Rankine v. Elliott — 16 N.Y. 377

Majority

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Rankine, Receiver, v. Elliott.

Headnote

Opon the granting of an order of sequestration and for the appointment of a receiver, of an insolvent railroad corporation, in an action brought in behalf of all its creditors, the right of action against its stockholders, for the amount of their unpaid subscriptions to its capital, vests in the receiver, and a judgment creditor of the corporation will be restrained from prosecuting an action against a stockholder, under the tenth section of the general railroad act (ch. 140 of 1850), commenced by him after the making of such order, but before the appointment of the receiver under it was perfected.

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Appeal irom a judgment of the Supreme Court, at general term in the seventh district, restraining the defendant from the further prosecution of actions commenced by him against certain stockholders of the Canandaigua and Niagara Falls Railroad Company, to recover the amount of their unpaid subscriptions to its capital stock. In December, 1854, Morse, Pierson and Phelps, judgment creditors of the railroad corporation above named, whose execution had been returned unsatisfied, commenced an action in the Supreme Court, in behalf of themselves and all other creditors, and on the 2d of January, 1855, obtained an order of sequestration against the company, and for the appointment of a receiver; under which the plaintiff in this action was appointed receiver, and filed his bond on the 18th of January, 1855. On the same day that the order of sequestration was made, another order was made restraining proceedings at law by any creditor of the company, and directing the creditors to exhibit their claims and become parties in the action in six months from the first publication of the order.

The defendant in this action, Elliott, was a judgment creditor of the insolvent corporation at the time of the sequestration, and his execution having been returned unsatisfied, he, on the 6th day of January, 1855, commenced actions against several stockholders in the company, under the tenth section of the general railroad act {Laws of 1850, ch. 140,. p. 214), to recover the amounts due from them respectively for unpaid subscriptions to its capital stock The receiver, who was directed by the order for his appointment to collect all debts due the company, commenced actions against the same stockholders for the same unpaid subscriptions, and, after so doing, commenced this action, praying that the defendant might be restrained from the further prosecution of the actions so commenced by him, and from collecting or receiving any of the unpaid subscriptions of the defendants in those actions. The matters of fact stated in the complaint were admitted by the answer, and the Supreme Court

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at special term rendered a judgment enjoining the defendant, according to the prayer of the complaint. This judgment was, on appeal, affirmed at general term, and the defendant appeals to this court. The cause was submitted on printed arguments.

B. Slosson and Samuel A. Foot, for the appellant.

H. 0. Chesebro, for the respondent.

By the two orders of January 2d, 1855, made in the action between Morse, Pierson and Phelps, plaintiffs, and the Canandaigua and Niagara Falls Railroad Company, defendants, and the appointment of a receiver under one of the orders, all the “ stock, property, things in action and effects ” of the railroad company became sequestrated, and vested in the plaintiff in this action, as the receiver thus appointed, for the benefit of the creditors of the company; and if the stockholders were liable to the corporation for the balance unpaid upon their subscriptions for stock, the right to enforce such liability was in the receiver.

That such liability existed there can be no doubt. The seventh section of the general railroad act, under which the company was incorporated (Laws of 1850, 213), provides that the directors of any such company may require the subscribers to the capital stock thereof to pay the amount by them respectively subscribed in such manner and in such installments as they may deem proper; and the act of April 28th, 1845 (Laws of 1845, 90, 91), authorizes receivers to sue in their own names for any debt, claim or demand transferred to them, or to the possession or control of which they are entitled as such receivers.

The actions, the proceedings in which were stayed by the j udgment under review, were commenced under the tenth section of the general railroad act, which provides that each stockholder of any company formed under the act shall be

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individually liable to the creditors of the company, to an amount equal to the amount unpaid on the stock held by him, for all the debts and liabilities of such company, until the whole amount of the capital stock so held by him shall have been paid to the company. It is evident that the stockholders are not liable both to the receiver and also to the creditors of the corporation for the amount unpaid on their stock, or, at least, that a recovery in favor of each cannot be had.

But it is claimed that the statute gives to the creditors of the corporation the right of action against the stockholders, and that, after the commencement of an action by a creditor against a stockholder, the pendency of such action is a bar to any action or proceeding by the corporation against the same stockholder to collect the amount unpaid upon his stock; that a receiver of a corporation only succeeds to the rights of the corporation, and can enforce only such liabilities as the corporation could have enforced had the receiver not been appointed, and consequently that as the actions in favor of Elliott, the present defendant, against the stockholders were commenced before the receiver instituted any suit or proceedings against those stockholders, there is no reason why those actions should not be prosecuted to judgment.

The actions stayed by the judgment in this suit were commenced to collect a debt due by the corporation; and although the corporation was not named as a defendant in the actions, yet the recoveries therein, if had, would have been from its effects, as the amounts recovered would have applied in payment of what was due from the stockholders on their stock. The actions, therefore, although not nominally, were in effect, against the corporation. The plaintiff in this action was appointed receiver under section thirty-six of the article of the Revised Statutes entitled “ Of proceedings against corporations in equity.” (2 11. S., 463.) The action in which he was appointed receiver was commenced in behalf of all the creditors of the corporation; and section fifty-six of the

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article of the Revised Statutes, above referred to, authorizes the court to restrain, by injunction, all proceedings at law by any creditor against the corporation. Such injunction was actually awarded prior to the commencement of the actions in favor of Elliott, and I think its effect was to restrain the prosecution of all actions in favor of creditors against stockholders of the corporation. The thirty-seventh section of the same article requires the court, by its final judgment in the action in which the receiver was appointed, to cause a distribution of the property of the corporation to be made among its creditors, in proportion to their debts respectively, giving a preference only to such as are entitled thereto by the laws of the United States and to those having a lien on real estate. If the defendant should be permitted to prosecute his actions, he would thereby obtain a preference over other creditors, in direct violation of the spirit of the provisions of the section last referred to.

The object of this action was to prevent such preference being obtained, and I think the Supreme Court was right in effecting its object by the judgment in the action.

The judgment appealed from should be affirmed.

All the judges concurring,

Judgment affirmed