Stoddard v. Lum

In 1892 the Soldiers’ World’s Fair Hotel Association, under the laws of the state of Illinois, was incorporated. In 1893 it became indebted to sundry persons, and unable to pay its debts, and thereupon its directors made a voluntary assignment to the plaintiff for the benefit of its creditors. Subsequently suits were brought against certain Illinois stockholders and judgments obtained against them, and executions issued, and a small amount of their liability was realized. The county court of Cook county authorized the plaintiff to commence proceedings in this state against the stockholders residing here to recover from them the amount of their unpaid shares of stock, or their proportionate share thereof. Plaintiff has brought this action claiming it to be for and in behalf of all the creditors of the corporation. It was alleged in the complaint that the creditors exceed 115 in number; and it is alleged that Eobertson, one of the creditors, prior to the commencement of the suit by this plaintiff in the superior court of Cook county, obtained a judgment against the corporation in a court of record having jurisdiction thereof in the state of Illinois for the amount of his debt against said corporation, and issued execution thereon to the sheriff of the proper county, which said execution was, after 10 days, returned unsatisfied. It is also alleged that the corporation has ceased doing business, leaving debts unpaid, and that the defendants named as residents of the state of Hew York were stockholders of said corporation at the time said judgment was obtained and execution was returned unsatisfied and at the time said corporation ceased doing business. It is alleged that under the laws of the state of Illinois a corporation organized, as was plaintiff’s assignor, has authority and right to make an assignment for the benefit of creditors; and it is averred that by the laws of the state of Illinois—

“Bach stockholder shall be liable for the debts of the corporation to the extent of the amount that may be unpaid upon the stock held by him, to be collected in the manner herein provided”; and that “no assignor of stock shall be released from any such indebtedness by reason of any assignment of his stock, but shall remain liable therefor jointly with the assignee until the said stock be fully paid”; and that “every assignee or transferee of stock shall be liable to the company for the amount unpaid thereon to the extent and in the same manner as if he had been the original subscriber”; and that “if any corporation or its authorized agents shall do, or refrain from doing any act which shall subject it to a forfeiture of its charter or corporate powers, or shall allow any execution or decree of any court of record, for a payment of money after demand made by the officer, to be returned ‘No property found,’ or to remain unsatisfied for not less than ten days after such demand, or shall dissolve or cease doing business, leaving debts unpaid, suits in equity may be brought against all persons who were stockholders at the time, or liable in any way, for the debts of the corporation, by joining the corporation in such suit; and each stockholder may be required to pay bis pro rata share of such debts or liabilities to the extent of the unpaid portion of his stock, after exhausting the assets of such corporation. And if any stockholder shall not have property enough to satisfy his portion of such debts or liabilities, then the amount shall be divided equally among all the remaining solvent stockholders.” Starr & 0. Ann. St. c. 32, pars. 8, 25.

It does not appear by the record before us that the corporation has been served with process in this action. The statute under which the. corporation was organized is referred to in the schedule annexed to the complaint. By that statute it is provided that the shares shall be personal property, and that—

In the eighth section of the act it is provided that—

“Each stockholder shall be liable for the debts of the corporation to the extent of the amount that may be unpaid upon the stock held by him, to be collected in the manner herein provided.” Id. par. 8.

In the twenty-fifth section of the act it is provided that, if the corporation shall do or refrain from doing any act which shall subject it to forfeiture of its charter,

“Or shall dissolve or cease doing business, leaving debts unpaid, suits in equity may be brought against all persons who were stockholders at the time, or liable in any way for the debts of the corporation, by joining the corporation in such suit; and each stockholder may be required to pay his pro rata share of such debts or liabilities to the extent of the unpaid portion of his stock, after exhausting the assets of such corporation. And if any stockholder shall not have property enough to satisfy his portion of such "debts or liabilities, then the amount shall be divided equally among all the remaining solvent stockholders. And courts of equity shall have full power on good cause shown, to dissolve or close up the business of any corporation, to appoint a receiver therefor who shall have authority by the name of the receiver of such corporation (giving the name), to sue in all courts and to do all things necessary to closing up its affairs, as commanded by the decree of such court. Said receiver shall be, in all cases, a resident of the state of Illinois, and shall be required to enter into bonds, payable to the people of the state of Illinois.” Id. par. 25.

If the plaintiff was permitted to have the relief which he seeks in this action, it would seem that all the creditors should be required to establish their claims, and that it would be necessary to state all the stockholders, and to determine which ones were solvent and which ones were insolvent, before the exact liability of any of the defendants could be ascertained; and it appears that certain of the stockholders are residents of the state of Illinois, and have never been made parties to an action, and they are not now made parties to this action in such manner that the court would have jurisdiction over those residing in that state. Upon a consideration of the provisions of the Illinois statute, it seems that a system is provided for the enforcement of stockholders’ liability, and that that system should be pursued, and is exclusive, and, therefore, the assignee ought not to be permitted to maintain this action.

The question which is raised by the demurrer has been very extensively considered in Barnes v. Wheaton, 80 Hun, 8 , 29 N. Y. Supp. 830 (Fourth department; 1894), and an exhaustive opinion was delivered for the court by Martin, J., and that case was followed by the First department in Railroad Co. v. Kent, 87 Hun, 331 , 34 N. Y. Supp. 427 , in an opinion delivered by O’Brien, J. (concurred in by Van Brunt, P. J., and Follett, J.), which-opinion satisfactorily discusses the essential questions presented by the demurrer in this case. The question- has also been discussed in Russell v. Railway Co., 113 Cal. 258 , 45 Pac. 323 .

“The general rule is that the statutory liability of stockholders in foreign-corporations for debts of the corporation cannot be enforced except at the-domicile of the corporation, when the law of the domicile provides the remedy.”

Dayton v. Borst, 31 N. Y. 435 , was an action brought by a receiver at law to recover an unpaid subscription, and the question involved in this case was not presented in that, and therefore we see nothing in the case that aids the contention of the respondent.

Vanderpoel v. Gorman, 140 N. Y. 566 , 35 N. E. 932 , was an action brought by an assignee of a corporation to recover from the defendant “the value of the property levied on” by him, and the question involved in this case did not arise there.

The foregoing views lead to the conclusion that the interlocutory judgment Should be reversed, with costs, and the demurrer sustained.

Interlocutory judgment reversed, with costs, and the demurrer sustained, with costs, with leave to the plaintiff to amend upon payment of the costs of the demurrer and of this appeal.

ADAMS and WARD, JJ., concur.,

The case of Marshall v. Sherman, 148-N. Y. 9, 42 N. E. 419 , cannot be considered an adjudication that the supreme court of this state possesses no jurisdiction over an action of this character, nor any power to grant the relief demanded. The-action in that case was brought by a judgment creditor of a foreign corporation to enforce the statutory liability of a stockholder, the corporation having been dissolved, and a receiver appointed. The court of appeals has explicitly declared that “if, as sometimes happens, broader statements were made by way of argument or otherwise than were essential to the decisions of the questions presented, they are the dicta of the writer of the opinion, and not the decision of the court.' A judicial opinion, like evidence, is only binding so far as it is relevant; and when it wanders from the point at issue it no longer-has force as an official utterance. The failure to read the opinions of courts with this fact in mind gives rise to much fruitless litigation.” Colonial City Traction Co. v. Kingston City R. Co., 154 N. Y. 493 -495, 48 N. E. 900 . In the language of Chief Justice Shaw: “This shows how necessary and important it is, in construing judicial decisions, to consider them as made with a passive reference to the subject-matter and the facts and circumstances of each case, and with the limitations and qualifications implied thereby.” Atlantic Bank v. Merchants’ Bank, 10 Gray, 555 . “Since no two cases are precisely alike,” observes an able writer on jurisprudence (Austin), “the decision of a specific case may turn upon the reasons which are suggested to the judge by its specific peculiarities or differences. And that part of the decision which turns on those differences, or that part of the decision which turns on those special reasons, cannot serve as a precedent for subsequent decisions, or a rule or-guide of conduct; for as every case has features of its own, and as every judicial decision is a decision on a specific case, a judicial decision as a whole, or as considered in the concrete, can have no application to another, and there

The defendants, residents of this state, severally subscribed for shares of stock in an Illinois corporation, and in consideration of the issuing of such shares to them, respectively, they agreed to pay for the same in such installments and at such time or times as shall be determined by the directors. They also agreed that, if such corporation should cease to do business, or be dissolved, or if an execution against its property should be returned unsatisfied, each would pay his pro rata share of the debts or liabilities to the extent of the unpaid portion of his stock, after exhausting the assets of the corporation; and if any stockholder should not have property enough to satisfy his portion of such debts, then the amount should be divided among all the remaining stockholders. The contract made was to be performed in Illinois, and the subscribers agreed to fulfill their obligations there, and to abide by its laws. Having entered into these obligations, the defendants refused to perform them, and this action is brought by the official representative of the corporation and its creditors to compel contribution. The plaintiff is seeking the aid of our courts to enforce the performance of a plain contractual obligation of liability, and he is entitled to the relief prayed for if the court has the power to grant it, consistently with the rules of law, and without prejudice to the reciprocal equitable rights of all the stockholders as between themselves. The liability of a stockholder to pay what is unpaid in respect of his shares is an obligation founded in contract, and not depending upon statutes; and the sequestering of the unpaid subscriptions of the stockholders for the benefit of the creditors of the corporation when it becomes insolvent is merely a means devised by courts of equity to compel men to pay their honest debts. 3 Thomp. Corp. §§ 2952, 3566. And, if the obligation thus assumed is valid and subsisting according to the law of the domicile of the corporation, it will, upon obvious principles, be enforced in the courts of every other state. Id. § 3047. Unpaid stock is as much a part of the assets of the corporation as any other part of its property; there is no distinction. “Unpaid stock is as much a part of this pledge [trust fund], is as much a part of the assets of the company, as the cash which has been paid in upon it. As regards creditors, there is no distinction between such a demand and any other asset which may form a part of the property and effects of the corporation.” Hawkins v. Glenn, 131 U. S. 330 , 9 Sup. Ct. 739 . And see Dayton v. Borst, 31 N. Y. 435 . The right to enforce payment of these unpaid balances will pass to an assignee for the benefit of creditors. 3 Thomp. Corp. §§ 3551-3553.

The objection to the jurisdiction of the court is founded upon the contention that the remedy adopted and the relief demanded are special and peculiar, and therefore local. The objection to the jurisdiction of the subject of the action is based upon the contention that the remedy provided by the laws of Illinois is a special and peculiar one, local in its nature and character, and must, therefore, be sought in

The defendants’ counsel present this as an argument against entertaining jurisdiction of this action: In order to grant the relief demanded, it will be necessary to establish the amount of the corporate indebtedness, and also determine which of all the stockholders in this and other states are solvent, and how much of their subscriptions remain unpaid, in order to determine whether these defendants are liable for the whole amount of their unpaid subscriptions; and it appears that certain stockholders resident in other states have never been parties to any action, nor could their rights be determined in this. The answer is that the amount of the corporate liabilities and the value of the assets have been established by the foreign decree; and the amount of the unpaid subscriptions, and the question of solvency or insolvency of the respective stockholders, etc., are all matters of proof; and, though the plaintiff may encounter some difficulty or impediment in the way of establishing, by legal proof, the fact of insolvency of particular stockholders, that will not create an insuperable objection to granting any relief whatever. Whether the fact of insolvency can only be established by judgment against a stockholder and the return of an execution nulla bona, or whether it may be established by other proof, is irrelevant to the question of jurisdiction. The plaintiff may not seek to charge the solvent stockholders with the proportionate share of the indebtedness imposed upon those that are insolvent. Though all the relief prayed for may not or can-' not be granted, that is no reason why jurisdiction should not be entertained, and appropriate redress be accorded. The amount of the assets and liabilities and of the unpaid subscriptions being ascertained and determined, the pro rata share of the corporate debts chargeable to the respective stockholders will be a matter simply of arithmetical computation.

The legislature, in 1845 (Laws 1845, c. 234), passed a statute to facilitate the collection of debts due by foreign corporations. It provided that upon the return of an execution against such corporation unsatisfied in whole or in part, the creditor might commence a suit in law or in equity against the stockholders, or any of them, to compel the payment of any sum or sums of money not paid in, or remaining due upon bach share held by them, or any of them; and that he might recover in such suit any sums to the amount due the plaintiff which, such defendants would be liable „to pay in any event in the state where such corporation was located. This statute was considered and applied in Seymour v. Sturgess, 26 N. Y. 134 ; McDonough v. Phelps, 15 How. Prac. 372. It was repealed, however, in 1877, and section 646 of the Code was enacted as a substitute for it. That section provides that under a warrant of attachment against the corporation the sheriff may levy upon the sum remaining unpaid upon a subscription to the capital stock of the corporation, made by a person within the county. In Perseh v. Simmons (Sup.) 3 N. Y. Supp. 783 , Ingraham, J., held that a judgment debtor of a foreign corporation, after return of execution unsatisfied, may sue a stockholder indebted to it for an unpaid subscription to its capital stock, under the provisions of section 1871 of

The necessity of joining other stockholders in the action was not raised by the demurrer interposed, and consequently the point was not ■considered.

The complaint is demurred to also upon the ground that the facts alleged do not constitute a cause of action, and in support of this Objection, as well as the objection to the jurisdiction of the subject of the action, it is contended that no action can be maintained against these defendants until the amount to be collected from each stockholder is first ascertained, and assessed by order of the foreign court. That might be true, if an action at law was brought by the receiver or assignee against the separate shareholders to recover a proportion- • ate amount of the corporate indebtedness. And yet, in the cases cited in this opinion, it was not considered a condition precedent to the maintaining of the action, though the point was not expressly adjudicated. And since the foreign court abstained from determining the amount of the indebtedness due from each nonresident stockholder, and directed the assignee to institute this suit in the state of their domicile, for the determination of the extent of their respective liabilities, there is no apparent reason why our courts should not proceed, and determine the matter in controversy. The defendants were not •parties to the proceedings in the foreign tribunal, and would not, we presume, enter an appearance therein; while here they wiil have their •day in court, and have the opportunity to meet the proof adduced .against them. The decree of the foreign court may be conclusive as to the amount of the assets and liabilities, and of the validity of an assessment decreed against or upon the stockholders (Hawkins v. Glenn, 131 U. S. 319 , 9 Sup. Ct. 739 ), but it would not be so in respect of the amount unpaid upon subscriptions to the stock. In Kennedy v. Gibson, 8 Wall. 498 , it is said: “The liability of the stockholders is several, and not joint. The limit of their liability is the amount unpaid upon their subscriptions. Where the whole amount is sought to be recovered, the proceedings should be at law. Where less is required, the proceeding must be in equity; and in such an action an interlocutory decree may be taken for contribution, and the case may stand over for further action of the court—if such action should subsequently prove to be necessary—until the full amount of the liability is exhausted.”

In view of these statutory provisions quoted, and the authorities referred to, we are unable to perceive that the supreme court possesses, no power or jurisdiction of the subject of the action, or to afford the relief demanded. If, as it is held, a foreign receiver may maintain an ^action at law” against one stockholder, why may he not be permitted to maintain a suit in equity against several stockholders, to enforce contribution of their unpaid balances, to the satisfaction and discharge of the corporate indebtedness? If jurisdiction exists in the one instance, may it be, logically, denied in the other? If all the

The judgment overruling the demurrer should be affirmed, with costs.

FODLETT, J., concurs.