Court Opinion

ID: 5462308
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:40:14.660203+00
Date Added: 2024-06-11T08:32:56.562572
License: Public Domain

By the Court, Talcott, J.
This action is brought to enforce the personal liability of a stockholder in a manufacturing company, located in the county of Cayuga, to the creditors of the company, upon an alleged insufficiency of the assets of the company to pay its debts. And it is to collect an assessment which has been made by the trustees of the company, (“The J. M. Hurd Paper Bag Company,”) assuming to proceed under chapter 361 of the laws of-1852, entitled “ An act to facilitate the dissolution of manufacturing corporations in the county of Herkimer, and to secure the payment of their debts without preference,” and which, by chapter 179 of the laws of 1853, is made applicable to manufacturing corporations in Cayuga county. By the-act in question the trustees of the corporation are empowered, under certain circumstances, to declare the corporation insolvent, and the act declares that thereupon “the corporation shall become dissolved, and all the property and rights of action of the corporation including any liaiility of stochholders, for unpaid stock, or' for the corporation debts, shall thenceforth be deemed the property of 'the creditors, to the extent of their debts, in *284equal ratio, according to their debts respectively.” (Laws of 1852, p. 572, § 1.) The act declares (§ 3) that “ upon such dissolution, the trustees then in office shall become trustees for the creditors to the extent of the debts, and for the stockholders for any surplus, and shall proceed with all reasonable diligence to close the business, dispose of the property, collect all debts and liabilities, assess deficiencies, if necessary, upon the stockholders to the extent of their liability, and collect the same,” &c.
In this case the trustees have proceeded to declare the company insolvent, and to make an assessment upon the stockholders as for a deficiency. And they have assessed upon the stock held by the testator of the defendants, the amount of $1200, to recover which this action is brought. Various objections are taken to the mode in which the trustees have made the assessment, and to the considerations which they took into view, and upon which they acted in determining the amount necessary to be assessed, such as the anticipated circumstance that some of the assessments would not be collected, &c. These are mostly questions as to whether or not the trustees erred in their determination as to the proper amount of the assessment. Such questions cannot, we think, arise in an action to recover the amount of the assessment.
If the assessors had jurisdiction to proceed and make the assessment, the alleged errors committed by them in neglecting to assess on 'some stock, in assessing stock not liable to assessment, and in determining the amount of the assessment, should be corrected by an application to the court, under the act, which provides that they shall be under the direction and control of the Supreme Court, on their own application, or that of any creditor. The stockholders claiming to have been unjustly assessed, ’ although not expressly named as applicants in whose behalf the trustees may be directed or controlled by the Supreme Court, are probably embraced within the equity *285of this provision, as the general intention of the act seems to be to convert the trustees into quasi receivers in equity, and subject them to the general control and direction of the Supreme Court.
Without, however, expressing any conclusive opinion as to certain of the objections which have been made to the assessment, we think there is one which goes to the jurisdiction of the trustees to make the assessment at all; and that is, that they have attempted to make this assessment without having first disposed, or attempted to dispose, of the property of the company, or to collect its debts. The act is not explicit on this subject; but from its provisions it is manifest that the assets of the corporation are intended to be made the primary fund for the payment of its debts. It enjoins upon the trustees the duty of disposing of the property and collecting all the debts and liabilities of the company, and of assessing deficiencies, if necessary, upon the stockholders, to the extent of their liability. Whether an assessment is necessary, and to what amount, cannot he certainly known until something more has been done than appears to have been done by the trustees in this case.
It would seem there are $40,000 of liability to the company for unpaid stock, besides other assets and property. This liability is a part of the fund applicable to the payment of the creditors, and which should be collected by the trustees. In making their assessment, they undertook to determine how much of this was likely to be collected, and did determine that a part of this liability, owing by some of the trustees themselves, was uncollectable. Such a proceeding at the mere option of the trustees, is liable to great abuse, and may operate oppressively. It would seem to have been the intention of the framers of the act to regulate their assessments much after the same manner as the act of 1849 regulates the assessment to be made upon the stockholders of insolvent banks. Upon that act, under *286language which would seem to authorize the receiver to proceed against the stockholders before exhausting the assets, more clearly than the act now under construction, ■ it was held by the Court of Appeals that he could not do so except by order of the court. The reasoning of the Court of Appeals upon the construction of the act of 1849, in this particular, is quite applicable to the act now under consideration. (Matter of the Reciprocity Bank, 22 N. Y. 9.)
But we are not without more direct authority upon this subject. In the case of Walker v. Crain, (17 Barb. 119,) where .the construction of the Herkimer act of 1862 was under discussion, Justice Gridley, delivering the opinion of the court, holds the following language: “ The direction to assess deficiencies occurs precisely in the order of tirhe when it should, if the construction we have adopted be the true one. By the previous clauses of the third section, the trustees are directed to collect all debts and liabilities due to the corporation, and to dispose of its property and close the business. This should be done before the stockholders are required to advance anythingupon this personal liability requirement, and they should be required to pay upon it no more than may be necessary toi satisfy the debts due to the creditors of the company.”
In Story v. Furman, (25 N. Y. 214,) the constitutionality of the Herkimer act was objected to, as the opinion of the court states the objection, because the statutory trustee is first directed to resort to another fund as the primary fund for the collection of the demand, and to suspend the collection from the stockholder until the primary fund is exhausted. The court assumes this to be the true construction of the act, and proceeds to show that no right conferred by the act of 1811 was impaired by this provision of the act of 1852.
The case of Story v. Furman, (supra,) is relied upon by the counsel for the respondent in this case as an authority for the making of an assessment by the trustees at their *287own discretion, and without converting the assets. We do not understand it to be an authority for that position. In that case there was no assessment at all, and the action was by a receiver appointed in a- suit in behalf of all the creditors of the corporation, and the action was brought under an order of the court, and in a case where it was entirely clear that the whole amount of the liability of the solvent stockholders, including all the assets, would be entirely inadequate to pay the debts. In such a case, or where, for good reasons to be shown, certain of the assets wére in such a condition as not to be immediately convertible, as in the cases arising under the act of 1849, doubtless the court, under the power given by the act, to direct and control the trustees, might direct an assortment before all the assets had been absolutely converted. But where the trustees are acting without any direction of the court, but merely under the powers expressly conferred by the act, we -think they must defer any assessment upon stockholders till such time as they have complied with the provisions of the act in regard to' disposing of the property and collecting the liabilities, that it may be seen whether any, and if any, what assessment is necessary.
[Fourth Department, General Term, at Rochester,
September 4,1871.
The judgment must/be reversed, and a new trial ordered, costs to abide the e^ent. ,/
Mullin, P. J., and Joljlnson and Talcott, Justices.]