Case Name: UNITED STATES GLASS CO. v. VARY et al.
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1894-06-20
Citations: 29 N.Y.S. 636
Docket Number: 
Parties: UNITED STATES GLASS CO. v. VARY et al.
Judges: 
Reporter: West's New York Supplement
Volume: 29
Pages: 636–638

Head Matter:
(79 Hun, 103.)
UNITED STATES GLASS CO. v. VARY et al.
(Supreme Court, General Term, Fifth Department.
June 20, 1894.)
.Liability op Stockholders—Exhausting Remedy against Corporation.
The requirement of Laws 1848, c. 40, § 10, that no stockholder shall be personally liable for a corporate debt until execution against the company shall have been returned unsatisfied, is a condition precedent to the maintenance of an action to charge stockholders, and compliance therewith is not excused by allegation in the complaint that a receiver of the corporation had been appointed, that he had sequestered all its property, and that the corporation was practically dissolved, though no decree of dissolution had been entered.
Appeal from circuit court, Wayne county.
Action by the United States Glass Company against Galvin H. Vary, Stephen ¡N. Keener, Charles W. Trotter, Thomas J. Reynolds, Byron H. Rose, and James M. Pitkin, Jr. From a judgment dismissing the complaint, plaintiff appeals.
Affirmed.
The plaintiff, a creditor of the Trotter Refrigerator Company, a corporation created pursuant to the statute known as ihe “Manufacturing,” etc., “Act,” brought this action in behalf of Itself, and other creditors of the corporation who might choose to come in and share the benefits and expenses of the action, against the defendants, as stockholders of the company. It was upon the calendar of the Wayne circuit, November, 1892. The plaintiff’s motion, that it go over the term, was denied. The action was moved to trial on the defendants’ notice, and upon their motion the complaint was there dismissed upon the ground that it did not state facts sufficient to constitute a cause of action in favor of the plaintiff against the defendants, and judgment was entered accordingly, with costs.
Argued before DWIGHT, P. J., and LEWIS, HAIGHT, and BRADLEY, JJ.
Charles S. Kent, for appellant.
E. A. Nash, for respondents Trotter, Reynolds, and Rose.
Horace McGuire, for respondents Vary, Keener, and Pitkin.

Opinion:
BRADLEY, J.
The-plaintiff, by the complaint, alleges that the Trotter Refrigerator Company was incorporated under the manufacturing, etc., act of 1848, and those amendatory of it, by filing a certificate of incorporation March 19, 1890, whereby the capital stock was fixed and limited to $75,000, divided inte shares of $100 each; that the 750 shares were issued as full-paid stock, but that it never was paid in full; that all the defendants are stockholders of the company; that in an action brought in June, 1891, in the supreme court, by Pitkin, against it, an order was made, appointing Peter R. Sleight receiver of the corporation; that he qualified, and took possession of, and sequestered, as far as possible, all the goods, chattels, property, and choses in action of the company; that "the said action is now pending, undetermined, and no final judgment or final decree of dissolution has been entered therein, and said corporation has not in fact been dissolved, though it is, for all practical or business purposes, dissolved;" that in September following .an interlocutory judgment or order was entered in that action, continuing the receiver, and that, thereafter, large amounts of money came into his hands, and were wholly paid out upon certain executions issued upon judgments, and for disbursements; that the indebtedness of the company to the plaintiff (particularly specified) was so contracted as, by its terms, to be paid within one year; that it has not reduced its claim to judgment, etc., "because of the order of the court made in said action, wherein said receiver was appointed, restraining all persons and creditors from commencing and prosecuting actions against" it, and because the plaintiff is "advised the said corporation is in fact dissolved, and all the property 5 sequestered and in the hands of a receiver," and that execution could not be levied upon, or satisfied out of, property of the corporation. And some other matters are alleged in relation to other creditors who may be permitted to come in, and share the benefits of the action, and thus obviate the necessity of multiplicity of suits, with a view to the equitable relief, as expressed in the prayer of the complaint.
Equitable relief of that character may properly be the purpose of an. action by a creditor of a corporation against its stockholders, in a case where they have become liable under the statute, and there are several creditors, to prevent multiplicity of suits, and thus take an account for all of them. Briggs v. Penniman, 8 Cow. 387; Pfohl v. Simpson, 74 N. Y. 137; Bauer v. Platt, 72 Hun, 326, 25 N. Y. Supp. 426. The question in the present case is whether or not the plaintiff was in a situation to maintain the action. It seeks to charge the stockholders with liability under the statute which provides that the stockholders of a company shall be liable to its creditors, to an amount equal to that of their stock, until the whole amount of the capital stock of the company shall have been paid in, and certificate thereof recorded (Laws 1848, c. 40, § 10), but that no stockholder shall be personally liable for any such debt until an execution against the company shall have been returned unsatisfied, wholly or partially (Id. § 24). This requirement preliminary to the plaintiff's action is not alleged in the complaint, but averring that no judgment has been recovered upon its debt against the corporation, and no execution returned unsatisfied, the plaintiff alleges, by way of avoidance of the necessity for it, that a receiver appointed of the corporation has sequestered its property, and that while the corporation has not, in fact, been dissolved, it is, for all practical or business purposes, dissolved, and adds that the plaintiff has not proceeded to judgment and execution because of the order by which the receiver was appointed, restraining creditors from prosecuting the corporation. The exhaustion of remedy against a corporation, as provided by the statute, is a condition precedent to the maintenance of an action to charge its stockholders. Handy v. Draper, 89 N. Y. 334; Bank v. Bliss, Id. 338. In that respect, it is similar in effect to the requirement of judgment, and return of execution unsatisfied, against any other debtor, before proceeding by action to reach property or funds equitably chargeable with the payment of his debt. Estes v. Wilcox, 67 N. Y. 264; Adsit v. Butler, 87 N. Y. 585. And in neither case can it be dispensed with for any cause, except such, as render its accomplishment practically impossible. The death of the debtor does not permit the creditor at large to proceed in equity by what is known as a "creditor's bill," because an action can first go against the personal representative of the deceased debtor, and in such case the bill will not be supported by the fact that he died insolvent. Estes v. Wilcox, supra; A creditor can be relieved from the necessity of that condition, only when it cannot be performed. Bank v. Wetmore, 124 N. Y. 241, 26 N. E. 548. And so, when a corporation has been dissolved, or, for other cause, judgment and execution cannot go against it, the creditor may be relieved from the statutory requirement. Shellington v. Howland, 53 N. Y. 371. In the present case there had been no judicial dissolution of the corporation, nor had it ceased to have existence as such. The alleged receivership was created by an interlocutory order in a pending action against it. The purpose of that action is not alleged in the complaint, nor can it be assumed that its object was to put an end to-its corporate existence. At all events, so far as appears, it still retains its corporate franchise; and it does not appear that the plaintiff may not have obtained leave of the court to bring action against it, if such leave were necessary, as we may assume it to have been. There are cases to the effect that a corporation may suffer that to be done which will destroy or defeat the object of its creation, and which is equivalent to the surrender of its rights as such, and thus relieve its trustees from liability for not doing that which otherwise would be requisite to their protection. But those cases do not necessarily determine that the trustees can be made liable to a creditor of the corporation without his having first proceeded to judgment and execution against the corporation. Slee v. Bloom, 19 Johns. 456, reversing 5 Johns. Ch. 366; Bruce v. Platt, 80 N. Y. 379; Hollingshead v. Woodward, 107 N. Y. 96, 13 N. E. 621. And, when that can be done, no reason is seen for its dispensation by the creditor who seeks to charge the trustees. The doctrine of those cases is that when a manufacturing, etc., corporation has encountered circumstances by which it is disabled from further proceeding in the execution of thé purposes of its creation, the trustees may, without liability, omit to file certificates, or do that which otherwise is requisite for their protection. In such case, and for such purpose, at least, its corporate functions would be suspended. But, to infer the surrender of corporate franchises from insolvency and suspension for a less period than that designated by the statute to consummate it, the circumstances must be such as to make it appear that the corporation has not the power to continue or resume its business. Bradt v. Benedict, 17 N. Y. 93. In the present case the facts alleged in the complaint are not such as to show a dissolution of the corporation. Kincaid v. Dwindle, 59 N. Y. 548; Decker v. Gardner, 124 N. Y. 334, 26 N. E. 814. And the futility of the preliminary remedy against it cannot effectually be shown otherwise than by evidence of its result. If these views are correct, the complaint failed to state facts sufficient to constitute a cause of action, and the judg ment and order appealed from should be affirmed. All concur.