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judgment, and that they pay the costs of the suit to be taxed; it being provided, however, that of the sum so decreed to be paid not more than $7,000, together with interest thereon from the date of the decree, at the rate of six per cent per annum, shall be made and collected from either said Hatch or Williams, the said sum of $7,000 being the amount the court finds each of them to owe and be indebted to the Chicago Republican Company.
From this decree Hatch and Williams appealed.
The remedy sought in this case by the complainant is in virtue alone of the general equity jurisdiction of the court in the premises.
A court of equity will never allow a trust to fail on account of the failure or refusal of a trustee to perform his duty. When, therefore, the creditors of a corporation are unable to obtain satisfaction in the ordinary modė, if the stockholders are indebted to the corporation on account of subscriptions made by them to the capital stock, and the board of directors fail or refuse to raise the money to pay such debts by making and enforcing against the members the necessary assessments, a court of equity will interfere, and either compel the directors to perform this duty, or, according to the modern practice, perform it by its own proper officers. The rights of creditors being superior, and partaking somewhat of the character of a lien, equity will regard and work them out by the same means by which the corporation itself should have done so.
Adler v. Milwaukee Patent Brick Co., 13 Wis. 57 ; Ward v. Griswoldville Manufacturing Co., 16 Conn. 601; Henry v. Vermillion, 17 Ohio, 187. The court will either compel the board of directors to make an assessment, or it will exercise its power through its own officers and processes to accomplish the same substantial result.
The bill must be filed against all the shareholders, unless some valid excuse is shown for not bringing them in. This must necessarily be so; otherwise the main object of asserting the jurisdiction of equity, the equalizing of the burden of the shareholders, and the preventing of a multiplicity of suits would be defeated. Under such a bill an account will be taken of the debts and assets of the corporation, of the amount of capital not paid in, and of the amount due from each shareholder. A receiver appointed in a creditor's suit against a corporation cannot maintain a bill in equity against a single shareholder to collect what is unpaid on his subscription. Thompson, Liability of Stockholders, sect. 353; Wood v. Dummer, 3 Mas. 312; Hadley v. Russell, 40 N. H. 109; Erickson v. Nismith, 46 id. 371; Mann v. Pentz, 3 N. Y. 415; Pierce v. Milwaukee Con. Co., 38 Wis. 253; Adler v. Milwaukee Patent Brick Co., 13 id. 57; Coleman v. White, 14 id. 700; Carpenter v. Marine Bank, id. 705; Umsted v. Buskirk, 17 Ohio St. 113 ; Story, Eq. Jur., sect. 1252; Pollard v. Bailey, 20 Wall. 520; Terry v. Tubman, 92 U. S. 156.
In 2 Story, Eq. Jur., sect. 1252, it is said: “The property of private corporations is deemed a trust fund, and the creditors may enforce their claims against it into whosesoever hands it may come, as well before às after dissolution, unless it may have come to the hands of a bona fide purchaser. Upon the like ground the capital stock of an incorporated bank is deemed a trust fund for all the debts of the corporation, and no stockholder can entitle himself to any dividend or share of such capital stock until all the debts are paid ; and if the capital stock should be divided, leaving any debts unpaid, every stockholder receiving his share of the capital would in equity be held liable pro rata to contribute to the discharge of such debts out of the funds in his own hands. This, however, is a remedy which can be obtained in equity only; for a court of common law is incapable of administering any just relief, since it has no power of bringing all the proper parties before the court, or of ascertaining the full amount of the debts, the mode of contribution, the number of the contributors, or the cross equities and liabilities which may be absolutely required for a proper adjustment of the rights of all parties, as well as of the creditors,” citing Wood v. Dummer, supra; Vose v. Grant, 16 Mass. 9; Carson v. African Company, 1 Vern. 121.
The unpaid subscriptions for stock in an insolvent corporation constitute a trust fund for the benefit of all creditors of the corporation alike or pro rata, and it is not permissible to one creditor to absorb the same to the exclusion of others.
The bill as framed and filed in this canse properly recognizes the above rule. It is in form a general creditor's bill, under which, if opportunity had been afforded by the court, all creditors might have come in and sought relief, subject to the condition of contributing to the expense of the suit. But no such opportunity was afforded them. There was neither a reference for ascertaining them, nor notice to them to come in.
Although the complainant was not bound to hunt up the creditors, it was incumbent upon the court to refer the cause to a master, with directions to cause notice, by publication or otherwise, to be given to all creditors before proceeding to a final decree appropriating the whole fund to complainant.
“The general rule is that a creditor who proceeds in chan cery to subject the liability of the shareholders of an insolvent corporation must bring his bill on behalf of all other creditors who may come in and establish their debts according to the course of a court of chancery. Whilst liens and legal priorities are preserved, he does not obtain a preference over other creditors by the filing of such a bill; but the property of the corporation, or the sums due from shareholders in respect of their individual liability, are sequestered for the ratable benefit of all the creditors.” 2 Story, Eq. Jur., sect. 1252; Wood v. Dummer, supra; Morgan v. New York Railroad Co., 10 Paige (N. Y.), 290; Mann v. Pentz, 3 N. Y. 415; Masters v. Ressis L. Mining Co., 2 Sandf. (N. Y.) 301 ; Coleman v. White, 14 Wis. 700; Carpenter v. Marine Bank, id. 705; Crea v. Babcock, 10 Metc. (Mass.) 525; Umsted v. Buskirk, 17 Ohio St. 113; Pollard v. Bailey, 20 Wall. 520; Terry v. Tubman, 92 U.S. 156.
Mr. E. B. McCagg, contra.
1. Dana's judgment, the insolvency of the company and its withdrawal from business, entitled him to enforce from its delinquent stockholders, for his benefit, the collection of their unpaid stock subscriptions. Dalton f Morganton Railroad Co. v. McDaniel, 56 Ga. 191 ; Henry v. V. f A. R. R. Co., 17 Ohio, 187 ; Ogilvie v. Knox Insurance Co., 22 How. 380 ; Upton, Assignee, v. Tribilcock, 91 U. S. 45; Angell & Ames, Corporations, sect. 602.
2. It was not necessary to make all the delinquent stockholders parties defendant to his bill. Ogilvie v. Knox Insurance Co., supra; Bartlett v. Drew, 57 N. Y. 587.
MR. JUSTICE STRONG delivered the opinion of the court.
This bill is an ordinary creditor's bill, the sole object of which is to obtain payment of the complainant's judgment. It is true it is brought on behalf of the complainant and all other creditors of the corporation who might choose to come in and seek relief by it, contributing to the expense of the suit. But no other creditors came in ; and it does not appear that there is any other creditor, unless it be one of the stockholders, who was made a defendant, and who filed a cross-bill which he afterwards dismissed. All the stockholders were not made defendants.
The bill was not a bill seeking to wind up the company. It sought simply payment of a debt out of the unpaid stock subscriptions.
That unpaid stock subscriptions are to be regarded as a fund, which the corporation holds for the payment of its debts, is an undeniable proposition. But the appellants insist that a creditor of an insolvent corporation is not at liberty to proceed against one more delinquent subscribers to recover the amount of his debt, without an account being taken of other indebtedness, and without bringing in all the stockholders for contribution. They insist, also, that by the terms of the subscriptions for stock made by these appellants they were to pay for the shares set opposite their names respectively, “as called for by the said company;” that the company made no calls for more than thirty per cent; that, therefore, this company could not recover the seventy per cent unpaid without making a previous call ; and that a court of equity will not enforce the contract differently from what was contemplated in the subscription.
These positions, we think, are not supported by the authorities, — certainly not by the more modern ones, — nor are they in harmony with sound reason, when considered with reference to the facts of this case. The liability of a subscriber for the capital stock of a company is several, and not joint. By bis
subscription each becomes a several debtor to the company, as much so as if he had given his promissory note for the amount of his subscription. At law, certainly, his subscription may be enforced against him without joinder of other subscribers; and in equity his liability does not cease to be several. A creditor's bill merely subrogates the creditor to the place of the debtor, and garnishes the debt due to the indebted corporation. It does not change the character of the debt attached or garnished. It may be that if the object of the bill is to wind up the affairs of this corporation, all the shareholders, at least so far as they can be ascertained, should be made parties, that complete justice may be done by equalizing the burdens, and in order to prevent a multiplicity of suits. But this is no such case. The most that can be said is that the presence of all the stockholders might be convenient, not that it is necessary.
When the only object of a bill is to obtain payment of a judgment against a corporation out of its credits or intangible property, that is, out of its unpaid stock, there is not the same reason for requiring all the stockholders to be made defendants. In such a case no stockholder can be compelled to pay more than he owes.
In Ogilvie v. Knox Insurance Company (22 How. 380) the question was considered. That was a case in which several judgment creditors of a corporation had brought a creditor's bill against it and thirty-six subscribers to its capital stock. The bill alleged that the complainants had recovered judgments against the company, upon which executions had been issued and returned “no property;” that the other defendants had severally subscribed for its stock; and that the subscriptions remained unpaid, payment not having been enforced by the company. The prayer of the bill was that these other defendants might be decreed to pay their subscriptions, and that the judgments might be satisfied out of the sum paid. It was objected, as here, that the bill was defective for want of proper parties ; but the court held the objection untenable. In delivering the opinion of the court, Grier, J., said: “ The creditors of the corporation are seeking satisfaction out of the assets of the company to which the defendants are debtors. If the debts attached are sufficient to pay their