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although such agreement be made by the corporation and creditor after such transfer, and without the knowledge or consent of the transferrer. Boice v. Hodge, 51 Ohio St. 236; Painesville Nat. Bank v. King Varnishi Co., 8 C. C. 563.
Nor is the vendor relieved from liability for debts contracted prior to actual transfer of stock, though subsequent to making contract for sale. Biles v. Chas. S. Looker Co., 17 C. C. 538.
An act which authorizes the creation of a corporation, without providing for the liability of its stockholders to its creditors to an amount at least equal to the stock owned by each, is unconstitutional and void. State v. Sherman, 22 Ohio St. 411. And such liability may be imposed either by express provision, or by requiring of the stockholders such acts of organization, or other acts, as will subject them to the provisions of article thirteen, section three, of the constitution, which, to the extent of the amount of stock owned by each stockholder, is self-executing. 1b.
This liability of stockholders is not a primary resource or fund for the payment of the debts of the corporation, but is collateral and conditional to the principal obligation which rests upon the corporation, and is to be resorted to by creditors only in case of the insolvency of the corporation, or when payment cannot be enforced against it by ordinary process. Wright v. JcCormack, 17 Ohio St. 86.
As between stockholders, each is bound to contribute in proportion to his stock; but the liability of each is separate, and it, and the right arising out of it, is to, and for the exclusive benefit of, all the creditors. Wright v. VcCorinack, supra; Umstead v. Buskirk, 17 Ohio St. 113. And an assignment of this liability by the corporation, though for the mutual benefit of all its creditors, is therefore inoperative. 16.
A stipulation in a policy of insurance issued by an insurance corporation, limiting the time within which an action may be brought thereon, is not a limitation on the right of action of a creditor against stockholders to enforce this liability. Davis v. Stewart, 26 Ohio St. 643.
The individual liability of stockholders attaches in favor of creditors at the time the debt is contracted or the liability incurred by the corporation. Brown v. Hitchcock, 36 Ohio St. 667. Whether giving a renewal note is a new contract as affecting liability on transferred stock, discussed in Wheeler v. Faurot, 37 Ohio St. 26. Note here Boice v. Hodge, 51 Ohio St. 236. When an insolvent corporation makes an assignment for benefit of creditors, the statute of limitations begins to run from that time against the right to subject the statutory liability of stockholders. Barrick v. Gifford, 47 Ohio St. 180.
Where stock subscription book shows subscriptions were made after articles of incorporation were filed, it will not be permitted to show they were made before such filing. Royce et al. v. Tyler, 2 C. C. 175.
The statutory liability cannot be enforced in favor of one stockholder who voluntarily pays the debts of the corporation, against a stockholder who was solvent and within the same jurisdiction at the time of such payment. Burr, Adm'r, v. Bates, Adm'r, 3 C. C. I.
Attachment cannot be based on second liability under Ohio statute. Cleveland Gas & Electric Co. v. Mt. Gilead Electric Co., 6 N. P. 218.
Action to enforce individual liability of stockholders must be brought within six years after the cause of action accrued. Hawkins v. Furnace Co., 40 Ohio St. 507.
In an action to enforce stockholders' liability, where all were not served, but it did not appear that all could not be served : Held, error to assess whole indebtedness on those served; Held, error also to give judgment for some of the stockholders releasing them from assessment, upon the finding that they did not own stock at the time the liability sought to be enforced accrued, without finding further that the stock held by these defendants had not been sold by the corporation prior to the time such liability accrued. Bonewitz v. Bank, 41 Ohio St. 78.
A stocklolder who in good faith transfers stock to one afterward becoming insolvent, is liable for such portion of unpaid debts, existing while he held stock, as equals the proportion of his stock to entire stock held by solvent stockholders within the jurisdiction, liable for the same debts, to be ascertained at time judgment is rendered. Harpold v. Stobart, 46 Ohio St. 397; so also where such transferee is insolvent at the time of transfer. Bank v. Bank, 43 B. 418.
Where stockholders covenant to indemnify an indorser of corporation paper in proportion to the amount of stock held by them, their liability is analogous to that of a surety. Wise v. Miller, 45 Ohio St. 388.
As to subjecting stockholders' liability arising under statute of foreign state, see Wyatt v. Moorehead, 4 N. P. 435 (C. P.); Judson v. Stewart, 7 N. P. 160 (C. P.). The liabilities provided for include those sounding in to it.
Rider v. Fritchey, Adm'r, 49 Ohio St. 285, affirming 3 C. C. 89.
The liability in corporations de jure and de faeto is the same. Rowland v. Meader Furniture Co., 38 Ohio St. 269.
The additional liability of a stockholder in a national bank may be set off against the dividend due from the receiver upon such stockholder's deposit account, and it makes no difference that the claim to the dividend has been assigned to others, or that the amount of the stockholder's liability has not been ascertained. Brownell v. Armstrong, Receiver, 20 B. 465.
$ 3259. The term “stockholders " defined
The term “stockholders," as used in the preceding section, shall apply not only to such persons as appear by the books of the corporation to be such, but to any equitable owner of stock, although the stock appears on the books in the name of another.
A stockholder may in good faith sell or give his stock to an insolvent, although the corporation is insolvent; and after transfer on the corporation books such former owner ceases to be liable for future indebtedness. Peter v. The Union Manf'g Co., 56 Ohio St. 181.
The pledgee of stock may sell same as agaiust a receiver of the assets of the pledgor, on notice, it being admitted that a portion of the claim is owing, but the amount being in dispute. Harrison v. Friend, I N. P. 39 (C. P.)
In McHenry et al. v. N. Y. P. & O. R. R. Co., 13 B. 36, United States
Circuit Court N. D. Ohio E. D., rule 94 of Sup. Ct. U. S., providing that a bill brought by stockholders in a litigation which should ordinarily: be brought by the corporation must show particularly their efforts to obtain redress from the corporation, etc., was strictly applied, and held, upon the facts in that case, that where the railroad was in substance and fact the property of the bondholders, the stockholders have no such interest as entitle them to bring such suit; per Baxter. J.
Where upon sale of stock an entry of transfer was made by the secretary in a book, but no transfer was made on the stock book, although intended by all that such transfer should be made, and original owner appeared by stock book at time debts accrued and trial occurred to be still the owner, although the company had treated purchaser as the owner, the original owner was held liable to creditors. Harpold v. Stobart, 46 Ohio St. 397.
To avoid stockholders' liability, the transfer must appear on the stock book, or, in absence of such book, on the stub of the stock certificate. Har. rick v. Wardwell, 58 Ohio St. 294.
The equitable owner of stock may sue corporation to establish his rights, though he is not a stockholder of record. Larwill v. Burke, 19 C. C. 449.
The pledgee of stock, which is not transferred on the company's books, and who exercised no acts of ownership over the same, is not a stockholder. Henkle v. Salem Manf'g Co., 39 Ohio St. 547. Nor is a legatee of stocks not transferred nor accepted. DeCamp v. Levoy, 19 C. C. 335.
The owner of stock is liable for the debts of the company existing after he became a stockholder, although the debts were created before. Barrick v. Gifford, 47 Ohio St. 180.
$ 3260. Complaint for enforcement of liability,
Whenever any creditor of a corporation seeks to charge the directors, trustees or other superintending officers of a corporation, or the stockholders thereof, on account of any liability created by law, he may file his complaint for that purpose in any common pleas court which possesses jurisdiction to enforce such liability. 94 O. L. 309.
Before the enactment of this section, it was held in Wright v. McCormack, and Unistead v. Buskirk, supra, that the action by a creditor to enforce the liability of stockholders should be for the benefit of all the creditors, and against all the stockholders, and the corporation should be a party; and that stockholders whose liability is sought to be enforced may insist on their costockholders being made parties, for the purpose of a general account, and to enforce from them contribution. See, also, Wheeler v. Faurot, 37 Ohio St, 26, that it is error to refuse to make assignees of stock parties.
And where transferee of stock is not a party to such suit, it is not error to adjudicate as between other stockholders who are parties and creditors, and continue the case as to liability of vendor and vendee of stock as between themselves and creditors; and interest may be included from beginning of suit, although thereby amount of stockholder's original liability may be exceeded. In such case court may order plaintiff's attorney paid out of proceeds of judgment. If, by reason of insolvency or nonresidence, the amount due from any stockholder is not collectible, assignor of stock may be charged with deficiency. See this case also for facts estopping stockholders from questioning jurisdiction of appellate court. Mason v. Alexander, 44 Ohio St. 318.
If a corporation has some property subject to levy and sale, and continues to transact business, suit to subject statutory liability of stockholders cannot be brought until execution is returned unsatisfied. Barrick v. Gifford, 47 Ohio St. 180. Such action is in nature of a demand for all, and saves the running of the statute of limitations as against all creditors who come in and assert their claims before final determination of the action. Ib.
Some interesting questions of practice in subjecting liability of stockholders are decided in Hardman v. Cin., etc., Ry. Co. (Ham. Com. Pleas), 15 B. 164, and 18 B. 264. Also in Bullock v. Kilgour, 39 Ohio St. 543; R. R. Co. v. Smith, 25 B. 179; Turnbull v. Pomeroy Salt Co., 24 B. 133; Peter v. Farrel Foundry and Machine Co., 53 Ohio St. 534; Balt. & Ohio R. R. Co. v. Smith, 54 Ohio St. 562; Hamilton v. Home Ins. Co., I N. P. 329 (C. P.); Northern Nat. Bank v. Rolling Mill Co., 2 N. P. 260 (C. P.); Swan v. R. R. Co., 3 X. P. 225 (C. P); Smith v. Johnson, 57 Ohio St. 486; Herrick v. Wardwell, 58 Ohio St. 294; Berger v. Bank, 5 N. P. 176 (C. P.); Cleveland, etc., Co. v. Collins, 19 C. C. 247, reversing 6 N. P. 218; Younglove v. Lime Co., 49 Ohio St. 663; DeCamp v. Levoy, 19 C. C. 335; Hull v. Standard Co., 7 N. P. 157; Bank v. Bank, 43 B. 418.
Statute of limitations commences to run in such actions when company is insolvent and claim is determined and enforcible against stockholders. 16.
To maintain such action, not necessary first to present claim on account of such liability to personal representative of deceased stockholder. Wanz v. The Park Hotel Co., I C. C. 105.
In action to enforce statutory liability, if it is alleged that the company is insolvent, has ceased to do business and has made an assignment for benefit of creditors, it is not necessary to allege recovery of a judgment and return of execution unsatisfied. Morgan v. Lewis, 46 Ohio St. 1; Barrick v. Gifford, 47 Ohio St. 180.
Where alleged stockholder defends upon the ground that he ceased to be a stockholder before the debts complained of were contracted, he may show that he received his stock in exchange for his interest in a furnace and that he afterward transferred his stock to the company and accepted from it a deed for the furnace. Morgan v. Lewis, supra.
The enforcement of the Ohio second liability in foreign jurisdictions was carefully discussed in State National Bank v. Sayward, 91 Fed. 443, in which the court held that the corporation was an indispensable party, in the absence of which a single creditor could not maintain an action, although ostensibly for the benefit of all.
Instructive decisions were rendered by the U. S. Supreme Court, in Whitman v. Oxford National Bank, 176 U. S. 559, and Hancock National Bank v. Farnum, 176 U. S. 640, establishing the proposition that under section 1, article 4, of the constitution of the United States, requiring full faith and credit to be given in each state to the judicial proceedings of every other state, judgments to enforce the second liability against stockholders shall have the same effect in the foreign jurisdiction as they have in the state where the corporation was formed.
See Aultman's Appeal, 98 Pa. St. 505; Railroad Co. v. Gebhard, 109 U. S. 527.
These various decisions suggest the adoption, in Ohio, of the practice, in subjecting the second liability, of making all stockholders, foreign and domestic, parties, serving all actually or constructively, fixing the liability, and appointing a receiver to collect the various amounts thus determined, authorizing such receiver to bring suits to enforce the liability in any jurisdiction where the stockholders may be found. This is authorized by sections 3260 to 3260f, inclusive.
Bankruptcy. Under section 63, Bankrupt Act, 1898, it becomes an interesting question to what extent the second liability is affected through bankruptcy proceedings by or against stockholders. Authoritative decisions have not yet appeared, but cases under the act of 1867 have some application.
In James v. Atlantic Delaine Co., Fed. Cas. No. 7179, it was held: "The statutory liability of the stockholders of a corporation, for its debts, is not such a claim as can be proved in bankruptcy against them.”
In American Mill Co. v. Garrett, 1o U. S. 288, it was held that the assignee in bankruptcy assumed no liability as stockholder, upon acquiring title to the stock, on the well recognized principle that “assignees are not bound to accept property of an onerous or unprofitable character."
110 U. S. 295. Applying these principles to section 63, act 1898, second liability claims will not be affected by bankruptcy proceedings, unless, at the time thereof, the cause of action against the stockholder, and in favor of creditors, has accrued. After such accrual the bankruptcy would release the stockholder, on the ground that his obligation, under the statute, is an "implied contract." Hawkins v. Furnace Co., 40 Ohio St. 507, 514.
This liability may be enforced by a creditor, notwithstanding the corporation has made an assignment for the benefit of creditors, the assignee consenting. Painesville Nat. Bk. v. King Varnish Co., 8 C. C. 563, affirmed on this point in 37 B. 223.
Where solvent stockholders had loaned money to the company to enable it to continue its business, for which they took the company's notes, but the company made an assignment, and afterwards, one of the stockholders transferred the note held by him and past due, to his creditors-Held, that such transfer of the note was subject to any assessment thereafter made against the stockholder to enforce his individual liability. Barber v. Leader Sew. Mach, Co., 7 C. C. 411.
In an action to enforce statutory liability, a receiver may be appointed to collect and distribute the fund, who may, under the authority of the court appointing him, prosecute actions in his own name as such receiver to enforce payment of judgments rendered for such statutory liability. Zieverink v. Kemper, Receiver, 50 Ohio St. 208.
Where property of corporation has been placed in hands of assignee in bankruptcy, or insolvency, or of receiver on dissolution to wind up its affairs, or in some such way put in process of application to pay its debts, creditors may sue stockholders without reducing claims to judgment against