
    Younglove v. Lime Company.
    
      Corporations — Stockholders' liability — When right of action com-píete— When not — Effect of appointment of receiver for, to carry on its business, or wind up its affairs.
    
    1. As a general rule, the creditors’ right of action against the stockholders of a corporation on. their statutory liability is not complete, so as to set the statute of limitations running, until judgment has been recovered against the corporation, and execution against it has been returned unsatisfied.
    2. When, however, the property of the corporation has been placed in the hands of an assignee in bankruptcy, or insolvency, or ot a receiver appointed on its dissolution to wind up its affairs, or in some such way has been put in process of application to the payment of its debts, the creditors may proceed against the stockholders without first reducing their claims to judgment against the corporation, and the statute will run in favor of the stockholders from such time.
    3. But a right of action does not accrue against the stockholders upon the corporation becoming insolvent in the sense, simply, that its property is insufficient for the payment of its debts, nor, upon the appointment of a receiver of the corporation merely for the purpose of carrying on its business, and not on account of its insolvency, or to wind up its affairs.
    (Decided Dec. 20, 1892.)
    Eeror to the Circuit Court of Cuyahoga county.
    The action below was brought by M. C. Younglove against The Kelly Island Rime Company, an Ohio corporation, and its stockholders, to enforce the statutory liability of the stockholders; the corporation being, as the petition alleged, insolvent. Charles Hickox, who was the only other creditor of the corporation, and also a stockholder, filed an answer to the plaintiff’s petition, in which, among other things, he ple.ad the statute of limitations as a bar to the action.
    On the trial in the circuit court, to which the cause had been appealed, a finding of the facts was made and entered on the journal of the court, from which it appears the court found that the company was insolvent and unable to pay its debts on the 1st day of January, 1818, and has continued insolvent ever since; that the plaintiff and Hickox are the creditors of the company, and its only solvent stockholders that are liable for the payment of its debts; “and, that in the event the claim of the plaintiff is not barred by the statute of limitations, the said plaintiff is entitled to recover of said Charles Hickox the sum of thirty-five hundred sixty-two and 23-100 dollars ($3562.23), with interest thereon from the first day of this term of this court.”
    The further facts found by the court, so far as they are material to the question whether the action was barred by the statute of limitations, are as follows:
    “At the September term, 1875, of the court of common pleas of Cuyahoga county, Ohio, at the suit of George W. Calkins v. The Kelly Island Rime Company, Charles Hickox, M. C. Younglove et al. a receiver on the • application of the plaintiff in that action was appointed by the court, who, under its direction, took possession of all the property of said company, and under the direction of said court operated and carried on its business until on or about the 18th day of August, 1878, when by order of said court, said property and business were returned to The Kelly Island Rime Co. That on the 28th day of August, 1878, and at the instance of M. C. Younglove, a petition in bankruptcy was filed by the plaintiff herein, M. C. Younglove, and certain other creditors of The Kelly Island Rime Company, in the United States District Court for the Northern District of Ohio, by which it was sought to have the said company adjudicated a bankrupt, and such action was had in such case by said court, that on the 16th day of February, 1880, said company was by said court declared a bankrupt, and one Henry N. Johnson appointed assignee, who at once duly qualified and entered upon the discharge of the duties of his appointment. That during the pendency of said proceedings in bankruptcy, and between the said 28th day of August, 1878, and said adjudication of bankruptcy as aforesaid, nearly all of the property belonging to the said Kelly Island Rime Company, consisting of its quarries, kilns, and other property at Kelly’s Island, had, in an action brought by one James F. Clark, on the 19th of August, 1879, in the court of common picas of Erie county, against said Kelly Island Rime Company and others, on a mortgage held by said Clark, been sold and conveyed to purchasers by order ■of said court of common pleas of said Erie county for very much less than its actual value, and in alleged violation of the bankrupt act of the United States. That to acquire the possession of said property the said assignee on the 20th ■day of July, A. D. .1880, brought an action in the United States District Court for the Northern District of Ohio against said James F. Clark and the said purchasers of said property and all others interested therein, the object and prayer of which petition were'to have the proceedings in the action so brought by the said James E. Clark against The Kelly Island Rime Co., as aforesaid, declared null and void to the end of obtaining possession of said property, and converting the same into money to apply it on the claims of the creditors of the said assigned estate. Said action was prosecuted by said assignee with due diligence and was (not) terminated the 8th day of March, 1883, when it resulted in an adjudication declaring the said proceedings in the court of common pleas of Erie county by said James F. Clark to be void, and ordering the delivery of the said property so sold in the said action of the said Clark, to the said as-signee for distribution in accordance with the bankrupt act of the United States. That said assignee in the exercise of due diligence proceeded to convert said property into money and make his final account of the assets to be distributed, which was done on the 24th of January, 1885, and said report of said assignee to the District Court of the United States was approved and affirmed and a distribution ordered of the percentage applicable to the payment of the claims of said bankrupt estate, a portion of which was paid to and applied on the claims of said plaintiff, and the said defendant Hickox, as set out in the pleadings in this action. The court further finds that the property that came into the hands of said assignee belonging to said bankrupt estate amounted to about $110,000 in value; and that the debts due from said company to its creditors secured and unsecured amounted to more than $110,000, but less than $150,000.”
    The action below was commenced on the 12th day ot July, 1884, at which time, the claims due Younglove,to obtain the payment of which his action was prosecuted, had not been reduced to judgment against the corporation.
    The circuit court held the action was barred, and rendered 'judgment accordingly. Error is prosecuted here to reverse that judgment.
    
      Boynton, Hale & Horr and Sherman & Hoyt, for plaintiff in error.
    
      J. E. Ingersoll, for defendant in error.
   By the Court :

As a general rule, the creditor’s right of action against the stockholders of a corporation is not complete, so as to set the statute of limitations running, until judgment has been recovered against the corporation, and execution has been returned without satisfaction. The reason is, the corporate property is the primary fund for the payment of the debts of the corporation, and the statutory liability of the stockholders a security which can be resorted to only after the creditor’s remedy against the corporation has been exhausted. When, however, the corporation has done, or suffered to be done, any act which would render judgment and process against it of no avail, as, where its property has been placed in the hands of an assignee in insolvency or bankruptcy, or, by the appointment of' a receiver, or dissolution of the corporation, or some other legal proceeding, its property has been put in process of application to the payment of its debts, the creditors may proceed against the stockholders without first putting their claims in judgment against the corporation. Morgan v. Lewis, 46 Ohio St. 1; Barrick v. Gifford, 47 Ohio St. 180; Bronson v. Schneider, Ante. 438.

In such cases, the insolvency of the corporation is as effectually established, and the creditor’s remedy as fully exhausted, as they would be by the return of- an execution issued against it, unsatisfied in whole or in part. The creditor need not wait final settlement or distribution by the assignee, or receiver, or other officer charged with that duty, but may at once commence his action against the stockholders. The action is an equitable one, in which all the creditors and stockholders must be parties, and the court may withhold final judgment until the exact amount each stockholder should pay can be ascertained, or so mould its decree as to require the several stockholders to pay their proper proportion of the liabilities remaining after the application of all the assets of the corporation toward their satisfaction, and retain control over the cause and the parties until their ultimate rights shall be determined and adjusted. But the creditor’s right of action against the stockholders does not accrue when the corporation becomes insolvent in the sense, simply, that its property is insufficient for the payment of its liabilities. And it was the insolvency of the corporation, in that sense, as we understand the record, which the circuit court held, set the statute of limitations running against the plaintiff below. The facts, as found by that court, with respect to the insolvency of The Kelly Island Time Company, are in substance, that since the first of January, 1878, it has been unable to pay its debts; and on the 18tffiof August of that year, the receiver, who had carried on the business of the company from 1875, to that time, was discharged, and the property, and business of the company restored to it, by the order of the court which appointed the receiver; and thereafter, the company continued in the possession of its property and control of its business until after the 28th of August 1878, when creditors of the corporation commenced proceedings in bankruptcy against it, in which, it was, on the 16th of February, 1880, adjudged a bankrupt, and its property transferred to the assignee then appointed in that proceeding. If the receiver was appointed because of the insolvency of the company, to wind up its affairs, the statute, no doubt, would run from that time, in favor of the stockholders. There is no express finding that he was, or was not so appointed; but any inference that his appointment was for the cause or purpose named, is inconsistent with the fact that for nearly three years he carried on the business of the company under the direction of the court, and then, by its order, restored the business and property to the company, and the further fact that the insolvency of the company, as found by the court, dates from the 1st of January, 1878, long after the receiver was appointed. The inference from these facts, would rather be, that the receiver was appointed to carry on the business, in order to accomplish some purpose of its stockholders or directors, and not on account of its insolvency; and that its property and business were returned to it, either, because there was no authority for the appointment of the receiver, or because the purpose of his appointment had been fully accomplished. At all events, from the termination of the receivership to the filing of the petition in bankruptcy, there was no obstruction to the creditors pursuing their remedy against the corporation. But we think the proceeding in bankruptcy dispensed with the necessity of any action against the corporation, and entitled the creditors without judgment and execution against it, to sue the stockholders. The statute of limitations commenced to run in behalf of the latter from that time, and, as less than six years had elapsed when the plaintiff commenced his action, it was not barred.

Judgment reversed and judgment for plaintiff below.  