1. Certificates of stock of an incorporated company issued in
excess of the limit imposed by its charter are void, and the holder
of them is not entitled to the rights, nor subject to the
liabilities, of a holder of authorized stock.
2. He is not estopped to set up the invalidity of such
unauthorized stock as a defense to an action by creditors against
him, to recover the balance unpaid thereon, by the fact that he
attended the meeting at which it was voted to issue the same, or
that he received and held certificates therefor, or that the
officers and agents of the company represented its capital to be
equal to the amount of both its authorized and unauthorized
stock.
3. When the company which issued stock beyond such limit has
been adjudicated bankrupt, the holder of the unauthorized stock is
not entitled to have the money paid thereon applied as a credit on
the unpaid balance due on his authorized stock.
4. Subscribers to the stock of an incorporated company paid
twenty percent on their shares, and entered into an agreement with
the company that no further assessments should be made thereon, and
certificates for full-paid shares were issued to them. The company
was adjudicated a bankrupt, and to satisfy the claims of its
creditors it became necessary to assess the unpaid stock.
Held:
1. That the agreement was in equity void as to creditors.
2. That before an action at law can be maintained by the
assignees in bankruptcy against a stockholder to recover upon his
unpaid subscription of stock, some proceedings in the interest of
creditors are necessary in a court of competent jurisdiction, to
set aside the agreement, and to make an assessment upon such unpaid
stock.
3. That until an order of such court to that effect, and an
assessment, or some authorized demand upon the stockholder to pay
the balance due on his stock, no cause of action accrues against
him in favor of the assignees, and the limitation prescribed by the
second section of the Bankrupt Act does not begin to run in his
favor.
On Nov. 25, 1870, the Fort Scott Coal and Mining Company was
organized as a corporate body under the General Laws of the Kansas,
with a capital stock of $100,000.
According to the laws of that state, any corporation might
increase its capital stock to any amount not exceeding double its
authorized capital.
Under the provision of this law the corporation, on April 19,
1871, increased its capital stock from $100,000 to $200,000. On
Oct. 16, 1872, the corporation attempted, by taking the steps
required by law for the lawful increase of stock, to increase its
capital stock to $300,000, and on Dec. 27, 1872, to
Page 105 U. S. 144
make a further increase of $100,000. The nominal capital was
thus raised to the sum of $400,000.
Nathaniel Thayer, the defendant in error, who was a holder of
shares in the company, attended by proxy the meetings of the
stockholders at which the third and fourth issues of stock were
voted. After this attempted increase of the stock, the officers and
agents of the company, by advertisements, billheads, and verbally,
represented that its capital stock was $400,000.
Thayer was the holder of two hundred and eighty-five shares of
the first two issues of stock. On two hundred of these shares he
had paid to the company $20 per share, and on the remaining
eighty-five he had paid $40 per share. He was also the holder of
five hundred and eighty-five shares of the third and fourth issues,
upon which he had paid the company $50 per share. No other payments
were ever made by him on his shares of stock.
The other stockholders paid the same amounts on the shares of
stock of the several issues held by them respectively. By agreement
made at the date of the several issues of stock the amounts paid
thereon were credited to the subscribers, and the balance unpaid
credited by "discount," and certificates as for full-paid shares
were delivered to the subscribers, and the stock account between
the company and them balanced by such "discount."
On April 2, 1874, a petition in bankruptcy was filed against the
company in the United States District Court for the District of
Kansas. The company was adjudicated a bankrupt on the eleventh, and
the plaintiffs in error were appointed its assignees on the
twenty-ninth day of that month. On March 31, 1876, the assignees
filed their petition in that court, wherein they prayed for an
order directing them to make an assessment and call upon the unpaid
stock of the company for the purpose of paying its debts.
In their petition, the assignees represented as follows:
"At the date of adjudication in bankruptcy, the affairs of said
company were in a very embarrassed and complicated condition, and
much time has been necessarily consumed and considerable expense
incurred in opposing claims attempted to be established
Page 105 U. S. 145
in said bankrupt court for failures on the part of said company
to comply with contracts made by it. Many fraudulent claims for
large amounts have been filed against said bankrupt, requiring time
to oppose and defeat, which have been defeated. The litigated
claims are now reduced to a small number, not covering more than
ten thousand six hundred and one dollars and eighty cents. The
property of the company on hand at the date of adjudication in
bankruptcy has been disposed of as rapidly as seemed conducive to
the interests of all concerned. The sale of a portion of the real
estate has been delayed in the hope that the demand for land would
increase, and your petitioners realize something out of it for the
benefit of the creditors. Your petitioners believe, however, that
any further delay in the disposal of the bankrupt's property would
not be advantageous."
"Your petitioners had intended before making this application to
have fully closed up the contest over litigated claims, disposed of
assets of the company, and collected all its bills receivable, but
find it is impossible to accomplish it without a longer
postponement than is convenient or expedient."
The petition further averred that
"the amount of the liabilities of the bankrupt over and above
the assets is $124,684, while the amount yet due and unpaid on the
stock held and owned by said stockholders is $222,650."
By an amendment to their petition, the assignees represented as
follows:
"That an assessment of seventy-six percent upon the par value of
each share of stock in said company, if credited with the amount
paid each stockholder heretofore, would equalize the burden upon
the stockholders, and also bring into the hands of your petitioners
a sufficient amount to pay the debts of the company."
Upon the filing of this petition, the court made an order that
all the stockholders of the bankrupt company show cause on April
21, 1876, why the assessment and call prayed for in said petition
should not be made, and that the assignees cause a copy of the
order to show cause to be mailed to each stockholder at his usual
place of residence and address, and also give notice by publication
in the "Fort Scott
Page 105 U. S. 146
Daily Monitor," for at least ten days before the said April 21,
1876.
By order of the court, the hearing of the rule was postponed to
June 10, 1876. R.S. Watson, a stockholder, had in the meantime
filed exceptions to the rule, on behalf of himself and all other
stockholders desiring to avail themselves thereof. On the date last
named, the petition and amended petition of the assignees, and the
exceptions thereto, came on for hearing, whereupon the court
overruled the exceptions and decreed that an assessment and call be
made upon the stock of the company of seventy-six percent, upon
which should be credited to each stockholder any sums paid by him
on his shares, and that the sum so assessed should be paid to the
assignees on or before Aug. 1, 1876, and in default of payment they
were directed to sue for and collect the same.
On July 17, 1876, the assignees made an assessment and call as
authorized by the order and decree of the district court, and gave
notice thereof to the stockholders; but before the assessment could
be collected, Watson, the stockholder before mentioned, filed with
the circuit judge a petition for the reversal of the order and
decree of the district court authorizing the assessment and
call.
It does not appear from the record upon what day this petition
was filed. But on Dec. 4, 1876, the decision of the circuit judge
thereon was transmitted to the district court, affirming its
decree,
"with this modification: that the said district court enter an
order allowing each stockholder of said bankrupt company who shall
pay the amount of said assessment on his stock in ninety days from
this twenty-ninth day of November, 1876, a credit on his or her
proportion of the amount so assessed as was included in said
assessment for the purpose of paying the costs of enforcing by suit
the collection of said assessment."
The district court, on Dec. 4, 1876, entered a decree in
conformity with the order of the circuit judge.
Thayer having failed to pay within the time limited by the court
the assessment made upon him on account of his stock, although
served with notice to do so, the assignees, on April 9, 1877,
brought against him, in the Circuit Court of the United
Page 105 U. S. 147
states for the District of Massachusetts, an action at law to
recover the sum of $27,160, the amount of the assessment on his
unpaid stock.
The declaration alleged in substance the facts above
recited.
The defendant filed two pleas, the first of which was a general
denial of the allegations of the declaration, and the second set up
the limitation of two years prescribed by sec. 2 of the Act of
March 2, 1867, c. 176, and now embodied in the Revised Statutes as
sec. 5057.
The case was submitted to the Circuit Court upon an agreed
statement of facts. The court found for the defendant, holding, in
an opinion which appears in the record, that the cause of action
was barred by the limitation of two years pleaded. Judgment was
therefore rendered for him. The plaintiffs below brought the case
here, and assign for error the ruling upon the statute of
limitations and the rendition of the judgment for defendant.
MR. JUSTICE WOODS, after stating the case, delivered the opinion
of the Court.
The averments made in the declaration were substantially
supported by the agreed statement, and there should have been
judgment thereon for the plaintiffs, unless, upon the facts as
disclosed, they were shown not to be entitled to a recovery on the
merits, or unless the statute of limitations was a bar to the
action.
The defendant insists, first, that the third and fourth issues
of stock, which were made after the limit had been reached, within
which the amount of capital stock of the company was restricted by
the laws of Kansas, were absolutely void, and no assessment could
be made on them which he was bound to pay; secondly, that the sums
voluntarily paid by him upon his void stock should be applied to
the payment of the balance due on his valid stock, and that when so
applied they
Page 105 U. S. 148
would fully satisfy the assessment thereon; and, thirdly, that,
in any event, the facts sustained the plea of the statute of
limitations. We shall consider these contentions in the order
stated.
The Constitution of Kansas forbids special charters. Art. 12,
sec. 1. All corporations in that state are therefore organized
under general laws. The Fort Scott Coal and Mining Company was
organized under the general law of the state, which, with its
articles of incorporation, that were required to be filed with the
Secretary of State, constituted its charter. By those articles the
original stock of the company was fixed at $100,000. Chap. 23, sec.
14, of the Statutes of Kansas provides that "any incorporation may
increase its capital stock to any amount not exceeding double the
amount of its authorized capital." The second issue increased the
stock to $200,000, which was the limit prescribed by the charter.
The question, therefore, is whether the stock of the third and
fourth issues, by which the aggregate amount was raised to
$400,000, is or is not void.
As a general rule, corporations can have and exercise only such
powers as are expressly conferred on them by the act of
incorporation, and such implied powers as are necessary to enable
them to perform their prescribed duties.
Fertilizing Company v.
Hyde Park, 97 U. S. 659;
Salomons v. Laing, 12 Beavan 339;
Eastern Counties
Railway v. Hawkes, 5 H.L.Cas. 331.
And it is well settled that a corporation has no implied power
to change the amount of its capital as prescribed in its charter,
and that all attempts to do so are void.
Mechanics' Bank v. New
York & New Haven Railroad Co., 13 N.Y. 599;
New York
& New Haven Railroad Co. v. Schuyler, 34 N.Y. 30;
Railway Company v.
Allerton, 18 Wall. 233;
Stace & Worth's
Case, Law Rep. 4 Ch.App. 682, note.
In this case, the attempt to increase the stock of the company
beyond the limit fixed by its charter was
ultra vires. The
increased stock itself was therefore void. It conferred on the
holders no rights and subjected them to no liabilities. If the
stock of the first and second issues had been held by one set of
holders, and the stock of the third and fourth by another, in a
Page 105 U. S. 149
contest between them the latter would have been excluded from
all participation in the management of the company or in its
profits. To decide that the holders of stock issued
ultra
vires have the same rights as the holders of authorized stock,
is to ignore and override the limitations and prohibitions of the
charter. We think it follows that if the holder of such spurious
stock has none of the rights, he can be subjected to none of the
liabilities of a holder of genuine stock. His contract to pay for
spurious shares is without consideration and cannot be
enforced.
It is insisted, however, that the defendant having attended by
proxy the meetings at which the increase of the stock beyond the
limit imposed by law was voted for, and having received
certificates for the stock thus voted for, and after such increase
the company by its agents having held itself out as possessing a
capital of $400,000, and invited and obtained credit on the faith
of such representations, he is now estopped from denying the
validity of the stock and his obligation to pay for it in full.
We think that he is not estopped to set up the nullity of the
unauthorized stock. It is true that it has been held by this Court
that a stockholder cannot set up informalities in the issue of
stock which the corporation had the power to create.
Upton v.
Tribilcock, 91 U. S. 45;
Chubb v. Upton, 95 U. S. 665;
Pullman v. Upton, 96 U. S. 328. But
those were cases where the increase of the stock was authorized by
law. The increase itself was legal and within the power of the
corporation, but there were simply informalities in the steps taken
to effect the increase. These, it was held, were cured by the acts
and acquiescence of the defendant.
But here the corporation being absolutely without power to
increase its stock above a certain limit, the acquiescence of the
shareholder can neither give it validity, nor bind him or the
corporation.
"A distinction must be made between shares which the company had
no power to issue and shares which the company had power to issue,
although not in the manner in which, or upon the terms upon which,
they have been issued. The holders of shares which the company has
no power to issue, in truth had nothing at all, and are not
Page 105 U. S. 150
contributors."
2 Lindley on Partnership 138.
And see Lathrop v.
Kneeland, 46 Barb. (N.Y.) 432;
Mackley's Case, 1
Ch.D. 247.
In
Stace & Worth's Case (supra), it appeared that
there was an agreement for the amalgamation of the London Northern
Insurance Corporation and the Life Investment Mortgage Insurance
Company, the two corporations to be formed into one, under the name
of the corporation first mentioned. The corporation was to issue
shares in exchange for those held in the company, and the
amalgamated board was to consist of the five directors of the
corporation, and of seven of the directors of the company, to be
selected by themselves. After the amalgamation Stace and Worth, it
was alleged, received and accepted certificates for shares in the
corporation in exchange for their shares in the company, and they
with five others were appointed directors of the corporation.
Afterwards a resolution was passed for voluntarily winding up the
corporation, and the names of Stace and Worth were placed upon the
list of contributors. An application to have their names removed
from the list was made to Vice-Chancellor James, who, after hearing
the case argued, directed their names to be removed. This was done
on the ground that the agreement for amalgamation was beyond the
powers of the corporation, and therefore void. In giving the
reasons for his decision, he said:
"It is, however, contended that notwithstanding the agreement
itself was
ultra vires and void, yet there are personal
acts and things personally affecting these two gentlemen which
render them still liable as shareholders."
These were the acceptance of shares by Stace and Worth, the fact
that their names appeared on the register of shareholders, and that
they had sat as directors of the corporation after the attempted
amalgamation. But he declared:
"This was a void agreement with a void acting upon it, a void
recognition, and a void ratification by the acts which have been
mentioned. It comes to an aggregate of nothings, and that aggregate
of nothings is all that there is to fix those gentlemen on the list
of stockholders."
So in
Zabriskie v. Cleveland,
Columbus & Cincinnati Railroad Co., 23 How.
381, this Court, after holding the railroad
Page 105 U. S. 151
company to be liable on certain bonds which it was alleged had
been endorsed by the directors without lawful authority, added:
"This principle does not impugn the doctrine that a corporation
cannot vary from the object of its creation, and that persons
dealing with a company must take notice of whatever is contained in
the law of its organization."
Upon the principles stated in these authorities, we are of
opinion that the defendant is not estopped by any acts of his, to
assert the invalidity of the stock issued in excess of the limit
authorized by the charter, and to deny his liability thereon.
It would seem to follow that if he is not estopped by his own
acts, he is not by the acts of the agents of the Fort Scott Coal
and Mining Company, in representing the company, by advertisements
and otherwise, as having a capital of $400,000.
The officers of the company had no authority to make these
representations, and the public no right to trust them. Persons
dealing with the managers of a corporation must take notice of the
limitations imposed upon their authority by the act of
incorporation.
Zabriskie v. The Cleveland, Columbus &
Cincinnati Railroad Co., supra. The laws secured to the public
and the creditors an infallible mode of ascertaining the real
capital of the company. They were bound to know that the law
permitted no such increase of its capital stock as the company had
attempted to make, and that any representation that it had been
made was false.
As forcibly suggested by counsel, a creditor, who has been
defrauded by misrepresentation of the real capital of the company,
has his remedy in an action of tort against all who participated in
the fraud. But the wrong done to him cannot entitle the entire body
of creditors, who have not suffered from the alleged fraud, to
recover of the entire body of stockholders, who have taken no part
in it.
We are of opinion, therefore, that the defendant is not estopped
by the acts of the agents and officers of the company to allege the
nullity of the overissue stock, and his nonliability to an
assessment on such void stock.
The next question for our consideration is whether he is
Page 105 U. S. 152
entitled to offset against his liability to pay the sum due on
his valid stock, the money paid on his void stock.
It is a general rule that a holder of claims against an
insolvent corporation cannot set them off against his liability for
an assessment on his stock in the corporation in a suit by an
assignee in bankruptcy.
Sawyer v.
Hoag, 17 Wall. 610;
Sanger v. Upton,
91 U. S. 56;
Scammon v. Kimball, 92 U. S. 362;
County of Morgan v. Allen, 103 U.
S. 498.
The ground upon which this rule stands is thus stated by Mr.
Justice Miller in
Sawyer v. Hoag:
"The debt which the appellant owed for his stock was a trust
fund devoted to the payment of all the creditors of the company. As
soon as the company became insolvent, and this fact became known to
the appellant, the right of set-off for an ordinary debt to its
full amount ceased. It became a fund belonging in equity to all its
creditors, and could not be appropriated by the debtor to the
exclusive payment of his own claim."
The defendant seeks to avoid the application of this rule to his
case, on the ground that the real capital of the company was only
$200,000, and this constituted the trust fund for the security of
the debts of the company; that all the money that had been paid in
as capital stock had been paid into that fund, and that the party
paying any money to that fund was entitled to credit upon his dues
thereto.
We cannot assent to this view. He was as much bound to know the
limits of the charter of the company in which he was a stockholder,
as the public or creditors of the company. He knew, therefore, that
all stock issued beyond the limit fixed by the charter was
absolutely void. When he paid in his money on the void stock, he
knew that he was not paying it on the valid stock, and he is
presumed to have known that it was not a good payment on the valid
stock. The company had no right to apply it on the valid stock,
without his direction. He never directed such application, and it
remained in the possession of the company until the rights of the
assignees in bankruptcy attached. To say that it was a contribution
to the trust fund devoted to the payment of the creditors of the
company is an entire misapprehension. It could not be such
contribution unless it were a payment on the stock, and this,
Page 105 U. S. 153
we have seen, was not the case. No call had been made for
payment on the valid stock, to which the amounts paid on the void
stock could be said to apply. No call could have been made by the
company under its agreement with the stockholders, unless to pay
its creditors, and it does not appear that when the payments were
made the company had any creditors. It was a voluntary payment for
the benefit of the company, and tended to increase the value of the
authorized stock. In that way, the stockholder got the benefit of
it. There is no rule of law or equity which entitles him, in a
contest between himself and a creditor of the company, either to
receive a credit for it on his unpaid stock, or to have it repaid
to him
pro rata out of the assets of the company. We are
of opinion therefore that it could not be offset against the money
due on the valid stock held by him.
We are next to consider whether, upon the facts as disclosed by
the record, the defense of the statute of limitations should have
been sustained. The precise question with which we have to deal is
when would this action at law, brought by the assignees of the
bankrupt company against a stockholder, to recover a part of the
balance due on his stock, be barred by the statute?
This will depend on the answer to the question when did the
cause of action accrue to the assignees? In other words, when could
they have commenced this action against this defendant to recover
the amount due on his stock?
Wilcox v. Plummer's
Ex'rs, 4 Pet. 172;
Amy v. Dubuque,
98 U. S. 470.
The stock held by the defendant was evidenced by certificates of
full-paid shares. It is conceded to have been the contract between
him and the company that he should never be called upon to pay any
further assessments upon it. The same contract was made with all
the other shareholders, and the fact was known to all. As between
them and the company, this was a perfectly valid agreement. It was
not forbidden by the charter or by any law or public policy, and as
between the company and the stockholders was just as binding as if
it had been expressly authorized by the charter.
Page 105 U. S. 154
If the company, for the purpose of increasing its business, had
called upon the stockholders to pay up that part of their stock,
which had been satisfied "by discount" according to their contract,
they could have successfully resisted such a demand. No suit could
have been maintained by the company to collect the unpaid stock for
such a purpose. The shares were issued as full paid, on a fair
understanding, and that bound the company.
In fact, it has been held in recent English cases that not only
is the company but its creditors also are bound by such a contract.
Waterhouse v. Jamieson, Law Rep. 2 H.L. (Sc.) 29;
Currie's Case, 3 De G., J. & S. 367;
Carling,
Hespeler, and
Walsh's Cases, 1 Ch.D. 115.
But the doctrine of this Court is that such a contract, though
binding on the company, is a fraud in law on its creditors, which
they can set aside; that when their rights intervene and their
claims are to be satisfied, the stockholders can be required to pay
their stock in full.
Sawyer v. Hoag,
Assignee, 17 Wall. 610;
New Albany
v. Burke, 11 Wall. 96;
Burke v.
Smith, 16 Wall. 390.
The reason is that the stock subscribed is considered in equity
as a trust fund for the payment of creditors.
Wood v.
Dummer, 3 Mas. 308;
Mumma v. Potomac
Co., 8 Pet. 281;
Ogilvie v. Knox Insurance
Co., 22 How. 387;
Sawyer v. Hoag, supra.
It is so held out to the public, who have no means of knowing the
private contracts made between the corporation and its
stockholders. The creditor has therefore the right to presume that
the stock subscribed has been or will be paid up, and if it is not,
a court of equity will at his instance require it to be paid.
In this case, the managers and agents of the bankrupt company
had in effect represented to the public that all its capital stock
had been subscribed for, and had been or would be paid in full.
Considered, therefore, in the view of a court of equity, the
contract between the company and its stockholders was this, namely,
that the stockholders should pay, say, for example, twenty dollars
per share on their stock and no more, unless it became necessary to
pay more to satisfy the creditors of the company, and when the
necessity arose and the amount required
Page 105 U. S. 155
was ascertained, then to make such additional payment on the
stock as the satisfaction of the claims of creditors required.
When the company was adjudicated a bankrupt, the assignees were
bound by this contract, thus equitably construed. Their duty was to
collect a sufficient sum upon the unpaid stock, which, with the
other assets of the company, would be sufficient to satisfy the
company's creditors. They were authorized to collect no more. If it
should turn out that the other assets were sufficient, no action
would lie against the stockholder for the balance due on his stock.
For if in a bankruptcy proceeding any surplus remained after
payment of debts, it would go to the company and not to the
stockholders. And we have seen that the company in this case would
have no right to any surplus.
The question for solution is therefore When, under the facts of
this case, did the cause of action accrue against the defendant in
error? Certainly not until it became his duty to pay according to
the terms of his contract or according to law.
It is well settled that when stock is subscribed to be paid upon
call of the company, and the company refuses or neglects to make
the call, a court of equity may itself make the call, if the
interests of the creditors require it. The court will do what it is
the duty of the company to do.
Curry v. Woodward, 53 Ala.
371;
Robinson v. Bank of Darien, 18 Ga. 65;
Ward v.
Griswoldville Manufacturing Co., 16 Conn. 593. But under such
circumstances, before there is any obligation upon the stockholder
to pay without an assessment and call by the company, there must be
some order of a court of competent jurisdiction, or at the very
least, some authorized demand upon him for payment. And it is clear
the statute of limitations does not begin to run in his favor until
such order or demand.
Van Hook v. Whitlock, 3 Paige
(N.Y.), 409;
Salisbury v. Black's Adm'r, 6 Har. & J.
(Md.) 293;
Sinkler v. The Turnpike Company, 3 Pa. 149;
Walter v. Walter, 1 Whart. (Pa.) 292;
Quigg v.
Kittredge, 18 N.H. 137;
Nimmo v. Walker, 14 La.Ann.
581.
In this case, there was no obligation resting on the stockholder
to pay at all until some authorized demand in behalf of creditors
was made for payment. The defendant owed the
Page 105 U. S. 156
creditors nothing, and he owed the company nothing save such
unpaid portion of his stock as might be necessary to satisfy the
claims of the creditors. Upon the bankruptcy of the company, his
obligation was to pay to the assignees, upon demand, such an amount
upon his unpaid stock as would be sufficient, with the other assets
of the company, to pay its debts. He was under no obligation to pay
any more, and he was under no obligation to pay anything until the
amount necessary for him to pay was at least approximately
ascertained. Until then, his obligation to pay did not become
complete.
But not only was it necessary that the amount required to
satisfy creditors should be ascertained, but that the agreement
between the company and the stockholder to the effect that the
latter should not be required to make any further payments on his
stock should be set aside as in fraud of creditors. No action at
law would lie to recover the unpaid balance due on the stock until
this was done. The proceeding for an assessment in the bankruptcy
court was in effect a proceeding to accomplish two purposes: first,
to set aside the contract between the company and the stockholder,
and second, to fix the amount which he should be required to pay.
Until these things were done, the cause of action against the
stockholder did not accrue, although his primary obligation was
assumed at the time when he subscribed the stock.
It appears from the petition of the assignees for an assessment
upon the stock of the bankrupt company, that they had used due
diligence to ascertain what additional payments on the stock would
be required to pay off the claims of creditors; that at as early a
time as possible, they applied to the court for an order directing
that the stockholders should pay a part of the amount due on their
shares of stock, and assessing the stock therefor; that the order
was made accordingly, and within five months thereafter this action
at law was begun to enforce its payment.
If, therefore, the right to bring this suit did not accrue to
the assignees until the assessment was made upon the stock by the
court, and the stockholders were required to pay it, the action was
brought long before the limitation of the statute could bar it.
Page 105 U. S. 157
All the delay which has occurred has been caused by the
proceedings of the assignees, taken for the benefit of the
stockholders, in order that they might not be subjected to
unnecessary and onerous exactions. The lapse of time between the
filing of the petition for the assessment and the decree of the
bankruptcy court thereon is chargeable to continuances made by
order of the court and to the opposition of the stockholder
referred to. It does not lie in the mouth of the defendant to say
that, while the steps necessary to fix his liability and limit its
amount were being taken, the bar of the statute has intervened and
cut off his liability altogether.
The cases cited by the defendant to sustain his contention, that
the cause of action accrued to the assignees in bankruptcy at the
time of their appointment, are clearly distinguishable from this.
In
Terry v. Tubman, 92 U. S. 156, the
suit was by a bill-holder of an insolvent bank against a
stockholder to enforce the individual liability of the latter to
pay the bills of the bank held by the former. The court decided
that the case was not so much like that of the guarantee of the
collection of a debt, where a previous proceeding against the
principal is implied, as it was like a guarantee of payment where
resort may be had at once to the guarantor, without a previous
proceeding against the principal. The conclusion of the court
therefore was that the cause of action in favor of the bill-holder
arose against the stockholder when the bank ceased to redeem its
notes and became notoriously and continuously insolvent. It is
clear that this authority has no application to the question in
hand.
The case of
Terry v. Anderson, 95 U. S.
628, also relied on by the defendant, was a suit in
equity to enforce the individual liability of the stockholders of a
bank, and to collect unpaid subscriptions to its capital stock.
There was no agreement on the part of the bank not to collect the
balance due on the stock. The bank itself could have enforced
payment, without regard to the necessity for its collection, to
satisfy the debts of the bank. And so the court held that the
statute of limitations began to run against the bank and its
creditors, in favor of the stockholder, when the bank stopped
payment.
Page 105 U. S. 158
In
Baker v. Atlas Bank, 9 Metc. (Mass.) 182, and
Commonwealth v. Cochituate Bank, 3 Allen (Mass.) 42, also
relied on by the defendant, it appeared that upon suspension of
payment by the banks there was a present and unconditional
liability of their stockholders, which the court held was barred by
the limitation of six years. In the case of
Baker v. Atlas
Bank, the court said:
"The demand sought to be enforced in this suit was a debt
alleged to be due to the bank. Whenever therefore the bank became
insolvent by the loss of its capital stock an action accrued to the
bank, according to the construction of the thirtieth section
(Rev.Stat., c. 36), which is contended for by plaintiff's counsel
to recover the sum from the stockholders respectively, equal to
each one's share of stock. The statute therefore began to run in
strictness immediately on the loss of the capital stock, and
certainly when the bank stopped payment, and after the lapse of six
years from that time the debt was barred."
But in the present case, as we have seen, there was, as between
the company and its stockholders, no obligation on the part of the
latter to pay the residue of their stock, unless it became
necessary to satisfy creditors. We think, therefore, we are safe in
saying that the statute did not begin to run in favor of the
stockholders until at the very least the necessity for the payment
had been ascertained, and an authorized demand of payment made.
It is said by the defendant that to hold that the suit to
recover the sums due on the stock held by him is not barred would
defeat the policy of the Bankrupt Act, which is a speedy settlement
of the bankrupt's estate and the equitable distribution of his
assets among the creditors.
Unquestionably a prompt administration of the bankrupt's assets
was one of the ends which that act had in view, but this policy
must be held to be subordinate to a just regard for the rights of
both the creditors and debtors of the bankrupt estate. The debtor
cannot be forced to pay before his contract requires it, merely
because the assignee may be in haste to close up the estate. If his
obligation were evidenced by a promissory note due at a future day,
he could not be compelled to pay it before maturity in order that
the estate
Page 105 U. S. 159
might be speedily settled. So if some act must be done by the
assignee, such as a demand of payment before his liability is
fixed, he cannot be compelled to pay until the prerequisites have
been performed. In short, until an unconditional liability to pay
something is fastened on the debtor no action can be maintained
against him, and the statute of limitations does not begin to run
in his favor. The suggestion that the assignee may postpone
indefinitely the necessary steps to fix the liability of the
debtor, and thus defeat the policy of the law, does not answer the
proposition that the debtor cannot be sued until a cause of action
has accrued against him. It is presumed that the assignee will do
his duty. If he fails to do it he is subject to the order of the
bankruptcy court, which at the instance of those interested, can
compel him to act.
Our opinion is therefore that this action at law, prosecuted by
the plaintiffs, assignees in bankruptcy of the Fort Scott Coal and
Mining Company, against the defendant, to recover from him the
balance due on his unpaid valid stock in said company, was not
barred by the limitation of two years prescribed by the Bankrupt
Act.
For the error in holding that the action was barred, the
judgment of the circuit court must be reversed, and the cause
remanded with directions to award a
New trial.
MR. JUSTICE FIELD and MR. JUSTICE GRAY dissented.
