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Barnes v. Wheaton

61 N.Y. St. Rep. 492 Court N.Y. Gen. Term English

Delivered by Martin, J.

Contents

Majority

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Norman A. Barnes, App’lt, v. Gerrit S. Wheaton, Resp’t.
(Supreme Court, General Term, Fourth Department,
Filed July, 1894.)

Headnote

Corporation—Foreign—Liability of stockholders.
The liability of stockholders of a foreign corporation, imposed by a statute, can be enforced only in the courts, of its domicil.
Appeal from a judgment dismissing the complaint.
Walter S. MacGregor, for app’lt; Jenney & Marshall, for resp’t.

-—The provisions of the constitution of the state of Ohio, set out in the complaint, declare that: “Dues from corporations shall be secured, by such individual liability of the stockholders, and other means, as may be prescribed by law; but, in all cases, each stockholder shall be liable, over and above the stock by him or her owned, and any amount unpaid thereon, to a further sum, at least equal in amount to such stock.”

In State v. Sherman, 22 Ohio St. 411 , it was held that the legislature of that state had no power, under the present constitution, to create corporations without securing the individual liability of their stockholders, at least to the minimum amount required by the constitution; and if the act of incorporation did not secure

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this, either by express provision, or by requiring from the corporators or stockholders such acts, of organization or otherwise, as would subject them to the constitutional provision, the act would, be unconstitutional and void. In French v. Teschemaker, 24 Cal. 518 , 539, where a similar provision in the constitution of that state was under consideration, it was held that the provision was not self-executing, but required legislation to carry it into operation. The cases of Morley v. Thayer, 3 Fed. 737 ; Fusz v. Spaunhorst, 67 Mo. 256 ; and Groves v. Slaughter, 15 Pet. 449 ,—are to the same effect. It is obvious that this provision of the constitution is not self-executing, but that its purpose was to confer upon the legislature the power, and impose upon it the duty, of securing dues from corporations by imposing upon the stockholders of such corporations as were organized under the laws of that state an individual liability, and by such other means as, in its discretion, it should deem proper, but limiting such power and discretion by. the provision that each stockholder should be made liable to an amount at least equal to the amount of the stock held by him; and we think that this provision does not, independent of a statute imposing such liability, confer upon the plaintiff any right to maintain this action. Moreover, an examination of the complaint discloses that this action was not based upon a right to recover under the provisions of the constitution, but upon the provision of the statute of that state passed in pursuance of such constitutional provision; and thus the plaintiff is bound by his complaint, which bases the action upon the statutory liability of the defendant. May v. Black, 77 Wis. 104 . Therefore, in determining the liability of the stockholders of a corporation organized under the laws of that state, it is necessary to examine the statutes defining or declaring the same. The only statute which imposes or defines such liability—at least, so far as appears from the complaint—is § 3258 of the statutes of Ohio, as revised in 1890. As we have already seen, that section provides: “ The stockholders of a corporation which may be hereafter formed, and such stockholders as are now liable under former statutes, shall be deemed and held liable, in addition to their stock, in an amount equal to the stock by them subscribed, or otherwise acquired, to the creditors of the corporation, to secure the payment of the debts and liabilities of the corporation.”

If there was any other statute of that state that would justify this action, upon the facts alleged in the complaint, the existence of that statute should have been set out to a sufficient extent to show that the plaintiff had a right of action uncler and by virtue of it. In an action brought upon a cause of action given by the statute of another state, the existence of the statute is a fact which must be pleaded; and it must appear that under the statute, if proved, a good cause of action exists in favor of the plaintiff against the defendant. Fagan v. Strong, 7 N. Y. Supp. 919 ; Throop v. Hatch, 3 Abb. Pr. 23 ; Debevoise v. N. Y., L. E. & W. Railroad Co., 98 N. Y. 378 . A right of action against a stockholder for the debts of a corporation does not exist at common law ; and a statute which imposes upon the stockholder personal

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liability for the corporate debts must be strictly construed, as it is iu derogation of the common law, and cannot be extended beyond its literal terms. Chase v. Lord, 77 N. Y. 1 . A party seeking to maintain an action under a statute must state every fact requisite to a cause of action arising under it. Austin v. Goodrich, 49 N. Y. 266 . To state a cause of action under the provisions of § 3258, it was necessary to allege that the corporation mentioned in the complaint was either formed subsequent to the adoption of the statute, or that the stockholders of it were at the time of its passage liable under some former statute,, as that section is made applicable only to such cases. The complaint in this case contains no such allegation, and thus, we think, fails to state a cause of action against the defendant under § 3258. The statutes of the state of Ohio have not only limited the liabilty of stockholders to those of a corporation formed after the passage of that act, and such stockholders as were then liable under former statutes, but they have also provided a special remedy for the enforcement of such liability. Section 3260 of the Revised Statutes of Ohio, in effect, provides that a stockholder or creditor may enforce the liability mentioned in § 3258 by a joint action against all the holders or owners of the stock of the corporation, which action shall be for the benefit of all the creditors of the corporation, and against all persons liable as stockholders. In such an action there shall be found and determined the amount payable by each person liable as such stockholder on all the indebtedness of the corporation, and that upon such adjudication no costs shall be taxed to nor collected of any stockholder to an amount which, together with the amount paid on such indebtedness, would exceed the amount of the stock on which lie was liable. Thus the question is presented whether this statute has provided such a remedy for the enforcement of the liability imposed by § 3258 as to exclude any other remedy. In Nimick v. Iron Works Co., 25 W. Va. 184 , the question of the effect and operation of this statute was considered, and it was there held that it not only conferred upon the creditors of a corporation a new right, but also prescribed the remedy whereby the same might be enforced; that the remedy so prescribed for the ascertainment and enforcement of this liability must be pursued in the courts of the state of Ohio, where the corporation was located, and by the local statutes of which alone the liability existed; and that a bill in equity to ascertain and determine tire extent of such individual liability against the stockholders of such corporation could not be sustained in the courts of West Virginia. May v. Black, 77 Wis. 101 , was an action commenced in that state, on a demand for work and labor, against a corporation organized under the laws of the state of Michigan. The constitution of the latter state provides that the stockholders of all corporations organized under the statutes of that state shall be individually'liable for all labor performed for them, and that such liability may be enforced by an action in assumpsit, and a suit for such labor may be commenced against all the stockholders and the corporations jointly. In that case it was held th-t
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the remedy by action m assumpsit was exclusive, that the corporation must be a party, and that the remedy thus given against the stockholders could be enforced only in the courts of Michigan. In Pollard v. Bailey, 20 Wall. 526 , in examining this question, Chief Justice Waite said: “The individual liability of stockholders in a corporation, for the payment of its debts, is always a creature of statute. At common law it does not exist. The statute which creates it may also declare the purposes of its creation, and provide for the manner of its enforcement.”

After discussing the provisions of the charter then under con- • sideration, he added • “ It was not only to be apportioned and collected, but the mode of apportionment and the manner of collection were specially provided for. The liability and the remedy were created by the same statute. This being so, the remedy provided is exclusive of all others. A general liability created by statute without a remedy may be enforced by an appropriate common law action. But, where the provision for the liability is coupled with a provision for a special remedy, that remedy, and that alone, must employed.”

In Bank v. Francklyn, 120 U. S. 747 , it was held that where the statutes of a state create a corporation, making the stockholders liable for the corporate debts, and provide a special remedy, the liability of the stockholders can be enforced in no other maimer in a court of the United States. In Erickson v. Nesmith, 4 Allen, 233 , it was held that a creditor of a corporation established in Hew Hampshire, the stockholders of which were individually liable for its debts under the statutes of that state, could not maintain a bill of equity in Massachusetts to enforce his claim against the stockholders, although some of them lived there, and the bill was alleged to be brought in behalf of all the creditors. In Patterson v. Lynde, 112 Ill. 196 , where a bill was filed by creditors of an insolvent corporation of the state of Oregon against the defendants, as stockholders, the complainants alleged the recovery of a judgment at law in Oregon against the company, its insolvency, and their inability to obtain a judgment at law in the state of Illinois, that the defendants owed large sums on their subscriptions to the capital stock of the company,—and sought a decree against them to satisfy complainants’ demand, and the court below sustained a demurrer to the bill. It was held by the supreme court that the demurrer was properly sustained, for the reason of its being impossible to acquire jurisdiction of the corporation, and the non-resident stockholders having no property there. In Lowry v. Inman, 46 N. Y 119 . it was, in effect, held that where the charter of a foreign corporation makes the property of a stockholder liable for the fulfillment of the contracts of the company, and points out no mode in which its liability may be made available, the courts of other states may give effect to the provisions, and the course of proceedings must be regulated by the law of the state where the remedy is sought to be enforced. But where the effect of the charter was not to charge the property of the stockholders generally, but only to- an amount equal to their stock, upon prescribed conditions, and by a specific pro

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cess, the remedy of the creditor must be sought according to the terms and by the means provided by the charter. In that case, Judge Allen said: “ Whether the obligation is imposed, and the remedy given, solely by the statute, or rests upon the assent of the stockholders to the terms und conditions of the act, the result is the same. The obligation or liability and the remedy are inseparable, and the party interested is confined to the remedy prescribed by the act, and assented to by the stockholder. If the liability rested solely upon contract, and the contract provided an adequate remedy, the parties would, be restricted to the remedy. 'Every other remedy would be excluded by necessary implication.”

After examining the statute under consideration in that case, the judge adds; “ The act provided, as the appropriate remedy, that a judgment and execution against the corporation should be a lien upon, and be enforced against, the individual property of the stockolders made liable by the act. It, in terms made the property liable upon a judgment and execution against the bank, to which the stockholders were not parties; and the property was not made liable in any other way, or by any other process. It is very evident that an independent action would not lie in Georgia against the stockholders of this corporation, for the obvious reason that an adequate remedy is provided by this act without action, and, if not, then it cannot be maintained elsewhere. * * * The remedy is necessarily confined to the sovereignty of Georgia, and ■ can have no recognition or effect beyond the boundary of that state.”

In Christensen v. Eno, 106 N. Y. 97 ; 8 St. Rep. 682 , it was held that a remedy given by the statutes of another state to creditors of a corporation, against its stockholders, was not available here.

The principles to be deduced from these authorities, clearly, are that under the statutes of Ohio the corporation mentioned in the complaint, and all the owners and holders of its stock, and all persons liable as stockholdez's thereof, should be joined as defendants in an action to enforce the liability of such stockholders; that an independent action could not be maintained in Ohio against one stockholder alone; and that the reznedy to eizforce such liability, being specially provided by the statutes of that state, is exclusive, and not available here. We think the decision of the special term was right, and that the judgment herein should affirmed, with costs.

Judgment and order affirmed, with costs.

All concur.

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