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THE GREEN BAG

THE LIMITATION OF ACTIONS BROUGHT BY CREDITORS AGAINST CORPORATION STOCKHOLDERS FOR CORPORATE DEBTS BY GEORGE P. COSTIGAN, JR. THE subject considered in this paper is largely statutory, but the statutes, though varied, have similarities which permit of reasonably definite classification and call for the application of certain general prin ciples. We shall take up the statutes fixing the stockholders' liability to creditors, con sider the nature of that liability, and then discuss the application of the statutes of limitation. It should be noted at the outset that we concern ourselves here with only two kinds of stockholders' liability to creditors, —• namely, (i) where the stockholder kas not paid the corporation in full for his stock; (2) where the stockholder has paid in full but an additional liability to creditors is imposed on him by statute or by corporate assessments authorized by statutes. The second is what we mean normally when we refer to stockholders' liability, but the first is so closely connected with it that both will be treated here.1 The first, while affected by modern statutes, is a liability which equity enforced early as an offspring of the doctrine of subrogation; 2 but the second is purely a

1 The so-called stockholders' liability which exists where for some reason the corporation is never properly formed, and so the members are liable individually for debts contracted, is really not a stockholder's liability at all. One must first actually be a stockholder in an existing corporation to have any liability as a stockholder. See an article by Professor Burdick in 6 Columbia L. Rev. i, and a review of that article in 19 Harv. L. Rev. 389. 1 So. Car. Mfg. Co. v. Bk. 6 Rich. Eq. (S. C.) 227,

creature of statutory enactment, since it does not exist at common law.1 The statutes fixing stockholders' liability may therefore be divided into two classes : (i) those which simply give to the creditors the right of action which the corporation had against the stockholder for unpaid sub scriptions, or an equivalent right practically identical with it; and (2) those which give the creditor rights of action against the stockholder which the corporation never had. The first class of statutes just mentioned may further be divided, for our purposes, into those (a) which require a levy of an assessment by the corporation and the recov ery of a judgment by the creditor against the corporation before the creditor can sue the stockholder; (6) those which do not require the levy of an assessment by the corporation but which require that the creditor either recover a judgment against the corporation and have execution returned unsatisfied before suing the stockholder or else join the corporation and the stockholder as defendants in the same action for un paid subscriptions; and (c) those which permit the creditor to sue the stockholder on his liability to the corporation for unpaid subscriptions, or perhaps upon a simultane1 Salt Lake City Bank v. Hendrickson, 40 N. J.L. 52; Pollard v. Bailey, 20 Wall (U. S.), 520, 526-7; Terry v. Little, 101 U.S. 216, 217; Parkhurst v. Mexican Co., 102 Ill. App. 507, 518; Gray v. Coffin, 9 Cush. (Mass.), 192, 199. But that very early in the common law individual members may have been liable for the debts of a corporation. See an article by Professor Williston in 2 Harv. L. Rev. 149, 160-162.