Persons v. Gardiner

26 Misc. 663, 56 N.Y.S. 822

• Court: New York Supreme Court
• Decided: March 15, 1899
• Status: Published

Opinion

Laughlin, J.

On the 3d day of December, 1896, the Bank of Commerce, a domestic banking corporation, was duly dissolved by a final judgment of this court in an action brought by the attorney-general in the name of the people. The same judgment appointed the plaintiffs permanent receivers. The assets of the bank are insufficient to pay its liabilities and this action is brought to enforce the statutory liability of the stockholders. The defendants Hollister and Saxton separately demur to the complaint on the grounds that plaintiffs have not a legal capacity to sue and that it does not state facts sufficient to constitute a cause of action. The defendants Clarke and Rogers, as executors and trustees under the will of Christina Cameron Hasten, and Joseph Griffiths. Hasten demur on the same grounds. The defendant Reed demurs on the last ground only.

It is sought by these demurrers to challenge the constitutionality of the retroactive provision of chapter 441 of the Laws of 1897, authorizing receivers to bring such suits, which amended section 52 of the Banking Law (Laws of 1896, chap. 689), and took effect on Hay 27 of that year.

The section, as thus amended, reads as follows:

“§ 52. Individual liability of stockholders.— Except as prescribed in the stock corporation law, the stockholders of every such corporation shall be individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of such corporation, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares. In case any such corporation shall have been or shall be dissolved by final order or judgment of a court having jurisdiction, and a permanent receiver or receivers of the said corporation shall have been or shall be appointed, all actions or proceedings to enforce the liabilty of stockholders under this section shall be taken and prosecuted only in the name and in behalf of such receiver or receivers, unless such receiver or receivers shall refuse to take such action or proceeding upon proper request in that behalf made by any creditor, and in that event such action or proceeding may be taken by any creditor of the corporation. The term ‘ stockholder ’ when used in this chapter, shall apply not only to such persons as appear by the books of the corporation to be stockholders, but also to every owner of stock, legal or equitable, although the same may be on such books in the name of another person, but not to a person who may hold the stock as collateral for security for the payment of a debt.”

The amendment inserted the second sentence, the other provisions remaining the same as they were originally enacted in 1892. From the time the corporation was dissolved down to the enactment of this amendment the right of action to enforce the Lability of stockholders was vested in tire creditors and the receiver could not have maintained a suit. Hirshfeld v. Fitzgerald, 157 N. Y. 185. Although it is not alleged in the complaint the fact was conceded upon the argument that no creditor has instituted a suit to enforce the liability of the stockholders, and the constitutionality of tire amendment is not questioned by the creditors. AU creditors have apparently and presumably tacitly acquiesced in the bringing of .this suit by the receivers, and the Statute of Limitations would now be a bar to any action brought by them. The defendants contend that the cause of action having once vested in the creditors it was not competent for the legislature by general law to provide for the enforcement of the liability by the receiver. It is claimed that this was an attempt to take the property of the creditors without due process of law or that it impaired the obligation of existing contract rights. It will be observed that the amendment does not purport to deprive the creditors of the ownership of their claims; it recognizes their rights to the fund to be collected by the receiver. It deprives the creditors of the right to sue and authorizes an officer of the court to represent them in enforcing the liability of the stockholders. It was not contended upon the argument that the liability of the stockholders has been enlarged by the amendment, but the suggestion is contained in one of the briefs submitted that the receivers would be entitled to fees on the collections from stockholders and in that manner the liability of the latter would be increased. That question is not necessarily presented now. It may arise on the accounting in determining the amount of the deficiency for which the stockholders will be liable. It can then be determined whether that is a question between the creditors and receivers only and whether the legislature intended to impose liability for such fees upon the stockholders, and if that intention be manifest, the question would then arise whether, to that extent, the law would be constitutional. It becomes necessary, therefore, to consider what were the respective rights of the creditors and stockholders prior to the enactment of the law of 1897. It was well settled that no creditor had an independent, individual cause of action against one or all of the stockholders. It was held to be the special province of a court of equity to enjoin actions at law, although this deprived the parties of a jury trial, and to permit only one suit by one creditor for the benefit of himself and all other creditors, against all of the stockholders. The liability of the stockholders was not to individual creditors directly, but for contribution to a fund out of which all creditors would be paid alike. Matter of Empire City Bank, 18 N. Y. 199; Sands v. Kimbark, 27 id. 152; Hirshfeld v. Bopp, 145 id. 84; Hirshfeld v. Fitzgerald, supra; Pfohl v. Simpson, 50 How. Br. 343-349; Story v. Furman, 25 N. Y. 224; Corning v. McCullough, 1 id. 47; Terry v. Little, 101 U. S. 218.

Prom the time this liability of stockholders of banks to its creditors was first imposed, by section 7 of article VIII of the Constitution of 1846, down to the enactment of the Banking Law in 1892, the laws regulating the enforcement of such liability (chap. 226, Laws of 1849, and chap. 409, Laws of 1882) provided for the bringing of such actions by the receivers and did not authorize an action by the creditors. The provision authorizing receivers to enforce the liability was evidently omitted frc-m the Banking Laws of 1892 through an oversight. The statutory revision commissioners, who drafted the Banking Law liad previously recommended to the legislature a proposed receivers law, which conferred such authority on receivers, but this was not enacted. Hirshfeld case, supra, page 92; Vol 1, Rep. Comrs. Stat. Rev., 1890, pp. 1299, 1316, 1324.

The Banking Law of 1892 did not in express terms provide that the creditors might maintain the action, nor does the Constitution. § 7, art. 8. There being, however’, no express provision authorizing receivers to sue, it was held, as has been seen, that the claims of creditors for contribution by the stockholders were not assets which passed to the receivers and that the suit should be brought by the creditor.

It has been decided in a case where a corporation was insolvent, but was not so declared until ten days after the enactment of the law, that the legislature might constitutionally pass a special act providing that the liability of stockholders to creditors which attached under the Manufacturing Law of 1811, on dissolution of the corporation, should be enforced by trustees. The constitutional questions here presented were strenuously urged there against the power of the legislature to transfer the right to maintain the action to trustees or receivers and thereby preclude the creditors from proceeding individually. The court reached the conclusion that the remedy of the creditors was not injuriously affected and that if so affected the degree of variation of remedy was not such as to overstep the boundaries of constitutional limitation. Herkimer County Bank v. Furman, 17 Barb. 116; Walker v. Crain, id. 124, 131; Story v. Furman, 25 N. Y. 214; Cuykendall v. Corning, 88 id. 135.

In the case of People v. Tweed (5 Hun, 382), it was held that an act of the legislature (chap. 49, Laws of 1875) which authorized the people to maintain an action to recover moneys belonging to the city of New York and unlawfully converted or appropriated, was constitutional. The question was there raised by the persona against whom the liability was sought to be enforced, as in this case. The city was made a party defendant and it did not question the constitutionality of the law. The court decided the case upon both questions, holding that the city alone could question the constitutionality of the act and that since the city acquiesced the other defendants could not question the right of the'legislature to authorize the people to bring the action, and also that the act created a remedy for the benefit of the city and did not deprive the city of its rights or property; that it was a modification of a legal remedy which did not prejudice or extinguish any personal or property rights of the city, and that it was constitutional and valid.

In Commonwealth v. Cochituate Bank, 3 Allen, 42, the Supreme Court of Massachusetts sustained the validity of a law enacted after the dissolution of a banking corporation, which transferred to the receivers the right to enforce the liability of the stockholders, which right, down to that time, was vested in the' creditors. In that case the court say: “ It will at once be perceived that no objection to a change of remedy can be successfully urged, on account of its being more speedy and effectual. That objection might be urged as to all changes in the form of proceedings, or the organization of the legal tribunals to act thereon. Every' statute extending the equity powers of this court would be obnoxious to objections of this character. The objection, to be tenable, must go beyond this, and show that the statute increased the actual liabilities of the stockholders, and was something more than a change in the mode of enforcing a pre-existing liability.”

With the exception that the suit is brought in the names of the receivers, the remedy is according to the course of justice as always administered in this state. The statute of 1897 merely restores the appropriate remedy which existed prior to 1892. It was not seriously contended upon the 'argument that the language of the amendment of 1897 could be given full force and effect without declaring it retroactive. In some of the briefs submitted, however, it is contended that such effect should be given to the law. I am of opinion that the legislative intent is clear that this act should apply to banks then in a state of liquidation. It is sufficient here to hold that this legislation is constitutional and valid, at least as against the stockholders.

The only allegation of the complaint with reference to the defendants being stockholders is that they were stockholders within two years before the commencement of this action, and it is contended that this allegation is insufficient. The fact is distinctly •alleged that they were stockholders, and since they could not become stockholders after the dissolution of the bank, it is to be inferred that they were stockholders at the time of dissolution -or at some prior time and within two years of the commencement of the action. There is no allegation that they transferred their stock, and I think it may, for the purposes of the demurrers, be presumed that they continued such stockholders down to the time of dissolution. Castner v. Duryea, 16 App. Div. 249. The allegations of the complaint on that subject are informal and indefinite, but, as was held in Marie v. Garrison (83 N. Y. 23), ‘‘ it is not sufficient that the facts are imperfectly or informally averred, or that the pleading lacks definiteness and precision, or that the material facts are only argumentatively averred,” to justify sustaining a demurrer. All of the demurrers present the objection that it appears on the face of the complaint that it fails to state facts sufficient to constitute a cause of action. That •clearly presents all of the questions and it was not necessary to demur on the ground that the plaintiff’s have not a legal capacity to sue. Ward v. Petrie, 157 N. Y. 301.

The complaint shows that the assets are insufficient to pay the debts for which the stockholders are liable. These facts authorize the commencement of the action without waiting until all of the assets shall have been converted into money and the amount of the deficiency thus definitely ascertained. The Statute of Limitations would ordinarily run before that time unless the assets should be sacrificed by a forced sale, which might be prejudicial to both the stockholders and creditors. The court, after determining who are the stockholders against whom the liability may be enforced, will, in awarding final judgment, protect the stockholders against paying in more than may appear to be reasonably necessary to meet the, deficiency for which they are liable, and then should there be a surplus they will be entitled to its return pro rata. Matter of Reciprocity Bank, 17 How. Pr. 323; 22 N. Y. 9; Matter of Hollister Bank, 23 id. 508; Walton v. Coe, 110 id. 109; Hirshfeld v. Bopp, supra.

The demurrers are overruled, with leave to the demurring defendants to answer within twenty days on payment of the costs of the demurrers.

Demurrers overruled, with leave to answer within twenty days on payment of costs of demurrers.