Southworth v. Morgan

• Decision Date: 30 April 1912
• Citation: 98 N.E. 490,205 N.Y. 293
• Parties: SOUTHWORTH v. MORGAN.
• Court: New York Court of Appeals Court of Appeals

205 N.Y. 293

98 N.E. 490

SOUTHWORTH

v.MORGAN.

Court of Appeals of New York.

April 30, 1912.

Appeal from Supreme Court, Appellate Division, Fourth Department.

Action by Lotus N. Southworth, as trustee, against Andrew D. Morgan. From a judgment of the Appellate Division (143 App. Div . 648,128 N. Y. Supp. 196) affirming a judgment for plaintiff (71 Misc. Rep. 214,128 N. Y. Supp. 598), defendant appeals. Reversed, and new trial granted.

Howard C. Wiggins, of Rome, for appellant.

L. N. Southworth, of Utica, for respondent.

COLLIN, J.

The plaintiff trustee of the bankrupt corporation, Remington Automobile & Motor Company, seeks to recover from the defendant a sum unpaid, as plaintiff alleges, upon a subscription by the defendant for two shares of the capital stock of the corporation .

The trial court found as facts: The bankrupt was organized in 1900 under the laws of New Jersey. Its authorized capital stock was $250,000, divided into 2,500 shares of the par value of $100 each. Soon after its incorporation, the board of directors adopted a resolution as follows: ‘Resolved, that for the purpose of securing a local interest in the Remington Automobile & Motor Company on the part of the citizens of Ilion (N. Y.) that 200 shares of the stock be issued, to be sold at $25 per share, and that the proceeds of such sale be placed in the treasury to be used for regular expenses.’ Thereafter, in pursuance of the resolution, the general manager and secretary of the corporation presented to the defendant a writing which contained the agreements that the plant of the corporation was to be located and its business to be carried on at Ilion, and that the defendant would purchase two nonassessable shares of the capital stock of the corporation at $25 for each share and no more would ever have to be paid upon them. The defendant signed the agreement and purchased the two shares of stock upon the distinct understanding and agreement made between the defendant and the general manager and secretary of the corporation that $25 per share fully paid for the stock. He paid $50 for the two shares of stock at the time he received them. The corporation located its plant at Utica, N. Y., and not at Ilion. In December, 1902, the company was adjudged a bankrupt, and in April, 1906, the United States District Court granted an order directing a call or assessment upon the defendant and others of $75 per share to meet the deficiency in the assets of said corporation to meet the obligations of its creditors, said assessments to be paid on or before July 1, 1906, and the defendant was duly served with a copy of said order. The court found as a conclusion of law that the plaintiff was entitled to recover the sum of $150, a conclusion which the facts found do not support.

[1] The liability of the defendant is to be determined by the law of the state of New Jersey. That state, through its laws, gave the corporation its existence, powers, liabilities, and the limits within which it was free to act, and a citizen of this state, who became a shareholder in it, entered into contract relations, the extent and obligation of which depend upon those laws, in so far as they do not violate a statute or the settled public policy of this state. Lowry v. Inman, 46 N. Y. 119;Hancock National Bank v. Ellis, 166 Mass. 414, 44 N. E. 349,55 Am. St. Rep. 414; Molson's Bank v. Boardman, 47 Hun, 135.

[2] The relevant laws of New Jersey are not disclosed or laid before us by the printed record; nor do the findings make known the provisions of the charter of the bankrupt other than that stated relating to the authorized capital stock. We are confined to the case as the record presents it. The laws of other states are facts which must be alleged and proved and of which we cannot take judicial notice either in their language or their interpretation. Genet v. Del. & Hud. Canal Co., 163 N. Y. 173, 177,57 N. E. 297;Hancock National Bank v. Ellis, 166 Mass . 414,44 N. E. 345,55 Am. St. Rep. 414.

[3] In the absence of those facts, we must presume that the common law of New Jersey is the same as the common law of New York. Ruse v. Mut. Benefit Life Ins. Co., 23 N. Y. 516, 522.

[4] It is urged by the respondent, at this point, that the order of the United States District Court directing the assessment of the shares of the defendant conclusively determined the validity and the amount of the assessment. It is true that the regularity and validity of the proceeding in that court and its conclusions cannot be attacked in this action; but the existence or nonexistence of an obligation on the part of the defendant to pay the assessment was not within the subject-matter of which that court took jurisdiction. To enable the plaintiff to enforce the liability of the delinquent shareholders to the extent only which the deficiency in the corporate assets required and to effect parity of contribution between them, it was necessary that an account of the assets and debts, of the entire amount of the capital remaining unpaid upon the issued shares, and the part of the face value of his shares unpaid by each stockholder, should be taken, and the aggregate assessment required equitably rated by the court, and it is upon those issues that its order is beyond attack in this action. Great Western Telegraph Co. v. Purdy, 162 U. S. 329, 16 Sup. Ct. 810, 40 L. Ed. 986;Howarth v. Angle, 162 N. Y. 179, 56 N. E. 489,47 L. R. A. 725. In the former case the court, speaking of an analogous order of a court of Illinois, said: ‘But the order was not, and did not purport to be, a judgment against any one. It did not undertake to determine the question whether any particular stockholder was or was not liable in any amount. It did not merge the cause of action of the company against any stockholder on his contract of subscription, nor deprive him of the right, when sued for an assessment, to rely on any defense which he might have to an action upon that contract.’ 162 U. S., page 337, 16 Sup. Ct., page 813, 40 L. Ed. 986. The respondent does not contend that the charter provision dividing the authorized capital stock into shares ‘of the par value of $100 each’ prohibited the creation of an actual share or interest upon a consideration less than $100, or secures to the creditors or their representative the right of collecting upon each share, as the discharge of the corporate debts demands, the difference between the consideration and $100.

[5] Inasmuch as no statute of the state of New Jersey, nor provision of the charter of the corporation relative to the liability of the defendant, was proven, we turn to the common law, remarking parenthetically, however, that we have not been referred to and have not found any domestic statute which prescribes, as a condition to the exercise here of the rights derived from the state of New Jersey that the shareholders shall be liable to the creditors or their representative up to the nominal value of their stock, and there...