Case ID: misc_35/html/0659-01.html
Source: Caselaw Access Project
Author: {"author": "Russell, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Frederick T. Hallett, Suing for Himself and Other Creditors Similarly Situated, Plaintiff, v. The Metropolitan Messenger Co. et al., Defendants.
    (Supreme Court, New York Special Term,
    August, 1901.)
    Stack corporation — Stockholder’s liability to its attorney •— Their .statutory liability' to creditors — Amounts unpaid on stock cannot be reached by creditors — Rights of creditor suing for all others — L. 1892, ch. 688, § 54; Code C. P., §§ 1790, 1792.
    Section 54 of the Stock Corporation Law does not make the stockholders of an insolvent stock corporation personally liable to its unpaid attorney, upon the ground that he is one of the “ laborers, servants or employees other than contractors” of the corporation; as the attorney is not within these classes and is merely an ordinary creditor.
    The statutory liability to creditors thereby imposed upon stockholders to the amount of their stock, in a case where the capital stock outstanding at the time the debt was contracted has not been fully paid, is not avoidable by a stockholder although he did not actually subscribe for the stock and it was issued to him without full payment.
    The right of the creditor to recover his debt of the stockholder differs from the right of the corporation to recover of him the amount unpaid upon his stock in that the latter right remains in the corporation, its receiver or general assignee; therefore a creditor cannot reach amounts unpaid upon the stock.
    Where the capital stock of an insolvent corporation has not been fully paid and it has sufficient solvent defendant stockholders to pay the debt of a plaintiff creditor, who by his assignee sues as well for all others similarly situated, and no other creditors are or have made themselves parties to the action, the court will not attempt to reach and impound therein all possible assets of the corporation nor will it make its general assignee, theretofore created, account, but will impose the creditor’s debt on the solvent defendant stockholders in proportion to the amounts of their stock.
    Action by the plaintiff, suing for himself and all other creditors of the principal defendant, an insolvent corporation, to enforce against it, and certain defendant stockholders of it, a liability for a balance of unpaid subscriptions to the stock, their statutory liability where the capital stock has not been fully paid, and to compel the general assignee of the corporation to account for an alleged balance in his hands.
    Ira G. Darrin, for plaintiff.
    David Thornton, for defendants Knight & Barnes.
    Cameron & Hill, for defendants Blackburne and Bidstrup.
    Howard A. Sperry, for defendants Lancaster and Hunter.
    Percy L. Klock, for defendants Klock and Thompson.
    Walter L. Bunnell, for defendant Schuhman.
   Russell, J.

The Metropolitan Messenger Company is an insolvent corporation which made a general assignment for the benefit of creditors, the assignee being a party to this action. The plaintiff is a judgment creditor, with execution returned unsatisfied, his original claim being assigned to him by Ira G. Darrin, who performed services as counsel for the insolvent company. This action seeks to group together the liability, claimed against various defendants for the balance of unpaid stock subscriptions, and for the statutory liability attaching against stockholders where the capital stock is not fully paid, and also an accounting against the assignee for the balance which should be in his hands. It would seem that the original claim of the assignor against the company was prima facie proven by the judgment, and. is higher evidence of indebtedness than a promissory note issued by the company. But this holding is unnecessary for the proof shows the original demand to be a just claim now merged in judgment.

Plaintiff cannot recover against the stockholders for their per- , sonal liability to laborers, servants or employees other than contractors. Bristor v. Smith, 158 N. Y. 157. He stands as an ordinary creditor and his recourse against the stockholders, so far as the same is of a statutory character, must be under that part of section 54 of the Stock Corporation Law (L. 1892, ch. 688) which provides for their liability to an amount equal to their (stock respectively, “ For every debt of the corporation, until the 'whole amount of its capital stock issued and outstanding at thé (time such debt was incurred shall have been fully paid.” R. S. (Banks’ 9th ed.) 1025.

' The evidence shows that, on or about the 2d day of April, ,1898, there was issued to the defendant Knight thirty shares of the stock at the par value of $3,000, for which only $1,500 was paid. I cannot assent to the reasoning of the counsel for dej fendants that a corporation has the right to issue its stock for less than its face, or as a pure gift, at its pleasure, or that a person has a right to become a shareholder under such a transaction with the purpose or effect of avoiding the liability which the law imposes for the protection of creditors, dealing with the corporation on the assumption that its advertised capital is fully paid. Nor can I hold that the mere form of signing a subscription to the capital stock so changes the affair that a recognized! obligation to the corporation for a percentage of the unpaid subscription determines the statutory liability of the stockholder, while by going through the other form of issuing the stock to him for nothing without a subscription the object of the statute would be defeated, and the stockholder exempt. It would be easy to avoid the beneficent purpose, for which the liability of stockholders is created by law, if such a mode as the latter could be used to evade liability. I, therefore, hold that, as to two of the certificates at least issued to Knight, his stock was not fully paid.

' Thirty of the shares issued to E. S. Barnes were only half paid for. Five shares were issued to T. C. Renwick, for which nothing was paid. The claim is made in reference to this Renwick stock that the corporation could not have recovered the amount thereof because, although he became a shareholder willingly, he never agreed to pay for the stock issued to him. It is gravely urged that, unless a debt to the corporation itself is created, there is no foundation for the statutory liability, no matter how much the certified paid-up capital of the corporation may be. This argument fails to recognize the very purpose for' which that liability was created, and the wide distinction between its origin and design and that of the obligation arising by contract upon a promise to pay for stock issued. The latter is a right vested in the corporation itself and passes to its receiver, while the other never goes to the corporation but springs up in its very inception to creditors of the corporation who have, otherwise than as creditors, no interest in its receipts. Farnsworth v. Wood, 91 N. Y. 308.

Creditors may not recover the amount unpaid upon stock transferred gratuitously. Christensen v. Eno, 106 N. Y. 97.

The term “ creditors ” does not even include the directors of the corporation. McDowall v. Sheehan, 129 N. Y. 200.

Thus, while it is now in this case held that the plaintiff has complied with the requirements of law to give him the statutory remedy against the stockholders, yet it is also decided that he cannot recover for any amount that may be due upon unpaid stock issued, which claim belongs to the corporation or its assignee. Glenn v. Garth, 133 N. Y. 18.

■ This ruling is, of course, subject to- the equitable power in necessary cases to reach all of the property of the corporation, and which might be applied in this action if essential to full relief.

There is no such necessity arising here. The amount of stock held by solvent stockholders greatly "exceeds the claim of the plaintiff, which amounts only to the sum of $1,019.53, with interest from September 12, 1899, What occasion is there, therefore, for farther relief to him? Presumably a litigation farther extended into the affairs of the corporation would be detrimental to his interest. The defendants are far more likely to pay his comparatively small judgment than the united claims of all the creditors, and the interdefense litigation would greatly embarrass the smooth conduct of his own controversy. Nor, were he willing to assent to judicial adjustment of the claims of all brought personally within the jurisdiction of this action, could the court assent to such a widening of its character. There being no necessity for the same, the right to reach the controverted equities of the defendants as between themselves may not depend upon the volition of the plaintiff. Otherwise, a friendly creditor of a corporation who had perfected his legal remedy, might serve as a refuge to those who had been inert, or unable to place themselves in the state of legal requirement, so that they, under cover of his just claim, upon the plea that equitable jurisdiction is so broad that it may gather to itself all the remains of a decaying corporation, reach favorable results which they could not otherwise obtain. Although the court has called the attention of the parties to the omission, but a single other creditor, so far as appears by the pleadings, has obtained judgment and issued execution which is essential to recovery .under the statutory liability clause. United Glass Co. v. Vary, 152 N. Y. 121; Hirshfeld v. Bopp, 145 id. 85.

No creditor has obtained an order to join himself as coplaintiff under a plea that he was similarly situated to the plaintiff. And, as has been before indicated, none of the creditors are entitled to the amount due for unpaid stock subscriptions, and, therefore, cannot court an investigation into that subject. Nor does the joinder of the assignee for the benefit of creditors, and the request to the relief o;£ an accounting against him, extend the scope of this action beyond its necessity. The plaintiff himself urges that the assignment was honest and presents no reason why the assignee should not proceed with his trust duty, collect any unpaid subscriptions to stock due to him for the corporation, and account to the usual tribunal.

The provisions of the. Code of Oivil Procedure do not require any action beyond that essential to relieve the plaintiff. An action of this character may be brought by creditors, or a separate action against individual stockholders. Code Civ. Pro., §§ 1190, 1191. The court must, only when it is necessary, causé an account to be taken of the property and the debts, and apportion the defendants’ liability, but, even then, when the corporation is insolvent, it may ascertain and determine the amount of each defendant’s liability without an accounting. § 1192.

Judgment is, therefore, directed in favor of the plaintiff and against.the defendants who are stockholders for the amount of the plaintiff’s judgment and interest, with costs; but the judgment shall state the respective amounts of the liability of each such defendant, being the amount of stock.held by him, with the costs against all, and execution shall provide for the cessation of its enforcement against each defendant on the payment by him of the amount of stock so held, or, in case his stock is greater in amount than the judgment and costs, upon the payment of such judgment and costs.

Judgment accordingly.