Metzger v. Carr — 61 N.Y. St. Rep. 14

Majority

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Nathan Metzger, Resp’t, v. George W. Carr et al., App’lts.

(Supreme Court, General Term, First Department,

Filed June 15, 1894.)

Headnote

1. Corporations—Trustees—Liability.

In an action against trustees to charge them with personal liability for notes of a club, it will not be presumed, for the purpose of destroying the sufficiency of a pleading, that said notes were given for past indebtedness.

2. Same—Pleading.

An allegation that the defendants were trustees when the judgment was obtained against the club, is unnecessary.

3. Same—Parties.

Such action may be brought against any or all of the trustees.

4. Same—Chap. 267 of 1875.

Section 8, chap. 267 of 1875, is constitutional,

5. Same—Corporate remedy exhausted.

The creditor can sue the trustees before exhausting his remedy against the corporation.

6. Pleadings—Conclusion.

A denial that there is due from defendant to plaintiff the whole or any part of a note sued on is a mere denial of a conclusion of law.

Appeal from an interlocutory judgment sustaining a demurrer to portions of the answers.

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The opinion of Mr. Justice Ingraham at special term is as follows: The defendants, upon this demurrer by plaintiff to the answers, seek to take advantage of the rule that allows a party upon demurrer to take advantage of any defect in a pleading of his opponent, and thus to sustain their answers on the ground that the complaint fails to state facts sufficient to constitute a cause of action; and the objection to the complaint insisted upon is that the action is on a promissory note of the club of which the defendants are sought to be charged as managers, and the only allegation of the contracting of the debt is the allegation of the making of the promissory note; and, as the note is not itself the debt, but is merely the evidence of the debt, that there is no allegation that at the time the debt was contracted the defendants were managers of the club. It is quite true that a promissory note given for an existing indebtedness is merely evidence of the debt, and is not the debt itself; but the trouble with the objections raised by the defendants is that it does not appear upon the face of the complaint that the notes in suit were given for an existing indebtedness. I think that the presumption is that they were not, but were given for an indebtedness created at the time of the giving of the note, and that in such case the note itself is the contract by which the defendant is bound to pay the amount therein specified. The complaint alleges the execution of the notes by the club, and the delivery of the same for value, and that at the time the said promissory notes -were executed and delivered to him, to wit, the 21st day of September, 1892, the defendants, and each of them, were managers, trustees, and governors of the said club; and that that allegation, standing alone, would be sufficient to show that they were such managers of the club at the time the debt by which the club promises to pay the plaintiff the sum mentioned in the note was contracted. The act under which the club in question was organized, being chapter 267 of the Laws of 1875, § 8, provides: “The trustees, directors or managers of any society or corporation organized under the provisions of this act shall be jointly and severally liable for all debts due from said society or corporation contracted while they are trustees.” I think it clear, under this provision, that the words “jointly or severally” allow a creditor of the corporation to sue any one or more of the persons made liable for the debts of the corporation. If the managers are severally liable for the debts contracted while they are such managers, one or more of such persons thus severally liable may be sued in the same action, under § 454 of the Code, which provides “that where two or more parties, severally liable upon the same written instrument, including the parties to a bill of exchange or a promissory note, whether the action is brought upon the instrument or by a party thereto to recover against other parties liable over to him, may all, or any of them, be included as defendants in the same action at the option of the plaintiff.” I think, therefore, the complaint is sufficient, and sets up a good cause of action.

The defendants Carr and Hoyt answer together, and set up several distinct defenses. The first allegation of the answer denies

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that the “defendants to this action, and each of them, were governors of the said club.” This denial is clearly insufficient. It does not deny that the defendants answering were such governors, etc., and it is not a defense available to this defendant that some of the other defendants were not severally liable to the plaintiff. The defendants then deny that there is due and owing to the plaintiff from these defendants the whole, or any part, of either of the notes. This is a mere denial of a conclusion of law.

The next defense is that the notes set forth in the complaint were given for a debt theretofore due by the said club to the plaintiff, and for no other consideration, and that all the managers of the club at the time the debt was contracted are not parties to the action; and the third paragraph of the answer alleges that there is a defect of parties defendant, in that the club is not made a defendant. For the reasons before stated, • neither of these paragraphs allege a defense to the action.

By the fourth defense the defendant alleges that the three notes set forth in the complaint were given by said club and received by plaintiff in payment of the debt contracted for goods sold and delivered to the club, and by the acceptance of the said notes the plaintiff elected to satisfy and discharge said debts and all liabilities which existed against the defendants as such trustees. It is clear that this allegation is no defense to this action. If by the acceptance of the note the plaintiff elected to discharge the indebtedness before existing, the note itself created a new indebtedness, and, under the statute, the defendants, who were then managers of the club, became jointly and severally liable to pay the indebtedness created by the execution and delivery of the notes.

The fifth defense alleges that the provision of the statute before referred to is contrary to the constitution of the state of Rew York, and is now unconstitutional. Ro clause of the constitution that prohibits the passage of such án act has been cited, and I can see no reason why the legislature had no power to pass such an act.

The sixth paragraph alleges, for a separate and further defense, that by the commencement of the action on the said notes against the club, and the entry of judgment therein, plaintiff elected to hold only the said club liable for the payment of said notes and the debts they were given for. I know of no principle upon which a suit against a person severally liable for a debt and the entry of judgment therein discharges .other persons who were severally liable for the same debt.

The seventh paragraph of the answer alleges that the club had assets and real estate standing in its name, and that plaintiff had not, prior to this action, procured an execution in either of said actions, or upon either judgment, to be issued against said club and its property, and returned unsatisfied. I know of no provision that requires such an execution to be issued to make the defendant liable.

The point raised upon the argument and in the brief filed by the defendants, that a note given for an existing debt is merely evidence of the debt, and not the debt itself, and in such case, to re

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cover from the managers of the club, under this statute, the plaintiff must allege and prove the debt, and must show that the defendants were managers at the time the debt was contracted, is not raised by the answer. The fact is stated in two of the defenses before referred to, but in each case as part of a defense which is clearly insufficient.

.1 think, therefore, that none of the defenses set up in the answer of Carr and Hoyt state facts sufficient to constitute a defense to the cause of action set forth in the complaint, and the demurrer must therefore be sustained, and judgment ordered for the plaintiff for the amount as demanded in the complaint, with costs, with leave to the defendants to amend their answer within 20 days, upon payment of costs.

The defendant Van Schaick also answers the complaint, and, after denying certain of the allegations of the complaint, he sets up several separate defenses, to which several separate defenses the plaintiff demurs. ’ The views heretofore expressed dispose of all the objections to that answer except the separate defense alleged in the sixth and seventh paragraphs of the answer to each of the causes of action set forth in the complaint. By paragraph 6 the defendant alleges that the note set forth in the first cause of action was not given for an original contract by the Manhattan Athletic Club, but was given in renewal of the other notes, which were given for goods sold and delivered by said plaintiff. I think this defense is a good defense to the cause of action set up in the complaint, which is solely based upon the execution by the club of the promissory note therein mentioned. By the statute the managers of the club are jointly and severally liable for all debts due from the corporation, contracted while they are trustees, and the plaintiff, to recover, must allege and prove that when the debt was contracted the person sought to be held liable was a manager or trustee of the club. To contract a debt means to incur the debt, and a debt is contracted when the obligation is incurred ; and when the plaintiff sold and delivered to the club goods or merchandise the obligation to pay for such merchandise was then incurred; and, as was said by Davis, P. J., in Parrott v. Colby, 6 Hun, 55 : “It is a well settled general rule that a promissory note given for an existing indebtedness is evidence merely of a debt, and is not the debt itself ; and it is extremely well settled in this state that the taking of a debtor’s note does not merge or extinguish the demand for which it is taken.” , When, therefore, a suit is brought to recover from this defendant for a debt due from the club, contracted while this defendant was a trustee, they must allege and prove that when the debt was contracted the defendant was a trustee. All the defendant has to do is to answer the cause of action alleged against him in the complaint, and when, in such an answer, he alleges the fact to be that the obligation sued upon did not represent a debt contracted at the time the obligation was executed and delivered, he answers the cause of action that is alleged in the complaint. The defense set forth in the seventh paragraph by this defendant is also

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sufficient, as that alleges that the obligation sued on was unauthorized by the club, and the club was not liable therefor.

The demurrer to the third, fourth, and fifth separate defenses alleged in the answer as to each of the causes of action must therefore be sustained, with costs to the plaintiff; and the demurrer to the defenses set up in the sixth and seventh paragraphs of the answer to each of the causes of action must be overruled, with costs; the defendant, however, to have leave to amend his answer to the complaint within 20 days, without costs.

There was also a demurrer to the answer of another defendant submitted at the same time, but, as a copy of that answer was not furnished me by the parties, I cannot dispose of that demurrer. If the defenses, however, are the same as those raised by either of the answers, the demurrers to which are hereinbefore disposed of, the same disposition will be made as before indicated. The decision to be settled on notice.

George W. Carr, for app’lts Carr and Hoyt; Dittenhoefer, Gerber & James, for app’lt James; Bernard Metzger, for resp’t.

The action is brought to enforce the liability of the directors or trustees of the Manhattan Athletic Club, pursuant to § 8, c. 267, Laws 1875, which provides that: “The trustees, directors or managers of any society or corporation organized under the provisions of this act shall be jointly or severally liable for all debts due from said society or corporation contracted while they are trustees, provided said debts are payable one year from the time they shall have been contracted, and provided a suit for the collection of the same shall be brought within one year after the debt shall become due and payable.”

Two causes of action upon promissory notes are set up in the complaint, and, after alleging the incorporation of the club, it is averred that, upon the respective dates, it made its certain promissory notes, and delivered the same to the plaintiff for value, which at maturity were not paid. It is further alleged that, at the time of the execution and delivery of such notes, the defendants, and each of them, were governors, trustees and managers of the club ; that the notes were payable one day from date of their execution; and that less than one year has elapsed since they be.eame due and payable; and that payment has been refused. Then follow allegations about suit being brought thereon and judgment obtained, and that the whole of the judgment remains unpaid. The answer of defendants Carr and Hoyt sets up seven defenses : (1) They deny the allegation of liability either on the notes or judgments. (2) They allege that each of the notes was given for a debt theretofore due and owing by the club to plaintiff for goods and merchandise theretofore sold and delivered by plaintiff to the club ; and that neither at the times the debts were contracted nor the notes given were the defendants all the trustees but that at such times there were other trustees; and plead nonjoinder. (3) They allege the nonjoinder of the club. (4) They allege that, when plaintiff took the club notes, he elected to look only to the club for their payment, and thereby waived any liabil

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ity of the trustees for the debt or for the notes. (5) They claim the provision of the act under which the liability is sought to be enforced is unconstitutional. (6) They allege that the judgments against the club are a bar. (7) They claim plaintiff had not, previous to this action, exhausted his remedy against the club, although it had assets. The answer of defendant James alleges no knowledge or information sufficient to form a belief as to any of. the allegations of either cause of action, except the allegation that the club was incorporated ; denies on information and belief, that the debt or claim set forth in either cause of action was contracted while he (James) was a trustee; and alleges that the provision of the act mentioned is unconstitutional. Plaintiff demurred tq all the defenses in Carr’s and Hoyt’s answer, except that contained in paragraph 1. He demurred to only that portion of or defense in said James’ answer which alleges the unconstitutionality of the law. The learned judge sustained the demurrer, and went one step further in holding that the first defense in Carr’s and Hoyt's answer, which was not demurred to, was bad. As no question was raised as to its sufficiency, we do not think that it should have been disposed of. The reasons assigned by the judge in his opinion are clear and satisfactory, and require no elaboration at our hands.

The only serious question presented relates to the sufficiency of the complaint, which question could be raised and was available to the defendants upon the demurrer; it having been repeatedly held that, though the defenses to a complaint be bad, a demurrer thereto will not be sustained if the complaint itself is insufficient The complaint itself is silent as to whether the notes sued upon were the original indebtedness, or merely evidence of an existing indebtedness; and it thus remains to" be determined whether, as the result of such silence, a presumption arises either way as to the notes being given for an indebtedness created at the time they were given, or for an indebtedness created prior to the giving of such notes. If the latter presumption is to be indulged in, then, as there is no allegation that the defendants were trustees when the original debt was contracted, but were merely trustees when the notes were subsequently given for the debt, they would not, under the authority of Parrott v. Colby, 6 Hun, 55 ; affirmed, 71 N. Y. 597 , and Hardman v. Sage, 124 N. Y. 25 ; 35 St. Rep. 54 , be liable. The liability of such trustees is predicated upon the creation of the indebtedness. In that case it was held that: “The acceptance of a note did not merge or extinguish the orignal indebtedness, but only operated to extend the time of payment, and that, as the plaintiff had not brought an action against the corporation within one year from the time the original debt became due, the defendant was not liable ; that the liability of a stockholder in such cases cannot be renewed or extended by any renewal or extension of the indebtedness which the creditor may make with the corporation.”

Although that action was one to hold the defendant liable as a stockholder of a corporation created under the act of 1848, relating to the formation of corporations for manufacturing, mining,

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mechanical, and chemical purposes, the principles applicable to the liability under that act and under the club act of 1875 "are similar. We are referred to the case of Lake v. Tysen, 6 N. Y. 463 , as authority for the position that, where nothing is alleged but the making and delivery of the note, then the presumption to be indulged in is that it was given for an existing or past indebtedness. It is true that in the course of the opinion this language occurs: “The referee held, among other things, that the giving of the note by the appellant to the respondent was presumptive evidence that all prior claims between the parties were settled. * * * The giving of a promissory note is prima facie evidence of an accounting and settlement of all demands between the parties, and that the maker was indebted to the payee upon such settlement to the amount of the note.”

This language, however, is to be considered in connection with the question before the court, which was whether, where two persons have each claims against the other, and one finally gives a note, the giving thereof is presumptive evidence of a settlement of the accounts. Where such a question is presented, it is undoubted law, as held in that case, that the giving of such note is prima facie evidence of settlement of demands between the parties, and that all prior claims between them were settled. It does not, however, go to the extent of holding, nor is it authority for the position, that, in an action upon a promissory note, it is to be presumed that such note was given for a past or existing indebtedness. We think it is unnecessary to indulge in any presumption, because the complaint must be construed according to the language used; and, under the rule which requires that every inference will be indulged in to support, rather than to overthrow, a pleading, we should hold, ms the language used itself would import, that either the debt accrued at the time of the giving of the notes, or that, for value received, the club promised, according to the tenor of the notes, to pay at their maturity, which. would result in no debt being created until the notes became due. We think, therefore, that the learned judge below was right in holding that where, upon the face of the complaint, it does not appear that the notes were given for a past or existing indebtedness, no presumption to that effect will be indulged in for the purpose of destroying the sufficiency of the pleading, but that it is a matter to be pleaded, if the facts warrant, as a defense. We think the defendants are equally in error in contending that their liability is predicated upon the judgment, and not upon the notes, or the debts of which such notes are the evidence ; and that, therefore, it was sufficient to allege, as was here done, that the defendants were trustees when the notes were given, and an allegation that they were trustees when the judgment was obtained was unnecessary. Our conclusion, therefore., is that the judge was right in sustaining the demurrer to the various defenses set up in the answers of the defendants, but that there was no reason for his adjudging that the first paragraph of the answer of defendants Carr and Hoyt was demurrable, a demurrer thereto not having been interposed, and that question not being before the court;

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that in this respect the judgment should be modified, but in all other respects affirmed, without costs to either party upon this appeal, and with leave to the defendants to amend their answers upon compliance with the conditions imposed by the interlocutory judgment. All concur.

Cases cited

Hardman v. Sage 124 N. Y. 25 N.Y. 1891-01-14 p. 19
People v. Carnal 6 N. Y. 463 N.Y. p. 20