National Bank of Auburn v. Dillingham

Headnote

Corporations—Liability of Directors—Action to Enforce—Parties.

Laws 1892, c. 688, § 24, providing that “no stock corporation * * * shall create any debt, if thereby its total indebtedness * * * shall ex-

eeed the amount of Its paid-up capital stock, and the directors creating or consenting to the creation of such debt shall be personally liable therefor to the creditors of the corporation,” applies only to the creditors whose debt is thus created, and therefore the other creditors are not necessary parties to an action to enforce such liability.

Appeal from special term.

Action by the National Bank of Auburn against Edwin R Dillingham and others. From an interlocutory judgment overruling, a demurrer to the complaint, defendant Dillingham appeals.

Affirmed.

The opinion of Mr. Justice RUMSEY at special term is as follows:

This is an action brought under section 24 of the stock-corporation law (chapter CSS, Laws 1SU2) to enforce against the defendants the liability created by that section. The complaint alleges, substantially, that the Auburn Woolen Company was a corporation organized under the laws of the state of New York, of which the defendants were some of the directors, and that the company was organized under the manufacturing corporations act, passed the 17th of February, 184S. The complaint further alleges that at certain times, therein more particularly stated, the Auburn Woolen Company borrowed from the plaintiff, upon its promissory notes, the sum of $20,000, and that at the time of making the several loans stated in the complaint, the total indebtedness of the Auburn Woolen Company, not secured by mortgage, exceeded the amount of the paid-up capital stock of the company. It is further alleged in the complaint that each of the defendants consented to the creation of the said debt to the plaintiff, and judgment is demanded against the defendants for the sum of $20,000. The defendant Dillingham demurs to the complaint upon the ground, among others, that there is a defect of parties plaintiff and defendant in that the creditors of the Auburn Woolen Company, other than the plaintiff, are not made eithér parties defendant or parties plaintiff.

• Upon the argument some technical defects were suggested, by reason of which it was claimed that the demurrer should be overruled, but as the conclusion has been reached, upon the merits of the case, that the demurrer is not well taken, those technical defects will not be considered. As stated, the action is brought under section 24 of the stock-corporation law. That part of the section relied on reads as follows: “No stock corporation * * * shall create any debt, if thereby its total indebtedness not secured by mortgage shall exceed the amount of its paid-up capital stock, and the directors creating or consenting to the creation of any such debt shall be personally liable therefor to the creditors of the corporation.” The law created by this statute is unquestionably a contract, and not a penal, liability. Patterson v. Robinson, 30 Hun, 022 , 37 Hun, 341 . The liability is created by this section, and the extent and nature of it must be found by considering the words of the section. It is confined, as is quite clear, to the directors who create or consent to the creation of the prohibited debt. Such directors are made personally liable “therefor.” The word “therefor” refers necessarily to the previous words, “any such debt,” and the liability is necessarily only for the particular debt, and not for anything more. This seems to be perfectly clear from the reading of the statute. The statute says that the liability is to the creditors of the corporation, and it is claimed by the defendant that these words of the statute have the effect to add to the security of all the creditors of the corporation the amount of the particular debt for which the particular directors who consent to its creation are personally liable. I do not think that these words can be construed to extend the liability of the directors so far. Their responsibility is for the debt, and for nothing more, and the words, “to the creditors of the corporation,” can only be construed as descriptive of the person to whom the particular debt is owing. In the case of Patterson v. Robinson, supra, the same question was presented under the law of 1848, and the court, in that case, held that the section should be construed as though it had read: “To the creditors of the company to whom such excess is owing.” While that' section reads differently from the section under consideration, the nature of the liability is the same, substantially, and that case should be

deemed a controlling authority upon that point. The defendant, in support of his demurrer, cites the case of Anderson v. Speers, 21 Hun, 508 . That case was under consideration in the case of Patterson v. Robinson, supra, and it was urged upon the general term as a controlling authority upon the point here presented, but the general term of the Third department declined to follow it. Subsequently, in the cases of Lovelace v. Doran and Lovelace v. Doran & Wright Company, the same questions presented here were presented to the court. Judge Churchill decided those cases at special term, and held that the case of Anderson v. Speers was practically overruled by the case of Patterson v. Robinson, and, following the latter case, decided that in these actions it was not necessary that all the creditors of the corporation should be made parties. Those two cases were subsequently affirmed by the general term of the Fourth department (15 N. X. Supp. 278, 279), upon the authority of Patterson v. Robinson, 37 Hun, 341 . By the concurrence of authority of the two general terms I feel that the court here is bound, and that the demurrer must be overruled. Judgment is accordingly ordered for the plaintiff upon the demurrer, with leave to the defendant to withdraw his demurrer and answer, on payment of costs.