Henry Briggs and others, appellants, against Sylvanus A. Penniman and others, respondents

*Henry Briggs and others, appellants, against Sylvanus A. Penniman and others, respondents. A, corporation for manufacturing purposes, formed under the act of the 22d of March, 1811, (1 R. L. 245,) having ceased to act as a manufacturing company, and being without funds, and indebted, is dissolved, within the intent of the act, so far as to give a remedy to creditors against the individual stockholders. An election of trustees, made apparently for no purpose but to keep the company in existence, will not prevent such dissolution. It is not necessary that a judgment of ouster or dissolution should have been pronounced in any other prosecution, before a creditor can maintain a suit against the stockholders under the statute. . . The suit is proper in equity; the necessary contribution constituting the case one of equitable jurisdiction. It is no defence that the creditors have paid in the full price of their stock. They are liable' individually to pay as much more, if necessary, to discharge debts due at the time of the dissolution. But on a bill filed to compel such payment, they shall be allowed advances for the benefit of the company, beyond the value of their stock respectively; and this, whether such advances were made before or after dissolution. Where there are several creditors, and the amount of stock is not sufficient to pay all, the distribution should be rateable among them; and the stockholders may come in as creditors. But such general distribution should be on a cross bill by the creditors. Per Woodworth, J. Where matter in avoidance, but not responsive to any allegation in the bill, is set up in chancery by answer, to which a general replication is filed, but no proof taken, such matter must be received at the hearing as untrue, and out of the case. Per Woodworth, J., and Spencer, senator. Where the trustees, or other proper agents for that purpase, neglect to call in the debts due by the stockholders of an incorporated company, for stock, so as to enable it to pay its debts, a power exists, independent of any statute provisions, on bill in chancery by a creditor, to compel such agents to enforce contribution from the stockholders according to their subscription, Per Spencer, senator. Whether mere insolvency will dissolve a corporation created under the statute, 1 R. L. 145? Qwzre. Per Spencer, senator. Osr appeal from the court of chancery. On the 7th of July, 1819, the respondents filed their bill against the appellants, stating that in 1812, divers persons formed themselves into an incorporation, under the statute of March 22d, 1811, (sess. 34, ch. 67,) called The Cambridge Farmers’ Woolen Manufactory. That they ^commenced operations, and became indebted to the respondents. That in January, 1818, all the real and personal property of the company was sold on execution. That the corporation was dissolved on the 1st of November, 1818, having expended all its estate, become bankrupt, and ceased to operate, and abandoned all intention to prosecute the objects of the corporation. That the appellants (13 in number) were then stockholders to various amounts, (stating how much respectively.) The answer substantially admitted the allegations in the bill, except denying the debt charged, and an intention to abandon the objects of the corporation ; denying also, that the corporation had ceased to use its powers, and setting up an election of trustees as late as July, 1818. The appellants also severally answered, that they had paid to the company the price of their respective shares; and most of them set up advances severally made by them for the company, for which it was indebted to them. One of them also claimed that the company owed him a debt of $1500, beside what was due for advances. The respondents filed a general replication, and proved their demand as set up in the bilk On the 30th of September, 1824, the court of chancery made a decree, declaring that the company was formed and dissolved as ¿stated in the bill; that the debt charged was due to therespondents; that the appellants were stockholders as charged; and liable to discharge the deht to the extent of their respective shares of stock, or so much as might be necessary for the discharge. The decree then referred it to a master, to ascertain and report the amount of the debt, and the proportions with which each of the appellants were chargeable; deducting such amount due from company when dissolved, as had been paid by any of the appellants after the dissolution. The appeal was from this decree. The facts will be found more particularly noticed in some respects by the opinions delivered in this court, and by the chancellor in the court below. *Sanfokd, Chancellor, assigned" his reasons for the decree, as in 1 Hopk. Ch. Eep. SOI to 305, S. C. D. Gardner, for the appellants. The company was not dissolved at the time of filing the bill. Insolvency does not necessarily import a dissolution. The appellants were originally a corporation. (Sess. 34, ch. 67, 1 R. L. 245.) The 4th section of the statute, (1 R. L. 246,) provides expressly that the omission to elect trustees at the day shall not work a dissolution. But suppose the corporation was dissolved ; this does not render the individual corporators liable; where they have, as in this instance, paid up the price of their shares in full. The 7th section (1 R. L. 247,) declares individuals liable for corporate debts to the extent of the stock owned by them at the time of the dissolution; but no farther. The object of the statute was to guard against the defect of the common law which would not make them liable to that amount, though nothing had been paid by them to the company on their shares. Such was the view of this clause taken by this court in Slee v. Bloom, (19 John. 456.) The payments made in that case by the stockholders, were allowed to diminish their liability. This was expressly directed by the court, and made a part of the final decree. (19 John. 474, 484, 5.) The provisions of the late act to prevent fraudulent bankruptcies in corporations, (sess. 48, ch. 325, s. 2 & 3,) evidently means to confine the liability of individuals within the bounds contended for. It is a plain recognition of the old law. The object was simply to prevent the diversion of corporate funds from their proper use. Again ; the decree gives a preference to the respondents over all the other creditors. This is wrong. Almost every stockholder in the company appears by the answer to be a creditor; and the decree should have provided for his payment. There should have been a distribution of funds among the various creditors of this company. The chancellor has allowed for advances made by the respondents, after dissolution; but we ask, where is *the difference in principle between those made at this time, and those made before ? There has never been an actual surrender of the corporate privilege of the company, or any thing equivalent; nor do they admit the dissolution; nor has the corporation been vacated by scire facias, or writ of quo warranto, or any process on which the parties have been heard. They cannot be condemned unheard, unless they admit, as in JS'lee v. Bloom, the surrender charged. That case was not one of dissolution, but surrender. (19 John. 474, per Spencer, C. J.) The doctrine of the chancellor in the same case, as to dissolution, is left untouched. (5 John. Ch. Rep. 366, 378 to 381.) Surrender implies consent. (Co. Rep. Abr. 299. A dissolution for non-feasance or mis-feasance must always be upon process. (5 Mass Rep. 230. Com. Dig. Franchises, (G. 1) to (G. 4.) The company were continued; and had the means of resuming and continuing their operations. For aught that appears, they may do so. (Brinckerhoff v. Brown, 7 John. Ch. Rep. 217.) The remedy of the respondents, if any, is at law. J. L. Wendell, contra. By the sale of the real and personal property of the company, and its utter bankruptcy, the corporation became ipso facto dissolved; and no proceeding by scire facias, or information in the nature of a quo warranto, was necessary to obtain a judicial dissolution. To sustain this position, it is only necessary for the court to examine and apply the case of Slee v. Bloom, (19 John. 456,) decided by this court, and which will be found every way applicable. The proceeding by scire facias or information, is inapplicable to corporations of this kind. Whether they are more or less numerous, is nothing to the public. So, of their profit and loss, -their solvency -or bankruptcy. It is-entirely an individual concern. Private persons have no control oyer the usual process for dissolving corporations'; and if that be necessary, must remain without redress,. unless fhe state will voluntarily interpose. In -all ;*cases, creditors must be subjected to great delay and hazard. Bcire facias, or information in nature of a quo warranto, lies only against a legal existing corporation ; and should it be brought, the respondents might set up their actual dissolution in bar. "W-e insist on a -dissolution as'betwen the company and ourselves, for the purpose of collecting onr debt. It 'is not necessary to inquire how "this prooeeding -may affect them in regard to the rest of the world. ■ The words of the statute are perfectly plain, as to the -extent of the appellants’ liability. It is the value . of -the shares beyond what is paid in. 'The liability -of stockholders is always commensurate with their subscription. This is matter of contract, and may be -enforced as such. The statute intended to impose an increased liability. There cannot be a doubt that the proper remedy is in chancery. It is the common case of contribution ‘between numerous parties. 1 [MAJORITY — Woodworth, J.] Woodworth, J. It does not appear "that any act has been done by the company since their election of trustees in July, 1818; and the first question is, whether -the corporation "is dissolved, as regards creditors. The doctrine -laid down in Slee v. Bloom, (19 John. 456,) decides this point. If ,a corporation .suffer acts to be done which destroy the .end ;and object for which-it was instituted, it .is equivalent >-to ;a.surrender -of its rights. It cannot be doubted that.a corporation may be dissolved by such a surrender. This is a .stronger case; for here the trustees do not possess the power to resuscitate the company by a call on the stockholders. Their.shares are paid; and who would become a new subscriber to an insolvent company? A corporation Buffering stroy its end, ls dissolved, In Brinckerhoff v. Brown, (7 John. Ch. Rep. 217,) the chancellor observes, “ It does not follow that a is-dissolved, by the sale of its visible and tangible property for the payment of debts, and by the temporary snspension of its business, so long as it has the moral and legal . . . ... .... ... capacity to increase its subscriptions, call m more capital, and resume its--business.” Testing the matter by this .rule, I do not perceive that the corporation possess the moral and *legál -capacity spoken -of. No attempt has been made to revive this company for several years. They have no-capital, nor a prospect of obtaining any. They do not even ¡say they hope or expect to'resume operations. -¿liter, if it retain the power to resume business- I am satisfied the event has occurred when the stockholders become liable -to the creditors -of the company. Stockholders liable. The Statute (1 R. L. 247,) declares, that for all debts due and owing by the company, at the time of its -dissolution, the persons then composing such company, shall be vidually responsible to the extent of their respective -shares or stock, and no farther. At the time of dissolution, this company were indebted to the respondents, and the appellants became individually responsible in the words of the act. Every stockholder, in a company of this description, incurs the risk of not only losing the amount of stock subscribed, but is also liable for an equal sum, provided the debts due and owing at the time of dissolution, are of such magnitude as to require it. They ineur. red the riskof stock aa If the stockholders are also creditors, it presents another question which does not appear to have been considered by the chancellor. The question then is, whether a stockholder, who, in addition to full payment for his stock, has made advances, and thereby become a creditor of the company, can be compelled to pay the same sum to another creditor who prosecutes, (should so much be necessary to satisfy him,) without any allowance or deduction for the stockholder’s individual debt. Stockholders creditors at the dissolution. I entertain no doubt, that by a just construction of the act, where there are several creditors, the fund made liable for debts, if insufficient to discharge the whole, should be distributed rateably; and the principle that equality is equity, should be applied to such a case. This conclusion, I apprehend, would correspond with the spirit,and intent of the act. It appears to me that a stockholder, who is also a creditor, stands on the same ground, and is entitled to claim under the act, equally as a creditor who is not a stockholder. In the case before us it does not appear that there are any creditors not stockholders, excepting *the respondents. The answer alleges, that several of the appellants are also creditors to a considerable amount, stating in each case the sums due to them respectively, on account of advances made and responsibilities incurred for the company. If these allegations are to be considered as evidence, I think the chancellor’s decision should be considerably modified, so as to allow the respondents to recover such proportion only of their debt, as they shall appear entitled to, on a distribution of the fund rateably among all the creditors. As the pleadings are framed in this cause, although the court may settle the principle that is to govern, they cannot carry it into effect, so far as the appellants, who are stockholders and creditors, are concerned. The cause is not placed in such a state, that a court of equity can award to the stockholders who are creditors, the several proportions of the fund, as against each other, to which they may be entitled. The answer merely states the fact that they are creditors to a certain amount. This, if evidence, is sufficient to enable the court to decide on the extent of the respondent’s recovery, but does not lay the foundation for a decree, that the appellants who are creditors may recover the residue of the fund. In order to bring the whole case before the court, and make a final disposition among all the parties entitled, I apprehend it would be necessary for the appellants to have filed a cross-bill, setting out their claim to the residue of the fund; and then, if the principle of distribution equally among all had been adjudged correct, the court would decree to each and every creditor his rateable proportion. Act requires a rateable distribution among all the creditors. ahouBut ^ guiarly be on cross'blUi There appears to be, however, an insuperable barrier in the appellant’s way, to resisting the claim of the respond-The facts upon which that réents &r their whole debt. . sistanoe must rest, are net supported by proof. The cause was put at «issue, but no witnesses were examined by the appellants. The answer alleging that certain of the ap* pelíants were creditors, is not evidence; so that the fact is ¡not before the court. This .allegation in the answer is not responsive to any part of the bill, .and unless it be so, there is no-evidence of a single creditor .other than the respond ents. *The whole of the statement in the answer,,relative t'ie appellants being also creditors, .and the .specification of the sums due to them, is stated by the case to be in re- , . „ - . . , , , . . ply to an interrogatory, requiring them to state whether or not, on the 1st of November, 1818, the -corporation had lost or -expended all its estate, property and effects, of every name and nature, and were then entirely bankrupt. In a previous part of the answer, the appellants admitted that all the real and personal .property of the company had been sold; and that they knew of no other property or effects, excepting two demands against persons who were bankrupts. It will be seen, that the question put had been already substantially answered; but whether so or .not, :the question -whether the -company was insolvent, had no connection with-the question whether the stockholders, or ,some ot' d1QnV‘w‘e-re among the number of creditors. The answer, therefore, sets up distinct matters, not alleged -in, .or .-inquired of, by the bill; .an d if material, ought to be proved. No proof to mta^ciaim “for their whole debt. Oause was at issue. fi that^toekhoV ders are creditors not resonsive to the deuce n0t and should be pro- I therefore consider the-cause between these parties, as though no suggestion had been made that the appellants were creditors. It is with 'regret that I arrive at this conclusion; presumin& -as I-do, that the claims by the appellants were.susecptible of proof. If proven, the effect would ,-be to -allow the respondents -a joro raía distribution only, which, according to the vie-w I have takéh, ,-is all they are entitled to .tilaim. But the answer' -not being evidence in this respect, there is nothing before us to show that there -are other ^creditors beside the respondents. If not, they are entitled to be fully paid, if the amount of stock be sufficient. If proved, the be totaUow°the respondeuts - distoib.utton!*6 The result of my opinion, is, that the decree of the chancellor be affirmed. Spencer, Senator. On the first point made by the counsel for the appellants, that the company was not dissolved at the time of filing the bill, viz, 7th July, 1819, it has been argued as if the cause had been brought to a hearing ° . on "x'bill and answer, and as if all the allegations of the answer were to be deemed true. But, in fact, there was general replication to the answer, which put it in issue; and, according to the case of Simson v. Hart, (14 John. 63,) in this court, “ matters set up in the answer by way of avoidance, and not necessarily drawn forth by the bill, must, after a general replication, be proved; or the defendant cannot avail himself of them.” We are furnished with no proof in the case, and the facts upon which the appellants rely to show that the company was not dissolved, such as the election of trustees in July, 1818, are not before us. Being a re. matter^ín ^ voidance, and not responsive should have The case of Brincherhoff v. Brown (7 John. Oh. Bep. 217,) certainly does warrant the argument, that so long as the stockholders elected trustees, and manifested a design bona fide to continue the company, it should not be deemed dissolved by a surrender;, and that case is clearly tinguishable from Site v. Bloom, in which the defendants admitted the company was dissolved, and abandoned it. I should hesitate in going the length the chancellor appears disposed" to go, in his opinion in this cause, that mere insolvency and inability to continue, should be deemed a surrender. In Brinckerhoff v. Brown, the answer was admitted, because there was no replication filed, and it showed there was not a dissolution. But though the answer is denied in this cause, yet there is sufficient matter admitted by it to show a dissolution, if it be considered without reference to the facts averred, but not proved. There is, therefore, no ground furnished for reversing the decree on that point. Whether mere c”pora- But answer to make^uf a dissolution, On the second point, that the individual corporators are uot liable beyond the amount already paid in by them to the comPan7i even if it be deemed dissolved, it cannot be tie* cessary to spend much time. The stock subscribed and agreed to be paid into the company, became corporate property: and when paid in, might be reached by ordinary be-proceedings; and if not paid, in, a court of equity would comPel the trustees to collect and apply it to the payment *of debts. (Salmon v. The Hamborough Company, 1 Cas. Ch. 204; 1 Kyd. on Corp. 273, S. C.) The same prin* eiple was acted upon in the case of She v. Bloom, in which stockholders was required, in the first instance, to pay up the amount of their subscriptions, for the benefit of the creditors. This, being corporate property, is a fund for the benefit of creditors, existing entirely independent of any statutory provision. Then comes the act, (1 R. L. 247,) which declares, that in the event of a dissolution, the stockholders at the time “shall be liable to the extent of their respective shares of stock held in such company, arid no further.” Surely the legislature did not mean to declare, that the stockholders should be liable, as they had already agreed to be liable, and as they were liable at common law. Something more was intended; and it is to my mind very clearly expressed, that the extent of the stock held by them should be the measure of their individual liability to creditors. The statute does not refer to them in their corporate capacity, but as individual stockholders; and it declares their liability, without reference to the amount they may have paid in on their stock. corporators ™ ^bie to their stock, they have paM in- Were liable subscribed°Uat common law; would enforce t^etr^^®otion On the point, that judgment of ouster, or some judgment directly against the corporation, should be pronounced before it should be deemed dissolved, I entirely concur in the opinion of the chancellor; and should only weaken the ground by attempting to add to his reasons. And on the point, that the remedy is at law, I also think the chancel-l°r>s answer conclusive, that the very principle of contrribution by different and numerous parties, gives equity jurisdiction. Judgment of n^ceSary ’n0t nyC°numerous parties gives diction. Another point has been incidentally urged in argument, that many of the appellants are themselves creditors, and-equally entitled with the respondents to be paid. The decree directs the master to deduct from the amounts to be paid by the appellants respectively, such sums as paid for the debts of the company, since its dissolution. I confess I can see no reason why the credit for sums advanced by the appellants, should be restricted to a period since the dissolution of the company. The members of *the company might bona fide advance money, as they allege they have done, to carry on the business of the corporation, and they are equally entitled with any other creditors, to be indemnified from the funds of the company, or from the individual liability of the stockholders. As the respondents have not obtained any judgment and execution at law, they have not acquired any priority to other creditors. Those appellants who have made advances, are clearly entitled to have those advances considered as payments, on account of their individual liability, until the other stockholders have paid equivalent sums; or, what would amount to the same thing, their advances may be consolidated with that of the respondents, to ascertain the amount to be apportioned among the stockholders. Although in this respect the decree is objectionable, yet as it is merely interlocutory, and a final decree must be had on the coming in of the master’s report, an opportunity will then be given to correct it. It does not, in itself, afford ground for a reversal of the whole decree. The stock holders should their whether be* j”®ol^onafteI I am of opinion, therefore, that the decree of the court of chancery, be affirmed. The Gourt unanimously directed the following decree, which was entered: “ This cause having been heard, &c., it is ordered, adjudged and decreed, that the decree of the court of Chancery be, in all things, affirmed, excepting the part thereof which directs the master as to the allowances to be made to the defendants below, for payments made by them since the dissolution of the company; and that the said decree be affirmed without prejudice to the appellants, to claim hereafter payment for any advances made by them at any time, for the company; and that the appellants pay the respondents their costs to- be taxed; and that-the. proceedings be remitted to the court of chancery, &c.” It -is the -neglect.of the corporate duties, or the .abuse of them ; -or in other words, the failure to live up to the fundamental law of their being, which the law regards as sufficient cause'for extinguishing the existence of corporations. The State v. The Real Estate Bank, 5 Ark. Rep. 595. The primary object of proceeding in chancery against failing corporations, is not for the .purpose of dissolving the corporation,-but to protect.the assets for the-benefit of creditors. The power--to decree a dissolution of the corporation is merely incidental. Fay v. Erie and Kalamazoo Railroad Bank, Harrington’s Ch. Rep. 194. In the state -of Hew York, whenever any corporation other than those which are.excepted from the operation of the article of the revised statutes, relative -to proceedings against corporations in equity, has remained insolvent .for.ayear, or has suspended its ordinary business, or has neglected to pay its ordinary and undisputed evidences of debt, for a year, any of its creditors or stockholders, who have an interest in closing up its affairs, may file a bill in -chancery, against such corporation to have its dissolution judicially declared, ,and to have Its concerns closed up, and its property distributed under the direction of the court. Mickles v. The Rochester City Bank, 11 Paige, 118. Upon a bill filed in the court of .chancery against a corporation, to declare •its dissolution under the thirty-eighth section of the article of the New York ’revised -statutes, -relative to proceedings against corporations in equity, the .complainant may-apply "for an injunction to restrain creditors from proceeding, at law to obtain satisfaction of their debts, and to allow them to come in and make-themselves parties to bis suit. Ib. The corporation is a necessary jparty .to a bill in chancery to declare the dissolution of such corporation, and to have its property .and effects distributed among its creditors and stockholders. Ib. But where the property of a manufacturing corporation is ail exhausted, and a bill is filed for the sole purpose of compelling its stockholders to pay the corporate debts out of their individual property, it seems that the corporation is not a necessary party to such a bill, although its dissolution has "not been judicially declared. Ib. It seems that in the state of New York, although a corporation is deemed to have surrendered its character in consequence of non-user, as declared in the thirty-eighth section of the article of the revised statutes relative to proceedings against corporations in equity, the corporation is not actually dissolved before proceedings have been instituted, either at law or in equity, to have such dissolution judicially declared. And a judgment recovered against such corporation, before the institution of such proceedings, and a sale of the corporate property upon an execution issued upon such judgment, will be valid and effectual to transfer the title of such property to the purchaser. Mickles v. The Rochester City Bank, 11 Paige, 118. A corporation, by non-user and the suspension of its ordinary business, or by continued insolvency, or the non-payment of its notes and other evidences of debt, for one. whole year, does not become ipso facto dissolved. But the corporation continues to exist until its dissolution is judicially declared by a decree of the court of chancery, or by the judgment of the supreme court upon a quo warranto. Ib. American Chancery Digest, vol. 1, p. 400, Nos. 186 to 193, inclusive,