Hyperlawhypertext legal databasebeta Belmont v. Coleman 21 N.Y. 96

← Cases

Belmont v. Coleman

21 N.Y. 96 Court N.Y. English

Delivered by *BACON, J.

Contents

Majority

p. 105
Belmont v. Coleman, et al.

Headnote

Individual liability of Stockholders.
In an action against a stocldioHer of a corporation, upon his individual liability for its debts, a bill of exchange drawn upon it, and accepted by its president, is presumptive evidence that it was founded upon a sufficient consideration, and drawn for legitimate purposes.
In such action, a judgment recovered against the corporation is pvimd facie evidence of the indebtedness. Bacon, J.
Belmont v. Coleman, 1 Bos. 188, affirmed.
Appeal from the judgment of the Superior Court of the city of New York, entered upon the report of a referee. (Reported below, 1 Bos. 188.)
This was an action against the defendants, as stockholders of the Mexican Ocean Mail and Inland Company, to enforce their individual liability for a debt of the corporation, against which a judgment had been obtained, and an execution thereon had been returned unsatisfied. The defendants’ personal liability was founded upon the fact that the capital stock of the company had not been paid in. (Act 12 April 1852, § 6.)
On the trial before the referee, the plaintiff gave in evidence two drafts for $4000 each, drawn in Mexico, by the agent of the corporation, upon its president in New York, which were duly accepted by him, but not paid at maturity, and there was evidence tending to show that the acceptances were given for rolling-stock procured for the use of .the company. The plaintiff also gave in evidence the record of a judgment recovered against the corporation upon these acceptances. The defendant moved for a nonsuit, which Avas denied,' and exception taken; and the court, at general term, having sustained
p. 106
the report of the referee, this appeal was taken. A fuller statement bf the facts, not necessary to be here recapitulated, will be found in the report of the case below.
Reynolds, for the appellants.
Rodman, for the respondent.

The object of the suit is to enforce a liability arising from the provisions of the act passed 12th April 1852, for the incorporation of companies formed to navigate the ocean by steamships. The 6th section of that act provides, in substance, that the stockholders of any such company shall be liable to the crediitors of such corporation to an amount equal to the stock held by them respectively, until the amount of the capital stock shall be paid in. A subsequent section attaches this liability to every owner of stock, although he does not appear upon the books to be a corporator. And the 8th section of the act requires, as a pre-requisite to the attaching of any such liability^, that a suit shall have been brought, for any debt claimed, against the corporation, and an execution returned unsatisfied, in whole or in part.

The complaint avers all the necessary facts which are claimed to create the liability; and, among others, that a judgment was duly recovered against the Mexican Ocean Mail and Inland Company, in which company the defendants in this suit were the equitable owners of three hundred and seventy-five shares of stock, at the time of the creation of the debt upon which the judgment was recovered; the issuing of an execution thereon, and its return unsatisfied. In relation to the averments of the complaint, as to the indebtedness' and the judgment founded upon it, the answer simply ignores any knowl

p. 107
edge or information, and sets up, in respect to them,.no substantiva or affirmative defence.

Upon the trial, it is stated, that the judgment-roll, the execution and the sheriff's return were read, as stated in the complaint, which appears to have been done without objection; and the referee, in his report, finds the fact of the recovery of such judgment, and the issuing and returning of execution thereon. The roll is not set forth in the Case, nor does it appear whether the recovery was obtained upon a contested trial, by confession, or default. The legal conclusion of the referee, by which he finds the plaintiff entitled to judgment, evidently proceeds upon the assumption that the judgment rendered against the company was primdfrnie evidence of the debt, and no further *proof was required, either as to the origin, existence, or nature of that indebtedness. If he was right in this conclusion, then the report is right, and we are not required to go behind the judgment, to inquire whether a prior legal liability ever in fact attached to the corporation.

Upon principle, and as the fair result of all the authorities on this point, I am satisfied, that the referee came to a just conclusion. The question first arose and was decided in 1822, in the case of Slee v. Bloom ( 20 Johns. 669 ), under an act of 1811, imposing a personal liability upon stockholders of a dissolved corporation, for all debts due and owing at the time of the dissolution. There was no clause in this act requiring a preliminary action against the company to recover the debt, but the directors of the company had liquidated the demand of the plaintiff, and given him a judgment by confession. The question was, whether that judgment was sufficient evidence of the indebtedness, unless impeached by proof of mistake or fraud. .Chancellor Kent originally held, that the judgment, although binding upon the company in its corporate capacity, was not upon the defendants, when the statute liability was sought to be enforced; and that the acts of

p. 108
the trustees of the corporation were not the acts of agents or trustees of the individual stockholders.[1]

In the Court of Errors, this decision was reversed,, and in the opinion of Chief Justice Spencer, which is the only one given in that court, the ground is maintained, that the defendants were chargeable with the debt, on the principle that the trustees, as the agents of the stockholders, had contracted the debt and fixed the liability, and that the latter could impeach the consideration of the indebtedness upon no other ground than that of fraud or error in the liquidation; nor could this be done, without laying a proper foundation for it in the pleadings. “We must regard the judgment",” he says, “ as a solemn admission of indebtedness; but it is not binding as res judicata upon the stockholders, if it was procured by fraud, or is founded in error.”

The rule of law thus laid down by the court of last resort, *was directly recognised and approved by the supreme court in the case of Moss v. Oakley ( 2 Hill 265 ). That was a suit against a stockholder of the Rossie Lead Mining Company, to enforce a personal liability, under the act creating the company; the provision being almost identical in language with the one in the act we are now considering. The declaration in that case alleged simply the execution of a promissory note by the company, and that a judgment was recovered upon it, execution issued and returned unsatisfied. The same objection was taken, that the judgment was not sufficient evidence of indebtedness, and that the facts authorizing the giving of the note should have been averred in the pleadings ; but Bronson, J., in giving the opinion of the court, says: “As against the company, the judgment is conclusive evidence that the note was valid, and although the defendant was not directly a party, yet, as a stockholder, he was not altogether a stranger to the judgment; as

1 5 Johns. Ch. 366 . This is now the law of the state. Miller v. White, 50 N. Y. 137 . Esmund v. Bullard, 16 Hun 65 .

p. 109
against him, I think, the declaration makes out a primó facie case of indebtedness by the company.” And in support of this proposition, he cites the case of Slee v. Bloom, approvingly.

Thus the rule stood, unquestionably, until 1843, when the case of Moss v. McCullough ( 5 Hill 131 ) was decided, In that case, Cowen, J., started a new doctrine, to wit, that the stockholders were substantial guarantors of the debts of the company; and this being a position regarded Avith somewhat of indulgence, and requiring a strict performance of all precedent conditions, it was held, that the original indebtedn'ess of the company must be strictly proved, and that the judgment recovered against the corporation Avas not conclusive, nor even primó fade evidence of the validity of the debt. The case Avent back for a neAv trial, and upon that trial, the judgment Avas again given in evidence, together with proof tending to sIioav the consideration of the note upon which the judgment had been recovered, and the manner of its execution, &c. A verdict having been rendered for the plaintiff, the case Avént to the suprome court, Avhere the judgment was affirmed, and it Avas then carried by Avrit of error to the court of errors, where it *was reversed by a vote of eleven to eight ( 5 Denio 567 ). That reversal, hoAvever, as the report of the case discloses, turned entirely upon other questions, and, as the the marginal note shoAvs, brought under discussion the power of corporations to give promissory notes, and Avhat Avas sufficient proof of authority to one who acts professedly as the agent of the corporation. The question of the character of the evidence afforded by the production of the judgment record, is only incidentally spoken of by Senator Lott, avIio gives the leading opinion, while in none of the other opinions is any allusion Avhatever made to it.

The case Avent back once more, for trial, to the circuit, where the defendant prevailed, but came again before

p. 110
the supreme court at general term, in the third district, where, upon an opinion given by Willard, J., a new trial was again granted. In this opinion ( 7 Barb. 279 ), Mr. Justice Willard takes occasion to restate and vindicate the decision made by him originally at the circuit, and in which, following the rule established in Slee v. Bloom, he held the judgment recovered against the company primd facie evidence of the indebtedness, only liable to be impeached for fraud or mistake; he shows also that the authority of that case is not in any degree shaken by the decision of the court of errors», in McCullough v. Moss ( 5 Denio 567 ). This is the latest reported authority in our courts. It does not appear what was the ultimate fate of this case, which had been some seven or eight years on its travels to and fro through tho courts; but we are informed in the opinion given in his case by the Superior Court of New York, that a case precisely similar in its features was tried in the third district, and the same rule, as above stated, was declared to be the law of the case. From this judgment, I understand, an appeal was taken to the court of appeals, and after three arguments, the judgment was affirmed upon an equal division of the court. (Moss v. Averell, 10 N. Y. 449 .)

This being the state of things in reference to this question, an opportunity is fairly presented to re-affirm the law as declared nearly forty years ago by the highest legal tribunal in *the state, and which remained unquestioned for over twenty years, or now to declare the rule henceforth to bo that a judgment recovered in any manner against a corporation is not in the least degree evidence of any indebtedness by the corporation. I think, we should adhere to the original rule, which stands upon the highest authority, and can be fairly vindicated on principle. All that a creditor of a company, seeking to enforce this personal liability upon a stockholder, is required to prove, is the existence of the debt, and that judgment has been obtained, and execu

p. 111
tian issued and returned, as the statute requires. A judgment against a corporate body is one of the highest evidences of indebtedness known to the law; it is a solemn admission, by record, that the corporation owes the sum claimed in the suit. Nor do I think it necessary, that it should be found, or that we should assume, that it was an adversary judgment, if, by that, is meant, that it was only, rendered upon the trial of an issue contesting the claim. A judgment by confession, in the absence of any pretence of fraud or collusion, is just as conclusive upon a corporation as one rendered after litigation; and a judgment by default is only another mode of declaring, by a record estoppel, that the corporate body has no just defence, and can say nothing in bar of the claim against it. And, therefore, where, as in this case, acceptances are proved to have been made by the company, and a judgment has been rendered upon such acceptances, and no evidence whatever has been given to show that such acceptances were for an unauthorized or illegal purpose, and no attempt to impeach the judgment for collusion, fraud or mistake, the creditor har fairly made out his case, and the liability of the stockholder is maintained.

I will only add, that I had occasion to examine the law upon this subject, in a case before me at special term, some years since, and came to the conclusion, with Judge Willaed, that the rule in Slee v. Bloom, was still the law of this state, and so held. The case is reported in 9 How. Pr. 436 , which I do not, of course, cite as an authority in this court; but as the judgment was affirmed, and the opinion adopted by *the general term in the fifth ,, ^ district, it has the sanction of that tribunal, and *- therefore, it may perhaps be said of it, in this aspect, “ valeai quantum valere potest.”[2]

2 Two of the other judges concurred upon this point, hut the remainder of the court declined to commit themselves to the doctrine. After considerable conflict of decision in the lower courts, the views expressed by Judge Bacon were overruled by the court of appeals, in Miller White, *112 50 N. Y. 137 ; and it is now tile settled law of the state, that a judgment against the corporation is not even prima facie evidence of the existence of the debt, in a suit to enforce the personal liability of its trustees, under the statute. Esmond v. Bullard, 16 Hun. 65 . Whitney Arms Co. v. Barlow, 63 N. Y. 72 , Allen, J. It is true, that this doctrine was enunciated in actions against the trustees of corporations, to enforce their individual liability ; but there can be no' difference in principle between such a case, and one to enforce the personal responsibility of a stockholder.

p. 112
Arriving at this result, it may not be material to examine the questions made upon the argument, which go behind the judgment, and attempt to attack the foundation on which it rests, although my conviction is, that there is no serious difficulty, even in that aspect of the case, in maintaining the propriety of the report. The conclusions of fact by the referee are either amply sustained by the evidence, or there is, at all events, enough to warrant him in finding, as he does, that the defendants were equitable owners of the stock, and that the bills of exchange were duly drawn upon and accepted by the company. This would be sufficient to raise a presumption that the acceptances weye made, not only for a lawful purpose, but upon a sufficient consideration, and the duty would be cast upon the defendants, to show that they were given for illegitimate purposes, entirely foreign to the objects, and beyond the powers of the corporation. So far from proving any such state of facts, the evidence rather establishes the conclusion that the acceptances were given for rolling-stock, procured for the use of the company, an object not only lawful, but indispensable to the operations of the association. Upon all the facts, the report of the referee is right, irrespective of the conclusion of law which holds the proof of the judgment prima facie evidence of indebtedness on the part of the company. The judgment should be affirmed.

Judgment affirmed.

Cases cited