Marshall v. Sherman

• Decision Date: 19 December 1895
• Citation: 42 N.E. 419,148 N.Y. 9
• Parties: MARSHALL v. SHERMAN.
• Court: New York Court of Appeals Court of Appeals

148 N.Y. 9

42 N.E. 419

MARSHALL

v.SHERMAN.

Court of Appeals of New York.

Dec. 19, 1895.

Appeal from supreme court, general term, Third department.

Action by Edward Marshall against George R. Sherman to enforce the statutory liability of defendant as stockholder of a Kansas corporation. From a judgment of the general term (32 N. Y. Supp. 193) affirming a judgment overruling a demurrer to the complaint, defendant appeals. Reversed.

Chester B. McLaughlin, for appellant.

Frank N. Hagar, for respondent.

O'BRIEN, J.

This action was brought by a creditor of the Miltonvale State Bank, a corporation organized under the laws of Kansas for banking purposes, against the defendant, a stockholder, residing in this state. The questions in the case arise upon the defendant's demurrer as to the sufficiency of the complaint and the necessary parties to the action. The complaint avers that the bank was incorporated under the laws of Kansas on or about the 8th of July, 1886; that it continued to transact a banking business in that state until the 12th of July, 1891, when proceedings were instituted against it in the district court of the county of that state where it was located, which resulted in the appointment of a receiver to wind up its affairs, and that it has not since that date transacted any business, and before the commencement of this action was dissolved, leaving debts unpaid; that since the 7th day of October, 1889, the defendant has been the owner of 30 shares of the capital stock of the bank, the par value of which is stated to be $3,000; that at the time of the appointment of the receiver the bank was indebted to the plaintiff, as a depositor, in the sum of $191.84. It is then stated that the plaintiff is the owner, by assignment or transfer, of the claims of 15 other depositors to whom the bank was indebted at the time of the appointment of the receiver in various small sums, upon which, together, with the claim held by the plaintiff in his own right, judgment was recovered in the courts of Kansas for the sum of $1,804 damages and $19.15 costs on the 5th of September, 1891; that the plaintiff caused execution to be issued upon this judgmentagainst the property of the bank, which was returned unsatisfied; that the corporation is insolvent; and that $880.41 has since been paid to the plaintiff on this judgment by the receiver. Judgment against the defendant as a stockholder is demanded for the balance unpaid, with interest from the date of the rendition of the judgment. The complaint sets forth certain provisions of the constitution of the state of Kansas, and the statutes of that state, which, it is claimed, impose a legal liability upon the defendant in the courts of this state for the payment of the money still due upon the judgment. The provision of the constitution of that state which is the foundation of the alleged liability reads as follows: ‘Dues from corporations shall be secured by individual liability of the stockholders to an additional amount equal to the stock owned by such stockholders, and such other means as shall be provided by law; but such individual liability shall not apply to railroad corporations nor corporations for religious and charitable purposes.’ Article 12, § 2. The statutes for the enforcement of this liability enacted by that state and set forth in the complaint are embraced in two sections of the laws with respect to the liability of stockholders in corporations. They are as follows: ‘Sec. 44. If any corporation created under this, or any general statute of this state, except railway or charitable or religious corporations, be dissolved, leaving debts unpaid, suit may be brought against any person or persons who were stockholders at the time of such dissolution, without joining the corporation in such suit; and if judgment be rendered and execution satisfied, the defendant or defendants may sue all who were stockholders at the time of the dissolution, for the recovery of the portion of such debt for which they were liable, and the execution upon the judgment shall direct the collection to be made from property of each stockholder respectively; and if any number of stockholders (defendants in the case) shall not have property enough to satisfy his or their portion of the execution, then the amount of the deficiency shall be divided equally among all the remaining stockholders, and collections made accordingly,deducting from the amount a sum in proportion to the amount of stock owned by the plaintiff at the time the company was dissolved.’ ¹ The other enactment is section 32, and is set forth in the complaint as follows: ‘Execution against Stockholder; Action.-That if any execution shall have been issued against the property or effects of a corporation, except a railway, or a religious or charitable corporation, and there cannot be found any property whereon to levy such execution, then execution may be issued against any of the stockholders, to an extent equal in amount to the amount of stock by him or her owned, together with any amount unpaid thereon; but no execution shall issue against any stockholder, except upon an order brought or instituted, made upon motion in open court, after reasonable notice in writing to the person or persons sought to be charged, and upon such motion such court may order execution to issue accordingly, or the plaintiff in the execution may proceed by action to charge the stockholders with the amount of his judgment.’ ² The defendant demurred to the complaint upon the grounds, among others, that it appears upon its face that there is a defect of parties defendant, in that all the stockholders of the bank were not made defendants; and, second, that the complaint does not state facts sufficient to constitute a cause of action.

The complaint contains no allegation as to the meaning or effect of these statutes, or of the provision of the constitution quoted, under the adjudications of the courts of Kansas, nor any allegation that any judgment has been obtained against the defendant in the courts of that state upon his liability as a stockholder, under these provisions of the local law. We are therefore obliged to construe them ourselves, with the aid of such rules and upon such principles as the courts of this state apply in the construction of such enactments here. a right of action against the stockholders of a corporation does not exist at common law, and ordinarily exists only by virtue of some statutory enactment. In this case the right of action is founded upon the constitution and statutes of another state. We think it quite clear that the provision of the constitution referred to is not self-executing, and of itself creates no liability whatever. The language used plainly contemplates that legislation was necessary in order to make it effectual. It was intended simply to confer authority upon the legislature of that state to legislate upon the subject, and perhaps it imposed upon that body the duty of securing the debts of corporations by imposing upon the stockholders an individual liability, and by such other means as in its discretion it should deem proper, always limiting such power and discretion by the provision that each stockholder should be made liable to an amount equal to the stock held by him. The legislature did enact such statutes, and it is these enactments, and not the constitution itself, which is sought to be enforced in this action. Groves v. Slaughter, 15 Pet. 449;Morley v. Thayer, 3 Fed. 737;May v. Black, 77 Wis. 101, 45 N. W. 949;Fusz v. Spaunhorst, 67 Mo. 256;French v. Teschemaker, 24 Cal. 518. The question is thus presented whether a right of action unknown to the common law, and existing only by force of the statutes of another state, can be enforced in the courts of this state, or outside of the local jurisdiction where the corporation is domiciled. The defendant's relation to the corporation is governed by the laws of the state of its creation, and the general rule is that the statutory liability of stockholders in foreign corporations cannot be enforced except at the domicile of the corporation when the law of the domicile provides the remedy. In Erickson v. Nesmith, 4 Allen, 233, the court said: ‘There seems to be no practicable mode of dealing with such corporations and its members, when seeking to charge the latter upon the statute liability, but to proceed in the manner prescribed by the statute creating such liability, and in the local jurisdiction where the corporation was established and carries on its business, and by whose local statutes alone the responsibility exists.’ We think that when the statutes set forth in the complaint, are carefully read, it is apparent from their language that they provide for a special and peculiar remedy against the stockholders of a corporation created under the laws of that state. From their whole structure and scope it is apparent that they were intended to operate and be enforced only within that jurisdiction. It is quite clear that as to some of their provisions, at least, it would be impossible to enforce them in this state; and they should be construed as enactments in pari materia, and as a whole. If it appears that they cannot, as a whole scheme, be given full effect in this state, we ought not to detach some particular provision from the general context, with a view of ascertaining whether that is or is not enforceable beyond the local jurisdiction. But, without reference to the special and peculiar provisions of these statutes, we think that the general current of authority is to the effect that such enactments are to be enforced only within the jurisdiction of the sovereignty where they exist. Some of the authorities will be referred to hereafter.

The judgment of the learned court below seems to have proceeded principally upon the ground that the liability of the defendant as a stockholder of the insolvent bank in another state is primary and...