IN

NDIVIDUAL members of a corporation may in various ways incur a liability which it is desired to enforce in a foreign State. Before entering upon a discussion of the law upon this subject, it may be convenient to classify the cases of liability, since the power to enforce the obligation in a foreign State depends greatly upon the nature of it.

I. The stockholder is liable at common law for his unpaid subscription for his shares. This is a purely contractual liability, on which the corporation or its representative may sue as upon any claim of the corporation.

2. By statute an additional liability is placed upon individuals. Thus the stockholders are often made responsible for the debts of the corporation up to the par value of their stock; or for the debts until the whole amount of the capital has been paid in. So the directors are often made liable by statute for all debts contracted in excess of the capital stock. This liability, while statutory, is original; the stockholder or director is a party to the debt at the moment of its creation, he is, in fact, a statutory surety for the corporation under the circumstances described. Liability of this sort may either be a direct and absolute liability, or it may be indirect and contingent. If the liability runs directly to the corporation, it is quite analogous to the liability for calls; if it runs directly to the creditor, it may be enforced. by him as he might enforce the liability of any other surety. But an indirect or contingent statutory liability must be enforced, if at all, in accordance with some particular provisions of the statute creating it.

3. Another kind of statutory liability, not usually imposed upon stockholders, but often

on directors, attaches to the individuals for all debts of the corporation by reason of some wrongdong or omission of duty; as for instance, where the directors who file a false statement of the condition of the corporation are made liable for all its debts, whenever contracted. This is not an original liability, since at the time the debt was contracted the director was not a party to it. The debt to be sure, might happen to be contracted after the filing of the false return; but that would be a mere accidental circumstance. The nature of the liability is the same whether the debt was contracted before or after the director's liability arose; the director is arbitrarily made responsible for it, and his liability was not counted upon by the creditor at the time the debt was contracted. This is the sort of liability which is commonly called penal.

In all these cases the existence of the obligation is to be determined by the law of the State of charter. That law creates the obligation, and that alone can determine what liability it has created. The statutes of that State, as interpreted by its courts, determine the nature and extent of the liability. And accordingly, if by the law of the State of charter the stockholder may set off against his liability a debt due to him from the corporation,

'Nashua Savings Bank v. Anglo-American L. M. & A. Co., 189 U. S. 221; Morris v. Glenn, 87 Ala. 628; Young v. Farwell, 139 Ill. 326, 28 N. E. 845; Fowler v. Lamson 146 Ill. 472, 34 N. E. 932; Mandel v. Swan Land & Cattle Co., 154 Ill. 177, 40 N. E. 462; First Nat. Bank v. Gustin, 42 Minn. 327, 44 N. W. 198; Tompkins v. Blake, 70 N. H. 584, 49 Atl. 111; Molson's Bank 7. Boardman, 47 Hun, 135: Aldrich v. Anchor Coal Co, 24 Or. 32, 32 Pac. 756; Ball v. Anderson, 196 Pa. 86, 46 Atl. 366; Vance v. McNabb Coal & Coke Co. (Tenn. Ch. App.) 48 S. W. 235; Farr v. Briggs, 72 Vt. 225, 47 Atl. 793; Nimick v. Mingo Iron Works Co., 25 W. Va. 184.

being regarded as equitably liable only for the balance, he may do this in any State in which he may be sued. And if any special form of proceeding is required by the law of the State of charter, as for instance, that a judgment should first be obtained against the corporation before the individual can be sued, this procedure must be followed.2

I.

A person who has subscribed for stock, and has agreed to pay for it, but has not done so, is evidently liable to the company for the amount he has subscribed, and this liability arises entirely from contract. Primarily a creditor of the corporation has nothing to do with it. The corporation must call for the payment of the subscription, and must then enforce its call by getting in the amount from the stockholders. This liability to respond to calls for unpaid subscription to the capital stock, is like any other debt due to the corporation. Upon this obligation suit may be brought in any State by the corporation,3 or by its representative, as for instance its receiver or assignee. The amount of the call may be fixed by the directors, or if a receiver has been appointed it may be fixed by the appointing court; and suit for the amount may then be brought in any State. The effect

'Mechanics' Sav. Bank v. Fidelity Ins. Co., 87 Fed. 113; Broadway Nat. Bank v. Baker, 176 Mass. 294, 57 N. E. 603; Sargent v. Stetson, 181 Mass. 371, 63 N. E. 929; Ball v. Anderson, 196 Pa. 86, 46 Atl. 366.

2 Fourth Nat. Bank v. Francklyn, 120 U. S. 747.

3 Mandel v. Swan Land & Cattle Co., 154 Ill. 177, 40 N. E. 462; Sigua Iron Co. v. Brown, 171 N. Y. 488, 64 N. E. 194.

4 Mann v. Cooke, 20 Conn. 178; Fish v. Smith, 73 Conn. 377, 47 Atl. 711; Dayton v. Borst, 31 N. Y. 435. In Vermont the foreign receiver is not allowed to sue in his own name. Murtey v. Allen, 71 Vt. 377, 45 Atl. 752; Sparks v. Estabrooks, 72 Vt. 101, 47 Atl. 394.

5 Stoddard v. Lum, 159 N. Y. 265, 53 N. E. 1108. Hawkins v. Glenn, 131 U. S. 319; Lehman v. Glenn, 87 Ala. 618; Glenn v. Williams, 60 Md. 93; Mut. Fire Ins. Co. v. Phoenix Furniture Co., 108 Mich. 170, 66 N. W. 1095; Commonwealth Mut. Fire Ins. Co. v. Hayden, 60 Neb. 636, 83 N. W. 992; Parker v. Stoughton Mill Co., 91 Wis. 174, 64 N. W. 751

of this order of assessment is to fix the amount which any stockholder liable under his contract of subscription should pay, and to authorize the receiver to bring suits against stockholders for the same, but not to determine whether any particular stockholder is liable for anything; and one who is sued as stockholder may therefore interpose any personal defence, as for instance, that he is not a stockholder, or that the statute of limitations has run in his favor; or (where such defence is allowed in a similar action in the State of charter) that the call was for an illegal purpose and ultra vires.8

But while a creditor has no direct right to come upon the stockholder, he may take advantage of any method of reaching him open to him in the State where he sues. If the claim has not been enforced by the corporation it is an asset, and if such remedy is permitted, a creditor may reach it either by garnishment or by a creditors' bill. The subscribing stockholder should be treated in the same way as any other debtor of the company. If the law of the forum permits the garnishment of such a claim, the creditor may reach it in that way." If a creditor can reach the claim only by a creditors' bill, he must thus proceed, making the corporation and all the stockholders parties.10

Where the stock was taken without any agreement to pay for it (as for instance, if it were in exchange for property of small value, or were given as a bonus to purchasers of bonds) there is no agreement to be enforced, and in the absence of a. statute no creditor could claim a right against the stockholder.

A creditor could have no right against a subscriber, founded on his agreement, unless the corporation could sue him on the contract.1 The case would, however, be different if the stock, purporting to be fully paid up, was issued at fifty per cent. of the par value; in spite of the statement contained in the share, the original subscriber still owes fifty per cent., and that amount may be collected from him in a proper proceeding."

II.

Where by statute the stock is liable to assessment for the payment of debts, and a call has been made by the corporation or its representative, the amount due may be collected in another State, either by the corporation itself or by its receiver. If by the law of the State of charter the stockholder is liable to the creditor only, a receiver of the corporation cannot sue, and conversely if the receiver is entitled to get in the amount, a creditor cannot sue in a foreign State."

Similarly, when the law of the State of charter creates a direct absolute liability of the stockholder to the creditor, there is an ordinary suretyship obligation, imposed on the stockholder at the time of the original transaction, and capable of being enforced by an ordinary action sounding in contract or debt. If the nature of the liability is such by the law that created it, that any creditor could sue any stockholder and recover from him up to the amount which he is liable to pay leaving for him to recover such contribution as may be due him from other stock

'New Haven Horse Nail Co. v. Linden Spring Co., 142 Mass. 349, 7 N. E. 773; Seymour v. Sturgess, 26 N. Y. 134; Christensen v. Eno, 106 N. Y. 97.

2

Guerney v. Moore, 131 Mo. 650, 32 S. W. 1132.

3 Pfaff v. Gruen, 92 Mo. App. 560.

Howarth v. Ellwanger, 86 Fed. 54; Kirtley v. Holmes, 107 Fed. 1; Howarth v. Lombard, 175 Mass. 570; Howarth v. Angle, 162 N. Y. 179, 56 N. E. 489; Cushing v. Perot, 175 Pa. 66, 34 Atl. 447 (semble).

5 Hale v. Allinson, 188 U. S. 56.

"Cushing v. Perot, 175 Pa. 66, 34 Atl. 447.

holders, this liability may be enforced in any State.

"It certainly concerns the due administration of justice that all stockholders, wherever they reside, should be compelled by proceedings somewhere to perform the statutory obligations toward creditors of the corporation which they have assumed by becoming stockholders. .

"The legislature of Kansas has chosen to give to the creditors of certain of its corporations the security which the individual liability of each stockholder affords, to the extent prescribed by its statutes, leaving the burden of enforcing contribution from other stockholders on any stockholder who has been compelled to pay anything in discharge of the debts of the corporation.

"Persons becoming stockholders in foreign corporations can ascertain the nature and extent of the liability of the stockholders in such corporations according to the laws of the State or country under which the corporations are organized, and they cannot complain if this liability is enforced against them."8

Judgment in favor of the creditor against the corporation in its own State is ordinarily conclusive in every State against a stock

7 Flash v. Conn, 109 U. S. 371 (s. c. 16 Fla. 428); Whitman v. Oxford Nat. Bank, 176 U. S. 559; Hancock Nat. Bank v. Farnum, 176 U. S. 640 (reversing 20 R. I. 466, 40 Atl. 340); Rhodes v. U. S. Nat. Bank, 66 Fed. 512; McVicar v. Jones, 70 Fed. 754; Mechanic's Savings Bank v. Fidelity Ins. Co., 87 Fed. 113; Dexter v. Edmands, 89 Fed. 467; Hale v. Hardon, 95 Fed. 747; Ferguson v. Sherman, 116 Cal. 169, 47 Pac. 1023; Bell v. Farwell, 176 Ill. 489, 52 N. E. 346; Hancock Nat. Bank v. Ellis, 172 Mass. 39, 51 N. E. 207; Broad way Nat. Bank, v. Baker, 176 Mass. 294, 57 N. E. 603; Western Nat. Bank v. Lawrence, 117 Mich. 669, 76 N. W. 105; First Nat. Bank v. Gustin, 42 Minn. 327, 44 N. W. 198 (semble); Guerney v. Moore, 131 Mo. 650, 32 S. W. 1132; Tompkins v. Blakey, 70 N. H. 584, 49 Atl. 111; Perkins v. Church, 31 Barb. 84; Howarth v. Angle, 162 N. Y. 179, 56 N. E. 489; Aldrich v. Anchor Coal & Development Co., 24 Or. 32, 32 Pac. 756; Cushing v. Perot, 175 Pa. 66, 34 Atl. 447; Sackett's Harbor Bank v. Blake, 3 Rich. Eq. 225.

Field, C. J., in Hancock Nat. Bank v. Ellis, 172 Mass. 39.

holder as to the existence of the debt.1 A stockholder who was not actually before the foreign court may, however, show that the alleged debt was ultra vires.2

But where the liability created by the statute is neither a direct liability nor an absolute obligation to any individual creditor, but a contingent liability which can be enforced only by some particular form of procedure, the liability cannot be enforced in another State, at least unless the latter State can provide some process suitable for the purpose. For the particular result attained by the method provided in the State of charter must be attained in the foreign State, if the stockholder can be held there at all. No one can or ought to be held on his stockholder's liability in any other way.*

It is often provided, for instance, in the State of charter (either by the statute itself or by the common law) that the stockholders shall be reached by a creditors' bill in equity, in which all creditors may join, and to which all the stockholders and the corporation itself must be parties. Where such is the law of the charter State, a stockholder in a foreign jurisdiction may be reached neither by an action at law theres nor even ordinarily by a creditors' bill there, since the corporation and the other stockholders cannot be reached."

1 American Nat. Bank . Supplee, 115 Fed. 657; Howarth v. Lombard, 175 Mass. 570, 56 N. E. 888; Straw &c. Mfg. Co. v. Kilbourne, 80 Minn. 125, 83 N. W. 36; Elderkin v. Peterson, 8 Wash 674.

2 Ward v. Joslin, 186 U. S. 142.

3 Russell v. Pac. Ry., 113 Cal. 258, 45 Pac. 323; Yonng v. Farwell, 139 Ill. 326, 28 N. E. 845; Tuttle v. Bank of Republic, 161 Ill. 497, 44 N. E. 984; Lowry v. Inman, 46 N. Y. 119; Marshall v. Sherman, 148 N. Y. 9, 42 N. E. 419; Nimick 2. Mingo Iron Works Co., 25 W. Va. 184; Finney . Guy, 111 Wis. 296, 87 N. W. 255; May 2. Black, 77 Wis. 101, 45 N. W. 949.

4 Pollard v. Balley, 20 Wall. 520, 527; Fowler 2. Lamson, 146 Ill. 472; Remington v. Samana Bay Co., 140Mass. 494; Rice v. Hosiery Co., 56 N. H. 114; Howarth v. Angle, 162 N. Y. 179, 56 N. E. 489; and cases cited in the preceding note.

5 Erickson v. Nesmith, 15 Gray 221. Erickson v. Nesmith, 4 Allen 233.

"We have no jurisdiction that will reach. such corporation out of this commonwealth, and having no assets here, and the same is true of the stockholders residing in New Hampshire. A bill in equity in Massachustts is therefor not the remedy intended to be prescribed by the statute of New Hampshire creating and regulating the liability of stockholders in a manufacturing corporation in New Hampshire. It is urged on the part of the plaintiffs that great practical evil may result from thus refusing to charge a party here who is an actual stockholder of a corporation in New Hampshire, but who resides without its limits. To this it may be replied, that it would be a much more serious evil to hold that the whole matter of winding up the concerns of a bankrupt corporation of New Hampshire, ascertaining who are its.. creditors, who its stockholders, what is the amount of its assets, and how are the same to be distributed, should be transferred to the jurisdiction of Massachusetts by reason of the residence here of a single member of such corporation. There seems to be no practical mode of dealing with such corporation and its members, when seeking to charge the latter upon their statute liability, but to proceed in the manner prescribed by the statute creating such liability, and in the local jurisdiction where the corporation was established and carries on its business, and by whose local statutes alone the liability exists."

In most cases it will be possible to obtain relief by proceeding in the State of charter, since the courts there have jurisdiction over the corporation and for this purpose, at least, over all the stockholders; and a judgment having been obtained in that State proceedings upon the judgment may then be brought in the stockholders' State.8 This is not al

ways possible, as for instance, where the corporation has been dissolved.1 But the impossibility of obtaining relief is no hardship of which the creditor has a right to complain. Since his right is entirely dependent upon the statutes of the State of charter, he is entitled to claim no more than that State grants.

A stockholder's contingent liability can therefore be enforced in another State, if at all, only when the remedy provided by the statute is such that it is capable of use in the other State. But it is doubtful whether such liability can be enforced by original action in a foreign State even if a suitable form of proceeding can there be found.

"This court does not take jurisdiction of a suit to enforce this liability of stockholders in a foreign corporation, not because it would be a suit to enforce a penalty or a suit opposed to the policy of our laws, but because it is a suit against a foreign corporation which involves the relation between it and its stockholders, and in which complete justice .only can be done by the courts of the jurisdiction where the corporation was created."2 If the enforcement of the liability involves a determination of the internal affairs of the foreign corporation, clearly no action will lie; and it may well be held that an action which requires the parcelling out of corporation debts among the stockholders does involve such determination. It is accordingly held in most jurisdictions that where there is no direct and absolute obligation from the stockholder to the corporation or the creditor no action will be allowed in a foreign State.3

Remington v. Samana Bay Co., 140 Mass. 494.

2 Field, J., in Post v. Toledo, C. & S. L. R. R. 144 Mass. 341, 345.

3 Evans 7. Nellis, 187 U. S. 271: State Nat. Bank v. Sayward, 6 Fed. 45; Elkhart National Bank v. Northwestern Loan Co., 87 Fed. 252; New Haven H. N. Co. 7. Linden Spring Co., 142 Mass. 349, 7 N. E. 773: Bank of North America 2. Rindge, 154 Mass. 203, 27 N. E. 1015; Coffing v. Dodge, 167 Mass. 231, 45 N. E.

It is sometimes asserted that the views of the courts are changing, that the doctrine just stated is yielding to a more liberal view, and that today a creditor may pursue such a remedy in any State which can do justice between the parties. And there is indeed much ground for this opinion. In several jurisdictions successive suits founded upon the same statutory liability have been decided, the first against and the second in favor of the plaintiff. But the later case is in every case con-sistent with the former; a direct liability of the individual stockholder to each creditor was not alleged in the earlier case, but was alleged and proved in the later case."

If the stockholders' liability is penal, it cannot be enforced in a foreign State; but the stockholder's liability, whether absolute or contingent, is usually an original one, and not penal upon any theory."

III.

The liability of a director is in almost every case direct and absolute. The creditor is entitled to sue the director as a party absolutely liable for the debt, and to recover judgment without joining either the corporation or the other directors. No difficulty of procedure is involved, therefore, and if the liability is to be regarded as a contractual one there is no reason why recovery should 928; Crippen v. Laighton, 69 N. H. 540, 44 Atl. 538; Marshall . Sherman, 148 N. Y. 9, 42 N. E. 419; Barnes v. Wheaton, 80 Hun, 8: Bank of Virginia v. Adams, I Pars. Eq. 534; Bates v. Day, 198 Pa. 513, 48 Atl. 407; May v. Black, 77 Wis. 101; McLaughlin v. O'Neill, 7 Wyo. 187.

4 See this view well and vigorously expressed in Pfaff v. Gruen, 92 Mo. App. 560.

5 State Nat. Bank 7. Sayward, 91 Fed. 443 and Hale v. Hardon, 95 Fed. 747; Tuttle z. Nat. Bank of Republic, 161 Ill. 497, 44 N. E. 984 and Bell v. Farwell, 176 Ill. 489, 52 N. E. 346; Coffing . Dodge, 167 Mass. 231, 45 N. E. 928, and Hancock Nat. Bank 7. Ellis, 172 Mass. 39, 51 N. E. 207; Marshali v. Sherman, 148 N. Y. 9, 42 N. E. 419, and Howarth v. Angle, 162 N. Y. 179, 56 N. E. 489.

See, for instance, the language of the Court in Flash v. Conn, 109 U. S. 371, 380; Howarth . Angle, 162 N. Y. 179, 189, 191.

7 Flash v. Conn, 109 U. S. 371.