Hardman v. Sage

• Decision Date: 14 January 1891
• Citation: 124 N.Y. 25,26 N.E. 354
• Parties: HARDMAN et al. v. SAGE et al.
• Court: New York Court of Appeals Court of Appeals

124 N.Y. 25

26 N.E. 354

HARDMAN et al.

v.SAGE et al.

Court of Appeals of New York,

Second Division.

Jan. 14, 1891.

Appeal from supreme court, general term, first department.

Action by John Hardman, Leopold Peck, and Henry P. Sondheim against Henry W. Sage, Dean Sage, and William Sage. Plaintiffs appeal from an order reversing a judgment entered in their favor on the report of a referee, and ordering a new trial.

Joseph Ullman, for appellants.

Thomas G. Shearman, for respondents.

FOLLETT, C. J.

This action was begun to recover from shareholders in the Ithaca Organ & Piano Company the amount due on four notes made by it, and the amount due on the note of a third person, indorsed by the corporation, on the ground that the following section of the manufacturing act had not been complied with: ‘Sec. 10. All the stockholders of every company incorporated under this act shall be severally individually liable to the creditors of the company in which they are stockholders, to an amount equal to the amount of stock held by them, respectively, for all debts and contracts made by such company, until the whole amount of capital stock fixed and limited by such company shall have been paid in, and a certificate thereof shall have been made and recorded as prescribed in the following [eleventh] section.’ May 19, 1877, the Ithaca Organ Company was duly incorporated under chapter 40 of the Laws of 1848, with a capital stock of $25,000, divided into 500 shares of $50 each, the affairs of which were to be managed by four trustees. No certificate stating the amount of the capital fixed and paid in was signed, sworn to, and recorded, as required by the elevanth section of the act. October 4, 1880, the capital stock was increased to $125,000; the defendants, under their firm name of H. W. Sage & Co., then becoming the owners of 400 shares of the new stock. Sixty-two thousand five hundred dollars of the increase was paid in in cash, and the remainder, $37,500, by capitalizing the surplus earnings of the corporation. January 10, 1882, a certificate was recorded in the office of the clerk of the proper county, of which the following is a copy: ‘Ithaca, N. Y., January 9th, 1882. To the clerk of the county of Tompkins: This is to certify that the capital stock of the Ithaca Organ Company, limited and fixed in the sum of one hundred and twenty-five thousand dollars, was fully paid in on the 3d of January, 1882. WM. L. BOSTWICK, President and Trustee. P. F. SISSON, Trustee. H. WEGMAN, Trustee.’ ‘State of New York, Tompkins county-ss.: On this 10th day of Jan'y, 1882, appeared before me Wm. L. Bostwick, P. F. Sisson, and H. Wegman, personally known to me, and each acknowledged for himself that the statement above was true to the best of his knowledge and belief. WILLIAM C. KING, Notary Public.’ On the 13th of March, 1882, the name of the corporation was changed from the Ithaca Organ Company to the Ithaca Organ & Piano Company. On the 2d of January, 1883, the capital stock was again increased to $215,000; the defendants, under their firm name, becoming the owners of 272 shares. The increase, $90,000, was paid partly in cash, and partly by capitalizing the then existing surplus of the corporation. January 3, 1883, a certificate was made and recorded in the office of the clerk of the proper county, of which the following is a copy: ‘To the clerk of the county of Tompkins: This is to certify that the capital stock of the Ithaca Organ and Piano Company is limited and fixed in the sum of two hundred and lifteen thousand dollars, and was fully paid in on January 2d, 1883. WM. L. BOSTWICK, President. WM. H. SAGE, Trustee. P. F. SISSON, Trustee.’ ‘State of New York, Tompkins county-ss.: On this 3d January, 1883, appeared before me Wm. L. Bostwick, P. F. Sisson, and W. H. Sage, personally known to me, and each stated for himself that he executed the above instrument. WM. C. KING, Notary Public.’

Section 11 of the act provides: ‘Sec. 11. The president and a majority of the trustees, within thirty days after the payment of the last installment of the capital stock, so fixed and limited by the company, shall make a certificate stating the amount of the capital so fixed and paid in, which certificate shall be signed and sworn to by the president and a majority of the trustees; and they shall, within the said thirty days, record the same in the office of the county clerk of the county wherein the business of the said company is carried on.’ The certificates above quoted, not having been sworn to, but simply acknowledged, were not a compliance with the eleventh section, (Brown v. Smith, 13 Hun, 408, affirmed, 80 N. Y. 650;) and the liability of the owners of the new shares for the debts of the corporation, under section 10, was not terminated, (Veeder v. Mudgett, 95 N. Y. 295.)

Was a judgment and an unsatisfied execution in an action begun against the corporation, within one year after the debt became due, for its recovery, necessary, under the circumstances of this case, to enable the plaintiffs to maintain this action? The twenty-fourth section of the act provides: ‘Sec. 24. No stockholder shall be personally liable for the payment of any debt contracted by any company formed under this act which is not to be paid within one year from the time the debt is contracted, nor unless a suit for the collection of such debt shall be brought against such company within one year after the debt shall become due; and no suit shall be brought against any stockholder * * * until an execution against the company shall have been returned unsatisfied, in whole or in part.’ On the 24th of January, 1885, a final judgment dissolving the corporation was entered in an action brought by the people pursuant to article 1 of title 2 of chapter 15 of the Code of Civil Procedure, which rendered it impossible for the plaintiffs to recover a judgment, and have an execution returned unsatisfied, pursuant to the lastquoted section, by reason of which fact they became entitled to maintain this action for the recovery of any debt which, within the meaning of that section, fell due during the preceding year, without first obtaining a judgment against the corporation, and having an execution returned unsatisfied. Shellington v. Howland, 67 Barb. 14; affirmed, 53 N. Y. 371; Kincaid v. Dwinelle, 37 N. Y. Super. Ct. 326; affirmed, 59 N. Y. 548.

The case last cited arose out of the following facts: An action was brought against a corporation by ajudgment creditor pursuant to sections 36 and 37 of article 2, tit. 4, c. 8, pt. 3, of the Revised Statutes, in which a receiver was appointed on the 24th of April, 1886, with the powers conferred by the Revised Statutes, by chapter 71 of the Laws of 1852, and by chapter 463 of the Laws of 1860. On the 11th of December, 1866, a judgment was recovered for wages earned during the preceding year, on which an execution was returned unsatisfied; and in April, 1877, Kincaid began an action under section 18 of chapter 40, Laws 1848, to recover the amount of the judgment from Dwinelle, a shareholder. It did not appear that a final judgment dissolving the corporation had been entered, but it was insisted in behalf of the defendant shareholder that by the appointment of a receiver the corporation was dissolved, and could not thereafter sue or be sued, and that the judgment of December 11, 1866, having been entered in an action begun after the receivership, was a unllity. It was said by ALLEN, J., speaking for a unanimous court: ‘If the position of the appellant, that the New York Silk Manufacturing Company was ipso facto dissolved by the appointment of a receiver in April, 1866, and was not thereafter capable of suing and being sued as a corporation, is well taken, it would seem to follow that the condition precedent to an action against a stockholder, that there must be an unsatisfied judgmentagainst the corporation, having become impossible of performance by the act and operation of law, is no longer of force, and the creditor has his action at once against the stockholders, without the necessity of an attempt first to recover the debt of the corporation. Shellington v. Howland, 53 N. Y. 371. The proceeding against the corporation is only required for the benefit of the stockholders, as a part of the immunity against a primary personal liability...