Sec. 251. Contracts of shareholders.

FOSTER v. ESSEX BANK.1

1820. IN THE SUPREME JUDICIAL COURT OF MASSACHUSETTS. 16 Mass. Rep. 245-274.

[Assumpsit against the bank for $50,000, begun April term 1819. At the trial term it was suggested the bank's charter had expired. By the act creating it, it was to exist for twenty years from July 1, 1799. By an act of June 19, 1819, all such corporations were "continued bodies corporate and politic, for the term of three years from and after the day on which their powers would expire," for the purpose of prosecuting and defending suits, now or hereafter instituted, and to settle their concerns, and divide their capital stock, but not for continuing business. It was contended that this statute impaired the obligation of the shareholders' contracts.]

PARKER, C. J. In the first place, we see no pretense for saying that it impairs the force of contracts. Certainly it has not that effect on contracts made by or with the bank; but the very object of the statute is to enforce such contracts.

It is said, however, that the contract with the government was that at the end of twenty years the corporation should be dissolved, and each member take his share out of the common fund. But it should be considered that, by the original charter, each member's share was liable for all the debts of the bank, and that he would have no moral right to withdraw it until all the debts of the bank were paid; so that there was an equitable lien upon his share; and the legislature, we think, had a right, if it was not their duty, to provide the means of enforcing this moral obligation.

The law complained of is a general law operating upon all bodies corporate, and it is convenient for them and the public that their power of suing and being sued should be continued beyond the period within which they are empowered to make contracts, in order that their concerns may be properly adjusted.

Nor do we think it an objection that this additional term should be granted by an act made subsequent to the time when their charter was granted. A debtor to the bank could not object to a suit on the ground that the original term of the charter had expired, for the very bringing of the suit would be an acceptance of the prolongation of the charter, and it would be absurd for him to say that his debt was discharged, or that there were no means of recovering it because he contracted with the corporation on a supposition that it would continue in being only a certain number of years. We think it equally incompetent for such corporation to deny its existence against a statute of the government, the object of which is to give a right of action on contracts upon which they were legally and morally bound under their charter.

It is said that the members of such a corporation associated upon 1Statement abridged. Much of the opinion, and the elaborate arguments of Saltonstall, Pickering and Webster, omitted.

the faith that after the time limited in their charter they might separate and take their shares of the stock. But it is to be answered that their stock is, in an equitable view, pledged for the payment of all debts due from the corporation, and that it would be fraudulent to withdraw the funds, knowing that there were debts to be paid, leaving no means of coercing the payment of those debts. What should be said of a banking company which just before its expiration should divide all the stock, making no provision for the payment of its debts? Yet this might be done if the legislature have no authority to establish by law a mode by which it should be compelled to fulfill its obligations. For it is certainly doubtful whether any means exist, under our laws, of pursuing the funds into the hands of individual corporators and subjecting them to the claims of creditors. We see no violation of the rights of the corporators, no impairing of the obligation of contracts, for it can never be the right of any person to withhold a just debt from his creditor.

(The suggestion filed can not impede the progress of the suit.) Note. See following cases, and note, infra, p. 910.

Sec. 252. Contracts of creditors.

MUMMA v. THE POTOMAC COMPANY.'

1834. IN THE SUPREME COURT OF THE UNITED STATES. 8 Peters (33 U. S.) Rep. *281-7.

[Mumma, in 1818, obtained a judgment in the circuit court of the District of Columbia against the Potomac Company for $5,000. No attempt was made to enforce it till April 18, 1828, when a scire facias was issued to revive the judgment; this revivor case was continued till 1830, when the facts were agreed to be that after the rendition of the judgment in question and in accordance with a provision of the laws of Virginia, Maryland and the United States incorporating the Chesapeake and Ohio Canal Company, so authorizing, the Potomac Company had surrendered all its property, rights and privileges by deed of August 15, 1828, to and the same had been accepted by the Chesapeake and Ohio Canal Company, whereby the charter of the Potomac Company was vacated and annulled, and its powers vested in the canal company. It was contended, secondly, that the deed of surrender and the acts of the legislature were void as impairing the obligation of contracts. The lower court gave judgment for the defendant.] STORY, J. Unless, then, the second point can be maintained, there is an end of the cause, for there is no pretense to say that a scire facias can be maintained, and a judgment had thereon, against a dead corporation any more than against a dead man. We are of opinion that the dissolution of the corporation, under the acts of Virginia and Maryland (even supposing the act of confirmation of congress out of the way), can not, in any just sense, be considered, 1 Statement abridged, only part of opinion given.

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within the clause of the constitution of the United States on this subject, an impairing of the obligation of the contracts of the company by those states, any more than the death of a private person can be said to impair the obligation of his contracts. The obligation of those contracts survives, and the creditors may enforce their claims against any property belonging to the corporation which has not passed into the hands of bona fide purchasers, but is still held in trust for the company, or for the stockholders thereof, at the time of its dissolution, in any mode permitted by the local laws. Besides, the twelfth section of the act incorporating the Chesapeake and Ohio Canal Company makes it the duty of the president and directors of that company, so long as there shall be and remain any creditor of the Potomac Company who shall not have vested his demand against the same in the stock of the Chesapeake and Ohio Canal Company (which the act enables him to do), to pay to such creditor or creditors, annually, such div idend or proportion of the net amount of the revenues of the Potomac Company, on an average of the last five years preceding the organization of the said Chesapeake and Ohio Čanal Company, as the demand of the said creditor or creditors at that time may bear to the whole debt of $175,800 (the supposed aggregate amount of the debts of the Potomac Company). So that here is provided an equitable mode of distributing the assets of the company among its creditors, by an apportionment of its revenues in the only mode in which it could be practically done upon its dissolution; a mode analogous to the distribution of the assets of a deceased insolvent debtor.

Independent of this view of the matter, it would be extremely difficult to maintain the doctrine contended for by the plaintiff in error, upon general principles. A corporation, by the very terms and nature of its political existence, is subject to dissolution, by a surrender of its corporate franchises, and by a forfeiture of them for willful misuser and non-user. Every creditor must be presumed to understand the nature and incidents of such a body politic, and to contract with reference to them. And it would be a doctrine new in the law, that the existence of a private contract of the corporation should force upon it a perpetuity of existence, contrary to public policy, and the nature and objects of its charter.

Affirmed.

See following cases, and note, infra, p. -910.

Sec. 253. Executory contracts.

GRIFFITH ET AL. v. BLACKWATER BOOM AND LUMBER CO. 1899. IN THE SUPREME COURt of West VIRGINIA. 46 W. Va. 56, 33 S. E. Rep. 125-128.

its

[In a suit by creditors against the lumber company to settle up affairs there were three contested claims in favor of one Thompson, 1 Statement abridged; only part of the opinion given.

57-WIL. CASES.

for over $115,000. One of these, for over $98,000, was adjudged not to be a preferred claim, but if of any validity at all, to be such as to share only pro rata with other claims. This claim arose out of a contract called the stocking contract, whereby Thompson was to cut, saw and deliver all its timber at the mill at a certain price. Before any part of this contract was carried out the company's affairs were placed in the hands of a receiver by consent of all parties interested. Thompson claimed damages for the breach of this contract, and over $98,000 was found to be the proper amount, if he was entitled to anything. He claimed also that under a statute making claims for work and labor preferred claims, the damages for a breach of contract for work and labor would have the same preference. The lower court decreed that this was not a preferred claim, but allowed it to be a valid claim. Other creditors appealed.]

DENT, P. The last report of the receiver shows that, if the three contested claims of Albert Thompson are allowed; the assets of the company will greatly fall short of the liabilities; but, if such claims are disallowed, there will be in the neighborhood of $30,000 to be distributed among the stockholders. So these amounts are of very grave importance to the stockholders, Albert Thompson, and the other creditors, the most important of which is his right to recover the alleged profits of his abrogated contract by way of damages, ascertained by the final decree to amount to $98,661.56, as of the 24th day of November, 1896. These damages are claimed by reason of an alleged breach of its contract by the company. This, however, is a legal impossibility, for the reason that, at the time the alleged breach occurred, the company had ceased to exist save only in name, and its bones were already bleaching on the plains of corporate existence amid millions of their kind. By force of law, it had been compelled to surrender its franchises into the hands of a receiver on account of its inability to further carry on its business, without great threatened loss to its creditors and stockholders, and it was afterwards finally dissolved by the disposal of all its property, to all which Albert Thompson was present and gave his assent, with certain reservations in his own interest. Where an insolvent corporation is forced into liquidation and dissolution all its executory contracts perish with it, for this is an implied condition of their execution.

In 7 Am. & Eng. Ency. Law (2 ed.), 116, the law is stated to be: "When performance of a contract is dependent upon the continued existence of a given person or thing, and such continued existence was assumed as the basis of the agreement, the death of the person or the destruction of the thing puts an end to the obligation. The continued existence of the corporation was assumed as the basis of the contract with Albert Thompson, and its involuntary dissolution put an end to performance on its part, and the contract ceased to be binding, as there was no one left to perform it according to its terms. People v. Globe Mut. Life Ins. Co., 91 N. Y. 174; 1 Am. & Eng. Corp. Cas. 586, note 594. Such, however, is not the law where a solvent corporation is voluntarily dissolved. By its own act it can not

relieve itself from its contracts, but its assets will be held liable for breaches thereof. It must be taken as an implied condition of all such contracts that such corporation will not voluntarily try to escape or evade fulfillment, and if it does, equity will not recognize its dissolution nor permit the distribution of its assets until its contracts are satisfied. Glass Co. v. Stoehr, 54 Ohio St. 157, 43 N. E. Rep. 279; Schleider v. Dielman, 44 La. Ann. 462, 10 South. 934. The appellee, Thompson, claims that the dissolution of the corporation was voluntary, for the reason that the officers assented thereto. They assented because its business had assumed such a condition that it could not be continued without great loss to its creditors and stockholders. And to this the appellee, Thompson, also assented. Hence its dissolution was not voluntary, but was brought about by the force of circumstances, and the final determination of its affairs shows that it was not solvent.

A receiver is not bound to carry out executory contracts of the corporation, but he may disregard them. Beach Rec., § 328. The power to adopt or reject the defendant's contract, to accept those which are of advantage to the trust estate, and reject the burdensome ones, is restricted to the receiver. The rule is not reciprocal, hence it is called "anomalous." Section cited:

"The court, however, may order the receiver to complete unfinised contracts, if by so doing the interests of all parties will be better conserved, and in such case whatever is done by the receiver in the performance of such contracts becomes an obligation upon the receivership and its property, to be protected by the court." Smith Rec., pp. 102, 103, § 35. The receiver in this case did adopt, under the instruction of the court, and partly carry out the stocking contract; but finally the court, reaching the conclusion, with the assent of all parties, except Albert Thompson, determined to, and did, abandon the stocking contract and direct a' sale of the property. This the court had the legal and equitable power to do. It thereby determined that the carrying out of the contract would be injurious to those in interest. After this action on the part of the court, the corporation, the receiver or Albert Thompson would be in contempt even in seeking to carry out the same.

Decree below reversed.

Note. See following cases and note, infra, p. 910.

Sec. 254. Generally upon rights and liabilities in equity.

BACON ET AL. v. ROBERTSON.1

1855. IN THE SUPREME COURT OF THE UNITED STATES. 18 How. (59 U. S.) Rep. 480-489.

[Appeal from United States circuit court for the southern district of Mississippi. In 1843 the legislature of Mississippi directed that ac'Statement abridged, and much of opinion omitted.