Merola v. Fair Lawn Newspaper Printing Corp... Cummins

• Decision Date: 09 March 1944
• Docket Number: No. 203.,203.
• Citation: 36 A.2d 290
• Parties: MEROLA v. FAIR LAWN NEWSPAPER PRINTING CORPORATION. CUMMINS v. POWELL et al.
• Court: New Jersey Supreme Court

36 A.2d 290

MEROLA

v.FAIR LAWN NEWSPAPER PRINTING CORPORATION.

CUMMINS

v.POWELL et al.

No. 203.

Court of Errors and Appeals of New Jersey.

March 9, 1944.

Appeal from Court of Chancery.

Suit in equity by Joseph P. Merola against the Fair Lawn Newspaper Printing Corporation, Martin J. Cummins, receiver thereof, Clilian B. Powell and Philip M. H. Savory, for an assessment againt unpaid subscriptions to the corporation's stock to satisfy the corporation's debts and administration expenses. From a decree levying an assessment, defendants Powell and Savory appeal.

Reversed and remanded.

Pesin & Pesin, of Jersey City (Meyer Pesin, of Jersey City, of counsel), for appellants Clilian B. Powell and Philip M. H. Savory.

Jerome Alper, of Newark (David Cohn and Abram Simon, both of Paterson, of

counsel), for respondent Martin J. Cummins.

HEHER, Justice.

The decree under review levied an assessment in the total amount of $30,000 against stockholders of an insolvent corporation of this State; and it is assailed on the ground that it was made without a hearing and proof of the jurisdictional prerequisites, and is therefore violative of appellants' essential rights. The point is well made.

The decree determines that the stated sum was needed to satisfy the unpaid debts of the corporation and the administration expenses; that the stockholders comprised appellants, Powell and Savory, and complainant, Merola; that the unpaid subscriptions amounted to $21,250 on Powell's stock, the like sum on Savory's stock, and $47,500 on Merola's. Powell was assessed $7,083.33, Savory the same amount, and Merola $15,833.34. The receiver was empowered, in the event of nonpayment within a designated time, to sue for the recovery of the respective assessments. There were reservations of ‘any and all defenses' which appellants ‘may have against the apportionment of the assessment’ thus made ‘as against themselves and against all other unpaid stock subscribers,’ and also of ‘all defenses' which they ‘may or can have against the payment or enforcement of any assessment’ thereby made ‘in any action or proceedings' instituted by the receiver to enforce payment thereof. It was adjudged that the moneys in the receiver's hands aggregate $1,647.15; that the liabilities total $30,846.25, of which $11,275 represents ‘notes payable secured by conditional bills of sales claims filed;’ and that there are no other assets to which recourse may be had.

The decree was preceded by a petition interposed by the receiver on July 20, 1942. It alleged, inter alia, that, while the stock purported to be fully paid and nonassessable, a large part of the consideration therefor consisted of property that was grossly overvalued.

Upon the filing of the petition, an order was made directing appellants and Merola to show cause on July 27th then next why the prayer of the petition should not be granted. Service was duly made; and the hearing thereon was adjourned from time so time until October 9th next ensuing, when appellants filed an answer to the petition which neither admitted nor denied the allegations thereof, but requested the court ‘to ascertain the true amount of unpaid debts' and ‘to determine the names of the stockholders and the amount due from each and to assess against the proper stockholders in their proportionate amount.’ It was also averred that the petition was premature, in that the receiver had ‘failed to allow and disallow the claims filed with him pursuant to R.S. 14:14-15 [N.J.S.A.], and hence the whole and true amount of unpaid debts cannot be ascertained.’ It is conceded that no evidence was introduced to establish the allegations of the petition. The decree itself recites merely that the petition, order to show cause and answer came on to be heard, and that the court ‘considered the same and all arguments of counsel in open court.’ Thus, it appears that the Chancellor was moved to enter the decree on the basis of the allegations of the petition, unsupported by proof; and this constitutes reversible error.

It is the general rule that where a corporation has been decreed insolvent, and it had been judicially determined that an assessment against unpaid stock subscriptions is necessary to liquidate the corporate debts, the determination of the insolvency, the necessity, propriety, and the quantum or the rate of the assessment, is conclusive upon the stockholders in subsequent proceedings against them to enforce the payment of the assessment, even though the stockholder against whom the assessment is sought to be enforced was not made a party to the particular proceeding in which the assessment was made, and had no personal notice thereof. This is grounded in the principle that a stockholder is so far an integral part of the corporation that, in the view of the law, he is privy to the proceedings touching the body of which he is a member. He is in such privity with the corporation as to be a party to the assessment proceeding through representation by the corporation. Where the assessment is made in a proceeding at the domicile of the corporation to which the corporate body is a party, the propriety and amount of the assessment-matters which concern the entire body of stockholders as a class-are beyond question by the stockholder, but he may interpose all defenses personal to himself in a later action to enforce the assessment. The levy is not a personal judgment against the stockholder, but a judicial determination relative to corporate affairs in which he is represented by the corporation. Cumberland Lumber Co. v. Clinton Hill Lumber Mfg. Co., 57 N.J.Eq. 627, 42 A. 585; Gilson v. Appleby, 79 N.J.Eq. 590, 81 A. 925; McDermott v. Woodhouse, 87...