Firestone Tire & Rubber Co. v. Agnew

• Decision Date: 26 January 1909
• Citation: 86 N.E. 1116,194 N.Y. 165
• Court: New York Court of Appeals Court of Appeals
• Parties: FIRESTONE TIRE & RUBBER CO. v. AGNEW et al.

194 N.Y. 165

86 N.E. 1116

FIRESTONE TIRE & RUBBER CO.

v.AGNEW et al.

Court of Appeals of New York.

Jan. 26, 1909.

Appeal from Supreme Court, Appellate Division, First Department.

Action by the Firestone Tire & Rubber Company, in behalf of itself and other creditors of the Vehicle Equipment Company, against George B. Agnew and others to enforce stockholders' liability. From an order of the Appellate Division (112 N. Y. Supp. 907), sustaining a demurrer to the complaint, plaintiff, by permission, appeals. Reversed.

William M. Bennett, for appellant.

Franklin Pierce, for respondents.

VANN, J.

By this action the plaintiff, in behalf of itself and the other creditors of a bankrupt corporation known as the ‘Vehicle Equipment Company,’ sought to recover from the defendants, as stockholders thereof, pursuant to the provisions of section 54 of the stock corporation law (Laws 1892, p. 1841, c. 688), the balance unpaid on their stock subscriptions, to the extent necessary to satisfy the unpaid indebtedness of said corporation. Section 54 provides, among other things, that: ‘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.’ Laws 1892, p. 1841, c. 688; Laws 1901, p. 971, c. 351, § 54. The question raised by the demurrer interposed to the complaint involves the failure of the plaintiff to allege that it had exhausted its remedy against the corporation, as required by section 55 of said act, which is as follows: ‘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.’ Laws 1892, p. 1841, c. 688, § 55. The excuse for noncompliance with this section, as set forth in the complaint, is, in substance, that within two years after the debt of the plaintiff was contracted and became due, the Vehicle Equipment Company was adjudged a bankrupt upon the petition of some of its creditors, not including the plaintiff, and effected a composition with all its creditors pursuant to the provisions of the bankruptcy law, under the direction of the federal court having jurisdiction in the premises, which confirmed the composition, distributed the assets of the company, and discharged it from its debts. Bankruptcy Law July 1, 1898, c. 541, §§ 12, 14, 30 Stat. 549, 550 (U. S. Comp. St. 1901, pp. 3426. 3427). The plaintiff proved its debt in the usual way, and it was allowed by the bankruptcy court at the sum of $19,653.69. All the property of the bankrupt when converted into money was not enough to pay the dividend of about 8 per cent. required by the terms of the composition, and the balance came from outise sources. The plaintiff applied the proceeds of its part of the dividend upon its claim, and now seeks to recover the remainder from the defendant stockholders. The debt was provable under the bankruptcy act, and the bankrupt by its discharge was released from liability therefor. Id. § 1, subd. 12. The bankruptcy of a corporation does not release its stockholders ‘from any liability under the laws of a state or territory of the United States.’ Id. § 4, subd. b.

We think that the complaint sets forth a sufficient excuse for the failure to comply with section 55 of the stock corporation law. The object of that section is to protect stockholders from an action, by the creditors of the corporation to recover the balance unpaid upon their claims, until they have been liquidated by judgment, and so much thereof collected from the corporation as can be realized by execution. These purposes were effected by the proceedings in bankruptcy, but not in the manner provided by our statute. The stockholders, however, had the benefit of the substance, although the form was wanting. The claim of the plaintiff was established by the decree of the federal court in bankruptcy, and is no longer open to contest. That decree, made by a competent court having jurisdiction of the subject and of all the parties to this action, was a final determination of all the matters involved, including the existence and amount of the claims of such creditors as proved their debts therein and had...