Case ID: ny-super-ct_48/html/0127-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Arnoux, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

EWEN McINTYRE, Respondent, v. WILLIAM E. STRONG, Appellant.
    
      Limited liability companies—liability of stockholders for rent due under lease.—Lease—presumption as to delivery.
    
    Section 37 of chapter 611 of Laws of 1875, is to be read subject to section 25, and consequently the liability of stockholders of limited liability companies formed thereunder, for debts of the corporation, the Capital stock not being paid in, is limited to debts “to be paid within two years from the time the debt is contracted.”
    In case of a lease to the corporation for a term of years, one who is a stockholder at the time of the delivery of the lease is liable for the rent payable thereunder within two years from the time of the execution of the lease and the delivery of the premises.
    The presumption as to the execution of a lease afforded by the date of the instrument, is’ overthrown by the certificate of acknowledgment before the subscribing witness, at a later date.
    Before Russell and Arnoux, JJ.
    
      Decided February 6, 1882.
    Appeal from a judgment entered on the verdict of a jury, and from an order denying a new trial.
    The facts are stated in the opinion.
    
      Adolphus D. Pape and Henry S. Bennett, for appellant.
    The debt was not to be paid within two years from the time it was contracted. The lease created but one debt, not several distinct debts. The argument that because portions of the rent agreed to be paid, were to be paid within two years, and other portions were not to be paid within three and five years, therefore, the statute is operative as to the former, but inoperative as to the latter, involves the assumption that the lease is not one entire contract, but several separate and independent contracts—which is clearly erroneous. Provisions were made in the lease to reduce the debt within two years, but not to extinguish it until after five years. The liability sought here to be enforced is not an original or a common-law liability, but a statutory one. The real contracting debtor was the corporation (Lindsley v. Simmonds, 2 Abb. Pr. N. S. 74; Jessup v. Carnegie, 80 N. Y. 441). The liability of the stockholder is only such as the statute in express terms measures it. This liability cannot be extended by implication, nor can the principles of law or equity be invoked to vary or enlarge it (Lowery v. Inman, 46 N. Y. 127).
    
      William J. Gibson, for respondent.
   By the Court.—Arnoux, J.

This action was brought against a stockholder of the Excelsior Grain Binder Company Limited, a corporation organized under the act passed June 31,1875 (Laws 1875, ch. 611, p.755), for the default of the company in payment of rent for five quarters from the first day of February, 1877, to the first day of May, 1878, at the rate of $1,000 per annum. Plaintiff, by lease under seal, dated January 1, 1876, acknowledged before the subscribing witness January 26, 1876, let to said corporation certain premises in the city of New York for the term of four years and four months from date, and the corporation entered into possession thereof.

The defendant pleaded (1) surrender, (2) that he was not a stockholder when the liability was assumed, and (3) that under section 7 of the statute he is not liable.

1st. It must be admitted that upon the printed case ■submitted to the court defendant made a strong case of surrender. The impecunious condition of the corporation, the conversation, as stated by the president and corrobrated by the secretary of said corporation, the delivery of the key, the letter of August 18, 1877, in which the alleged agreement to surrender, made in said conversation, is stated, and to which plaintiff never replied, tended to prove this. On the other hand, the corporation remained in possession after the. delivery of the key, and plaintiff denied making the agreement to cancel the lease. This presented a sharp conflict of evidence, which was submitted to the jury .by the learned judge who tried the cause, and whose charge was lucid and comprehensive, and not excepted to. The jury, having the advantage of seeing the witnesses, decided for plaintiff, and we do not deem that there was such a weight of evidence in favor of defendant as would warrant a reversal on that ground (Westerlo v. De Witt, 36 N. Y. 340; Crane v. Baudouine, 55 Id. 256; East River Nat. Bk. v. Grove, 57 Id. 598 ; Roosa v. Smith, 17 Hun, 138).

2nd. It appears from the evidence that in or about October, 1875, defendant subscribed for stock in said corporation, and on January 21, 1876, he received a certificate for one hundred shares, for which he then or previously paid the par value thereof. If we were governed by the date of the lease, it might become important to determine the status of defendant in relation to said corporation on the first day of January, 1876, but the date is only a formal part of the instrument, and the presumption which it affords of delivery is overthrown by the fact that the copy thereof produced by plaintiff was acknowledged before the subscribing witness on January 26, five days after defendant confessedly became a stockholder in said corporation.

3rd. A more important and difficult question arises on the third defense, .that is as to" the liability of a stockholder on the lease in question under section 25 of said act, which provides that, “ no stockholder shall be personally liable for the payment of any debt contracted by any corporation founded under this act, which is not to be paid within two years from the time the debt is contracted

The great and constantly increasing number of companies, incorporated under the general laws of the State of New York relating to corporations, including almost the entire community, either as stockholders or creditors, and give to questions of this character a general interest, and consequently such questions demand the most careful consideration. The law has imposed burdens upon individual stockholders until the capital is duly furnished (which has not been done in this case) to protect creditors who trust the corporation on the faith of a paid-up capital; but on the other hand, it protects such stockholders against the unqualified, unlimited and prolonged liability of a general partnership. Counsel for plaintiff claims that defend-antis liable under section 37 of said act:—“ In limited liability companies all the stockholders shall be severally, individually liable to the creditors of the company in which they are stockholders, to an amount equal to the amount of stock held by them respectively, for all debts and contracts made by such company until the whole amount of capital stock fixed and limited by such company has been paid in,” etc.

These two provisions, as they stand are inconsistent, and one or the other must yield. Following the rule of construction laid down in respect to wills, we are of the opinion that section 37 must be read subject to section 25. If it were otherwise, so much of section 25 as is quoted above, would be meaningless ; for when the whole capital stock of a limited liability company is paid in, and the conditions of the law complied with, then there is no liability whatever upon the individual stockholder, however brief the credit given to the corporation may be. So that section 25 must govern this case. We then recur to the question, was the debt in question to be paid within two years from the time it was contracted? The defendant’s counsel declares that, as the lease is for five years, no liability whatever is imposed upon the stockholder. Plaintiff’s counsel contends that each quarter is a new contract, and that no part of the lease is beyond the statutory limitation. To support his view he cites Grarrison v. Howe (17 N. Y. 465). That was an action brought to recover against a trustee for failure to report. Plaintiff had made a contract to deliver certain chattels from time to time, and the company on their receipt were to give time obligations. When the report was due, the company did not owe plaintiff anything under the contract. Subsequently he made a delivery for which the company failed to pay. There is a broad distinction between that case and the case at bar. There the contract was executory on the part of the plaintiff, here it is executed. The defendant’s counsel contends that as the lease was for five years, it is wholly beyond the statute ; this view is equally fallacious. The true rule lies between these extremes. The rent payable within two years from the time of executing the lease and delivering the premises is recoverable in this action ; the rent accruing beyond that time is not a liability that can be enforced against the individual stockholder. What constitutes a debt within the meaning of the various manufacturing acts has had many and contradictory decisions (see Thompson’s Liability of Stockholders, §§ 57, 58), but when a debt is contracted has been, so far as we have ascertained, only adjudicated in Garrison v. Howe (supra), which does not apply, and Lewis v. Ryder (18 Abb. 1), which throws no light upon the question. The judgment and order should be reversed and a new trial granted, with costs to the appellant to abide the event, unless the plaintiff within ten days after the entry of an order herein stipulates to reduce the judgment to $750 with costs, interest and proper allowance, in which case the judgment and order are affirmed without costs to either party.

Russell, J., concurred. 
      
       See Vernon, v. Palmer, p. 231.