Case ID: ad_27/html/0180-01.html
Source: Caselaw Access Project
Author: {"author": "Barrett, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Jacob Hirshfeld, Suing on his own Behalf and on Behalf of all other Creditors of The Madison Square Bank, Appellant, v. John Bopp and Others, Respondents, Impleaded with Miles M. O’Brien and James G. Cannon, as Receivers of The Madison Square Bank, Appellants.
    
      A representative action, by one creditor of a banking corporation in the interest of all, to enforce the liability of stockholders for debts — effect of the transfer of the plaintiff’s claim where the transferee is not substituted as plaintiff— effect, upon ■ the continuance of the action, of releases executed by the transferee — the Banking Lam of 1892 (Ohap. 689, § 52) applies to corporations created before it went into effect ■—the liability is thereby extended to stockholders of banks not of issue—constitutionality of the act as to banks not of issue.— its application to a bank incorporated under Laws of 1888, chap. 260 failure to issue execution and home it returned unsatisfied éxaused by an injunction order.
    
    An action brought by one creditor of .a bank, in his own behalf and on behalf of all other creditors thereof, to enforce the individual liability' imposed upon stockholders of such a corporation by the Banking Law (Laws of 1892, chap. 689, § 52) may, notwithstanding the plaintiff’s assignment of his individual claim pending the action, be continued by him in his own' name, tinder section 756 of the Code of Civil Procedure,- on behalf of the other creditors, until such time as his assignee may be substituted, for him.
    Releases executed by the plaintiff’s assignee to the defendants do not change the -Situation, as such releases only operate upon the plaintiff’s original claim, and do not affect the claims of the other creditors represented by the plaintiff in the action brought on his own behalf and on, behalf of such other creditors.
    Section 52 of the Banking Law, imposing an individual liability for the debts of every banking corporation upon the stockholders thereof, applies to a monied corporation which was created before.the Banking Law went into effect.
    The fact that such apt of 1892 creates a liability on the part of stockholders in banks not of issue, which never existed before, does not render it unconstitutional as to the stockholders of such a bank organized in 1882, as the provision of the Constitution of 1846, incorporated without change into the Constitution of 1894, providing that all general laws and special acts for the formation Of corporations inay be -altered from time to time or repealed' (Art. 8, §1), must be deemed from the time of its adoption in 1846 to have modified the act (Chap. 260 of 1838) under which the bank in question was incorporated in 1882. -
    The Banking Law embraces “ banking associations ” incorporated under chapter 260. of the Laws of 1838, as such an association is a “monied corporation” within the meaning of section 2 of the Banking Law:
    Where a preliminary'restraining order and final judgment dissolving, á banking corporation each contains a clause forbidding creditors to proceed against the Corporation, it is not necessary that a creditor should, before bringing an action .to enforce the individual liability of the stockholders, issue an execution against the corporation and have it returned Unsatisfied.
    Appeal by the plaintiff, Jacob Hirshfeld, suing on his own behalf and on behalf of all other creditors of The Madison Square Bank, and by. the defendants, Miles M. O’Brien and James G-. Cannon, as receivers of The Madison Square Bank, from a judgment of the Supreme' Court in favor of certain of the defendants, entered in the office of the clerk of the county of Hew York on the 24th day of August, 1897, upon the decision of the court, rendered after a trial at the Hew York Special Term, dismissing the plaintiff’s complaint upon the merits.
    This action was brought to enforce the liability of the stockholders of the Madison Square Bank, under section 52 of the Banking Law (Laws of 1892, chap. 689).
    
      Samuel Untermyer, for the defendant appellants.
    
      Charles A. Boston, De Lagnel Berier, Franklin Pierce, Albert Stickney, Julius J. Frank, William Lloyd Kitchel, Herbert Parsons, A. J. Simpson, Lawrence E. Sexton, Frelimg H. Smith, Samuel S. Thomas, Frederick B. Van Vorst, Joseph Fettretch, Hoffman Miller, John A. Straley, William B. Putney and Benno Loewy, for the respondents.
   Barrett, J.:

It does not seem necessary, for the disposition of this appeal, to consider what are, ordinarily, the rights of a creditor plaintiff to discontinue a representative action before his fellow-creditors have, by judgment or otherwise, obtained an interest therein. There are special circumstances here which . render the general rule of no importance. Hirshfeld’s agreement with the receivers bound him not to discontinue to the prejudice of the other creditors ; and we so held in the Clirehugh Case (5 App. Div. 202). But, in truth, Hirshfeld never sought to discontinue. He assigned his claim, but did not refuse to proceed with the suit. The real question is, whether he has legal capacity to go' on with it. That question, too, should be regarded as settled by the Clirehugh decision. If Hirshfeld had no standing in court, the application to remove him would not have been denied. It would have been unwarrantable to insist upon his remaining the plaintiff when he had no capacity to sue. In truth, Hirshfeld’s capacity to continue the action has hardly been challenged, but merely his right so to do as against Clirehugh. That he still possesses this capacity cannot be doubted; Section 756 of the Code explicitly provides that “in case of a transfer of interest * *. * the action may be continued by * * * the original party, unless the court directs the person to whom the interest is transferred * * * to be substituted in the action,” etc. Thus Hirshfeld’s capacity to prosecute Clirehugh’s individual claim, before substitution, is plain. . Equally plain is his capacity to continue the representative action. He, as one of the creditors, had the right to bring the action, and by the force of the section cited he had capacity to continue it. Any cause of action, individual or representative, which Hirshfeld had the right to enforce when he brought his suit, he may continue to enforce until a substitution, in spite of the transfer of his claim.

Clirehugh’s releases to certain of the defendants do not affect the question. He could release only the • individual claim originally owned by Hirshfeld. ¡Neither he nor Hirshfeld could release the claims of the other creditors. As to. them and on their behalf, Hirshfeld retained the capacity to continue the suit, notwithstanding the transfer to Clirehugh of his individual claims. The action was brought to enforce the general liability of the stockholders to all the creditors of the bank, and that liability may still be properly enforced by Hirshfeld as plaintiff on their behalf and for their benefit.

This disposes, of the ground upon which the case was decided. There are, however, a number of purely legal questions presented by the defendants, any of which, if well taken, would necessitate an affirmance. They must be considered.

It is contended that the liability specified in the Banking Law-(Laws of 1892, chap. 689), was meant to be imposed only upon such corporations as should be thereafter organized. The wording Of the act refutes any such claim. Section 1 provides that it “ shall be applicable, to all corporations and individuals specified in the next section and section 2 provides that “ the term bank, when used in this chapter, means any monied corporation authorized by law to issue bills,'notes or other evidence of debt • for circulation as money, or to receive deposits of money and commercial paper,” etc. The term “ corporation authorized by law ” plainly includes one already organized, as well- as one that should be formed thereafter. More comprehensive words could hardly have been used. It is almost improbable- that the Legislature, in framing a general banking system, intended to make such a distinction as is contended for, which would lead to inequality and injustice for years to come. Such an intention is not to be inferred. (Matter of Oliver Lee & Co.’s Bank, 21 N. Y. 9.)

But it is said that the act, as applied to existing corporations, is unconstitutional as impairing the obligation of a contract, at least as to those who became stockholders prior to the passage of the Banking Law. This point was referred to by the Court of Appeals in the decision of the demurrer to the original complaint (Hirshfeld v. Bopp, 145 N. Y. 84, 97, 98), where it was said that the liability imposed was not a new one, but a mere continuation of that contained in the acts of 1849 and 1882. (Chap. 226, Laws of 1849 chap. 409, Laws of 1882.) This point was not actually decided by the court, and we venture to suggest that, while the dictum in favor of the constitutionality of the act was undoubtedly correct, different reasons for that conclusion would have been given had the question been squarely presented. In the prior acts referred to, personal liability was imposed only upon stockholders in banks issuing bank notes or any kind of paper credits to circulate as money. The' Banking Law, on the other hand (§ 52), imposes the liability upon the stockholders in “ every ” corporation to which the act applies; that is, to every corporation transacting a banking business of whatever nature. Hence, it must be conceded that the Banking Law created a liability which never existed before, and, until its. passage, the defendant stockholders would not have been liable, as the Madison Square Bank was not a bank of issue.

The learned counsel for the plaintiff concedes this, but contends that the act is constitutional because of a reservation by the Legislature of the right to amend the charter of the bank. It was incorporated under chapter 260 of the Laws of 1838, section 32 of which reserved the right to alter or repeal the act. Unquestionably, this' section gave the right to thereafter increase the liability of shareholders. (Matter of Oliver Lee & Co.’s Bank, supra ; S. C., sub. nom. Sherman v. Smith, 1 Black, 587; Matter of Reciprocity Bank, 22 N. Y. 9.) Blit the whole of this act was repealed in 1882. (Chap. 402, Laws of 1882.) There was also for many years on the statute hooks of the State a provision making “ the charter of every corporation * * * subject to alteration-, suspension-

and repeal in the discretion of the Legislature.” (B. S. pt. 1,'chap. 18, •tit. 3, §. 8.) But this provision was repealed iii 1890 by the original. General Corporation Law. (Laws of 1890, chap. 563.) The Constitution of 1846, however, provided (Art. 8, .§ 1): “ Corporations. may be formed under general laws,, but shall not be created, by special act, except for municipal purposes * * *. All general laws and special acts passed pursuant to this section- may be altered from time to time or repealed.” This provision was- iñcor- . porated into the Constitution of 1894 without change. It was first ■ passed eight years after the act of 1838, and its effect upon -corporations previously formed may be doubted. It- is plain, however, ■ that after its passage it modified the act of 1838 to the same extent as though it were included in it, and that thereafter any corporation organized unde? the latter act took its charter subject to. the Legis- ' lature’s right to alter or repeal it. The Madison Square Bank was not organized until-1882, and is, hence, subject to this right.

. It is further contended that the Banking Law was not. meant to embrace banking associations created under the act of 1838. It affects (§ 2) “ any monied corporation ” authorized to carry on a banking business. That these banking associations are “ moneyed corporations'” has long been, settled.. (Robinson v. Bank of Attica, 21 N. Y. 407.) In that case it was said, “ That they are moneyed corporations is as well settled, as that' they are corporations at all. Indeed, if they are corporations, there Can be no escape from the conclusion that they are moneyed corporations.” (P. 409.) It is argued that the Legislature,, in passing the .act of 1838, inaugurated a'new banking system ;. that the associations formed under it differ in' their structure, from the ordinary bank, and that there should be ■ a specific reference in statutes to “banking associations” in order to. ■affect them. Bo such consideration would'justify us in disregarding •the plain wording of the act. These -associations are moneyed corporations, and the Legislature evidently had no intention of excluding them from the purview of the act. On the contrary, the law was plainly meant to apply to and govern all corporations or individuals engaged in the banking business.

The necessity of issuing execution against the bank and having it returned unsatisfied was obviated by the injunction clause in the preliminary restraining order and the final judgment of dissolution. (Hunting v. Blun,, 143 N. Y. 511.) As was said by Chief Judge Andrews in the decision upon the demurrer, this case “puts at rest the question ” on that head. (145 ET. Y. 96.) The case of United Glass Co. v. Vary (152 N. Y. 121) does not disturb the doctrine laid down in Hunting v. Blun. The decision was placed expressly upon the ground that the restraining order was “ preliminary and precautionary,” and that there was nothing to show that the creditor could not have obtained a modification of it. The injunction here is contained in the final judgment of dissolution, and also in the usual order preceding and leading up to it. It is perfectly obvious that no creditor could have obtained a modification of either. Such a modification would have prevented the “ fair and- just distribution of the property of the corporation,” for which the judgment "must provide.” (Code, § 1793.) The defendants are not contending for a substantial right. The machinery already in operation insures them against being held for money which might have been obtained from the corporation. Their point is strictly technical, and it is not well taken.

ETone of the other, points raised requires special consideration. In its main aspects the liability of the defendants may be considered as settled upon the grounds which cannot be altered upon a new trial. But each defendant has the right to prove that he is not a stockholder within the meaning of the act. Some of them have already-done so, and others may be able to do so upon a new trial. .That right should not be taken from them, and there should consequently be a reversal and new trial as. to all the defendants, except Baum and Livermore.

Van Brunt, P.. J., Rumsev, Patterson and O’Brien, JJ., concurred.

As to defendants Baum and Livermore, judgment affirmed, with costs; in all other respects, judgment reversed, new trial ordered, costs to the appellant against the other defendant stockholders to abide event.