Young v. Brice — 18 N.Y. St. Rep. 945

Majority

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Alfred W. Young, App'lt, v. C. Olivia Brice, Resp’t. Jessie Watson, App’lt, v. C. Olivia Brice, Resp’t. Jennie Woods, App’lt, v. C. Olivia Brice, Resp’t. Same, App'lt, v. C. Olivia Brice, Resp’t.

(City Court of New York, General Term,

Filed October 26, 1888.)

Headnote

1. Corporation—Stockholders—Liability of stockholders in limited* LIABILITY COMPANIES UNDER LAWS 1875, CHAP. 611, § 37—ACTION TO ENFORCE RETURN OF EXECUTION AGAINST CORPORATION IS NOT PREREQUISITE TO.

It is provided by Laws 1875, chap. 611, § 37, that in limited liabillity companies all the stockholders shall be severally individually liable to the creditors of the company in which they are stockholders to an amount equal to the stock held by them respectively, for all debts and contracts-made by such company, until the whole amount of capital stock fixed and limited by such company has been paid in, and a certificate thereof has been made and recorded as thereinafter prescribed. Held, that under said act it was not made a condition to the commencement of a suit by a creditor against a stockholder, that judgment should first be obtained against the corporation, and execution issued thereon and returned unsatisfied.

2. Same — Liability of stockholders in limited liability companies under Laws 1875, chap. 611, § 37.

Held, that a stockholder, made defendant in an action, brought to enforce a liability created by Laws 1875, chapter 611, § 37, to which there was no legal defense, was not obliged to await the recovery of judgment against her, but might pay toward the claim made in that action, an amount equal to the stock held by her and that such payment operated as a discharge from all further liability under that provision.

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Appeals from judgments rendered in each of above actions on April 25, 1888, dismissing the complaints therein with costs.

The complaint in the first of the above-entitled actions, alleges in substance that the American Opera Company (Limited), was on the 19th day of February, 1886, a domestic corporation, duly incorporated on that day, and having a place of business in the city of New York as an opera company.

That defendant was one of the incorporators and a stockholder therein, owning fifty shares of stock full paid for and of the par value of $100 per share. That the capital stock of said company was fixed at $250,000, and subsequently, on ■July 23, 1886, increased to $500,000, of which capital only $148,600 has been paid in (and in the second paragraph of the complaint) that plaintiff is a creditor of said corporation, which is indebted to plaintiff for damages f oi^the breach of its contract made about July 1, 1886, for services to be rendered by plaintiff as a singer for twenty-five weeks, at a salary of $25.50-100 a week, payable weekly, which contract said corporation wholly refused to perform on and after December 11, 1886, whereby plaintiff sustained damages, and that plaintiff recovered judgment for such damages in this court on the 16th day of May, 1887, for $583.06-100, which is still owing and unpaid, and on which execution has been duly issued and returned wholly unsatisfied. Wherefore plaintiff charges defendant as a stockholder with liability for said indebtedness, under sec. 37, chap. 611, of Laws 1875, on the ground that said capital fixed is not paid in and demands judgment against defendant for $663.24, with interest from May 16, 1887, and costs, and alleges personal service of the summons on defendant on or before April 7, 1887.

The defendant in her answer denies any knowledge or information sufficient to form a belief as to the truth of the allegations contained in the second paragraph of the complaint.

And for a further and separate defense, she alleges in substance, that the Southern Trust Company, on or about the 21st day of February, 1887, recovered a judgment against the said American Opera Company, on a promissory note made by said company to Calvin S. Brice, husband of defendant, for the sum of $5,120.00, the amount of said note, interest and costs; that on February 21, 1887, an execution was issued upon said judgment against the American Opera Company, and that the same was before the commencement of this action, returned wholly unsatisfied; that thereafter, and on or about April 20,1887, the said Southern Trust Company commenced an action against this defendant as a stockholder of said American Opera Company, to recover the amount of said note, etc.; that the total liability of defendant for the debts of said American Opera Company has

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never exceeded $5,000.00; that about May 6, 1887, defendant paid to the Southern Trust Company, the sum of $5,000.00, and that same was accepted in satisfaction of her liability on the said note, and in full satisfaction of said judgment, whereupon said action was discontinued by the Southern Trust Company.

Plaintiff demurred to the new matter alleged in the answer as a separate defense, on the ground that it stated “ no facts sufficient to constitute a defense in this action, and is, therefore, insufficient in law.”

On June 13,1887, an order was made by Justice Rebebas overruling the demurrer, and for judgment in favor of defendant, dismissing the complaint with costs; and on April 25, 1888, judgment was entered dismissing the complaint, and for cost to the defendant, amounting to $17.18, her costs and disbursements in this action.

The pleadings in each of the above cases are substantially the same, and the same questions are presented on the appeal in each case.

W. H.Badger, for app’lts; Simpson, Thatcher & Barnum, for resp’t.

The above actions are of the same nature as several others brought in this court, for the purpose of determining the personal liability of a stockholder of the American Opera company,under chapter 611 of the Laws of 1875.

This action was commenced on April 7, 1887, at which time no judgment had been obtained by the plaintiff against the American Opera company, as the plaintiff did not recover his judgment until the 16th day of May, 1887.

The Southern Trust company obtained a judgment, on' the 21st day of February, 1887, against the American Opera company, on a promissory note for $5,000, and an execution was issued thereon on the same day, and returned wholly unsatisfied, before the commencement of the action, by the Southern Trust company, viz., on April 20, 1887, on which day an action was commenced by the Southern Trust company against this defendant, as a stockholder, etc., to recover the amount of the said promissory note; and defendant, on May 6, 1887, paid to the Southern Trust company the sum of $5,000, in full satisfaction of her liability on said note.

Justice Rebebas, in his opinion, holding that on April 7, 1887, when this action was commenced, that plaintiff had no existing cause of action against the defendant, inasmuch as the judgment recovered by thq plaintiff against the American Opera company had not been recovered, or execution thereon returned unsatisfied, at the time of the commencement ot this action, on April, 7, 1887, said judg

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ment not having been recovered until the 16th day of May, 1887, and that defendant’s liability did not become fixed until May 16, 1887, and that defendant had, on May 6, 1887, discharged her liability as a stockholder by payment to the American Trust company of the amount or $5,000, the amount claimed in the suit of the American Trust company against her, commenced April 20, 1887.

In deciding that plaintiff had no existing cause of action against the defendant, for the reason that no judgment had been obtained and execution returned thereon unsatisfied in plaintiff’s action against the American Opera Company, at the time of the commencement of this suit, Justice Nehrbas, followed the ruling of this court on that question, and which ruling was affirmed by the general term of the court of common pleas, on an appeal in Richards v. Beech, and many similar cases decided in this court.

The court of Appeals, however, have in Walton v. Coe (16 N. Y. State Rep., 866; affirming 13 N. Y. State Rep., 416), reported in the Daily Register of June 27, 1888, overruled the decision of this court and of the court of common pleas, made in the cases above referred to, and hold that under the act of 1875 “it is not necessary first to obtain judgment against the, corporation, and have execution thereon; and that the same is not made a condition under said act, to the commencement of a suit by a creditor against a stockholder.

In holding that defendant discharged her liability as a stockholder, by the payment by her to the Trust Company, the .amount of her liability, Justice Nehrbas’ decision is in full accord with and sustained by the decisions of the court of appeals in Garrison v. Howe, 17 N. Y., 458 ; Weeks v. Love, 50, id., 572 ; Mathez v. Neidig, 72 id., 100; Pfohl v. Simpson, 74 id., 143.

The payment made by defendant, was clearly “under legal compulsion;” an action had been commenced against her for a cause of action, to which she had no legal or honest defense; she was not required to incur the expense of a defense, where none existed, nor to wait for the recovery of the judgment against her, and thus subject herself to unnecessary costs.

Justice Nehrbas, in his opinion, further says, that “ it is a, rule of pleading that on a demurrer the court will consider the whole record and give judgment for the party, who, on the whole, appears to be entitled to it.” This ruling is sustained by the opinion of Chief Justice Me A n am in Richards v. Brice at general term, filed February 10, 1888 (N. Y State Rep., vol. 13, 728), which ruling was not overruled in Walton v. Coe, hereinbefore referred to. See,

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also, Richards v. Coe, Abbot’s New Oases, vol. 19, 79 ; Young v. Brice, N. Y. City Ct., special term, June, 1887.

The demurrer of the plaintiff to the separate defense set up in defendant’s answer, admits all such matters of fact as were therein sufficiently pleaded, thus admitting the payment by the defendant to the Southern Trust company of the amount of her liability as a stockholder, and, as before stated, such payment being admitted by the demurrer was a good defense to this action, and which could be set up on a new trial, and would be a good defense on such trial. For the reasons above stated, the judgment appealed from must be affirmed with costs, but with liberty to the plaintiff to withdraw his demurrer on payment, within ten days, of $20 costs of the trial of an issue of law in one action and the costs of appeal in one action to be taxed. If this condition is not complied with, the affirmance will be absolute, with costs, in each action.

Pitshke, J., concurs.