Hardman v. Sage

This action was brought by the plaintiffs as creditors of the Ithaca Organ and Piano Company, to enforce the individual liability of the. defendants as stockholders of that company under section 10 of the general manufacturing act of 1848. The company was dissolved hy a judgment duly entered and a receiver appointed on the 24th of January, 1885.

The contract between the plaintiffs and the company was for a certain number of pianos to be delivered in June, July and August, with the privilege of ordering fifteen or twenty more. And it was provided by the memorandum as follows:

“Settlement to be made within ninety days from average date of shipment, either by cash or sixty days’ note, with interest.”

It is conceded by the respondents’ counsel that under this agreement, but one settlement within ninety days from one average date, was contemplated. And with regard to the date of shipment it is stated by him to be a matter of simple computation, and correctly speaking, is the seventh of August, meaning the Ith of August, 1883. He, also, says that at the expiration of ninety days from that date, the company had the option to tender either cash or sixty days’ note, but in fact did neither; and before the expiration of the ninety days, the company by agreement with the plaintiff gave four notes in settlement of its account, each running four months, viz.: One dated September 28, 1883; one October 16, 1883; and two, November 1, 1883, one of which was paid.

It is not pretended that the pianos delivered were purchased under any other contract than that mentioned.

The average date of shipment having been ascertained, and accepting August 11, 1883, the date .claimed by the appellants, which is to the advantage of the respondent, the ninety days would expire on the 9th of November, 1883, at which time, according to the terms of the contract as we have seen, there must be either payment or the delivery of a note at sixty days. The contract expressly .provides for a note, and not notes, it may be well to observe, in this connection A note at sixty days, bearing date the 9th of November. 1883, would fall due upon the 11th of January, 1884, and make it incumbent upon the plaintiffs to prosecute the company within a year from that time, a period which would expire about thirteen days prior to the judgment dissolving the company.

The character of the notes actually given does not prejudicially affect the appellant, for the reason that the original contract must prevail in regard to the obligation of the company, and" the period when the payment under it

The learned referee states, in his opinion, that the contract did not fix definitely either the amounts of the payments or the time in which they were to be made, but left both of those elements at the option of the company, simply reserving the right to the creditors to insist upon payment in cash at the end of ninety days from the average date of shipment, or notes of sixty days bearing interest; and proceeds to declare that although the agreement was never literally complied with and modified by mutual agreement, the right of the parties to make the modification cannot be disputed, and suggests that it does not seem to affect the liability of the stockholders of the company if such liability ever existed. No authority for this view was cited by him, and none has been supplied by the learned counsel for the respondent.

It is true that the contracting parties might between themselves make any modification of the agreement in which they chose to unite. But any arrangment of that kind must be subservient to the rights of the stockholders, whose liability is regulated by statute and cannot be extended by any compact between the parties.

The learned counsel for the respondent is mistaken in supposing that the case of Veeder v. Mudgett ( 95 N. Y., 295 ) supports his contention on any question involved on this appeal, for the reason that the action was brought, according to the statement of the reporter, within a year after the original debt matured, but the court placed its decision entirely upon the ground that none of the defendant® were liable for the old stock held by them, inasmuch as it was full paid stock and discharged by law. The claim resting upon the Spargo note is subject to the same rule applied to the other demands. The learned referee says in regard to it that if the liability of the company on the note is but the renewal or continuance of the original debt which became due on October 11, 1883, then the defendants are not liable. He thought, however, as the note was one of a third party indorsed by the company and accepted by the plaintiffs in payment of part of the old indebtedness a .new contract of suretyship was' made upon which alone

The right of companies to make and endorse notes in order to pay their debts may not be doubted. Arnot v. Erie Railway Co, 67 N Y , 315 ; Kent v Quicksilver Mining Co., 78 id., 159. If the claim be a valid one against the company as said by Earl, J , in Arnot v. Erie (supra), instead of giving its own obligation, it could give the obligation of another which it owned and guarantee its payment. This process would be only a recognition of an existing liability, and would rest on that as a basis. The original debt in whole or in part would still be there, and the guarantee would only be a prolongation of the time for payment of a note owned by the company given and guaranteed. The burden imposed upon the stockholder relates to the original obligation, and if it can be changed by the action of the contracting parties so as to continue it for a day beyond the year expressed m the statute, it may be for an unlimited period which was never contemplated where the law was passed, and has not been sanctioned by construction or interpretation. These views are all sustained by the principles enunciated in Parrott v. Colby (supra), and affirmed as we have seen.

For these reasons the judgment appealed from should be reversed and a new trial ordered, with costs to abide the event.

Daniels and Bartlett, JJ., concur.