Case ID: ad_84/html/0301-01.html
Source: Caselaw Access Project
Author: {"author": "McLaughlin, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Irving National Bank, Suing on Behalf of Itself and of All the Other Creditors of the William B. Webb Company, Appellant, v. Daniel C. Moynihan, Respondent, Impleaded with Others.
    
      Liability of a director of a corporation for an indebtedness created in excess of its paid-up capital stock — it must be shown that it is “ not secured by mortgage.”
    
    In an action brought against the directors of a corporation to enforce the liability . imposed upon them by section 34 of the Stock Corporation Law (Laws of 1890, chap. 564, as amd. by Laws of 1893, chap. 688), which provides, “Kb stock corporation, except a monied corporation, shall create any debt, if thereby its total indebtedness not secured by mortgage shall exceed the amount of its paid-up capital stock, and the directors creating or consenting to the creation of any such debt shall be personally liable therefor to the creditors of the corporation,” it is not sufficient for the plaintiff to show the existence of an indebtedness in excess of the paid-up capital stock, but he must show, in addition thereto, that such indebtedness is not'secured by mortgage.
    Appeal by the plaintiff, the Irving National Bank, suing on behalf of itself and of all the other creditors of the William B. Webb Company, from a judgment of the Supreme Court in favor of the defendant, Daniel C. Moynihan, entered in the office of the clerk of the county of New York on the 16th day of October, 1902, upon the decision of the court, rendered after a trial at the New York Special Term, dismissing the plaintiff’s complaint upon the merits.
    
      
      William S. Bénnet, for the appellant.
    
      Henry. H. Mem, for the respondent.
   McLaughlin, J.:

In March, 1895, the W. B. Webb Company was incorporated-under the statutes of this State with a capital stock of $2,500, and it continued to do business until January, 1897, when it was, by a judgment of this court, dissolved and a receiver appointed. Subsequently the plaintiff on- behalf of itself and. all other creditors similarly situated brought this action to recover from two of the directors of the corporation—dhe respondent Moynihan and one William B. Webb-—certain indebtedness of the corporation upon "the ground that the same was created in violation of section 24 of the Stock Corporation Law (Laws of 1890, chap. 564, as amd. by Laws of 1892, chap. 688), which makes the directors of a corporation, except a moneyed corporation, consenting to the creation of an indebtedness not secured by mortgage, in excess of- its paidmp capital stock, personally liable to the creditors of the corporation.

The complaint, among other things, alleged the incorporation of the W. B. Webb Company, the election of Moynihan and Webb as directors, and while acting in that capacity the creation, with their consent, of debts of the corporation unsecured by mortgage to the amount of about $9,000, the dissolution of the corporation, ¡the appointment of a receiver, etc.

In the answer interposed by Moynihan not only the material allegations of the complaint were denied, but there was a specific denial, -that he, as a director of the corporation, created or consented to the creation of any indebtedness not secured by mortgage in excess of its paid-up capital stock, or any indebtedness whatever which has not been paid. . '

; Upon the trial it appeared' that the plaintiff had a claim against the corporation for $600, by reason of its having discounted for the corporation a note for that amount, which remained unpaid ; that the defendant Moynihan, so far. as appeared, did not consent, to the creation of this indebtedness, other than that he took one Hart "and Frankel to the office of. the plaintiff, introduced them to one of its officers, and. thereupon, at.theiy request,, the note was-discounted ; it also appeared that there were other claims against the corparation, including claims held by Moynihan himself, largely in excess of $2,500, but if his claims were deducted, then the aggregate amount of such other claims was less than $2,500.

At the conclusion of the trial the learned justice sitting at Special Term dismissed the complaint and from the judgment entered upon a decision to this effect the plaintiff has appealed.

We are of the opinion that the complaint was properly dismissed. The only right to maintain the action at all is that given by statute, and before the plaintiff could succeed it was bound to bring itself squarely within its provisions. Appreciating this, it alleged that the indebtedness of the corporation, not secured by mortgage, exceeded the amount of its paid-up capital stock and that the same was created with the consent of the directors -Moynihan and Webb. This allegation was denied by Moynihan, and before the plaintiff could recover in the action it was bound to establish by competent proof that this allegation of its complaint was true, and this it did not do. There was absolutely no evidence offered at the trial, so far as the record before us shows, to prove that the indebtedness in excess of the paid-up capital stock was not secured by mortgage. This was a material fact to be established and one without which plaintiff could not recover. The statute so provides. The words are: “No stock corporation, except a monied corporation, shall create any debt, if thereby its total indebtedness not secured by mortgage shall exceed the amount of its paid-up capital stock, and the directors creating or consenting to the creation of any such debt shall be personally liable therefor to the creditors of the corporation.” It is the creation of a debt not secured Toy mortgage in excess of the paid-up capital stock which makes the directors liable, but not a debt which is secured by mortgage. Therefore, at the conclusion of the trial there was a failure on the part of the plaintiff to establish a material fact, upon which depended its right" to recover. The trial court so held and he could not have done otherwise. This conclusion makes it unnecessary to pass upon the other question raised.

The judgment is right and must be affirmed, with .costs.

Patterson, O’Brien, Hatch and Laughlin, JJV, concurred.

Judgment affirmed, with costs.