Page:The Green Bag (1889–1914), Volume 16.pdf/436

 Enforcement Abroad of Stockholders or Directors Liability. 3 g 7

THE ENFORCEMENT ABROAD OF STOCKHOLDERS' OR DIRECTORS' LIABILITY. BY JOSEPH HENRY BEALE, JR., Professor of Law in the Harvard Law School. INDIVIDUAL 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. 1. 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 corpora tion. 2. By statute an additional liability is placed upon individuals. Thus the stock holders 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 statu tory, 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 de scribed. 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 con tingent 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 direc tor 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 com monly 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 in terpreted by its courts, determine the na ture and extent of the liability.1 And accord ingly, if by the law of the State of charter the stockholder may set off against his lia bility a debt due to him from the corporation. 1 Nashua Savings Hank i: Anglo-American L. M. & A. Co., 189 U. S. 221: Morris r. 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 :>. Gustin, 42 Minn. 327, 44 N. W. 198; Tompkins v. Blake, 70 N. H. 584, 49 All. in: Molson's Bank v. Boardman, 47 Hun, 135: Aldrich v. Anchor Coal Co, 24 Or. 32, 32 Рас. 756; Ball -•. Ander son, 196 Pa. 86, 46 All. 366; Vance v. McNabb Coal & Coke Co. (Tenn. Ch. App.) 48 S. W. 235; Farr т. Briggs, 72 Vt. 225, 47 Atl. 793; Nimick r. Mingo Iron Works Co., 25 W. Va. 184.