Case Name: Robert Sanford, Appellant, v. Benjamin T. Rhoads, Jr., and Others, Respondents
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1906-06-08
Citations: 113 A.D. 782
Docket Number: 
Parties: Robert Sanford, Appellant, v. Benjamin T. Rhoads, Jr., and Others, Respondents.
Judges: 
Reporter: Appellate Division Reports
Volume: 113
Pages: 782–785

Head Matter:
Robert Sanford, Appellant, v. Benjamin T. Rhoads, Jr., and Others, Respondents.
Second Department,
June 8, 1906.
Corporation—stockholders of full liability company must be sued within -• .'two years.-.after debt becomes payable — two years begins to run from ■ time payment is due, not from time debt is contracted.
,The stockholders of a.full liability corporation, although personally.liable for all .. debts óf the corporation under section 6 of the Business Corporations Law, aré not liable if an action thereon is not brought within' two years after the debt becomes due.' " ' ■
The Statute of Limitations contained in section 55 of the Stock Corporation Law applies to full liability corporations.
But said Statute of Limitations only begins to run when the debt becomes -payable. Hence, when such.full liability corporation assumes, leases of ten and twenty years’'duration on Which the annual rent is payable quarterly in '■ advance, the stockholders!are personally liable for all rent payable rvithin two years of the time the action to recover the same is brought..
Appeal by the plaintiff, Robert Sanford, from a judgment of the Supreme Court in favor of' the defendants, entered in the office of' the clerk of 'the county'of Dutchess on the 1st day of September, 1905, pursuant to an order made at" the Dutchess County'Trial Term and entered in the office of the clerk of the county of Dutchess on the 31st day of May, 1905, dismissing the complaint on the ground that it failed to state facts sufficient to constitute a cause of action, and also from the said order pursuant to which the judgment appealed from, was entered. ...
Henry G. Sanford, for the appellant.
-Sol -Tekulsky- [Jacob A- Ocmtor .with him.on.the. brief], for respondents Rhoads and others.
Louis F. Reed [Samuel Bell Thomas with him on the brief], for respondents West and Vogt.
Henry Herrold, for respondent Dauenhauer.

Opinion:
Miller, J.:
The defendants are stockholders of a full liability corporation, and the action is to recover rent, taxes and assessments pursuant to two written leases made respectively in 1892 and 1894 for the period of twenty and ten years respectively, and assigned to said corporation in 1896, which entered into the possession of the premises and assumed the obligations of said- leases. The annual rent was payable quarterly in advance. The precise point presented is whether section 55 of the Stock Corporation Law is applicable, and if so, whether the obligations sued upon were debts contracted more than two years before they were payable. Section 6 of the Business Corporations Law (Laws of 1892, chap. 691), under which the action is brought, provides, so far as material, " If the corporation is formed as or becomes a full liability corporation all the stockholders of the corporation shall be severally individually liable to its creditors for all its debts and liabilities, and may be joined as defendants in any action against it." Section 55 of the Stock Corporation Law (Laws of 1892, chap. 688) provides, so far as material, " Ho stockholder shall be personally liable for any debt of the corporation not payable within two years from the time.it is contracted, nor unless an action for its collection shall be brought against the corporation within two years after the debt becomes due." The appellant contends that said section 55 is in conflict "with said section 6, and that, therefore, the latter section controls pursuant to section 33 of the General Corporation Law (Laws of 1892, chap. 687). It has been held, however, by the Appellate Division, first department, that the provision of said section 55, requiring an action to be brought within two years after the debt becomes due, is applicable to an action against stockholders of full liability corporations to enforce°the liability provided by said section 6, and that it being a Statute of Limitations," does not conflict with said section 6, which'contains no reference to a limitation of time within which an action can be brought.- (Adams v. Wallace, 82 App. Div. 117.) We fully agree with the reasoning of Mr. Justice Patterson and the conclusion reached in the case cited, and while it may be conceded that respecting the point involved in the case at bar, there is an apparent conflict between the two sections, one section providing that the stockholders shall be liable for all debts and liabilities, the other that they shall not be liable for any debt not payable within two years from the time it is contracted, yet. we think this conflict is more apparent jthan real, and'disappears when viewed in tlie ¡light of the history of the legislationas pointed out by Mr. Justice Patterson, the provisions in question are taken from chapter fill "of the Laws of 187.5, said section 6 of the Business 'Corporations Law,-which" was first enacted.-as section 7 -of chapter 567 .of the Laws /of;1690, being taken .from' section .34.of said act of 1875, and said pec'tion,5.5 of" the Stock Corporation Law, which was first enacted .as feec.ti.on: <58 of chapter 564 of.-.the Laws of 1890, being taken. from section ®5.vof -.-said act:,; Prior to the revision .of- 1890 the two pro'$d&inns. were,, therefore, parts of - the same" act, and of course had to' ¿b&coustrued -together, and the:fact that in the revision of 1.890 these pro visions, were .-re-.eñactód. in different chapters does not detract ftorn, .the conclusion that the Legislature still intended them to be harmonized so. far .as possible. "
.< But bé thatsas .it may, we think it clear that notwithstanding' the application of said section .55, the complaint still states a good cause o.f -action, for the reason that the debts sued for were hot contracted more. than, -two- years before they were "payable within the meaning of-.-the statute.. Ró.. debt was contracted when the leases were . assigned to the defendants' corporation. A contingent liability was incurred which.only ripened into a .debt as' the premises were used, or, the rent being payable quarterly in advance, as the rent of each" quarter fell due, The distinction between debt, and liability has frequently been recognized by law writers, but" the subject requires" no extended discussion from this - court as there is clear authority in this State controlling upon us. In Garrison v. Howe (17 N. Y. 458) it was held, under a statute imposing individual liability upon ' trustees,, by" reason of failure to filé and publish the .annual report, for debts contracted during .a default, that under a contract for the salé and .delivery of personal property at a future day the debt is not contracted within the meaning 'of the statute until the delivery of. the property. This.ease is cited with approval, and the doctrine reaffirme.dfin Gold v. Clyne (134 N. Y. 262), and the same rule was" followed in- Whitney Arms Co. v. Barlow (68 id, 34). It is true that these cases strictly .construed statutes held to bé. penal, and the decision in each case was in fav.or of the. stockholder, but the.rule •must, work both, ways, and if the debt, is to be regarded as , cqiitracted -at the time -the contingent liability.matures into an existing indebtedness, when-¡Such construction will - relieve á stockholder from liability, it must equally be adopted when" it would make the stockholder liable; besides, the liability in question is not penal, but is in the nature of a contract obligation (Cochran v. Wiechers, 119 N. Y. 399), and this construction effectuates the plain legislative intent which was to prevent stockholders being made liable for debts where a longer term of credit than two years had been extended the corporation. I.t follows that the complaint states a good cause of action as to the rents, assessments and taxes accruing within two years prior to the commencement of the action.
The judgment and order must be reversed and a 'new trial"granted, costs to abide the event.
Hooker and Rich, JJ., concurred; Jenks and Gaynor, JJ., concurred on second ground discussed in the opinion.'
Judgment and order reversed and new trial granted, costs to abide the event.