Pittsburg Steel Co. v. Baltimore Equitable Society

Background

A creditor sued a stockholder of the South Baltimore Steel Car and Foundry Company to collect an unpaid stock subscription. The suit began on February 26, 1908 and was initially valid. In April 1908 Maryland passed a law treating unpaid stockholder obligations as corporate assets, saving creditors’ rights as of the law’s date but saying that, for Maryland stockholders, the exclusive way to press such claims was by joining a single equity bill (a court action in a judge’s fairness court). The law was made effective back to July 1, 1907 and said ordinary lawsuits brought since then should stop, leaving only the equity option.

Reasoning

The Court considered whether the statute unfairly impaired the creditor’s contract rights. The opinion accepted that a contract might exist, but emphasized the practical weaknesses of the creditor’s remedy: the right was shared with all other creditors, depended on the stockholder’s willingness to act, and bringing a lawsuit did not create a lien. The Maryland Court of Appeals had found that the old legal remedy was uncertain and that the substituted equity procedure was at least as effective. Given those real-world facts and past decisions on similar state changes in remedy, the Court affirmed the dismissal and upheld the law as applied. An argument about the statute of limitations was not pursued because there was no showing the creditor was harmed by it.

Real world impact

Creditors holding unpaid stock subscriptions in Maryland must pursue recovery through the consolidated equity procedure the statute creates rather than separate lawsuits at law, and pending at-law actions begun after the statute’s effective date can be dismissed.