U.S. Supreme Court
Ochiltree v. Railroad Company, 88 U.S. 21 Wall. 249 249 (1874)
Ochiltree v. Railroad Company
88 U.S. (21 Wall.) 249
1. Where the Constitution of a state makes each stockholder in a corporation "individually liable for its debts over and above the stock owned by him" in a further sum at least equal in amount to such stock, and the corporation incurs debts, and is then authorized to obtain subscriptions for new stock, but does not now obtain them, and the constitution of the state is afterwards amended and declares that "in no case shall any stockholder be individually liable in any amount over or above the amount of stock owned by him," and the corporation then for the first time issues the new stock, the holders of such new stock are not personally liable under the first constitution.
2. The amended constitution does not impair the obligation of the contract between the corporation and its debtor made under the first constitution.
A Constitution of Missouri adopted in 1865, under a provision relating to the debts due by corporations having stockholders, thus enacted:
"In all cases, each stockholder shall be individually liable
over and above the stock by him or her owned, and any amount unpaid thereon in a further sum at least equal in amount to such stock."
This clause of the Constitution of 1865, commonly called "the double liability clause," being in force (with a statute also prescribing a method of giving effect to it), the Alexandria & Nebraska City Railroad Company -- a Missouri company, with a paid-up capital of $2,000,000 -- in May, 1869, became indebted to one Ochiltree. That company soon afterwards incorporated itself, as railroad companies are allowed in Missouri to do, with another railroad company -- the Iowa Southern -- this last having a paid-up capital of $1,500,000, the two companies forming a third one under a new name, and this new one being, by the terms of consolidation, bound to pay the debts of the old ones. The capital of the new company was to consist of $13,000,000, of which the conjoint $3,500,000 of the two old companies made the part paid in, and there remained, of course, $9,500,000 of stock in the new company to be yet subscribed for.
In this condition of things, the state of Missouri, A.D. 1870, amended its constitution. By the amended constitution, "the double liability clause was abrogated," and the following exactly opposite provision substituted:
"Dues from private corporations shall be secured by such means as may be prescribed by law, but in no case shall any stockholder be individually liable in any amount over or above the amount of stock owned by him or her."
This new provision being in force, a railroad company wholly independent of the others, to-wit, the Iowa Railroad Contracting Company, subscribed and paid for eight thousand nine hundred and sixty shares, of the value of $100 -- in other words, subscribed and paid for stock to the amount of $896,000.
In this state of things, Ochiltree's debt not being paid, on execution issued, by anyone of the companies, he sued the Iowa Railroad Contracting Company in one of the state chanrobles.com-red
courts of Missouri, as a stockholder in the new company, his suit being founded on the double liability clause of the Constitution of 1865, and his assumption being that though the Iowa Railroad Contracting Company had subscribed for its stock after the adoption of the Constitution of 1870, yet as his debt accrued before its adoption and while the Constitution of 1865 was in force, he could proceed personally against all stockholders, and that "the single liability" provision in the Constitution of 1870 was null and void as to his rights in the case because, in depriving him of his remedy against stockholders under the law in force when his debts were contracted and the consolidated company became liable therefor, the said provision impaired the obligation of the company's contract with him within the meaning of the Constitution of the United States.
The court in which he brought his suit was not of this opinion, and gave judgment against him, and this judgment being affirmed by the Supreme Court of Missouri, he brought the case here.