Case Name: STODDARD v. LUM et al.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1898-07-26
Citations: 53 N.Y.S. 607
Docket Number: 
Parties: STODDARD v. LUM et al.
Judges: 
Reporter: West's New York Supplement
Volume: 53
Pages: 607–616

Head Matter:
(32 App. Div. 565.)
STODDARD v. LUM et al.
(Supreme Court, Appellate Division, Fourth Department.
July 26, 1898.)
1. Foreign Corporations—Liability of Stockholders—Exclusiveness of Remedy.
Starr & C. Ann. St. 111. c. 32, par. 8, provides that a stockholder’s liability for unpaid stock shall be enforced “in the manner herein provided.” Paragraph 25 provides that, if a corporation shall cease doing business, leaving debts, suits in equity may be brought against all stockholders by joining the corporation; that each stockholder shall pay his pro rata share of such debts to the extent of the unpaid portion of his stock, after exhausting the assets of the corporation; that, if any stockholder shall not have sufficient property to satisfy his proportion of the debts, then the amount shall be divided equally among the remaining solvent stockholders; and that courts of equity shall have power to close up the corporate business, and to appoint a receiver, who shall be a resident of Illinois, and shall enter into a bond payable to the people of that state, and who shall have authority to sue in all courts, and do all things necessary in closing up the corporation’s affairs. Held, that the remedy so provided is exclusive, and therefore an assignee for creditors of a corporation cannot enforce the stockholders’ liability.
9. Same—Jurisdiction of Courts of New York.
Such remedy is one that can properly be enforced only in the courts of Illinois, and therefore the courts of New York will not take jurisdiction.
Green and Follett, JJ., dissenting.
Appeal from special term, Orleans county.
Action by Horace Stoddard, as assignee of the Soldiers’ World’s Fair Hotel Association, against Chauncey H. Lum and others. From an interlocutory judgment on a decision overruling defendants’ demurrer, certain of the defendants appealed.
Reversed.
The decision found as conclusions of law that the amended complaint states facts sufficient to constitute a cause of action; second, that this court has jurisdiction of the subject of the action; third, that the plaintiff has legal capacity to sue and maintain the action in this court. The demurrer was interposed by the defendants upon the grounds: “First. That it appears upon the face of said amended complaint that the court has not jurisdiction of the subject of this action. Second. That 'it appears upon the face of the amended complaint that said amended complaint does not state facts sufficient to constitute a cause of action. Third. That it appears upon the face of the said amended complaint that the plaintiff has not legal capacity to sue, because it appears by said amended complaint that the plaintiff is a foreign assignee of a foreign corporation organized by the laws of the state of Illinois, and deriving his power and appointment from under the laws of the state of Illinois; and that the statutes óf the state of Illinois provide a special and peculiar remedy in the courts of that state for the enforcement of all the liabilities alleged against these defendants in said amended complaint; and that by the laws of said state it is provided that such an action can be maintained only by a receiver of such corporation, who must be a resident of said state of Illinois, and shall have given bonds, payable to the people of the state of Illinois, for the use of the parties interested in such penalty, and with such securities as the court may in the decree or order appointing the same require, and that such- action can be maintained by such receiver only as provided by the laws of the state of Illinois.”
Argued before HARDIN, P. J., and FOLLETT, ADAMS. GREEN, and WARD, JJ.
E. L. Pitts and Isaac S. Signor, for appellants.
W. C. Ramsdale, for respondent.

Opinion:
HAEDIN, P. J.
In 1892 the Soldiers' World's Fair Hotel Association, under the laws of the state of Illinois, was incorporated. In 1893 it became indebted to sundry persons, and unable to pay its debts, and thereupon its directors made a voluntary assignment to the plaintiff for the benefit of its creditors. Subsequently suits were brought against certain Illinois stockholders and judgments obtained against them, and executions issued, and a small amount of their liability was realized. The county court of Cook county authorized the plaintiff to commence proceedings in this state against the stockholders residing here to recover from them the amount of their unpaid shares of stock, or their proportionate share thereof. Plaintiff has brought this action claiming it to be for and in behalf of all the creditors of the corporation. It was alleged in the complaint that the creditors exceed 115 in number; and it is alleged that Eobertson, one of the creditors, prior to the commencement of the suit by this plaintiff in the superior court of Cook county, obtained a judgment against the corporation in a court of record having jurisdiction thereof in the state of Illinois for the amount of his debt against said corporation, and issued execution thereon to the sheriff of the proper county, which said execution was, after 10 days, returned unsatisfied. It is also alleged that the corporation has ceased doing business, leaving debts unpaid, and that the defendants named as residents of the state of Hew York were stockholders of said corporation at the time said judgment was obtained and execution was returned unsatisfied and at the time said corporation ceased doing business. It is alleged that under the laws of the state of Illinois a corporation organized, as was plaintiff's assignor, has authority and right to make an assignment for the benefit of creditors; and it is averred that by the laws of the state of Illinois—
"Bach stockholder shall be liable for the debts of the corporation to the extent of the amount that may be unpaid upon the stock held by him, to be collected in the manner herein provided"; and that "no assignor of stock shall be released from any such indebtedness by reason of any assignment of his stock, but shall remain liable therefor jointly with the assignee until the said stock be fully paid"; and that "every assignee or transferee of stock shall be liable to the company for the amount unpaid thereon to the extent and in the same manner as if he had been the original subscriber"; and that "if any corporation or its authorized agents shall do, or refrain from doing any act which shall subject it to a forfeiture of its charter or corporate powers, or shall allow any execution or decree of any court of record, for a payment of money after demand made by the officer, to be returned 'No property found,' or to remain unsatisfied for not less than ten days after such demand, or shall dissolve or cease doing business, leaving debts unpaid, suits in equity may be brought against all persons who were stockholders at the time, or liable in any way, for the debts of the corporation, by joining the corporation in such suit; and each stockholder may be required to pay bis pro rata share of such debts or liabilities to the extent of the unpaid portion of his stock, after exhausting the assets of such corporation. And if any stockholder shall not have property enough to satisfy his portion of such debts or liabilities, then the amount shall be divided equally among all the remaining solvent stockholders." Starr & 0. Ann. St. c. 32, pars. 8, 25.
It does not appear by the record before us that the corporation has been served with process in this action. The statute under which the. corporation was organized is referred to in the schedule annexed to the complaint. By that statute it is provided that the shares shall be personal property, and that—
"Subscriptions therefor shall be made payable to the corporation, and shall be payable in such installments and at such time or times as shall be determined by the directors or managers, and an action may be maintained in the name of the corporation to recover any installment which shall remain due and unpaid for the period of twenty days after personal demand therefor." Id. par. 7.
In the eighth section of the act it is provided that—
"Each stockholder shall be liable for the debts of the corporation to the extent of the amount that may be unpaid upon the stock held by him, to be collected in the manner herein provided." Id. par. 8.
In the twenty-fifth section of the act it is provided that, if the corporation shall do or refrain from doing any act which shall subject it to forfeiture of its charter,
"Or shall dissolve or cease doing business, leaving debts unpaid, suits in equity may be brought against all persons who were stockholders at the time, or liable in any way for the debts of the corporation, by joining the corporation in such suit; and each stockholder may be required to pay his pro rata share of such debts or liabilities to the extent of the unpaid portion of his stock, after exhausting the assets of such corporation. And if any stockholder shall not have property enough to satisfy his portion of such "debts or liabilities, then the amount shall be divided equally among all the remaining solvent stockholders. And courts of equity shall have full power on good cause shown, to dissolve or close up the business of any corporation, to appoint a receiver therefor who shall have authority by the name of the receiver of such corporation (giving the name), to sue in all courts and to do all things necessary to closing up its affairs, as commanded by the decree of such court. Said receiver shall be, in all cases, a resident of the state of Illinois, and shall be required to enter into bonds, payable to the people of the state of Illinois." Id. par. 25.
If the plaintiff was permitted to have the relief which he seeks in this action, it would seem that all the creditors should be required to establish their claims, and that it would be necessary to state all the stockholders, and to determine which ones were solvent and which ones were insolvent, before the exact liability of any of the defendants could be ascertained; and it appears that certain of the stockholders are residents of the state of Illinois, and have never been made parties to an action, and they are not now made parties to this action in such manner that the court would have jurisdiction over those residing in that state. Upon a consideration of the provisions of the Illinois statute, it seems that a system is provided for the enforcement of stockholders' liability, and that that system should be pursued, and is exclusive, and, therefore, the assignee ought not to be permitted to maintain this action.
The question which is raised by the demurrer has been very extensively considered in Barnes v. Wheaton, 80 Hun, 8, 29 N. Y. Supp. 830 (Fourth department; 1894), and an exhaustive opinion was delivered for the court by Martin, J., and that case was followed by the First department in Railroad Co. v. Kent, 87 Hun, 331, 34 N. Y. Supp. 427, in an opinion delivered by O'Brien, J. (concurred in by Van Brunt, P. J., and Follett, J.), which-opinion satisfactorily discusses the essential questions presented by the demurrer in this case. The question- has also been discussed in Russell v. Railway Co., 113 Cal. 258, 45 Pac. 323.
In Marshall v. Sherman, 148 N. Y. 9, 42 N. E. 419, it was said:
"The general rule is that the statutory liability of stockholders in foreign-corporations for debts of the corporation cannot be enforced except at the-domicile of the corporation, when the law of the domicile provides the remedy."
Dayton v. Borst, 31 N. Y. 435, was an action brought by a receiver at law to recover an unpaid subscription, and the question involved in this case was not presented in that, and therefore we see nothing in the case that aids the contention of the respondent.
Vanderpoel v. Gorman, 140 N. Y. 566, 35 N. E. 932, was an action brought by an assignee of a corporation to recover from the defendant "the value of the property levied on" by him, and the question involved in this case did not arise there.
The foregoing views lead to the conclusion that the interlocutory judgment Should be reversed, with costs, and the demurrer sustained.
Interlocutory judgment reversed, with costs, and the demurrer sustained, with costs, with leave to the plaintiff to amend upon payment of the costs of the demurrer and of this appeal.
ADAMS and WARD, JJ., concur.,