Court Opinion

ID: 8309087
Source: CourtListenerOpinion
Date Created: 2022-10-17 13:45:44.445507+00
Date Added: 2024-06-11T16:44:39.232545
License: Public Domain

Lowell, J.
For convenience, we shall call Garrett & Sons, plaintiffs, and Sayles and others, stockholders of the American File Company, defendants.
We need not consider the bill filed in the state court by these defendants to restrain the plaintiffs’ .levy of execution, and removed to this court, because our power to stay a process issuing out of the state court is doubtful, unless when such injunction had been issued while the case was in the state court; and because the plaintiffs, while insisting that the law of 1877, abolishing the remedy by levy upon the stockholders and substituting a bill in equity, cannot be enforced against them consistently with the constitution of the United States, or with that of Ehode Island, have acquiesced in fact and brought their bill in this court under that act, and the pleadings in that suit raise all the questions between the parties.
The defendants, admitting that they are stockholders of the corporation and liable generally for its debts, set up against these plaintiffs two equitable defences.
The first is that the stockholders, in the year 1870, agreed to pay the debts of the company in substantial accordance with their respective ultimate liabilities, inter sese, by taking bonds in that proportion, and to look for reimbursement to the property conveyed in mortgage to trustees to secure the *376bonds, or to that property and any which the company might afterwards acquire.
We see no evidence that the parties concerned, the stockholders, made any such agreement as is here supposed. Being under a statute liability for the debts of the company, and choosing to remain so — for they could have put an end to this state of things by filing an annual statement of their affairs — they found it more convenient to raise money by negotiating bonds with five years to run, rather than notes which needed to be often renewed. They secured their negotiable bonds by a mortgage, in order to increase their value, not to diminish it. It was an ordinary arrangement, which had no concealed equities. The negotiable bonds were to be negotiable, and to have the same properties in the hands of the shareholders as in those of other “applicants” who should take them. No doubt one principal motive which induced the shareholders to take the bonds in the first instance was that the company must be kept afloat; but there was no agreement expressed, and none arises from the nature of the transaction, that the. bonds should not be sold, or that they should hold good only against the property of the company.
We suppose it to have been taken for granted that the bonds were amply secured, in which case no such question as is now before us could have arisen. At any rate, it appears, from the correspondence between the parties and from the votes, and all "the evidence in the record, that the bonds were intended to.be what they purport to be, the negotiable promises of the corporation, as much so as the notes for which they were substituted.
The second defence is that the plaintiffs have agreed to stand in the place of stockholders by their stipulation to indemnify the assignees of Chapman as such stockholders.
We agree that if the assignees,' when this stipulation was made, were stockholders in the sense of being liable for the debts of the company, the defence is a good one to the extent of their proportionate share of the debts, so that the plaintiffs. could only recover in equity the difference between the price of their bonds and such proportionate liability. This *377equity does not depend upon privity of contract, but upon an equitable duty. Dering v. Earl of Winchelsea, 1 Lead. Cas. Eq. (4th Am. Ed.) and notes.
We are of opinion, however, that under the statutes of Rhode Island neither assignees in bankruptcy, nor the assets in their hands, are liable to contribute under the circumstances stated in the record, which are, simply, that they have in their possession the certificates of stock, and recite in the agreement with the plaintiffs that they are stockholders. It docs not appear how far, if at all, they have acted as stockholders, and it is certain that they had nothing to do with contracting this debt.
In Massachusetts, where the law is as nearly as possible identical with that of Rhode Island, the liability was held not to attach, though the assignees had attended and voted at meetings of the stockholders, and done other unequivocal acts of ownership. Gray v. Coffin, 9 Cush. 192.
The general law of bankruptcy would give the same answer to the question. It is an anomaly, perhaps, but it is the undoubted rule, that assignees are not bound to accept onerous property. Its application to leaseholds is familiar. Mills v. Aureol, 1 Smith Lead. Cases, (7th Am. Ed.) 1116 and notes; and as to an onerous litigation or contract, Smith v. Jordan, 6 Law Rep. 313; Streeter v. Sumner, 31 N. H. 542; Amory v. Lawrence, 3 Clifford, 523.
The rule has been often applied to shares in a company liable to the onus of assessments, or calls, as they are called in England, and would apply a fortiori to an unlimited liability. See Re Lond & Prov. Teleg. Co. L. Rg. Eq. 653; South Staffordshire R. Co. v. Burnside, 5 Ex. 129; Levi v. Ayres, 3 App. Cas. 342; Metropolitan Bk. v. Offord, L. R. 10 Eq. 398.
The peculiar statutory liability imposed upon shareholders in New England is not one which can be proved ar a debt against a bankrupt’s assets unless it is liquidated and ascertained by a decree in equity before the time for proving debts has gone by. Kelton v. Phillips, 3 Met. 62; Bangs v. Lincoln, 10 Gray, 600; James v. Atlantic Delaine Co. 11 N. B. R. 390. It follows that Chapman, or the several members *378of his firm, according to the fact of ownership, would remain personally liable- to contribute to the debts of the corporation notwithstanding their discharge in bankrúptcy, because only provable debts are discharged, and because they would remain shareholders. See Martin's Patent Co. v. Morton, L. R. 32, B. 306; Hasties Case, L. R. 7, Eq. 3, 4 Ch. 274. It is plain, upon inspection of the contract between the plaintiffs and the assignees of Kirkland, Chase & Co.j that the former did not undertake to become stockholders of the corporation, nor to indemnify Chapman or the members of the firm personally, but that out of abundant caution the assignees took an indemnity for themselves and the estate in their hands, and, since the assignees are not liable, there is no claim or right to which the defendants can be subrogated.
Equity might require the plaintiffs to apply the mortgaged property, or to call upon the trustees of the mortgage to apply it to diminish the debt, so far as it would go, before-' a final decree should be rendered against the' defendants.
The pleadings do not raise this question, and we understood at the argument that the property had been converted into money and would be properly disposed of without the intervention of the court. We decide, therefore, that in the bill filed by Garrett & Sons, there must be an interlocutory decree for complainants.