Knickerbocker Trust Co. v. Iselin

• Decision Date: 24 April 1906
• Citation: 77 N.E. 877,185 N.Y. 54
• Parties: KNICKERBOCKER TRUST CO. v. ISELIN.
• Court: New York Court of Appeals Court of Appeals

185 N.Y. 54

77 N.E. 877

KNICKERBOCKER TRUST CO.

v.ISELIN.

Court of Appeals of New York.

April 24, 1906.

Appeal from Supreme Court, Appellate Division, First Department.

Action by the Knickerbocker Trust Company against Adrian Iselin, Jr. An order overruling a demurrer to the complaint was affirmed by the Appellate Division of the Supreme Court (96 N. Y. Supp. 588,109 App. Div. 688), which certifies a question to the Court of Appeals. Question answered in the negative, and order reversed.

Edwin T. Rice, for appellant.

Julian T. Davies, Jr., for respondent.

O'BRIEN, J.

The questions in this case arise upon a demurrer to the complaint on the ground that it does not state a cause of action. The purpose of the action was to enforce the statutory liability of the defendant as a stockholder in a Maryland corporation for a debt due to the plaintiff. The action was commenced on the 19th of November, 1904, and the complaint alleges in substance the following facts: That the plaintiff is a domestic corporation; that the City Trust & Banking Company was a Maryland corporation; that each stockholder therein is liable under the laws of that state to creditors of the corporation for double the amount of stock at the par value held by him in said corporation; that the plaintiff loaned to said Maryland corporation on April 20, 1903, the sum of $100,000 due on that date; that the defendant was then a stockholder in said corporation and owned 100 shares of its stock at the par value of $10 per share; that the corporation was then insolvent, and on the 6th of June, 1903, was placed in the hands of a receiver; that there was still due to the plaintiff on said loan the sum of $49,000-and judgment was demanded against the defendant for $2,000 and interest.

The question is whether upon these facts the action can be maintained in the courts of this state; it being an action at law by a single creditor against a single stockholder. The case of Marshall v. Sherman, 148 N. Y. 9, 42 N. E. 419, 34 L. R. A. 757, 51 Am. St. Rep. 654, is to the effect that such an action cannot be maintained, and that case seems to me to be well supported by the more recent decisions of the Supreme Court of the United States. If I understand these decisions, they hold that the liability of stockholders in such cases is not a contract, but a statutory, liability, to be enforced primarily at the home of the insolvent corporation and in the state creating the obligation. McClaine v. Rankin, 197 U. S. 154, 25 Sup. Ct. 410, 49 L. Ed. 702;Middletown Nat. Bank v. Railway Co., 197 U. S. 394, 25 Sup. Ct. 462, 49 L. Ed. 803;Hale v. Allinson, 188 U. S. 56, 23 Sup. Ct. 244, 47 L. Ed. 380. If, however, there ever was any doubt as to the true scope and meaning of what was decided in the Marshall Case, it has been removed by the legislation that has been enacted both in this state and Maryland since the decision, and which was in force when this action was commenced. By chapter 337, p. 597, of the Laws of Maryland enacted in 1904, it was provided as follows: ‘The exclusive remedy for the enforcement against stockholders of all rights existing under the Code of Public General Laws * * * shall be, as against stockholders residing in the state of Maryland, by bill in equity in the nature of a creditor's bill filed against such stockholders by one or more creditors on behalf of themselves and all other creditors of the corporation who may come in and make themselves parties thereto,’ and by chapter 101, p. 179, of the Laws of that state passed in the same year, it was further enacted: ‘The stockholders of every such corporation shall be held individually responsible equally and ratably and not one for another for all contracts, debts, and engagements of every such corporation to the extent of the amount of their stock therein at the par value thereof in addition to the amount invested in such stock. * * * And the liability of such stockholders shall be an asset of the corporation for the benefit of all depositors and creditors of any such corporation, if necessary to pay the debts of such corporation, and shall be enforceable only by appropriate proceedings by a receiver, assignee, or trustee of such corporation acting under the orders of a court of competent jurisdiction.’ It was held that these statutes affected the remedy only and applied to actions pending when the same were passed. Miner's Bank v. Snyder, 100 Md. 57, 59 Atl. 707,68 L. R. A. 312;Murphy v. Wheatley, 100 Md. 358, 59 Atl. 704. So that when this action was commenced it would not lie at the home of the insolvent corporation in its present form.

The law of New York on this subject is now to be found in section 54 of the stock corporation law (Laws 1890, p. 1078, c. 564, § 57, as amended by Laws 1892, p. 1841, c. 688, and Laws 1901, p. 971, c. 354), as follows: ‘Every holder of capital stock not fully paid, in any stock corporation, shall be personally liable to its creditors, to an amount equal to the amount unpaid on the stock held by him for debts of the corporation contracted while such stock was held by him. As to existing corporations the liability imposed by this section shall be in lieu of the liability imposed upon stockholders of any existing corporation, under any general or special law (excepting laws relating to moneyed corporations,...