New Haven Horse Nail Co. v. Linden Spring Co.

Devens, J.

The claim of the plaintiff, a foreign corporation, is upon certain promissory notes signed by the principal defendant, also a foreign corporation. This latter corporation has no property which can be reached so as to be attached, and the plaintiff seeks to establish, as against the individual defendants, that they are under such a liability to the principal defendant that they may be treated as its debtors, and ordered, as its equitable trustees, to pay their debt to the plaintiff, so far as that may be necessary, in order to discharge the plaintiff’s claim against the defendant corporation. The plaintiff also contends that, by the facts set forth in its bill, it states a case which is good as a creditor’s bill under the equity jurisdiction of the court.

The plaintiff does not set forth any contract made by the defendant stockholders, except that they subscribed for and took the capital stock of the corporation. Nor does it allege any promise made by them in relation thereto, or in regard to the liability which it says they incurred “ independently of any statutory or penal liability.” In the absence of any promise, definite in its character, on the part of the stockholders, there can be no liability to the corporation or the creditors of the corporation which does not proceed from the statute of Connecticut under which it is created.

The corporation is one formed under the general laws of that State, and the liabilities of stockholders, or of subscribers for the stock, are such as are prescribed by those laws. Their *353 subscription to the stock can have imposed upon them no other liabilities. The allegation of the plaintiff must therefore be. interpreted as meaning that the alleged obligation of the subscribers is independent of any statutory or penal liability which is expressed in terms. When no promise is alleged, the only contractual obligation on the part of the subscribing stockholder must be that which arises from this relation. Whether it be expressed in terms, or derived from this relation under the laws of the State of Connecticut, as those laws may be interpreted by competent authority, it is not a common law obligation, but one created by the statute under which the corporation is formed. Terry v. Little, 101 U. S. 216 .

The liability of stockholders in a Connecticut corporation must be determined by the law of that State. Hutchins v. New England Goal Mining Co. 4 Allen, 580 . Jones v. Sisson, 6 Gray, 288 . Penobscot & Kennebec Railroad v. Bartlett, 12 Gray, 244 . Blackstone Manuf. Co. v. Blackstone, 13 Gray, 488 . That the statutes of a State do not operate extra-territorially, proprio vigore, will be conceded. How far they should be enforced beyond the limits of the State which has enacted' them must depend on several considerations; as whether any wrong or injury will be done to the citizens of the State in which they are sought to be enforced, whether the policy of its own laws will be contravened or impaired, and whether its courts are capable of doing complete justice to those liable to be affected by their decrees.

Where the rights sought to be passed upon and determined are those which arise from the relation between a corporation and its members, they depend upon the local law which exists at the place of its creation, and true policy would seem to require us to leave them to be there determined. The liability which the stockholders are alleged to be under to the corporation and its creditors has little analogy to a debt due according to the generally recognized principles of law. It is of a peculiar character, involving the organic law by which the corporation is created, and requiring local administration. We have heretofore, in similar cases, declined to pass upon and determine the relation existing between a foreign corporation and its members, and the obligation arising therefrom. Halsey v. McLean, 12 Allen, 438 . Smith v. Mutual Ins. Co. 14 Allen, 336 , 341. Kansas & Eastern *354 Railroad Construction Co. v. Topeka, Salina, & Western Railroad, 135 Mass. 34 .

The reasons why we should not, in the case at bar, undertake to enforce the alleged obligations of the members of this corporation appear decisive. They are quite different from those which arise in Massachusetts from a contract to take and subscribe for shares. By our law, as settled by many decisions, in the absence of an express promise to pay for shares, none is created by a mere subscription therefor. Nor is any created by the mere agreement to take shares. No personal liability exists, as the corporation can by law assess such shares, and sell them for non-payment of assessments, which is held to be a sufficient remedy. Andover & Medford Turnpike v. Gould, 6 Mass. 40 . Andover & Medford Turnpike v. Hay, 7 Mass. 102 . Franklin Class Co. v. White, 14 Mass. 286 . Ripley v. Sampson, 10 Pick. 371 . Mechanics’ Foundry Co. v. Hall, 121 Mass. 272 . Katama Land Co. v. Jernegan, 126 Mass. 155 . While a different rule prevails in many States, the grounds upon which these decisions rest have’also been approved in others. Kennebec & Portland Railroad v. Kendall, 31 Maine, 470. New Hampshire Central Railroad v. Johnson, 10 Foster, 390 , 403. Connecticut Passumpsic Rivers Railroad v. Bailey, 24 Vt. 465, 473 . Seymour v. Sturgess, 26 N. Y. 134 . It does not seem advisable that we should seek to enforce a liability thus differing from any which would have been incurred if the defendants had subscribed for shares of stock in a corporation formed in this State.

Again, the bill alleges that the defendants were bound to have made a full and honest payment for the shares, as subscribed for by them, to the extent of their par value; that they actually paid for the same by a transfer of property, knowingly reckoned by them at a price which exceeded by far its real value ; that they are now liable to make further payment for their shares of stock; and that, by the laws of Connecticut, and according to the ordinary rules of equity, any stockholder who has not paid up his stock in full can, upon the insolvency of the corporation, be made personally and directly liable, at the instance of any creditor, for the amount remaining unpaid and equitably due. The individual defendants were the sole stockholders, and also the officers of the corporation, and the transaction by which they *355 paid for their stock was a transfer of a certain amount of cash, machinery, tools, and other property, together with certain inventions, and the letters patent therefor. It is alleged that, in reckoning the payment, an exaggerated value was knowingly placed upon all these descriptions of property. That, in the absence of fraud, an agreement may ordinarily be made by which stockholders can be allowed to pay for their shares in patents, mines, or other property, to which it is not easy to assign a determinate value, appears to be well settled. The bill does not aver any fraud actually committed, or intended to be committed, upon the public or the plaintiff, by these defendants, by obtaining from those with whom the corporation dealt a false credit. The liability alleged is one due to the corporation, growing out of the relation of these parties to it as stockholders. The extent of that liability, and the mode in which it shall be enforced, and the position in which the stockholders are placed, must be determined by the laws of Connecticut, and by a tribunal that can control the conduct and action of the corporation. The mere appearance by attorney of the defendant corporation does not enable this court so to do.

In a clause subsequent to that we have considered, the plaintiff avers that, as promoters and officers of the corporation, the defendants owed the duty to it to see that the stock subscribed for was fully and honestly paid in; that they failed to perform their duty, and were thus guilty of a breach of trust in not requiring the full and fair payment for the capital stock. No allegation is here made of any fraud committed upon the plaintiff as a creditor of the corporation. That which is set forth is a misfeasance on the part of the officers of the corporation, for which it may be that they are liable in damages to the corporation ; but the plaintiff cannot, on this account, hold the defendants as debtors of the corporation who have failed to pay for their stock, which is the ground upon which, in either aspect, its bill proceeds. Nor, if these averments are sufficient to show that the transaction by which simulated payment was made constituted a fraud upon the corporation, would the defendants become the debtors of the corporation, and, as such, liable to pay as stockholders. As the corporation retains that which it has received, even if it were defrauded in the transaction, its remedy would, *356 according to the ordinary rule of law, be in damages for the wrong it had sustained from these stockholders. Foreman v. Bigelow, 4 Cliff. 508 . The bill does indeed aver that, by the law of Connecticut, the defendants in such a case are liable as stockholders for a further payment upon their stock, so as to make it a full and honest payment. If such is the local law of Connecticut, and if such a liability may be treated as a debt, this law varies so much from that which ordinarily obtains in regard to similar liabilities, and also in the enforcement of contracts, that we are compelled to leave it to local administration.

Bill dismissed.