Bottlers' Seal Co. v. Tainey

• Decision Date: 09 July 1926
• Citation: 243 N.Y. 333,153 N.E. 437
• Parties: BOTTLERS' SEAL CO. v. TAINEY et al.
• Court: New York Court of Appeals Court of Appeals

243 N.Y. 333

153 N.E. 437

BOTTLERS' SEAL CO.

v.TAINEY et al.

Court of Appeals of New York.

July 9, 1926.

Action by the Bottlers' Seal Company, suing in behalf of itself and all other creditors of the Tear Off Bottle Seal Company, against Roy A. Rainey and others. From a judgment of the Appellate Division (216 App. Div. 702, 213 N. Y. S. 769), affirming an interlocutory judgment of the Special Term in favor of plaintiff, defendants appeal. On certified questions.

Questions answered, and case remitted.

The following questions were certified:

‘(1) Are the common stockholders of a corporation liable under section 70 of the Stock Corporation Law to one who sues as a creditor, not for a debt incurred in the ordinary course of business after incorporation, but for unpaid installments of annual guaranteed royalties, part of the consideration in a license agreement for the use of a patent executed by such creditor to a third party, which license agreement was with the creditor's consent, assigned to the corporation at the time of its incorporation?

‘(2) In an action in equity brought by a creditor of a corporation against all the common stockholders to enforce the liability provided in section 70 of the Stock Corporation Law, should the complaint be dismissed when it is found as a fact that 35 out of the 57 stockholders named as defendants in the summons and complaint have not been served, nor have they or any of them appeared in the action, and no proof has been offered that any of them were beyond the jurisdiction of the court, or insolvent?

‘(3) In such an action, based on the allegation that the common stock of the bankrupt corporation was issued for an assignment to it of a license agreement made by the plaintiff for the use of a patent owned by plaintiff, expressing a consideration of $25,000 cash on execution, which was paid, and a further consideration of fixed annual guaranteed payments by way of royalties during the term of the license, amounting to $320,000 more, is the plaintiff estopped to deny that the value of the license was in excess of $25,000?

‘(4) In an action to enforce the liability of stockholders for unpaid stock to creditors of the corporation under section 70 of the Stock Corporation Law, in which the liability is established by an interlocutory judgment, should the amount of each stockholder's liability bear interest from the date when he acquired his stock?

‘(5) When, in an action by a creditor to enforce the liability of stockholders under section 70 of the Stock Corporation Law, it is found that a bankruptcy proceeding was instituted against the corporation, and an injunction was issued therein restraining all creditors of the bankrupt from instituting any action against it, or from issuing any execution or other writ against its property, and it is found that a portion of plaintiff's claim, to wit, $20,000, did not become due and absolutely owing by the corporation to the plaintiff until after the petition in bankruptcy had been filed, and that the plaintiff had never taken any of the steps required by section 73 of the Stock Corporation Law, and had never asked permission of the bankruptcy court to take such steps as to such $20,000, did such bankruptcy proceeding and injunction operate as a bar to a compliance by plaintiff with the provisions of section 73 and as an excuse for noncompliance therewith, as to the $20,000 of its claim that was not due and absolutely owing when the petition in bankruptcy was filed?’Appeal from Supreme Court, Appellate Division, First Department.

John Godfrey Saxe, Edwin D. Worcester, and Rogers H. Bacon, all of New York City, for appellants.

Alexander Pfeiffer and Leonard Klein, both of New York City, for respondent.

LEHMAN, J.

The plaintiff, suing in behalf of itself and all other creditors of the Tear Off Bottle Seal Company, has brought an equitable action to compel stockholders of the debtor corporation to pay the amount remaining unpaid on the stock held by them, ‘so far as such liability is necessary to be resorted to in order to pay the claims of the plaintiff herein and the other creditors of the said Tear Off Bottle Seal Company.’ An interlocutory judgment in favor of the plaintiff has been rendered at Special Term and unanimously affirmed by the Appellate Division. 216 App. Div. 702, 213 N. Y. S. 769. It adjudges that the plaintiff herein is a creditor of Tear Off Bottle Seal Company in the sum of $45,000 less dividends received by the plaintiff in the bankruptcy proceedings of Tear Off Bottle Seal Company, and that ‘each of the defendants herein who has been personally served with the summons herein is personally and severally liable to the plaintiff herein and to the other creditors of Tear Off Bottle Seal Company whose debts shall have been duly proved herein, and who shall establish their right to enforce personal liability for each and every share of the common stock of Tear Off Bottle Seal Company held by such defendant when each such debt was contracted.’ A reference was ordered to ascertain, among other things, the creditors ‘entitled to enforce the personal liability of the defendant stockholders, if any,’ and the amount each of the holders of the common stock ‘should be required to pay toward the payment of said debts of Tear Off Bottle Seal Company.’

Leave to appeal from the interlocutory judgment herein has been granted by the Appellate Division, which has certified five questions of law for review. The parties agree that answer to the fourth question could not affect the soundness of the interlocutory judgment, and that question, therefore, need not be answered or considered further. The parties are also agreed that the remaining questions should receive a somewhat broad construction, in order to bring up for review substantial questions of law, upon which determination must rest as to whether the defendant stockholders are liable for the corporate debt to the plaintiff, and also as to whether such liability, if it exists, is a several liability, as determined by the courts below. We pass upon the question in regard to the existence of any liability before we consider its nature, or whether the present judgment correctly defines and enforces such liability.

The stockholders' liability for corporate debts, which the plaintiff seeks to enforce in this action, is created by section 70 of the Stock Corporation Law (Consol. Laws, c. 59), which provides that:

‘Every holder of shares of stock not fully paid shall be personally liable to the creditors of the corporation, to an amount equal to the amount unpaid on the shares held by him for debts of the corporation contracted while such shares were held by him.’

Limitation on the stockholders' liability is imposed by section 73 of the Stock Corporation Law, which provides:

‘No action shall be brought against a stockholder for any debt of the corporation until judgment therefor has been recovered against the corporation, and an execution thereon has been returned unsatisfied in whole or in part, and the amount due on such execution shall be the amount recoverable, with costs against the stockholder. No stockholder shall be personally liable for any debt of the corporation not payable within two years from the time it is contracted, nor unless an action for its collection shall be brought against the corporation within two years after the debt becomes due; and no action shall be brought against a stockholder after he shall have ceased to be a stockholder, for any debt of the corporation, unless brought within two years from the time he shall have ceased to be a stockholder.’

Findings of fact, in large part based upon uncontradicted evidence, established that on or about December 23, 1909, the plaintiff entered into an agreement in writing with one Edward Augustus Horner, whereby the plaintiff granted to the said Horner the sole right and license to manufacture, use, and sell certain patented ‘bottle caps, seals, or closures' for a term of years, and in consideration of this grant Edward Augustus Horner agreed to pay a license fee or royalty of one cent per gross on each gross of bottle caps, seals, or closures sold or delivered by the said Edward Augustus Horner or his assigns. The agreement further provided that the amount of the royalty to be paid to the plaintiff for the period ending July 1, 1911, should be not less than $10,000, for the succeeding year not less than $15,000, and for the year ending July 1, 1913, not less than $20,000, and the same amount for each succeeding year thereafter during the term of the license. After the execution and delivery of the said agreement, and on or about the 28th day of December, 1909, Horner, with the consent of the plaintiff, assigned the license agreement to Tear Off Bottle Seal Company, which assumed the obligations of said agreement and covenanted to perform and carry them out. The Tear Off Bottle Seal Company has not paid any of the royalties provided for in the agreement. On the 9th day of June, 1913, a petition for the adjudication of the corporation as a bankrupt was filed by certain creditors. It was adjudicated a bankrupt on July 3, 1913. The present action is to compel the payment to the plaintiff of the royalties amounting to $45,000 which were due and owing on July 1, 1913.

This court has already passed upon the sufficiency of the complaint herein. 225 N. Y. 369, 122 N. E. 200. We there overruled the contention of the defendant that the obligation or debt of the corporation to pay the royalties for the whole term of the license agreement was contracted when the license agreement was transferred to, and its obligations assumed by, the corporation. We held that this indebtedness or obligation was ‘contracted,’ within the meaning of the statute (Stock Corporation Law, § 73), only when the time stipulated for payment arrived, and that section 70 of the Stock Corporation Law creates a personal liability for such debt as...