Van Tuyl v. Scharmann

• Decision Date: 01 April 1913
• Parties: VAN TUYL, Superintendent of Banks, v. SCHARMANN et al.
• Court: New York Court of Appeals Court of Appeals

208 N.Y. 53

101 N.E. 779

VAN TUYL, Superintendent of Banks,

v.SCHARMANN et al.

Court of Appeals of New York.

April 1, 1913.

Appeal from Supreme Court, Appellate Division, Second Department.

Action by George C. Van Tuyl, Jr., Superintendent of Banks, against August C. Scharmann and others. From an order of the Appellate Division (153 App. Div. 902,137 N. Y. Supp. 1147) affirming an order of the Special Term overruling a demurrer to the complaint, defendants, by permission (154 App. Div. 899,138 N. Y. Supp. 1147), appeal. Affirmed.

Two questions were certified by the Appellate Division:

First. Does the complaint herein state facts sufficient to constitute a cause of action?

Second. Is there a defect of parties defendant in that the La Fayette Trust Company is not made a party defendant here?

The action was brought by plaintiff as superintendent of banks of the state of New York to enforce the liability of defendants, who were stockholders of the La Fayette Trust Company.

The complaint in substance alleged the following facts: That plaintiff was duly appointed superintendent of banks and qualified as such; the corporate existence of the La Fayette Trust Company under article 5 of the Banking Law, and that said company was subject to the provisions of the Banking Law (Laws 1892, c. 689) of the state of New York; that on or about November 30, 1908, the debts and liabilities of the said company largely exceeded its assets, and it was conducting business in an unsafe and unauthorized manner; its corporate stock has become and was impaired; that it had suspended payment of its obligations and was in an unsafe and unsound condition to transact business, and because of such condition the plaintiff superintendent of banks took possession and has since remained in possession of the property and business of the company, as provided by section 19 of the Banking Law, for the object and purposes therein mentioned.

The complaint further alleges that upon taking possession the plaintiff superintendent proceeded to collect the money due the company, to conserve its assets and business, and to liquidate its affairs as provided by section 19 of the Banking Law; that apart from the sum of $48,335.77 in cash there remain unconverted and uncollected assets of the company upon which not to exceed $400,000 will be realized, while the total debts of the trust company owing to depositors and creditors amount to the sum of $831,908.77, and the superintendent of banks has determined it is necessary to enforce the individual liability of stockholders of the said trust company to pay its debts and liabilities; that the capital stock of the trust company on November 30, 1908, was $500,000, consisting of 5,000 shares of the par value of $100 each held by the defendants herein; that on March 21, 1910, the superintendent of banks determined that, in order to pay the liabilities of the trust company, it was necessary to enforce the individual liability of the stockholders thereof, and thereupon made an assessment and requisition upon them for the sum of $500,000, to be paid by them and each of them ratably on or before May 20, 1910, in the proportion of $100 upon each and every share of stock held by each of the stockholders on November 30, 1908.

Other counts of the complaint made reference to the Banking Law and the duty of the plaintiff thereunder. Sufficient reference has been made to the complaint to present the nature of the cause of action therein set forth.

The relief demanded was judgment directing and decreeing that any remaining unconverted assets of the trust company be sold and disposed of as provided by law; that an accounting be had of all outstanding and existing assets and liabilities of the corporation; that the amount of deficiency necessary to pay in full the debts and liabilities as judicially determined by the court be apportioned among the stockholder defendants herein ratably according to the number of shares of said company's stock held by them respectively; that each defendant pay the portion thereof adjudged to be paid by him, and for such other relief as would seem just and equitable.

Defendants demurred to the complaint upon the grounds that it failed to state a cause of action, and further that there was a defect of parties in that the La Fayette Trust Company was not made a party defendant. The dumurrer was overruled at Special Term, and the decision of that court unanimously affirmed by the Appellate Division. Permission was granted to appeal to this court, and the questions as above noted were certified.Almet Reed Latson, of New York City, for appellants.

D. Cady Herrick, of Albany and New York City, for respondent.

HOGAN, J. (after stating the facts as above).

Counsel for the appellants submits that the complaint fails to allege a cause of action for the reasons: (1) That the superintendent of banks as the representative of the corporation has no cause of action against the stockholders; (2) that section 19 of the Banking Law did not enlarge the liability of stockholders, but the only effect of its enactment was to transfer to the superintendent of banks such cause of action as the creditors themselves might have against the stockholders; (3) that the corporation still exists and that suits against it have not been restrained or rendered impossible; (4) that the creditors might, therefore, have performed the conditions precedent, prescribed by section 59 of the Stock Corporation Law (Consol. Laws 1909, c. 59), but, as the plaintiff does not allege that they, or any of them, have done so it fails to show that they have any cause of action against the stockholders; and (5) the complaint fails to show that the superintendent of banks, as representative of the creditors, has any such cause of action, and the complaint, therefore, is insufficient upon its face.

[1] We are called upon to determine whether the liability of stockholders of the La Fayette Trust Company for the debts of the company may be enforced by the superintendent of banks under the provisions of the Banking Law, or whether such liability is enforceable only after a compliance with the provisions of section 59 of the Stock Corporation Law (Consol. Laws 1909, ch. 59), which is as follows: ‘Sec. 59, Limitation of Stockholders' Liability. No action shall be brought against a stockholder for any debt of the corporation until judgment therefor has been recovered against the corporation and an execution thereon has been returned unsatisfied in whole or in part, and the amount due on such execution shall be the amount recoverable, with costs against the stockholder. No stockholder shall be personally liable for any debt of the corporation not payable within two years from the time it is contracted, nor unless an action for its collection shall be brought against the corporation within two years after the debt becomes due; and no action shall be brought against a stockholder after he shall have ceased to be a stockholder. * * *’

The Stock Corporation Law enacted in 1890 (chapter 564) was a revision of the existing laws, particularly of the Manufacturing Corporations Law (Laws of 1848, chapter 40), and the Business Corporations Law (Laws of 1875, chapter 611). By section 57 a joint and several liability was imposed on stockholders of every stock corporation to creditors to an amount equal to the amount of stock held by them respectively for all debts and contracts made by the corporation ‘until the whole amount of capital stock shall have been paid in, * * *’ and for debts due and owing to laborers, etc., substantially the liability imposed by the earlier laws referred to. Section 58 of the law was in effect the same as section 59 quoted. By section 1 of the Stock Corporation Law moneyed corporations were excepted from the provisions thereof. The Stock Corporation Law was amended in 1892 (chapter 668), and provided that article 1 (which did not include the section under consideration) should not apply to moneyed corporations. On May 18, 1892, the Stock Corporation Law (Laws of 1892, c. 688) and the Banking Law (Laws of 1892, c. 689) were approved by the Governor.

Prior to the Banking Law of 1892 liability for debts of the corporation had not been imposed upon stockholders of banks, save in certain cases (2 R. S. [1st Ed.] 589, § 16, later repealed Laws of 1830, chapter 71), and by the Constitution of 1846 (article 8, § 7) upon stockholders of banking corporations or associations ‘issuing bank notes or any kind of paper credits to circulate as money.’ Section 52 of the Banking Law (L. 1892, c. 689) provided: ‘Sec. 52. Individual Liability of Stockholders. Except as prescribed in the Stock Corporation Law, the stockholder of every such corporation shall be individually responsible, equally and ratably, and not...