Nat'l Bank of Auburn v. Dillingham
Decision Date | 10 December 1895 |
Citation | 42 N.E. 338,147 N.Y. 603 |
Parties | NATIONAL BANK OF AUBURN v. DILLINGHAM et al. |
Court | New York Court of Appeals Court of Appeals |
OPINION TEXT STARTS HERE
Appeal from supreme court, general term, Fifth department.
Action by the National Bank of Auburn against Edwin R. Dillingham and others on a note. From a judgment of the general term (34 N. Y. Supp. 267) affirming a judgment overruling a demurrer to the complaint, defendants appeal. Reversed.
Nelson S. Spencer, for appellants.
Charles I. Avery, for respondent.
This action was brought to recover upon four promissory notes, aggregating $20,000, made by the Auburn Woolen Company, a manufacturing corporation created under the act of 1848. The plaintiff brings the action in its own behalf against the defendants, who are the trustees of the corporation, and who, it is claimed, are liable in an action at law for the amount of the notes, upon the ground that, before any of them were made, other debts had been created by the corporation which equaled and exceeded the amount of its paid-up capital stock, and that the trustees, by assenting to the making of the notes in this action, became liable under the statute to the plaintiff for the amount and interest. The corporation itself is not made a party, nor is it alleged that any judgment has been obtained against it on the notes, or any suit commenced for that purpose, or that it is insolvent, or that any proceedings for dissolution had been commenced. One of the defendants demurred to the complaint on the grounds, among others: (1) That there is a defect of parties, in that the other creditors of the company, and the company itself, are not parties to the action; and (2) that the complaint does not state facts sufficient to constitute a cause of action. The courts below have overruled the demurrer, and held that the action was well brought. On the argument in this court, the learned counsel for the plaintiff has insisted upon some technical objections to the consideration of the question decided, based mainly upon the contention that the necessary facts do not appear upon the face of the complaint to enable the defendant to raise the questions by demurrer. The courts below disposed of the case upon the merits, and we think that the complaint was sufficiently comprehensive to enable the defendant to present all the questions by demurrer. The plaintiff's contention is that each creditor of such a corporation who holds a debt, created by the trustees or with their assent, in excess of the paid-up capital stock, may maintain actions at law against the trustees to recover such debt, without any recourse to the corporation itself, and without reference to any other creditor. The original statute which authorized the creation of this class of corporations imposed a liability upon the trustees in case they assented to the contracting of debts in excess of the paid-up capital stock, as will be seen from the following provision (Laws 1848, c. 40, § 23): ‘If the indebtedness of any such company shall at any time exceed the amount of its capital stock, the trustees of such company assenting thereto shall be personally and individually liable for such excess to the creditors of the company.’ In the recent revision of the statute, now known as the ‘Stock Corporation Law’ (Laws 1890, c. 564, Laws 1892, c. 688), this provision was repealed, and the following section, upon which this action has been brought, was substituted in its place: The demurrer in this case raises the question as to the true construction of this section, the nature and extent of the liability, the proper procedure for enforcing it, and the necessary parties to such an action. It is a fundamental proposition in the plaintiff's contention that the liability is primary and contractual, and that an action may be maintained to enforce it in the same manner as if the trustees themselves owed the debt to the creditor. It is contended that the liability is the same as that of stockholders for debts created before the capital stock is paid in. It should be observed that the liability in that case is treated as that of partners, and that the statute continues and preserves that liability, notwithstanding the creation of the corporation, until the capital stock is paid in. That is the theory upon which primary liability in that class of cases rests. Corning v. McCullough, 1 N. Y. 47;Rogers v. Decker, 131 N. Y. 490, 30 N. E. 571. A different kind of liability, however, arises when the obligation of the members of the corporation is determined by the prefect creation of an artificial person, capable in law of acting and contracting for itself. Then the primary or common-law liability of persons associated together in some enterprise as partners is terminated, and the liability of the trustees rests wholly upon the statute which creates the liability, in the nature of a penalty for disobedience to its commands. The neglect of the trustees to file the report required by the statute, or the making of a false report, illustrates the nature of this peculiar penal liability. Gadsen v. Woodward, 103 N. Y. 242, 8 N. E. 653;Wiles v. Suydam, 64 N. Y. 173;Merchants' Bank v. Bliss, 35 N. Y. 412. While it may not have all the characteristics of a ‘penalty,’ as that term is commonly understood, yet the liability is a pure creation of the statute,-has no foundation in contract, nor any existence at common law. Mor. Priv. Corp. § 908. That is the nature of the defendants' liability in this case. The notes set out in the complaint are the debts of the corporation, and not the debts of the trustees, though the latter are subjected to a certain limited liability in regard to them, for the reason that they have disregarded the statute which forbids the creation of debts in excess of capital stock. The possible liability of the trustees is measured by the excess of debts over and above capital stock, and until the statutory limit is reached there is no liability whatever.
The most important question, however, is with respect to the parties who are entitled, in a proper case, to enforce this liability. The learned counsel for the plaintiff contends that the right of action is given by the statute to creditors holding debts created in violation of its provisions, and to those alone. We think that this is not the correct construction of the statute. The benefit of its provisions is given in terms to the ‘creditorsof the corporation,’ and not to a part of them. The language includes all...
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