Case Name: SARAH O. ALLEN, Administratrix, Plaintiff and Respondent, v. WILLIAM G. WARD, Defendant and Appellant
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1873-11-29
Citations: 4 Jones & S. 290
Docket Number: 
Parties: SARAH O. ALLEN, Administratrix, Plaintiff and Respondent, v. WILLIAM G. WARD, Defendant and Appellant.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 36
Pages: 290–293

Head Matter:
SARAH O. ALLEN, Administratrix, Plaintiff and Respondent, v. WILLIAM G. WARD, Defendant and Appellant.
Before Monell, Curtis, and Sedgwick, JJ.
Decided November 29, 1873.
Bankruptcy Proceedings against Cobpobation.—Effect of, on Liability of its Stockholders.
1. An adjudication in an mvoluutaiy bankruptcy proceeding against a. corporation, adjudging the corporation a bankrupt, and appointing an assignee of its effects, does not affect the enforcement of the claim of a creditor of the corporation against its stockholders,
a. Notwithstanding such adjudication and appointment, the creditors of the corporation may recover against the stockholders. ■
1. This, although the creditor may have proved his debt against the bankrupt estate, and filed his claim with the assignee.
Appeal from judgment and order.
This action was against the defendant as a stockholder of an express company, to recover the value of property sold and delivered to the company.
An action for the recovery of the demand was commenced against the company, and a judgment obtained upon which an execution had been issued and returned unsatisfied.
The defence to this action was, that the company had been adjudged a bankrupt, and an assignee of its effects appointed, and that the plaintiff had proved her debt against the bankrupt estate, and filed her claim with the assignee.
At the trial an offer to prove the facts constituting the defence was excluded, and the defendant excepted.
The court directed a verdict for the plaintiff.
The defendant appealed. ■
Elihu Root, attorney, and of counsel for appellant, urged:
First. The proof in bankruptcy, evidence of which the court excluded, was a voluntary waiver and extinction of the right of action against the corporation upon which the plaintiff’s claim against this defendant is founded (The United States Bankruptcy Act of 1867, § xxi ; Marbury v. Madison, 1 Cranch. 137-180 ; In re Rosenberg, 2 B. R. 82).
Second. Independently of the express provision of section 21, the plaintiff’s proof of her claim in the bankruptcy proceeding is a bar to this action so long as the state of things shown on the trial continues to exist.
The bankruptcy proceeding is in its nature and effect identical with the proceedings in equity against an insolvent corporation provided for by our Revised Statutes.
When such a proceeding was commenced, not only could all suits at law against the corporation and stockholders be stayed, but creditors becoming parties to such proceedings were ipso facto prevented from proceeding at law (2 R. S. 466 ; Hutchinson v. N. Y. C. Mills, 2 Abb. 401).
The statutory provision requiring judgment and return of execution unsatisfied against the corporation, before suit against the stockholder, was intended by the legislature as a safeguard to the stockholder' (Corning v. McCullough, 1 Comst. 47-67).
It was to secure the exhaustion of the remedy against the corporation before the stockholder should be called upon to respond.
If this plaintiff had united in the proceeding under the Revised Statutes, to reach the unpaid balances of stock subscriptions which constitute a trust fund for the payment of creditors (Mann v. Pentz, 3 N. Y. 416), it would be that remedy which she must show to be exhausted.
Eaton, Tailer & Cadwalader, attorneys, and J. L. Cadwalader, of counsel for respondent, urged :
(1.) A creditor of an individual does not, by proving Ms claim, extinguish his right of action, but waives his remedies so far as they are inconsistent with the act (Bump’s Bankruptcy, 6th ed. p. 437; Hoyt v. Freel, 8 Abb. Pr. N. S. 220).
A collateral remedy not directed at the debtor could always be enforced.
(2.) The Bankrupt Law, section 37, provides that no corporation, and no member, etc., of any such, shall be discharged. To allow this defendant to defend on this ground is a violation of the statute (Bump’s Bankruptcy, 6th ed. pp. 437, 438; Allen v. Soldiers, etc., Co., 4 B. R. 176; Meyer v. Aurora Ins. Co., 7 B. R. 191).
The whole question was passed on when this corporation moved for a stay on this very judgment obtained against it in the Supreme Court (see Allen v. Soldiers, etc., Co., supra).
(3.) Section 21 of the act, providing all suits, etc., shall be stayed, has no reference to corporations, and the only remedy of the defendant was a stay on the original cause of action, which was attempted and failed. When no discharge could be granted, no stay 'would be granted.
So much of section 31 as prescribes a penalty for proving a debt applies only to a debt which may be discharged.
A debt against a corporation or one contracted by fraud cannot be affected (In re Robinson, 6 Blatch. 253 ; In re Rosenberg, 2 B. R. 81; In re Wright, 36 How. Pr. R. 167 ; In re Migel, 2 B. R. 153).
(4.) Besides the condition precedent, on the happening of which, by the terms of the act, the defendant became liable, had arisen. The defendant became liable, bankruptcy or no bankruptcy, whenever a judgment had been obtained, and an execution upon it returned unsatisfied.
As shown above, a stay was attempted and failed, and the judgment and execution now stand unquestioned. Whether this corporation is bankrupt or not—solvent or insolyent, will make no difference—when the judgment is recovered and the execution returned, the act, by its terms, makes the defendant liable.

Opinion:
By the Court.—Monell, J.
The provision of the Bankrupt Law (§21), which declares that no creditor proving his claim shall be allowed to maintain any suit therefor) at law or in equity, against the bankrupt, cannot have any broader effect than is warranted by the letter of the statute. It does not inhibit other or collateral remedies. The right of action, therefore, against the defendant, arising upon his liability as a stockholder, is not affected by the Bankrupt Law.
Another reason for excluding the defence is that the suspension of the right to prosecute the bankrupt is only until the question of his discharge shall have been determined. ^
Now, as it is expressly provided that no discharge shall be granted to a corporation, or to any person, officer, or member thereof (§ 37), the inhibition contained in the previous section would probably be inoperative.
There was no error in excluding the evidence offered.
The judgment and order should be affirmed.
Curtis and Sedgwick, JJ., concurred.