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Vol. II.] OsSIPEE HOSIERY AND WOOLLEN MANUFACTURING Co. v. CANNEY. [No. 11. lection of such debts or liabilities, may be commenced and prosecuted against any one or more of said stockholders.
Section 3 provides that no suit against any stockholder for the collection of any such debt shall be commenced until after a legal demand of payment thereof shall have been made upon the company. Upon such demand being made, if officers or stockholders shall discharge such debt or liability, or expose unincumbered personal property of such company, liable to attachment, sufficient to satisfy such debt or liability and costs, so that the same may be attached in a suit against such company for the security of such debt or liability, then no suit shall be sustained thereon against the stockholders.
Whenever the officers or stockholders after demand shall not satisfy such debt or expose property to be attached, it is made the duty of the officers forthwith to call a meeting of the stockholders, and the company when met shall provide means for the payment of such debt or liability, either by assessments upon the stockholders or otherwise, within sixty days from the time when such demand was made.
And if such debt or liability shall not be discharged within sixty days, à suit may be sustained against the stockholders, as provided in sec. 2.
If the officers whose duty it may be to call such meeting shall unreasonably neglect to call the same, they shall severally forfeit the sum of $1,000, to be recovered in an action of debt by any person injured thereby.
In 1846, sec. 1 of ch. 146, Rev. Stats., was repealed by ch. 321, P. L., in terms.
The repeal of sec. 1 would leave secs. 2 and 3 practically inoperative. Did the repeal of these two sections follow as incident to the repeal of sec. 1? This might be so, if there had been no further legislation in regard to the personal liability of individual stockholders.
The same legislature (of 1846), in the act (ch. 321, P. L.) in which they repealed sec. 1 of ch. 146, Rev. Stats., which imposed an unlimited personal liability on individual stockholders, made stockholders individually liable to a limited extent under the provisions of sec. 2 of the Act of 1846.
Among other cases where stockholders were made individually liable under the Act of 1846 was the provision that they should be so liable until the whole amount of the capital fixed and limited by the corporation shall have been paid in, and a certificate thereof shall have been made and recorded by the clerk of the town where such corporation has its place of business or is situated.
It is unnecessary to inquire under what other circumstances the stockholders were made individually liable. By section 4 of the Act of 1846, the process and modes of proceeding against corporations, their officers, and stockholders, who may become liable for their debts and civil liabilities, shall be the same as are provided by chaps. 141 and 146 of the Rev. Stats. ; and the remedies of the officers and stockholders who have incurred such liabilities against such corporation, their officers, and stockholders, shall be the same as are provided in said chapters in like cases.
It will thus be seen that the legislature made provision for enforcing the individual liability of stockholders, as created in the Act of 1846, under secs. 2 and 3 of ch. 146 of the Rev. Stats.
Ossipes HOSIERY AND WOOLLEN MANUFACTURING Co. v. CANNEY. [No. 11.
Now, under what circumstances were stockholders liable to be proceeded against under secs. 2 and 3 of ch. 146 of the Rev. Stats.? Their liability under section 1 had been repealed, and it must be clear that they could only be proceeded against when liable under the Act of 1846.
The provisions of the Act of 1846 are substantially incorporated in ch. 135 of the Gen. Stats., while the provisions of sec. 3 of ch. 146 of the Rev. Stats. are substantially incorporated in ch. 136 of the Gen. Stats. What, then, has been the law on this subject since the revision of the statutes in 1867 ?
By sec. 8 of ch. 135, every stockholder, except in banks, is liable for all debts and contracts of the corporation until the whole amount of the capital fixed and limited by such corporation shall have been paid in, and a certificate thereof, under oath, signed, &c., has been filed and recorded by the clerk of the city or town where such corporation has its principal place of business, and not afterward.
Chapter 136, Gen. Stats. provides, sec. 1, that a creditor may maintain a bill in chancery to enforce payment of a debt of a corporation against individual stockholders; but by sec. 2, not until sixty days after legal demand of payment. But he can only bring such bill when the stockholder is liable under ch. 135, Gen. Stats., and to that extent only. Sec. 3 provides for exposing property, that it may be attached to pay the debt of which payment is demanded. Sec. 4 provides for calling a meeting of the stockholders, who may provide means of payment by assessments, or otherwise, within sixty days from the date of the demand.
What debt can they thus assess themselves to pay? Clearly, only those of which payment can be legally demanded under sec. 2; that is, such debts as the stockholders are individually liable for under ch. 135. They cannot go beyond this, because then stockholders would be individually liable beyond the limit established by statute ; and we have no doubt the legislature intended to give to the stockholders the power to assess themselves to this extent in order to have a prompt, decisive, and effectual remedy for the payment of their debts, and to avoid and prevent a multiplicity of suits by creditors, with the necessary costs and delay. What other means can an insolvent corporation adopt to pay its debts, or the stockholders to relieve themselves from suits ? The legislature intended to give such power to the corporation to make stockholders liable to pay, in the form of an assessment, debts which the creditors could have collected by a direct suit against the stockholders ; and there are strong reasons of convenience and expediency in giving them power to assess themselves to pay this liability.
As the case finds that the capital stock of this corporation was fixed and limited at $8,000, and that only $7,600 of the same has ever been paid in, the stockholders are individually liable under sec. 8 of ch. 135 of the Gen. Stats. ; and the assessment having been legally voted, the defendant is liable.
But it is further suggested that the only remedy, or at least the primary remedy, for the collection of the assessment is a sale of the shares.
This might, in the absence of a promise, be true, so far as regards assessments made under sec. 11, ch. 141, Rev. Stats., to collect the sum subscribed for the original capital stock; see N. H. Central R. R. v. Johnson,
Vol. II.) OsSIPEE HOSIERY AND WOOLLEN MANUFACTURING Co. v. CANNEY. [No. 11. 30 N. H. 390, p. 403, and sec. 12, ch. 141, Rev. Stats. ; but this cannot ordinarily be an effectual remedy for the collection of assessments to pay debts after a failure to expose unincumbered attachable personal property. It is presumable that the shares would generally be unsalable under such circumstances. We think that the legislature, in authorizing assessments in such cases, must be taken to have authorized the use of prompt and effectual means to collect the same; Broom's Maxims 471 ; and that assumpsit is maintainable against a delinquent stockholder. The law often allows that action to be maintained “ for the sake of the remedy" where there is no promise in fact, and even in the face of a party's refusal to perform his duty. Sceva v. True, 53 N. H. 627. In our view, sec. 16 of ch. 134, Gen. Stat., relates only to the collection of such assessments as have been levied under the authority of sec. 15, ch. 134. In Franklin Glass Co. v. White, 14 Mass. 286, cited by the defendant, the same statute that conferred power to make the assessment provided a remedy by sale of the shares, which the court held exclusive. But here, the statute conferring the power to make the assessment provides no remedy by sale. That remedy is given in another statute as a means of collecting the assessments authorized in that other statute, not this class of assessments.
According to these views there must be Judgment on the verdict.
Hobbs, for the defendant, having applied to the judge who tried the cause to amend the case by adding the following: “ The debts and liabilities for which the assessment was made exceeded in amount the property and assets of said corporation and all its capital stock paid in or limited;" asked for a rehearing upon the point that such debts, as to the stockholder, are ultra vires. The case was thereupon continued for further argument and consideration upon this point.
Hobbs (with whom were Allen of L. D. Sawyer), for the defendant. The amount of debt exceeds one half of the capital stock paid in, with all the corporate property. This debt was contracted by the corporation, when it is expressly probibited from so doing by secs. 4 and 5, Gen. Stats., and the Act of 1846. While the officers who violate secs. 4 and 5 are made liable for contracting such debts, it seems impossible that they can have any right to assess a stockholder to pay such illegally contracted debts. Is not such a debt, as against a stockholder, ultra vires, -at least, as between him and the corporation or directors ? Both of the latter are prohibited from contracting such a debt. Have they authority to contract it? If so, where do they get it? If not, how can they call on the defendant to pay any part? To hold otherwise is to imperil the fortunes of every one who has a share of stock in a New Hampshire corporation. Rich v. Errol, 51 N. H. It certainly would be a singular construction which should hold that a legislature that adopted the restrictions of the Act of 1846 (an act expressly repealing the antecedent copartnership liability provision of the Revised Statutes), in passing the General Statutes, did not intend that those limitations should have any force; or which should hold that the legislature of 1868, in adopting the provision of sec. 3, ch. 146, Rev. Stats., adopted it with reference to sec. 1, that had long before been repealed by the Act of 1846, ch. 321, rather than in reference to the Act of 1846 itself, which was the existing law in 1868,
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Vol. II.] OssipEE HOSIERY AND WOOLLEN MANUFACTURING Co. v. CANNEY.
when the General Statutes were adopted. The scope of the Act of 1846 is to limit the risk of the stockholder, and render its extent certain even as against the creditor; and while democratic jealousy toward corporations gave the creditor enlarged rights, by chapter 146 cited above, it restricted the corporation's power as to all parties, and in a few years relaxed its policy between creditors and stockholders, and by the Act of 1846 limited and defined the cases in which he can be held; and the whole argument from the intent of the legislation is, that, as to the powers of the corporation, the legislation was restrictive, from early dates to this time, as to every one; and hence we find, in the Act of 1846, the prohibition as to creating debts beyond half the capital stock paid in, &c. The other general position is, that, as between the creditor and the stockholder, the legislature favored the creditor up to the Act of 1846, when the current was changed. And it is somewhat remarkable to see how clearly the legislature have always marked the distinction between the right of a creditor to sue a stockholder to collect his debts, and the right of the corporation to assess the stockholder for the purpose of paying those debts.
We entertain grave doubts as to the power of a creditor to collect of the stockholder debts contracted beyond one half of the capital stock, &c. The debt is ultra vires, and perhaps, under Rich v. Errol, as the corporation bas power to contract for some purpose, a creditor would not be estopped unless it appeared that he knew that the limit established by the statute had been exceeded. But when the question comes, Can the corporation or directors assess to pay such a debt, even if the par value has not been paid in ? a different conclusion must be reached; for the right to assess to pay debts means legal debts, &c., such debts as the corporation had the right to contract with a view of having them paid by stockholders, but not such debts as both the “corporation and directors” are forbade to incur under a heavy penalty. To hold otherwise is to negate the whole protection the law has attempted to give to the stockholder. The intent of this provision is benign and wise. It is intended that, as soon as the corporation has become so reduced as to owe one half its value, the directors must cease to further involve the stockholders; and if they are deprived of all power as against the stockholders to hire money or buy on credit, an immediate stop to unprofitable and unskilful efforts will take place: and hence we find, in sec. 15, Gen. Stats. 135, and long before, that a director or officer who had violated this limitation and had been forced by a creditor to pay the debts, could not have contribution from the other stockholders. Are the court prepared to hold, nevertheless, that they can assess such other stockholders to pay such debts? The case makes the books used as evidence part of the case, and they show that the directors were present, and authorized the contracting of these debts, and that Canney (as the case finds) had nothing to do with it, nor knew anything about the condition of the corporation.
How, then, is he estopped to say that he could not be assessed until all the shares were taken up and paid for? He had no knowledge but what they were all taken up, and his letter meant legal assessment, as was held in 14 N. H. 548, 30 Ñ. H. 390, and 32 N. H. 369. We have failed to find anything in the case showing bad faith on the defendant's part. Vol. II.) OSSIPEE HOSIERY AND WOOLLEN MANUFACTURING Co. v. Canner.
Living in Massachusetts, he could not be expected to know that all the shares were not taken up, but we say, thinking they had been, he wrote the letter in the case at bar. The case at bar is a much stronger case for the defendant than the one just cited, for in this case the assessment was not made on the faith of the defendant's promise, but the assessment had been made before the letter. If the defendant understood that all the shares had been taken, and under this misapprehension wrote the letter, he is not to be holden, unless the cases cited are inapplicable or bad law. See, also, Act of 1856, p. 1769, sec. 1, ch. 1852.
Debts were included as to which no demand was made, and many of the debts could not be assessed at all, nor be collected of the corporation or stockholder by the creditor. Under sec. 4, p. 281, Gen. Stats., the corporation could not contract debts exceeding one half its capital stock paid in, and its other property, &c. Any contract beyond that is ultra vires, and binds neither the corporation nor stockholder; and the creditor, dealing with an agent of a corporation, must see for himself that the agent acts within the scope of his authority, and an act ultra vires cannot be ratified. The assessment is made for an amount greater than all of the plaintiffs' capital stock and other property, and certainly includes debts that the agent and directors could not, within the scope of their authority, contract; that the corporation could not, for the statute forbids it under a heavy penalty. Sec. 5, p. 281. This section does not make the corporation liable, but charges the directors for a contract made in the name of the corporation. It is idle to say that a stockholder can be assessed for a debt not binding upon the corporation. One half of the claims in the case at bar, at least, were not legal claims of the company. The assessment is illegal for that reason. Rich v. Errol, 51 N. H., is decisive on this point. The plaintiffs should have voted to sell all the corporate property under the term “or otherwise ” to pay its legal liabilities. It could not do that to pay debts contracted ultra vires, and, as the defendant claims in his fourth ground of nonsuit, having paid the par value of his share, he cannot be assessed to pay debts, especially when they are not debts the corporation are bound to pay. If section 4 gives any right of assessment, it is perfectly clear that that right is not restricted to those cases where the stockholder is individually liable, but applies as well to those cases where he is not personably liable. A consideration of this fact sufficiently demonstrates the utter absurdity of the plaintiffs' theory.
Bank v. Globe Works, 101 Mass. 57, is not in point for the plaintiffs. In the case at bar, the suit is not against a corporation by a creditor, but is by a corporation to collect an assessment to pay debts the corporation had no right to contract. This is one radical ground of distinction. The second is, that some of the debts included in the assessment were incurred after the auditor's report in 1869, when the corporation owed some $9,000, as the books show and the report states, and a part of this last amount is debts due to John Chick, treasurer and president of the company and a director, and .to Levi Smith, a director, and to Pepper, and sundry stockholders. These parties, being officers of the corporation, are charged with knowledge of the matter of ultra vires at the time they in their capacity of directors allowed the corporation to