United Glass Co. v. Vary

• Citation: 46 N.E. 312,152 N.Y. 121
• Parties: UNITED GLASS CO. v. VARY et al.
• Decision Date: 02 March 1897
• Court: New York Court of Appeals

152 N.Y. 121

46 N.E. 312

UNITED GLASS CO.

v.VARY et al.

Court of Appeals of New York.

March 2, 1897.

Appeal from supreme court, general term, Fifth department.

Action by the United Glass Company against Calvin P. H. Vary and others. From a judgment of the general term (29 N. Y. Supp. 636) affirming a judgment dismissing the complaint, plaintiff appeals. Affirmed.

H. J. Cookinham, for appellant.

Horace McGuire, for respondents.

ANDREWS, C. J.

The liability imposed upon stockholders in a manufacturing corporation, organized under chapter 40 of [152 N.Y. 123]the Laws of 1848, by section 10 of the act and the amendments thereto, for the debts of the company, is controlled by section 24. By that section it is made a condition precedent to the maintenance of an action to enforce the liability of a stockholder created by section 10 that a suit for the recovery of the debt should have first been brought against the company, and ‘an execution against the company shall have been returned unsatisfied in whole or in part.’ Handy v. Draper, 89 N. Y. 334. Subsequent to the enactment of the statute cases arose where, by reason of the dissolution of the corporation and other obstacles, it was impossible for a creditor to comply with the condition that he should first proceed to judgment and execution against the company. The question was thus presented to the courts whether for any reason the condition precedent could be dispensed with. If the statutory obligation assumed by a stockholder when he became such towards the persons who were or might become creditors of the corporation is in its nature contractual, then it would seem to be proper to apply to the case the general principle applicable to contracts, that when performance of a condition precedent is rendered impossible by an intervening act of the law, performance is excused. Jones v. Judd, 4 N. Y. 412;Baker v. Johnson, 42 N. Y. 126. Whatever may be the nature of the obligation, whether it is regarded as a duty resting upon the stockholders imposed by law or in the nature of a contract obligation, it is the manifest duty of the court not to permit any dispensation with the express requirement of the statute, upon grounds less imperative than those upon which courts proceed in dealing with conditions precedent in ordinary contracts. The stockholder of a corporation assents to be bound by the statute under which it was organized. The creditor also looks to the general law or the charter under which the corporation is created to ascertain and define the liability of stockholders. While, on the one hand, the stockholder should be held to his statutory liability, on the other the creditor has no right to demand that statutory conditions qualifying his liability should be disregarded, or that conditions should be dispensed with, because their observance would be inconvenient, or involve trouble or expense, provided they are capable of performance. Both the stockholder and the creditor may be supposed to have understood, and the stockholder to have impliedly assented, that the intervention of a paramount authority, by which the performance of the condition was rendered impossible, would excuse compliance. Nothing short of this ought to avail as an excuse consistently with a proper regard for the statute or the rights of the stockholder. We do not refer, of course, to cases which may be imagined where a stockholder by his conduct has precluded himself from objecting that the condition precedent has not been performed. It is no excuse for not first proceeding to judgment and execution against the corporation that it is in fact insolvent, and has no property out of which the debt could be collected. The statute has made the judgment and return of execution unsatisfied the only test of the inability to collect of the corporation. In creditors' bills the same test is exacted before a bill to reach equitable assets can be filed. The admitted insolvency of the debtor is not enough. Estes v. Wilcox, 67 N. Y. 264;Adsit v. Butler, 87 N. Y. 585.

There are several cases in this court in which the question of dispensation with the condition in the twenty-fourth section of the statute of 1848, that judgment and execution shall first go against the corporation, has been considered. It was held in Hardman v. Sage, 124 N. Y. 25, 26 N. E. 354, that a dissolution of the corporation by judicial decree during the time in which the creditor might bring his suit dispensed with the condition. There can be no doubt of the soundness of this view. The very entity of the corporation ceases and is extinguished on dissolution. There is no longer any corporation which can be sued. The law has rendered it impossible to take the proceedings contemplated by the statute. In Shellington v. Howland, 53 N. Y. 371, there was a double ground on which a dispensation with the condition was urged. The corporationhad been adjudged bankrupt under proceedings instituted by the stockholder, who was afterwards sued for the debt of the corporation, and an order was made upon his petition restraining the plaintiff from prosecuting his action against the corporation. Moreover, the bankrupt act (14 Stat. 526, § 21) expressly prohibited any creditor whose debt was provable in the proceedings from prosecuting any action against the bankrupt to final judgment until the question of his debtor's discharge should have been determined. It was held in ...