Walton v. Coe

• Decision Date: 19 June 1888
• Citation: 17 N.E. 676,110 N.Y. 109
• Parties: WALTON v. COE.
• Court: New York Court of Appeals Court of Appeals

110 N.Y. 109

17 N.E. 676

WALTON

v.COE.¹

Court of Appeals of New York.

June 19, 1888.

Appeal from general term, supreme court, First department.

Action by Frank Walton against E. Frank Coe, as stockholder of a limited liability company, organized under the business corporations act of 1875, (chapter 611, Laws 1875,) to recover an alleged debt due by the company. This appeal is from an interlocutory order reversing a judgment sustaining a demurrer to the complaint.

Henry D. Hotchkiss, for appellant.

W. W. Badger, for respondent.

ANDREWS, J.

This appeal presents the single question, whether a creditor's action against a stockholder in a limited liability company, organized under the business corporations act (chapter 611, Laws 1875,) for a debt of the corporation, upon the liability imposed by section 37, can be maintained after a suit to recover the debt has been commenced against the corporation, but before judgment has been obtained therein against the corporation. It is purely a question of statutory construction. The constitution, by article 8, § 2, provides that dues from corporations shall be secured by such individual liability of the corporations, and other means, as may be prescribed by law, and the liability imposed may be absolute or conditional, immediate or secondary, as the legislature in its discretion may determine. The first thing to be determined in all such cases is, ‘What liability has been created by the particular statute in question?’ (WAITE, C. J., Terry v. Little, 101 U. S. 217;) and when this has been ascertained, the liability follows according to the intention of the statute. In this state no uniform practice has been adopted by the legislature. The statutes in some cases impose upon stockholders an immediate and direct liability for the debts of the corporation, which may be enforced by the creditor directly against the stockholder, without his having first proceeded against the corporation; and in other cases they are framed upon what seems to be the more equitable principle, that corporate creditors should resort to the corporate assets for the satisfaction of their debts before proceeding against the individual property of the shareholder. The act of 1848, for the organization of manufacturing corporations, recognizes this equitable principle in defining and deciaring the liability of stockholders. By the tenth section stockholders are declared to be severally individually liable for the debts of the corporation to an amount equal to their stock, until the whole capital stock shall have been paid in, and a certificate thereof made and recorded. But the liability of stockholders imposed by the tenth section of the act of 1848 is limited and qualified by the twenty-fourth section. That section exempts a stockholder from liability for any debt of the company- First, where the debt was not to be paid within one year from the time it was contracted; second, unless a suit for its collection is brought against the company within one year after due; third, where the stockholder has ceased to be a stockholder, and no suit shall have been commenced against him within two years after that time; and the final condition of liability, contained in the final clause of the section, is, ‘nor until an execution against the company shall have been returned unsatisfied, in whole or in part.’ The courts have uniformly construed this section as making the recovery of a judgment against the company, and the issuing and return of an execution thereon unsatisfied, conditions precedent to the commencement and maintenance of an action against a stockholder upon his statutory liability. Handy v. Draper, 89 N. Y. 334. It is claimed that the same construction should be applied to the liability clauses in the act of 1875, defining the liability of stockholders in limited liability companies organized under that act. Section 24 of the act of 1848, so far as it bears upon the present question, is ipsissimi verbis section 25 of the act of 1875, with the exception that the last clause above quoted in the act of 1848 is omitted in section 25 of the act of 1875. So, also, section 10 in the act of 1848, declaring the liability of stockholders under that act, is re-enacted as section 37 of the act of 1875; but there is added to section 37 of the latter act the words, ...