McCarthy v. Lavasche.

to his injury, shall not be permitted to question the act or the truth of the statement. So, on the same principle, appellant should be estopped, as his acts contributed to the organization of this company, and he held himself out to the world as a stockholder therein, and liable to the extent of double the amount of his subscription. Had the company not been organized, appellee would not have lost his money, and appellant thus contributed to that loss.

The

In Ferguson v. Landran, supra, appellants denied the validity of a tax levied under a local law, but the court held they were estopped to deny the validity of the law, because they had approved it and availed of its benefits, and aided in procuring its passage. The court held the law unconstitutional, but enforced the tax. court say, "parties are estopped from denying the constitutionality of a local statute by participating in the procurement of its passage, by ratifying, acquiescing in, or approving it after its passage, and by becoming recipients of benefits under it; and all such persons are held to be liable to the tax authorized by such enactment, although it is unconstitutional and invalid as to all other persons."

Here, appellant approved of the act, and availed himself of its benefits by subscribing for stock and becoming entitled to exercise all the rights and privileges of a stockholder in the corporation. Justice, morality, public policy and precedent, all demand that appellant should be estopped from denying the constitutionality of the law. If stockholders might show the law unconstitutional, and their organization void, and all their acts unauthorized, then all persons engaged in the organization of the corporation should be held liable for the consequences of their illegal and unauthorized acts, independent of the clause in their charter. So they should, in no event, escape liability for obtaining money without authority.

Suppose these stockholders had formed a partnership, with articles of partnership containing precisely the same provisions that are con tained in their charter, and had put in capital stock to the same extent, and the same amounts they each subscribed in shares, would any one question the legality of the organization, or the legal liability of each of the members of the firm? We apprehend these propositions would be conceded. And if so, in principle, what dis tinction can be taken between the supposed case and the one at bar? Had the shareholders written under the charter a statement that it was unconstitutional and void as a law, but that they adopted it as articles of partnership, and that each would be bound by its terms

McCarthy v. Lavasche.

and conditions, and would pay in, for capital stock, the sums set opposite their several names, and they had signed it, and specified the sum to be paid in, could it be doubted that each member would have been liable, under the articles thus executed? And if so, when stripped of mere form, and substance is alone considered, this organization is in effect the same. We can perceive no well-grounded distinction. We are therefore of opinion, that independent of all constitutional questions, each shareholder became liable under the charter as articles of partnership, as it operated as an agreement by each subscriber to be liable to creditors to double the amount each subscribed.

It is urged that, under the language of the third section of the charter, although a liability may be created to double the amount of the stock, still it is to the corporation, and not to the creditors. The obvious purpose of the General Assembly was to secure the creditors of the institution. And if so, why make a provision which the creditor could not, and the directors would not, in all probability, enforce? On their refusal, the creditor, if that construction is to be given, would be compelled to proceed by mandamus, had the law been valid, to compel suits to be brought by the corporation against shareholders, and then, in all probability, after years of delay in litigation, to get the money into their hands, a further delay would be liable to ensue until a recovery could be had against the bank, and the money realized at the end of long, obstinate and expensive litigation. Such a course could not, we think, have been intended. Such a requirement would greatly impair, if it did not render the security worthless. We must therefore conclude, that as the provision was intended to secure the creditor, it was intended that his remedy should be direct and effective, and that he might sue in his own name and at law.

If this association only amounted to a partnership, as we have seen it was, then the firm could not sue one of its members to compel the payment. Nor do we perceive how the firm could maintain a bill for the purpose. Hence we must conclude that it was intended that the liability should be direct to the creditor, and not to the firm.

It is next urged that the remedy is in equity, and not at law. Actions at law were maintained in the cases of Culver v. Third National Bank, 64 Ill. 528, and Corwith v. Culver, 69 id. 502, under a statute creating a liability of the stockholder. It was then urged

McCarthy v. Lavasche.

that the remedy was in equity, but we held that it was a legal liability and could be enforced by an action at law. That statute did not determine, in terms, in which forum the remedy should be sought; but it being a legal right, the remedy was held to be at law.

It is urged that the liability should be construed to be joint against all the stockholders. To do so would, we think, do violence to the language of the statute. The language is: "Each stockholder shall be liable to double the amount of stock held or owned by him, for three months after giving notice of transfers, as hereinafter mentioned." This language renders the stockholders severally and individually liable.

The judgment of the court below must be affirmed.

Judgment affirmed.

NOTE BY THE REPORTER. -To the same effect as to the doctrine of estoppel, see Bidwell v. City of Pittsburgh, 85 Penn. St. 412; S. C. 27 Am. Rep. 662.

As to the enforcement of the stockholders' liability, Terry v. Little, United States Supreme Court, October term, 1879, seems to hold differently from the principal case. The following is a statement of that decision: By the charter of a bank, the stockholders were made liable for its debts They were not made directly liable to the creditors, and were not in terms obliged to pay the debts, but were "liable and held bound for any sum not exceeding twice the amount of their shares." Held, that an action must be brought against all the stockholders jointly for contribution, and a single stockholder could not be sued by a single creditor. The individual liability of stockholders in a corporation is always a creature of statute. It does not exist at common law. If the object is to provide a fund out of which all creditors are to be paid share and share alike, one creditor should not be permitted to appropriate to himself, without regard to the rights of others, that which is to make up the fund. The meaning of the statute in question was, that on the failure of the bank, each stockholder shall pay such sum, not exceeding twice the amount of his shares, as shall be his just proportion of any fund that may be required to discharge the outstanding obligations. The provision is, in legal effect, for a proportionate liability by all stockholders. Undoubtedly the object was to furnish additional security to creditors, and to have the payments, when made, applied to the liquidation of debts. So, too, it is clear that the obligation is one that may be enforced by the creditors, but as it is to or for all creditors, it must be enforced by or for all. The form of the action, therefore, should be one adapted to the protection of all. A suit at law by one creditor to recover for himself alone is entirely inconsistent with any idea of distribution. As the liability of the stockholder is not to any individual creditor, but for contribution to a fund, out of which all creditors are to be paid alike, the appropriate remedy is by suit to enforce the contribution, and not by one creditor alone to appropriate to his own use what belongs to others equally with himself. Pollard v. Bailey, 20 Wall. 520. Under this charter, the suit to enforce the liability should be in the nature of a suit in equity, by or for all creditors, and that it cannot be at law by one cre litor. by one creditor for himself alone, against two stockholders who are not jointly liable on account of the shares standing in their names.

In Hatch v. Dana, Supreme Court of the United States, October term, 1879, it was zed that the liability of a subscriber for the capital stock of a corporation is several and not joint, and he becomes a several debtor to the company as much so as if he had given his promissory note for the amount of his subscription, and a judgment creditor of an insolvent corporation is at liberty to proceed against one or more of 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. The court said: "That unpaid stock subscriptions are to be regarded as a fund, which the corporation holds for the payment of its debts, is an undeniable

McCarthy v. Lavasche.

proposition. But the appellante insist that a creditor of an insolvent corporation is not at liberty to proceed against one or more delinquent subscribers to recover the amount of his debt without an account being taken of other indebtedness, and without bringing in all the stockbolders 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 his 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 the company 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 demands the creditors need look no further. They are not bound to settle up all the affairs of the corporation and the equities between its varions stockholders, corporators or debtors. If A is bound to pay his debt to the corporation in order to satisfy its creditors, he cannot defend himself by pleading that these complainants might have got their satisfaction out of B as well. It is true, if it be necessary to a complete satisfaction of the complainants that the corporation be treated as an insolvent, the court may appoint a receiver with authority to collect and receive all the debts due to the company and administer all its assets. In that way all the other stockholders or debtors may be made to contribute.' The court, therefore, directed a decree against the respondents severally for such amounts as appeared to be due and unpaid by each of them for their shares of the capital stock. This case is directly in point, and it does not stand alone. In Bartlett v. Drew, 57 N. Y. 587, it was ruled that when the property of a corporation had been divided amongst its stockholders before all its debts had been paid, a judgment creditor, after the return of an execution unsat isfied, might maintain an action, in the nature of a creditor's bill, against a stockholder to reach whatsoever was received by him, and that he was not required to make all the stockholders parties to the action; that he had nothing to do with the equities between the stockholders, unless he chose to intervene to settle them. This is much beyond what the complainant needs in this case. It is enforcing against stockholders in severalty what the corporation could not enforce, without any regard to the equities of one against the others. So in Pierce v. Milwaukee Construction Company, 38 Wis. 253, which was a proceeding analogous

McCarthy v. Lavasche.

to a creditor's bill, and brought to enforce payment to a judgment creditor of the company of anpaid subscriptions to its capital stock, it was ruled the complaint was not bad because all the stockholders were not made defendants. This, it is true, was a proceeding under a statute, but it was a statute enacting substantially this equity rule.

In Marsh v. Burroughs, 1 Woods, 468, a bill of certain creditors who had recovered judgments against a bank to recover from some stockholders who had not paid in full their subscriptions, non-joinder of parties was set up in defense. Mr. Justice BRADLEY, said: 'A judgment creditor who has exhausted his legal remedy may pursue in a court of equity any equitable interest, trust or demand of his debtor in whosesoever hands it may be. And if the party thus reached has a remedy over against other parties for contribution or indemnity, it will be no defense to the primary suit against him that they are not parties. If a creditor were to be stayed until all such parties could be made to contribute their proportionate share of the liability he might never get his money.'

The case of Wood v. Dummer, 3 Mason, 308, upon which the appellants largely rely, was not an attempt to reach unpaid stock subscriptions. It was sought to follow the property of a corporation paid over to its shareholders before its debts were paid. But even in that case the bill was sustained, though all the shareholders were not made defendants. Those not sued appear to have been treated only as convenient, not as necessary parties.

The cases of Pollard v. Bailey, 20 Wall. 520, and Terry v. Tubman, 92 U. S. 156, are not in conflict with Ogilvie v. Knox Insurance Company. They arose under statutory provisions imposing upon the stockholders of banks a liability for the debts of the corporation in proportion to their stock held therein.' It was this liability beyond the stock subscription which was sought to be enforced, and as it was only a proportional liability its extent could be ascertained only when the obligation of the other shareholders was taken into consideration. Hence, it was ruled that the proper mode of proceeding was by bill in equity in which an account of the debts and stock could be taken and a pro rata distribution could be made. Not a hint was given that Ogilvie v. Knox Insurance Company was intended to be questioned or qualified. Indeed, the cases of Pollard v. Bailey and Terry v. Tubman have little analogy to Ogilvie's case, or to the one we have now before us. They were both suits at law. The debt due by these appellants to the corporation of which they are members is a fixed and definite one, and it is neither more nor less because other debts may be due to the company from other tockholders.

We hold, therefore, that the complainant was under no obligation to make all the stockholders of the bank defendants in his bill. It was not his duty to marshal the assets of the bank or to adjust the equities between the corporators. In all that he had no interest. The appellants may have had such an interest, and if so it was quite in their power to secure its protection. They might have moved for a receiver, or they might have filed a cross-bill, obtained a discovery of the other stockholders, brought them in and enforced contribution from all who had Lot paid their stock subscriptions. Their equitable right to contribution is not yet lost."