Case Name: Frank Walton, App'lt, v. E. Frank Coe, Resp't
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1888-01-23
Citations: 13 N.Y. St. Rep. 416
Docket Number: 
Parties: Frank Walton, App’lt, v. E. Frank Coe, Resp’t.
Judges: 
Reporter: New York State Reporter
Volume: 13
Pages: 416–418

Head Matter:
Frank Walton, App’lt, v. E. Frank Coe, Resp’t.
(Supreme Court, General Term, First Department.
Filed January 23, 1888.)
1. Corporation—Liability op stockholder—Laws 1875, chapter 611— Complaint—Demurrer.
In an action against a stockholder of a corporation organized under chapter 611 of the act of 1875, it is not necessary to allege, as a condition, precedent to suit, that judgment and execution have been had and exhausted against the corporation.
2. Same—How liability enforced.
The right of action against a stockholder accrues as soon as an action, against the corporation has been commenced, but the right to collect the-judgment does not become operative until the assets of the corporation have been exhausted by the issuance of an execution against the corporation and its return.
Appeal from judgment sustaining demurrer to amend complaint on the ground that it did not state a cause of action.
William W. Badger, for app’lt; Henry D. Hotchlcissy for resp’t. -

Opinion:
Van Brunt, P. J.
The plaintiff, a simple contract creditor, seeks to hold the defendant as a stockholder of the-American Opera Company liable for the amount of his debt. The objection is taken that the complaint does not show that the plaintiff has exhausted his remedy against the corporate assets.
That this is the general rule needs no citation of authorities and seems to be admitted by the appellant, but it is claimed that it has no application to the case at bar because-of the wording of the statute under which the alleged, liability arises.
Attention is called to the fact that it is provided by the manufacturers' act of 1848 that no action can be commenced against a stockholder by a creditor of the corporation until an execution against the company shall have been returned unsatisfied in whole or in part, and that these words cannot be found in the act of 1875.
It is urged in opposition to this claim that even when not expressly provided by statute it is the rule that before corporate creditors can proceed against shareholders under their statutory liability they must first exhaust their remedy against corporate assets, and that the provisions of section 25 and section 37 of the act of 1875, when taken together, clearly show that such was the legislative intention.
Section 25 of the act of 1875 reads as follows:
"No stockholder shall be personally liable for the payment of any debt contracted by any corporation formed under this act, which is not to be paid within two years-from the time the debt is contracted. Nor unless an action for the collection of such debt shall be brought against such corporation within two years after the debt shall become due."
The language of- this section is precisely the same as that in section 24 of the act of 1848, with the exception of the times limited for the debt to become due, and for the action to be commenced against the corporation, and the last clause of section 24 of the-act of 1848 is omitted as above stated.
This omission would not perhaps be so significant were it not for a provision contained in section 37 of the act of 1875.
In that section, after regulating the liability of stockholders, it is provided that "no execution" shall issue against any stockholder, individually, until execution has-been issued against the corporation and returned unsatisfied. If it had been the intention of the framers of the acts that no action could be commenced against a stockholder until an execution against the company shall have been returned unsatisfied in whole or in part, why should that provision have been inserted.
It was evidently contemplated that the right of action against a stockholder should accrue as soon as an action against the corporation had been commenced, but that the right to collect the judgment should not become operative until the assets of the corporation had been exhausted by the issuance of an execution against the corporation and its return.
It is true that the construction leads to anomalous results, as if the creditor should recover a judgment against the stockholders, but should never recover a judgment against the company, he could never issue execution upon his judgment against the stockholder, but such judgment- would, nevertheless, remain a cloud against the stockholder's credit, and a lien on his real estate which could only be discharged by payment. It is undoubtedly true, also, that the legislature never contemplated or intended such a possibility, but what they did intend produces just this result which they did not foresee.
Results, which produce hardship must necessarily make us hesitate in adopting the construction above indicated, but the omission from section 25 of the act of 1875, of the words contained in section 24 of the act of 1848, above-mentioned and provision as to issuance of execution contained in section 37 of the act of 1875, indicate too clearly what the intention of the framers of the law was for the courts by judicial legislation to nullify the plain provision of the statute. It would seem that the intention of the legislature in omitting the last clause of section 24 of the act of 1848, from section 25 of the act of 1875, was to prevent the limitations contained in the section from becoming operative whilst the action against the corporation was pending.
The light to commence an action against a person, who shall have ceased to be a stockholder is limited in both sections to two years after he shall have so ceased to be a stockholder, and consequently, if by any chance, although the creditor' may have commenced his action promptly against the corporation, he should be unsuccessful in obtaining judgment after the expiration of two years, his right of action against a stockholder might be lost.
In attempting to remedy one evil the legislature may have subjected stockholders of corporations to far greater ones, but this fact cannot alter the plain intent of the legislature as manifested in the statute under consideration.
The judgment should be reversed and defendant allowed to withdraw his demurrer and answer,, on payment of costs of special term and appeal
Daniels, J., concurs.