Court Opinion

ID: 5548661
Source: CourtListenerOpinion
Date Created: 2022-01-10 21:23:40.375262+00
Date Added: 2024-06-11T08:34:59.875303
License: Public Domain

The Chancellor.
The language of the 56th section-of the article of the revised statutes relative to proceedings against corporations in equity, (2 R. S. 466,) is undoubtedly broad enough to reach this case. For the original bill appears to have been filed, under that article of the revised statutes, to reach the corporate property which the complainants had not been able to obtain upon their execution. It is true, the 36th section appears to contemplate a proceeding by petition, for a sequestration of the corporate property and effects, and for the appointment of a receiver. But I see no objection to an application to the court in the form of a bill; and that appears to be the more appropriate course where it is intended also to charge the stockholders or directors of the corporation personally with any of its corporate debts and liabilities.
It is difficult to say precisely what proceedings were contemplated by the framers of the 56th section, to enable the creditors of a corporation to make themselves parties to a suit before there had been a decree for the benefit of all the creditors. In the note to that section, the revisers say it is in conformity to the practice in the similar case of executors, except that in those cases proceedings at law cannot be stayed until after a decree. In the case of exec*601utors and other trustees, where the creditors have claims upon a common fund for the payment of all rateably, or according to a specified order of priorities, the court directs a reference to a master to take proof of the claims of all the creditors, and directs notices to be published, requiring all the creditors to come in before such master and prove their claims. And those creditors who were not parties to the suit originally make themselves parties thereto, by going before the master on the reference and proving their debts under the decree. The court adopted a similar mode of proceeding to ascertain the claims against an insolvent corporation, in the case of The City Bank of Buffalo, after a final order for an injunction and receiver had been made ; which order is in the nature of a decree for the benefit of all the creditors, so far as relates to the corporate property and effects.
The only other way in which a creditor can make himself a party to a suit is by the filing of a supplemental bill, and making the previous parties to the suit defendants in such bill. It could not, however, have been the intention of the legislature to require each creditor of an insolvent corporation to file a supplemental bill, against its directors and stockholders, or be forever barred from having any claim against them or against the corporate fund. And as each creditor of the corporation has the right to contest the validity of the claims of others, it would be improper to compel them all to join in one bill, which might deprive them of that right. Besides, the joining of all the creditors in the same suit, and carrying on a litigation in their joint names would, in nine cases out of ten, be found wholly impracticable. It would, therefore, be unreasonable to give such a construction to this 56th section as to make it imperative upon the court to grant such an order and injunction as is contemplated by that section, previous to a decree, except in those cases where the debts of all the creditors can be effectually provided for out of a common fund under the control of the court. The object of the statute unquestionably was to save useless costs ; and *602it would be contrary to its spirit and intent to grant an injunction which would necessarily have the effect of increas'1XlS litigation.
By adverting to the revisers’ note to the 50th section of the article of the revised statutes before referred to, and to the sections which immediately preceded the 50th, it will be seen that the principal object of those sections was to carry out the provisions of the title relative to monied corporations, which rendered the directors jointly liable to the creditors and stockholders, for losses occasioned by breaches of duty; and which rendered the stockholders liable to the creditors, in cases of fraudulent insolvencies, to the extent of their stock, where there was a deficiency in the effects of the corporation which could not be charged upon or collected from the directors who were responsible for the fraud. In such cases no one of the creditors could collect the whole of his debt from those who were liable to all the creditors collectively to a limited amount. The proceedings to compel a rateable contribution to the amount of their several debts, must, therefore, be analogous to the proceedings against the estate of an insolvent testator, or intestate, in the hands of his personal representative; not only in relation to the corporate effects but also as to the limited liabilities of the directors and stockholders. Bt,i n the case under consideration, the statute makes each stockholder of the company personally liable to every creditor for the full amount of his debt, without reference to the amount of stock held by the stockholders respectively; and authorizes separate suits to be commenced against such stockholders, either jointly or severally, in any court having cognizance of the case. (Laws of 1837, p. 446, § 9.) Before any suit, however, can be commenced against a stockholder of the company, the creditor must have proceeded to judgment against the corporation and have had an execution upon such judgment returned unsatisfied ; except in cases where the corporation has been dissolved. The remedy given by the charter of this company is therefore inconsistent with the granting of an injunction, upon *603the filing of a bill by one of the creditors only, restraining all the other creditors from proceeding at law against any of the defendants in that suit. For if the other creditors were not allowed to proceed to judgment at law against the corporation, and obtain a return of their executions unsatisfied, they could not be made parties to the bill in chancery so as to render the stockholders personally liable to them.
In the recent case of Moss v. Oakley, (2 Hill's N. Y. Rep. 265,) which arose under the act incorporating the Rossie Lead Mining Company, and which is similar in its provisions, the supreme court has decided that those who were stockholders at the time the debt was contracted were alone liable for the payment thereof, and not those who became stockholders afterwards. So far, therefore, as the individual liability of the stockholders is concerned the creditors of the corporation, whose debts were contracted at diiferent times, have no common interest; and their claims will not necessarily be against the same persons as stockholders. It would for that reason be wholly impracticable for them to litigate their claims in one suit. For no creditor would have the right to file a bill and make all who were or ever had been stockholders of the company defendants therein, when some of such defendants might not have been stockholders at the time the debt was contracted. I am satisfied therefore that this case, although within the letter of the 56th section of the article of the revised statutes relative to proceedings against corporations in equity, is not within the intention of the legislature which adopted that section; and that this court is not authorized, upon a summary application, either before or after decree in this suit, to restrain all proceedings at law against the defendants therein, or any of them, by creditors of the corporation who are not parties to the bill or supplemental bill.
Those stockholders who are compelled to pay more than their rateable proportions of the debts contracted while they were stockholders, will undoubtedly have a claim for contribution against other stockholders who are liable for the *604same debts and who pay less than their shares. But if there has been frequent changes of the stockholders, as in the case of ordinary joint stock corporations, the expense of the litigation to ascertain who are bound to contribute, and the amount for which each stockholder is liable, must of itself be very great. It would be still more expensive, however, for all the creditors to be compelled to come into this court and to litigate their claims with each stockholder here, after having exhausted their remedies at law against the corporate property ; and that expense would in the end fall upon those stockholders who are solvent. I do not therefore see any benefit which the petitioner would derive from such a course, even if the court had the power to grant his application.
The petition must be dismissed with costs to such of the creditors as appeared to oppose the application ; which costs are fixed at seven dollars for the plaintiffs in each suit, at law or in equity, whose counsel appeared in opposition to the prayer of the petition.