
License: Public Domain

Bigelow, C. J.
It has already been decided by this court that the proper remedy for parties seeking to enforce debts due from a manufacturing corporation against the directors of the company, under Rev. Sts. c. 38, § 25, is by a bill in equity. Merchants’ Bank v. Stevenson, 10 Gray, 232. This decision went upon the ground that, as the liability of the directors under the statute is a limited one only, being not for all the debts due from the corporation, but only to the extent of the excess of the corporate debts above the amount of the capital stock, and as this excess might be much less than the claims of creditors having a right to such a remedy against the directors, it was necessary that all the creditors should be made parties to a suit brought for the purpose of enforcing this liability against directors, in order that the amount of their debts might be ascertained, and the share of the excess due to each might be apportioned among them. If a different course was adopted, and a suit at law might be brought by each creditor against the directors, and a judgment rendered in his favor for the amount of his debt due from the corporation, one of two results would follow: *401either the directors might be held liable upon judgments against the corporation to an amount greater than the excess of the corporate debts above the capital stock, or the judgments first recovered would exhaust the liability of the directors, by absorbing the entire amount of the excess, so that there would be nothing left with which to meet subsequent judgments in behalf of creditors, who had originally an equal claim on directors with those whose debts had been previously satisfied. It is obvious that either of these results would contravene both the letter and spirit of the statute creating the liability. It was therefore held that a suit at law could not be maintained, but that the only proper remedy was by a bill in equity, in which all the creditors entitled to a remedy against the directors could join, the amount of their debts be ascertained, the extent of the excess of such debts above the capital stock determined and adjudicated, and a just and proper apportionment be made of the liability among the several creditors, in proportion to the amount of their respective debts. This was the ground on which it was held that in cases where there was a large number of creditors of a corporation, and the directors of the company were liable to them for a limited amount, under Rev. Sts. c. 38, § 25, the recovery of an action on the case given by § 29 of the same chapter was impracticable, as a means of enforcing the rights of creditors ; that the jurisdiction of a court of equity, as in the analogous case of creditors’ bills, becomes indispensable, in order to reach and dispose of the rights of all parties having a common interest in a particular subject matter, and that the proper mode of enforcing the plaintiffs’ rights was under § 31 of the same chapter by a bill in equity. But beyond this the decision did not go. It did not determine that a judgment at law must be first recovered against the corporation, before such suit in equity could be commenced to enforce the liability of the directors. Such a conclusion would be contrary to the clear intent of the legislature, as expressed in that provision of the statute, prescribing a remedy against the officers of the corporation. It is there expressly provided that the plaintiff shall state his claims against the company, and that the same may be prosecuted against the *402directors, notwithstanding the pendency of an action against the company for the recovery of the same claim or demand, and both of said actions may bé prosecuted until the plaintiff’ shall obtain the payment of his debt and the costs of both actions. These provisions of the statute leave no room for doubt that the remedies of creditors against the directors and against the corporation for the recovery of their debt were intended to be concurrent, and that either or both might be pursued at the option of the creditors. No judgment against the corporation, therefore, is necessary as a prerequisite to the maintenance of the present bill. Although an action on the case to enforce such a claim against directors cannot be prosecuted on account of its impracticability, the same reason is not applicable to that portion of the statute, which gives concurrent remedies against the directors and the corporation. A previous judgment against the latter is not essential to the ascertainment and adjudication of the rights of. ihe parties or to the enforcement of the remedy against the directors. Indeed in many cases it would be impracticable to obtain a judgment for the precise debt for which directors might be liable, as they are not to be responsible for all the debts of the corporation, but only for such as exist or are contracted while the unlawful excess of indebtment over capital stock continues; a liability on the part of directors might exist for one portion of a corporate debt and not for another, the whole of which would properly be included in one judgment against the company. Such judgment does not necessarily determine the amount of the claims of a creditor against the directors. It cannot be an essential prerequisite, therefore, in enforcing a debt against them. Besides, the debts of the several creditors can be examined and proved in proceedings in equity without difficulty, and with this additional advantage over a suit at law, that each creditor may have opportunity to contest the claim of any other creditor in the same manner as if it were an adversary suit, and thus avoid the danger of collusion, which may exist where judgments ex parte are rendered against the corporation in actions at law to which the other creditors cannot be parties. Such is the practice in cases of creditors’ bills. 1 Story on Eq. *403§§ 547, 548. Owens v. Dickenson, Craig & Phillips, 48, 56. The provisions in Rev. Sts. c. 38, §§ 29, 30, 31, make a marked distinction between the mode of enforcing corporate debts against officers of corporations and stockholders. In proceedings against the latter, a judgment againt the corporation is an essential prerequisite. The distinction between the two classes is fully stated, and the reasons for it given, in Cambridge Water Works v. Somerville Dyeing and Bleaching Co. 4 Allen, 239.
The second cause of demurrer is well assigned. The bill avers that at the time the plaintiffs’ debt was contracted the defendants were directors of the corporation, and that the debts of the corporation exceeded the capital stock ; but it does not allege that such excess happened during the administration of the affairs of the corporation by the defendants. For aught that appears by the averments in the bill, except argumentatively, the excess of indebtment might have occurred either before the defendants were directors of the corporation or after they had ceased to be so. As the sole foundation of their liability under the statute is, that the alleged excess of debts over the capital stock occurred while they had charge of the business of the corporation, that fact must be distinctly averred, so that it may be duly traversed by the answer, and be adjudicated on a hearing of the merits. In the absence of such averment, the bill is defective. Demurrer sustained.