Case Name: George P. Rowell et al., Resp'ts, v. Edward W. Lambert, App'lt
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1892-11-18
Citations: 49 N.Y. St. Rep. 197
Docket Number: 
Parties: George P. Rowell et al., Resp’ts, v. Edward W. Lambert, App’lt.
Judges: 
Reporter: New York State Reporter
Volume: 49
Pages: 197–199

Head Matter:
George P. Rowell et al., Resp’ts, v. Edward W. Lambert, App’lt.
(Supreme Court, General Term, First Department,
Filed November 18, 1892.)
1. Manufacturing companies — Liability of stockholder for debts of COMPANY FOR FAILURE TO FILE CERTIFICATE.
No liability exists, even where a certificate of full payment is not filed, for stock issued for property, unless fraud is established.
2. Same—Pleading.
A complaint simply alleging failure to file the certificate required by § 10 of the act of 1848, does not set up a cause of action against a stockholder, because he may be a holder of stock issued for property at its value. In order to make out a full cause of action, it should state either that the stock was issued apparently for cash and no certificate filed, or that it was issued for property at a fraudulent valuation.
Appeal from judgment entered on verdict directed by the court.
D. W. Richards, for app’lt; Philip Carpenter, for resp’t.

Opinion:
Van Brunt, P. J.
This action was brought to recover from the defendant, as stockholder of a manufacturing corporation, a debt owing by the corporation to the plaintiff, on the ground that no certificate of full payment of capital stock was filed as required by the act of 1848. The defendant moved for judgment dismissing the complaint because there was no allegation that the stock was issued for cash rather than for property: The motion
was denied, and the plaintiff made formal proof of debt, of judgment against the corporation and return of execution unsatisfied, and rested. The defendant again moved to dismiss, which motion was denied, the court holding that the issuance of stock for property was an affirmative defense, and must be proved. The defendant offered no evidence, and the court directed a verdict for the plaintiff, and from the judgment thereupon entered this appeal is taken.
In this ruling, we think, error was committed. It is plain, from an examination of the complaint, that the theory upon which the action was tried was that, because no certificate that the whole amount of the capital stock fixed and limited by the articles of incorporation of said corporation had been paid in had been filed and recorded, as required by § 10 and 11 of chapter 40 of the Laws of 1848 and their amendments, a liability existed upon the part of the defendant as a stockholder. And the question involved upon this appeal is whether a cause of action is alleged against the stockholder of a corporation when the complaint alleges the ownership of stock and the failure-to file the certificate required by § 10 of the statute above-mentioned. Section 10 requires that all stockholders shall be severally liable to the creditors to the amount of their capital stock until the capital is paid in and a certificate thereof recorded. The president and trustees were by § 11 required to make and record this certificate, and as the law originally stood, § 14 provided that nothing but money should be- considered as payment of any part of the capital stock. In 1853 § 14 was amended by adding thereto that the trustees of such corporation might purchase property necessary for their business and issue stock to the amount of the value thereof in payment therefor, and that the stock so issued should be declared and taken to be full stock, and not liable to any further calls, neither should the holder thereof be liable for any further payments under the provisions of § 10.
It seems, therefore, that, under the language of this amendment, where stock was issued for property, the necessity for filing a certificate does not exist, as it is provided that the holder of such stock shall not be liable for any further payments under the provisions of § 10 of the act.
Therefore, if the stock was issued for property at its value, there can be no further call made upon the stockholder, whether the certificate is filed or not. Hence a complaint, simply alleging failure to file a certificate does not set up a cause of action against a stockholder, because such stockholder may be a holder of stock issued for property at its value. And this seems to have been what was held in the case of Brown v. Smith, 13 Hun, 408, and affirmed by the Court of Appeals, 80 N. Y., 650.
A similar rule was recognized in the case of Douglass v. Ireland, 73 N. Y., 100, where it held that, in order to maintain a recovery upon the ground that stock was issued in excess of the value of the property, it must be shown that the purchase was in bad faith and to avoid the statute. In other words, the transaction must be impeached for fraud, but. not for error of judgment or mistaken views of the value of the property, inasmuch as good faith in the exercise of an honest judgment is all that is required. The liability resting in fraud, it is a cardinal rule of the law that the party claiming must establish the existence of the fraud, and it cannot be presumed, and that a party defendant is never compelled to establish that there was no fraud.
Applying this principle to the case at bar, it is apparent that it is necessary, in order to make out a complete cause of action against a stockholder, to show either that the stock was issued apparently for cash' and no certificate filed, or that it was issued for property at a fraudulent valuation for the purpose of evading the statute. It cannot be, therefore, that a stockholder who seeks to evade liability must show the facts entitling him to relief. We think that the principles laid down in Wheeler v. Millar, 90 N. Y, 353, cited Toy the respondent, are entirely misapplied. The fact that a party is the holder of stock issued for property is not a defense, because the mere absence of a certificate creates no cause of action. The plaintiff must allege, if the stock has been issued for property, that it has been taken at a fraudulent valuation in order to set out a good cause of action. It is claimed that this rule is a great hardship, and that creditors are not expected to know whether stock has been issued for cash or property, which is a fact peculiarly within the means of the knowledge of the stockholder. That this argument cannot prevail is strikingly illustrated by the case of Griffeth v. Green, 129 N. Y., 317; 42 St. Rep., 101, where the liability depended upon the fact of the stock held by the party being part of an increase of the capital stock. Under those circumstances, in order to a recovery, the plaintiff was required to allege and prove this fact
It has been suggested that the case last cited was in conflict with the previous cases with reference to the necessity of the filing of the certificate and the question of the burden of proof.
We have examined the case in vain to find anything in conflict with the previous case upon this point; and we think that a reading of the statute clearly shows that no liability exists, even where a certificate is not filed, for stock issued for property, unless fraud is established.
The judgment should be reversed, and a new trial ordered, with costs to appellant to abide event.
O'Brien, J., concurs.