Gause v. Boldt

The plaintiff seeks in this action both to establish his claim as a creditor against the Commonwealth Trust Company and to enforce the statutory liability of its stockholders. A number of the defendant stockholders have demurred to the complaint upon the ground, among others, that it does not state a cause of action, in that it fails to allege the recovery of a judgment against the trust company and the return unsatisfied of an execution thereon, prerequisites to the right to maintain an action against them as stockholders. They invoke section 55 of the stock corporation law (Laws 1892, p. 1841, c. 688), which, so far as applicable, reads as follows:

“No action shall be brought against a stockholder for any debt of the corporation until judgment therefor has been recovered against the corporation, and an execution thereon has been returned unsatisfied, in whole or in part, and the amount due on such execution shall be the amount recoverable, with costs, against the stockholder.”

There has been no judgment against the trust company, and, of course, no execution. Nevertheless the plaintiff contends that the action is maintainable for the reason that the section quoted is inapplicable, either to trust companies or to this action, by reason of its exceptional features, and unconstitutional because it circumscribes the broader liability imposed upon stockholders by section 162 of the banking law (Laws 1892, p. 1913, c. 689) and section 7 of article 8 of the Constitution. Both statute and precedent are opposed to his position.

As defined in section 2 of the general corporation law (Laws 1892, p. 1801, c. 687), a stock corporation includes “a moneyed corporation,” and section 3, subd. 4, defines a moneyed corporation as one “formed under or subject to the banking or the insurance law.” Section 162 of the banking law, relating to trust companies, provides:

“If default shall be made in the payment of any debt or liability contracted by any such corporation, the stockholders thereof shall be individually responsible, equally and ratably, for the then existing debts of the corporation.”

Section 55 of the stock corporation law (Laws 1892, p. 1841, c. 688) prescribes the conditions under which this responsibility shall be enforced.

“If In any such [corporate] law there is or shall he a provision relating to-a matter embraced in this chapter or in the stock corporation law, but not in conflict with it, such provision in such other law shall be deemed to be in. addition to the provision in this chapter or in the stock corporation law relating to the same subject-matter, and both provisions shall, in such case,, be applicable.”

The Court of Appeals, having under consideration section 55 of the stock corporation law, declared that:

“The whole scheme of legislation relating to corporations contained in the three acts, the general corporation law, the stock corporation law, and the banking law, all passed on the same day, show that many of the general provisions in the stock corporation law are applicable to banking as well as to-other corporations. * * * The language of the section is general. * * * ' The section is dealing with stock corporations, in which a banking corporation-is included, and the limitations apply to the stockholders in such a corporation.” Hirshfeld v. Bopp, 145 N. Y. 84 , 93, 39 N. E. 817 .

The fact that this section is not expressly referred to in section 163 of the banking law has no significance in the light of section 33 of the general corporation law. Section 163 fixes the liability of stockholders, and section 55 prescribes limitations under which it shall be-enforced. There is no conflict between them. Therefore both are applicable. It was' not intended to impose by section 163 a primary and absolute liability upon the stockholders of trust companies, or to make them the single exception to the provisions of section 55 of the stock corporation law and to the rule that the liability of stockholders - is always secondary and contingent. National Bank v. Dillingham, 147 N. Y. 603 , 611, 42 N. E. 338 , 49 Am. St. Rep. 692 . The intention to cast primary liability on any class of stockholders would have been such a departure from the pronounced policy of all prior legislation and all judicial precedent that it would have been expressed in positive language and not left to vague inference.

The statute being applicable to the stockholders of trust companies, as the plaintiff does not and cannot plead judgment recovered and execution returned, he must justify his omission by.facts which bring him within the exceptions which the courts have interpolated into the stat'ute. He alleges that he did commence an action against the trust company, looking to the recovery of a judgment on his claim, but that, by reason of successive demurrers interposed to his original and amended complaint and of the congested condition of the trial calendars, he has been unable to obtain such judgment, although he has pressed his case with the utmost speed. As a further excuse he asserts the insolvency of the corporation. These excuses are insufficient.

The statute requires the recovery of a judgment against the corporation, and the issuance and return, unsatisfied, of an execution, before the creditor may proceed against the stockholders. Unless‘impossible, proceedings against the corporation are imperative. Only the intervention of a paramount authority, rendering the performance of the conditions precedent legally impossible, will excuse compliance. United

“The decisions thus far have dispensed with the condition precedent (1) where the corporation has been dissolved by judicial decree; (2) where by final judgment in. an action for sequestration a perpetual injunction has been issued restraining suits by creditors; and (3) where, by statute, such suits are prohibited. In these cases there intervenes an impossibility within the meaning of the law, which excuses performance of the condition precedent. We think the courts should not extend the exception beyond its present limits, unless, in possibly a new case, clearly within the principle of the decisions already made.”

Again, that:

“While, on the one hand, the stockholder should be held to his statutory liability, on the' other, the creditor has no right to demand that statutory conditions qualifying his liability should be disregarded or that conditions should be dispensed with, because their observance would be inconvenient or involve trouble or expense, provided they are capable of performance.”

In other words, it is only where, by operation of law, the recovery of a judgment is impossible that compliance may be dispensed with. The Commonwealth Trust Company has not been dissolved. No action for sequestration has been instituted or injunction issued restraining creditors, nor is the cause of action prohibited by statute. Consequently, it is possible for the plaintiff to recover a judgment and issue execution against the trust company. In fact, he admits that an action is now pending against that corporation, with no obstacle in the way of proceeding to judgment except the delay attendant upon the interposition of demurrers to his complaint and the congested condition of the trial calendars. In a word, he is not prevented, but delayed. The allegation of insolvency does not avail him. The statute has made the judgment and return of execution unsatisfied the only test of the inability to collect of the corporation. United Glass Co. v. Vary, supra.

This brings us to the consideration of the constitutionality of section 55 of the stock corporation law. The present Constitution was adopted two years after the enactment of the corporation laws. Article 8, § 7, provides:

“The stockholders of every corporation, and joint stock association for banking purposes, shall be individually responsible to the amount of their respective share or shares of stock in any such corporation or association, for all its debts and liabilities of every kind.”

The effect of this provision was to preserve and perpetuate the liability of stockholders against possible subsequent legislation. The prior legislation, in so far, at least, as it contemplates the performance of conditions precedent, survives, because it is not in conflict with the constitutional provision. It merely treats the corporation as the primary debtor and the liability of the stockholder as ultimate and subsidiary. It treats the corporate treasury as the primary resource, and compels the creditor to exhaust this resource before proceeding against the stockholdér. The ultimate liability of the stockholder is unaffected. The creditor will enjoy the same protection accorded by the Constitution after he has complied with the statute. Merely because the statute prevents the present enjoyment of that protection does not make it unconstitutional. There may be some doubt as to the constitu

The remaining grounds upon which the stockholders challenge the complaint are so closely involved with the one discussed that it is unnecessary to treat them separately.

The defendant trust company assigns the pendency of another action between the same parties for the same cause as a ground of demurrer. In the plaintiff’s present complaint is incorporated his complaint in the prior action. Both state the same cause of action against the trust corn-pan)'-, the only difference being that in the one the plaintiff makes the trust company the sole defendant, and in the other he unites the stockholders. The trust company is not to be subjected to this double litigation.

The demurrers interposed are well taken, must be sustained, with costs.

Demurrer sustained, with costs.