Richards v. Crocker — 9 N.Y. St. Rep. 531

Majority

p. 531

Alice Richards, Pl’ff, v. Charles Crocker, Def’t. Same, Pl’ff, v. Samuel H. Kingsley, Def’t.

(City Court of New York, Special Term,

Filed April 20, 1887.)

Headnote

1. Corporation—Stockholder—Action against—Defense.

To an action against a stockholder of a business corporation (Laws 1875, chap. 611) to enforce a personal liability because the entire capital stock was not fully paid in, it is a defense that the stockholder is also a creditor of the company to an amount exceeding his stock.

2. Same—Director—Defense in action against.

A director of such a corporation is liable for all its debts, without limit as to the amount, if he has signed an annual report false in any material particular, and it is not defense to such a liability that the director is also a creditor of the company, for this would not justify the fraudulent act charged.

Decision on demurrers interposed by the plaintiff to new matter pleaded in defense by the defendants.

W. W. Badger, for pl’ff:; Alexander & Green, for deft Crocker; Eaton & Lewis, for deft Kingsley.

The American Opera Company (limited), was organized under the act of 1875, chapter 611, and the defendant is sought to be charged in a dual capacity:

First, as a stockholder, on the ground that the whole amount of capital stock fixed and limited by the company at $250,000 and afterwards increased to $500,000 has not been paid in. Section 37.

* Second, as a director, on the ground that the annual report made by the corporation, signed by the defendant and filed January '20, 1887, was false in several material particulars. Section 21.

The liabilities incurred in these two capacities are governed by different rules. As stockholder, the defendant became liable (if at all) to an amount equal to the amount of stock held by him (section 21), and as to this form of responsibility, it is a defense that the stockholder is a creditor of the company to an amount equal to the amount of his stock. Mathez v. Neidig, 72 N. Y., 100 ; Agate v. Sands, 73 id., 620; Wheeler v. Millar, 90 id., 353.

It is no defense that the particular stockholder sued has paid his stock in full, for if other stockholders are in default he is liable (Wheeler v. Millar, supra), though guilty of no personal dereliction himself. The liability m such a case constitutes a fund which belongs to the creditors, as well those who are stockholders as those who are not. The cases cited, though decided under the manufacturing act of 1848, are equally applicable to the provisions of the business act of 1875. The language of the several sections construed is

p. 532

substantially the same, and their re-enactment in the later statute is an adoption by the legislature of the construction previously put upon them by the courts under the former act. People v. Green, 56 N. Y., 466 . As director, however, the defendant is hable (if at ah) for ah the debts of the corporation while he was director (section 21), without hmitation as to the amount. The habhity is unhmited, because designed to punish the fraudulent act of the officer for making false representations as to the pecuniary condition of the company, calculated to deceive the public and induce persons to extend credit to the company which they might have been induced to give if the truth had been made known. To such a habihty it wih not do for the director to say in defense that he is a creditor of the corporation, for that will not excuse a fraud through which another has suffered a personal pecuniary loss.

The fact that the defendant is a creditor of the corporation to an amount exceeding the amount of stock held by him constitutes a complete defense to his liability as stockholder, but for the reasons stated it furnishes no answer whatever to his liability as director.

The plaintiff has grouped both grounds together. She may fad as to the one and succeed as to the other. As she has, figuratively speaking, attempted a double-barreled remedy, she cannot complain that the defendant has interposed a legal fortification as protection against the one and ,a denial of fraud as a defense to the other.

It follows, therefore, that the demurrer must be overruled, with leave to the plaintiff to withdraw the demurrer on payment of ten dollars costs in each case.