Court Opinion

ID: 7897773
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:53:32.932136+00
Date Added: 2024-06-11T16:32:09.056958
License: Public Domain

Bryan, J.,
delivered the opinion of the Court.
Collis P. Huntington filed a bill in equity to set aside certain transfers of stock made by Henry Y. Attrill. They were made to himself as trustee for his wife and daughters. The present appeal involves the stock transferred for the benefit of Elizabeth Attrill, the appellant, who is one of his daughters. It is alleged in the bill of complaint that Attrill made these transfers of stock without valuable consideration, and with intent to delay, hinder and defraud his creditors, and especially the complainant, who is alleged to be a creditor. The bill is filed by the'complainant in his own behalf to procure the payment of his own debt. No other creditor has been made a party to the suit, and no claims against this stock are presented for adjudication, except those asserted by the complainant in his own interest. The bill shows that the complaiñant in June, 1886, recovered against Attrill and one Soutter a judgment for nearly a hundred thousand dollars in the Supreme Court of New York for the County of Kings. And it is alleged that the cause of action, on which the judgment was rendered arose in June, 1880, and was in this wise: that a certain corporation had *193been formed under the laws of New York, entitled “The Rockaway Beach Improvement Company, limited,” of which the said Attrillfjwas an incorporator and director; that the complainant loaned the said corporation one hundred thousand dollars to he repaid on demand; that only nine hundred and thirty-two dollars of this sum had been repaid; that the amount of the capital stock of the corporation was seven hundred thousand dollars; that Attrill, as director of the corporation, signed and verified by his oath a certain certificate under the statutes of) New York, stating that the full amount of the capital stock of the corporation, to wit, the sum of seven hundred thousand dollars, had been paid in; that said Attrill when he signed and swore to said certificate knew that it was false ; and that the law of New York made Attrill liable to pay the debts of the corporation by reason of his making under oath said false certificate. An exemplification of the judgment was filed with the bill of complaint. It showed that judgment was demanded and obtained against Attrill and Soutter on the ground that they had made the false certificate under oath. We were informed at the argument that, by agreement of counsel, the New York statute was to be considered as set forth in the bill. A demurrer was filed by the defendant, which was overruled by the Court below.
The twenty-first section of the statute is in these words: “If any certificate or report made or public notice given by the officers of any such corporation, shall be false in any material representation, all the officers who shall have signed the same shall be jointly and severally liable for all the debts of the corporation contracted while they are officers thereof.” Act of 1875, chapter 611, (New York.) Eor doing any of these forbidden acts, the officers of a corporation are made liable for its debts. No inquiry is to be made whether *194the creditor has been deceived and induced by deception to lend his money, or to give credit; or whether he-has incurred loss to any extent by the inability of the corporation to pay; nor is the recovery limited to the amount of the loss sustained. All that is necessary to show is that the act has been committed, and thereupon any creditor is entitled to recover the full amount of his debt. In an action for an injury to the person or property of an individual, it must be first shown that his rights have been invaded, and then the extent of the damage must be shown. It is true that in some cases the law allows a recovery far beyond the amount of actual damage; as where the injury was inflicted from fraudulent or malicious motives. But in these cases the recovery is founded on the injury to rights of person or property, and the circumstances which justify an exceptional measure of damages must be proved in evidence. There is a very marked and obvious difference between these cases, and a case -where a statute enacts that because of the commission of a certain act, without reference to any other circumstance, a party shall incur a liability. Because thou hast done this thing, thoir shalt pay the debts of another. It is extremely difficult to conceive that the statute was not intended to provide a punishment for the obnoxious acts. The payment of a sum of money, which a party would not otherwise be obliged to pay, is no less a punishment, because it is inflicted through the\medium of a civil suit instead of criminal prosecution. And such has been the uniform opinion of the Courts of the State where this statute was enacted. In Merchants’ Bank vs. Bliss, 35 N. Y., 412, an action was brought against the defendants, as trustees of a corporation created under the general Act of 1848, to recover a debt due to the plaintiffs from the corporation; and the question was whether the action was barred by *195limitations. The Code prescribed six years as the period of limitations, where the action was upon a liability created by statute other than a penalty or forfeiture ; and three years for “an action upon a statute for a penalty or forfeiture, where action is given to the party aggrieved.”^ The defendants were alleged to he liable under the twelfth and thirteenth sections of the Act. The twelfth section required every corporation organized under the Act to make a report annually within twenty days from the first of January, stating the amount of capital, and the proportion actually paid in, and the amount of existing debts; and provided that “if any of said companies shall fail so to do, all the trastees of the company shall he jointly and severally liable for all the debts of the company then existing, and for all that shall he contracted before such report shall he made:” The thirteenth section enacted that “if the trustees of any such company shall declare and pay any dividend, the payment of which would render it insolvent, or which would diminish the amount of its capital stock, they shall he jointly and severally liable for all the debts of the company then existing, and for all that shall thereafter he contracted while they shall respectively continue in office.” We will quote somewhat freely from the opinion of the Court: “itnder these sections,-the trustees are declared to he jointly and severally liable for all the debts of the company, in case of a violation of. their provisions. The liability, it must be observed, is not limited to the injury or damage sustained by the creditors in consequence of the violation, hut upon failure to file the report, or upon making a prohibited dividend, however small or trifling the amount, the trustees are subjected to the payment of the whole amount of the debts of the company then existing, and for all that shall be contracted, in the one case before the report *196shall he made, and in the other while they shall re-r spectively continue in office. These provisions appear to he severely punitive, inflicted on grounds of public policy, for the protection of creditors, and the prevention of frauds upon the public in respect to the financial condition of such corporations. It is clear that the liability of the trustees is not imposed as an indemnity, because it has no relation to the actual loss or injury sustained by the party in whose favor the action is given. The action depends wholly upon the statute. There never was any such remedy, or cause of action, in whole or in part, at common law. If any action could have'been maintained at common law, for either of the causes mentioned in sections 12 and 18 of the General Act, in relation to manufacturing corporations, it could extend only to the actual damages or injury sustained. But those elements have nothing to do with the actions given by these sections. Nor, indeed is it necessary that the creditor should have sustained any injury or damage by reason of a violation of those sections. It is sufficient that the party prosecuting the action should be a creditor when the violation of the law takes place. The right of action is given to the creditors and they must be held to be the parties aggrieved. Eor these reasons, -I am satisfied that the sections 12 and 13 impose a penalty, or a disability in that nature, to which the shorter limitation of three years applies In Stokes vs. Stickney, et al., 96 N. Y., 323, this decision was fully approved.! Referring to what was said in reference to the twelfth section, the Court said: ‘ ‘Since that decision the subject of actions under that section of the statute has frequently been under the consideration of this Court, with the uniform conclusion that the actions therein provided for are penal in their character, and are not in any respect based upon the theory of affording compensation to the *197injured party for damages sustained by reason of the omission complained of;” and they quote a number of decisions of tbeir own Court. jUEn this State in construing a similar provision in a statute, it was held: “that the liability of the director was not one arising upon contract, but one imposed upon him by the statute as a wrong-doer, and therefore in the nature of a penalty.” First National Bank of Plymouth vs. Price, et al., 33 Md., 498.] Section 10 of the New York Act of 1848, makes the stockholders of every company incorporated under its provisions individually liable to the creditors of the company in a sum equal to the amount of their stock, until the whole of the capital stock is paid in and a certificate thereof is made and recorded. A distinction is well established by the decisions between this liability, and that imposed by the twelfth section of the Act. In the former case the statute withdraws from the stockholders the protection of the corporate character, and leaves them liable as co-partners to the amount of their stock; in the latter-case the liability is created by statute, and is in the nature of a penalty imposed for neglect of duty. Wiles, et al. vs. Suydam, 64 N. Y., 176. The distinction is mentioned in the Plymouth Bank case, 33 Md., and many cases are there cited which maintain it. It is also approved by the Supreme Court of the United States in Flash vs. Conn, 109 U. S., 371, and Chase vs. Curtis, 113 U. S., 452, and in Norris vs. Wrenschall, 34 Md., 492, but in this last case all the reasoning and illustrations of the New York cases are not adopted.
We think that we must hold that the liability imposed by the twenty-first section of the New York Act of 1875 is a penalty. If this be so, it cannot be enforced in this State. Upon this point the authorities agree with great harmony. In the case of the Plymouth Bank this Court said: “ it is well settled that no State *198will enforce penalties imposed by the laws of other States; such laws are universally considered as having no extra-territorial operation.” The same doctrine has recently been declared by the Supreme Court of the United States. Flash vs. Conn, 109 U. S., 376; Wisconsin vs. Pelican Insurance Company, 121 U. S., 290. We must, however, notice the fact that a judgment has been obtained for this penalty. A judgment merges the original cause of action, so that a suit cannot be again maintained upon it; it is also conclusive evidence of its existence in the form, and under the circumstances stated in the pleadings. In the classification of legal subjects, it is called a debt of record; because of the obligation to pay it, which is imposed on .the party against whom it is rendered. But the nature of a transaction is not changed by the reduction of it to a judgment. If we could suppose that a judgment was obtained on a contract to commit murder, would any one maintain that the judgment had lemoved the turpitude of the contract ? Or, that the law would mitigate its condemnation of a grievous crime, because of a change in the form with which it was clothed? It is unnecessary to pursue this subject, because the Supreme Court of the United States has recently decided the question here presented. In Wisconsin vs. Pelican Insurance Company, 121 U. S. Reports, 292-293, a suit was brought on a judgment for a penalty, and it was decided that the judgment in its “essential nature and real foundation” was the same as the original cause- of action, and that a suit could not be maintained upon it beyond the limits of the State in which it was rendered.
It is alleged in the bill of complaint that the above mentioned corporation was dissolved in March, 1882, by a judgment of a Court in New York; that at the time of its' dissolution it “ was indebted to the plain*199tiff and to other creditors to an amount far in excess of its assets; that by the law of the State of New York, all the stockholders of the company were liable to pay all its debts, each to the amount of the stock held by him, and the defendant, Henry Y. Attrill, was liable at said date, and on the 14th day of April, 1882, as such stockholder, to the amount of three hundred and forty thousand dollars, the amount of stock held by him, and was on both said dates also severally and directly liable as a director, having signed the false report above mentioned, for all the debts of said company, contracted between the 26th day of February, 1880, and the 29th of January, 1881; which debts aggregate to more than the whole value of the property owned by said Attrill.” This liability is asserted to exist independently of the judgment. It cannot he maintained on the New York statute already mentioned, because by the twenty-fifth section, a stockholder is not personally liable for a debt of the corporation, except in cases where an action to recover it has been brought against the corporation within two years after it became due; and here no such action has been brought. The judgment against Attrill for having made the false report certainly merges all right of action against him on this account. But let us assume that Attrill was liable at the times mentioned in this clause of the hill of complaint, and on the grounds therein stated. This liability is barred by the Maryland Statute of Limitations, and this defence properly arises under the demurrer filed in this case. Belt vs. Bowie, 65 Md., 355.
(Decided 8th February, 1889.)
£_Upon the whole, it appears to us that the complainant has no cause of action, which he can maintain in this State.

Order reversed, and

bill dismissed.