Case Name: Lyell Avenue Lumber Company, Suing in Its Own Behalf and in Behalf of All Other Creditors of the State Hotel Company, Respondent, v. Margaret V. Lighthouse and Others, as Executors, etc., of John C. Lighthouse, Deceased, Appellants, Impleaded with Joseph A. Wolford and Others, Defendants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1910-03-09
Citations: 137 A.D. 422
Docket Number: 
Parties: Lyell Avenue Lumber Company, Suing in Its Own Behalf and in Behalf of All Other Creditors of the State Hotel Company, Respondent, v. Margaret V. Lighthouse and Others, as Executors, etc., of John C. Lighthouse, Deceased, Appellants, Impleaded with Joseph A. Wolford and Others, Defendants.
Judges: 
Reporter: Appellate Division Reports
Volume: 137
Pages: 422–425

Head Matter:
Lyell Avenue Lumber Company, Suing in Its Own Behalf and in Behalf of All Other Creditors of the State Hotel Company, Respondent, v. Margaret V. Lighthouse and Others, as Executors, etc., of John C. Lighthouse, Deceased, Appellants, Impleaded with Joseph A. Wolford and Others, Defendants.
Fourth Department,
March 9, 1910.
Corporation — stockholder — stock not fully paid — creditor’s action against stockholder—facts justifying recovery—subscription accompanied by oral condition — dissolution of corporation.
The holder of stock not fully paid is liable to creditors of the corporation under sections 56 and 59 of the Stock Corporation Law, where he signed the preliminary subscription paper providing for the organization of the corporation, although he did not sign the certificate itself, and although' the certificate gives wider powers to the corporation than 'those originally contemplated, if he was the owner of lands which the corporation acquired, made loans to it in order that it might improve the property and held himself out as a stockholder.
The legal effect of such subscription is not altered by an oral agreement that the subscription shall not be binding unless the corporation raises certain moneys to pay a mortgage given to the subscriber.
Such stockholder cannot escape liability because the incorporators did not sign the certificate of incorporation at the end if they did sign it above the attestation clause, acknowledged the execution and filed the certificate as required by law. Under such circumstances there Was at least a defaoto corporation, and the stockholder having held himself out and acted as such cannot question -its ' legal existence.
An action by the creditor of a corporation against a holder of stock not fully paid is not barred by a dissolution of the corporation and' the appointment of a receiver of its assets. .
Appeal by the defendants, Margaret Y. Lighthouse and others, as executors, etc., from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the-county of Monroe on the 30th day of June, 1909, upon the decision of the court rendered after a trial at the Monroe Special Term.
The plaintiff, a judgment creditor of the State Hotel Company, a domestic corporation, brings the action against the stockholders of the company under the provisions of the Stock Corporatiqn Law (Gen. Laws, chap. 36 [Laws of 1892, chap. 688], §§ 54, 55, as amd. by Laws of 1901, chap. 354; now revised in Consol. Laws, chap. 59 [Laws of 1909, chap. 61], §§ 56, 59), making every stockholder whose stock is not fully paid personally liable to its creditors to an amount equal to the amount unpaid on the stock held by him for debts of the corporation contracted while such stock was held by him.
The trial court found that Lighthouse,- who alone defended, was a stockholder in the corporation and the owner and holder of fifty shares of capital stock of the par value of one hundred dollars a share, as to the creditors of the corporation, and directed an interlocutory judgment against the stockholders in favor of the plaintiff and all other creditors who shall come in and prove their debts, share in the expenses, and whose debts are payable within two years from the date they were contracted, and due within two years prior to the commencement of the action, and answer the other descriptions of the statute ; for the appointment of a referee to take proof of the claims and solvency of the defendant stockholders, the amount unpaid by them, the expenses that will be incurred, and the amount to be paid to the several creditors by the stockholders, or such of them as shall be found solvent and within the jurisdiction of the court; and that upon the coming in of the report final judgment be entered fixing the several amounts for which the several defendants are liable, and the amount which such as are solvent and within the jurisdiction.of the court shall in the first instance contribute, and the ultimate liability of each of such defendants, in case any contributions cannot be collected, and also fixing the proportion of said fund to which the several creditors of the hotel company are entitled, and other' provisions incident to the primary relief, which need not be set forth here.
S. D. Bentley, for the appellants.
Nicholas J. Weldgen, for the respondent..

Opinion:
Kruse, J.:
The principal question here is whether Lighthouse was a stockholder. I think the evidence supports the finding that he was. While he did not sign the certificate incorporating the State Hotel Company, he subscribed a preliminary subscription paper to the effect that the subscribers would organize a corporation under the laws of this State, to be known as the State Hotel Company, to purchase certain real estate therein named,' and thereafter conduct and carry on a hotel, the capital stock of which was to be $100,000, consisting of 1,000 shares, and the real estate to be put into the company at $55,000 by the present owners thereof, and paid-up stock . issued to them therefor. The real estate belonged to Lighthouse. He conveyed it to some of his associates in the. enterprise, whogave back a mortgage for $40,000, but paid nothing down. It was expected the corporation would take over the property and pay for it.
The corporation has all the power, according to its certificate of incorporation, that was contemplated by the subscription paper; and more than that. The objection now made on behalf of Lighthouse, that he is not a stockholdér in the corporation because the certificate is more comprehensive in its terms as regards the purpose and business of the corporation than was Contemplated by the subscription paper, I think is untenable. While there is no direct evidence to show that he had personal knowledge of th¿ contents of the certificate he knew that a corporation had been formed ; he was the owner of the real property referred to in the subscription paper arid expected to be paid therefor from the proceeds of the.sale of bonds of the corporation; he made loans to the company for the purpose of improving the property for a hotel; the lumber for which the judgment was obtained against the State Hotel Company and which forms the basis of this suit, was Used in improving the property ; he stated to the plaintiff's agent that he was a stockholder in the corporation ; that the plaintiff would be paid for the lumber ; he gave a proxy and was represented by- the holder thereof at a meeting of the stockholders of the company, which latter fact was expressly found by the trial court at the request of the defendant's attorney. In short, the evidence- shows he was interested in the enterprise from the beginning, took an active part in its management, and regarded himself as a stockholder in the corporation.
In this connection, however, it should be stated and the trial court finds that Lighthouse signed the subscription paper upon an oral condition made at the time of signing that the subscription should not be binding unless and until the company had $40,000 with which to pay the mortgage given to him. The trial judge decided, however, that the oral condition was ineffectual to defeat the legal effect of his subscription, and I think he was right- in so deciding.
The appellants also contend that no corporation was ever formed because the incorporators did not sign the certificate at the end, and, therefore, Lighthouse never became a stockholder. The certificate was signed by the incorporators above the attestation clause, and they acknowledged the execution thereof, and the certificate of acknowl-. edgment is subjoined thereto. The filing of the certificate as required by law and what was thereafter done by the incorporators was at least sufficient to form a de facto corporation, and Lighthouse having held himself out as-a stockholder, acted as such, and taken part in the affairs of the corporation, cannot now question the legal existence of the corporation in that respect or his liability as a stockholder upon the ground that his written subscription was conditional. (Phoenix Warehousing Co. v. Badger, 6 Hun, 293 ; Yonkers Gazette Co. v. Jones, 30 App. Div. 316 ; Beals v. Buffalo Construction Co., 49 id. 589.)
Appellants further urge that the action- is not maintainable by the plaintiff for the reason that the corporation has been dissolved and a receiver appointed;'that all the assets of the corporation are in custodia legis / that the receiver, if any one, should bring the action. It is only necessary to say that the liability here arises upon the statute itself, and that the question has been quite recently decided adversely to the appellants in tins court. (Ford v. Chase, 118 App. Div. 605; affd., 189 N. Y. 504.)
The other objections urged by the learned counsel for the appellant have been considered, but are insufficient, as I think, to justify a reversal of the judgment.
I think the case Was correctly decided and that the judgment. should be affirmed, with costs.
All concurred.
Interlocutory judgment affirmed, with costs.