Stoddard v. Lum

Appellate Division of the Supreme Court of New York

Stoddard v. Lum

32 A.D. 565, 53 N.Y.S. 607, 1898 N.Y. App. Div. LEXIS 1795

CourtAppellate Division of the Supreme Court of the State of New York

DecidedJuly 1, 1898

StatusPublished

Cited by2 cases

This text of 32 A.D. 565 (Stoddard v. Lum) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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Stoddard v. Lum, 32 A.D. 565, 53 N.Y.S. 607, 1898 N.Y. App. Div. LEXIS 1795 (N.Y. Ct. App. 1898).

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Hardin, P. J.:

In 1892 the Soldiers’ World’s Fair Hotel Association was incorporated under the law's of the State of Illinois. In 1893 it became indebted to sundry persons and unable to pay its debts, and thereupon its directors made a voluntary assignment to the plaintiff for the benefit of its creditors. Subsequently suits were brought against certain Illinois stockholders of the association and judgments were obtained against them and executions issued and a small amount of their liability was realized. The County Court of Cook bounty authorized the plaintiff to commence proceedings in this State against the stockholders residing here to recover from them the amount of their unpaid shares of stock or their proportionate share thereof. Plaintiff has brought this action claiming it to be for and in behalf of all the creditors of the corporation. It was alleged [567]*567in the complaint that the creditors exceed 150 in number; and it is alleged that Robertson, one of the creditors, prior to the commencement of the suit by this plaintiff in the Superior Court of Cook county,, obtained a judgment against the corporation in a court of record having jurisdiction thereof in the State of Illinois for the amount of his debt and issued execution thereon to the sheriff of the proper county, which said execution was, after ten days, returried unsatisfied. It is also alleged that the corporation has ceased doing business, leaving debts unpaid, and that the defendants, named as residents of the State of New York, were stockholders of said corporation at the time said judgment was obtained and execution was returned unsatisfied and at .the time said corporation ceased doing business. It is alleged that, under the laws of the State of Illinois, a corporation, organized as was plaintiff’s assignor, has authority and right to make an assignment for the benefit of creditors; and it is averred that, by the laws of the State of Illinois, “ each stockholder shall be liable for the debts of the corporation to the extent of the amount that may be unpaid upon the stock held by him, to be collected in the manner herein provided, and that no assignor of. stock shall be released from any such indebtedness by reason of any assignment of his stock, but shall be, remain liable therefor jointly with the assignee until the said stock be fully paid, and that every assignee or transferee of stock shall be liable to the company for the amount unpaid thereon to the extent and in the same manner as if he ha,d been the original subscriber, and that if any corporation or its .authorized agents shall do, or refrain .from doing, any act which shall subject it to a forfeiture of its charter or corporate powers, or shall allow any execution or decree of any court of record, for a payment of money, after demand made by the officer, to be returned ‘ no property found,’ or to remain unsatisfied for not less than ten days after such demand, or shall dissolve or cease doing business, leaving debts unpaid, suits in equity may be brought against all persons who were stockholders at the time, or liable in any way for the debts of the corporation by joining the corporation in such suit; and each stockholder may be required to pay his fro rata share of such debts or liabilities to the extent of the unpaid portion of his stock after exhausting the assets of such corporation. And if any stockholder [568]*568shall not have property enough to satisfy his portion of such debts or liabilities, then the amount shall be divided equally among all the remaining solvent stockholders.”

. It does not appear by the record before us that the corporation has been served with process in this action. The .statute under which the corporation was organized is referred to in the schedule annexed to the complaint. By that statute (Ill. Rev. Stat, chap. 32) it is provided that the shares shall be personal property, and that “ subscriptions' therefor shall be made payable to the corporation,, and shall be payable in such installments and at such time or times as shall be determined by the directors or managers, and an action may be maintained in the name of the corporation to recover any installment which shall remain due and unpaid for the period of twenty days after the personal demand therefor.”

In the 8th section of the act it is provided that “ each stockholder shall be liable for the debts of the corporation to the extent of the amount that may be unpaid upon the stock held by him, to be collected in the manner herein provided.”

In the 25th section of the act it is provided that if the corporation shall do, or refrain from doing, any act which shall subject it to forfeiture of its charter, “or shall dissolve or cease doing business, leaving debts unpaid, suits in equity may be brought against all persons who were stockholders at the time, or liable in any way for the debts of the corporation, by joining the corporation in such suit, and each stockholder may be required to pay his pro rata share of such debts or liabilities to the extent, of the unpaid portion of his stock", after exhausting the assets of such corporation. And if any stockholder shall not have property enough to satisfy his portion of such debts or liabilities, then the amount shall be divided equally among all the remaining solvent' stockholders. And courts of equity shall have full power, on good cause shown, to dissolve or close up the business of any corporation, to appoint a receiver therefor who shall have authority, by the name of the receiver of such corporation (giving the name), to sue in all courts and do all things necessary to closing up its affairs, as commanded by the decree of such court. Said receiver shall be, in all cases, a resident of the State of Illinois, .and shall be required to enter into bonds, payable to the People of the State of Illinois.”

[569]*569If the plaintiff was permitted to have the relief which he seeks in this action it would seem' that all the creditors should he required to establish their claims, and that it would be necessary to state all the stockholders, and to determine which ones were solvent and which ones were insolvent before the exact liability of any of the defendants could be ascertained ; and it appears that certain of the stockholders are residents of the State of Illinois and have never been made parties to an action, and they are not now made parties to this action in such manner that the court would have jurisdiction over those residing in that State. Upon a corisideration of the provisions of the Illinois statute it seems that a system is provided- for the enforcement of stockholders’ liability, and that that system should be pursued and is exclusive, and, therefore, the assignee ought not te be permitted to maintain this action.

The question which is raised by the demurrer has been very extensively considered in Barnes v. Wheaton (80 Hun, 8, fourth department, 1894), and an exhaustive opinion was delivered for the court by Martin, J.; and that case was followed by the first department in Cleveland, Lorain & Wheeling Ry. Co. v. Kent (87 Hun, 331.) in an opinion delivered by O’Brien, J. (concurred in by Van Brunt, P. J., and Follett, J.), which opinion satisfactorily discusses the essential questions presented by the demurrer in this case. The question has also been discussed in Russell v. Pacific Railroad (113 Cal. 258; S. C., 45 Pac. Rep. 323).

In Marshall v. Sherman (148 N. Y. 9) it was said: “

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Hardin, P. J.:

In 1892 the Soldiers’ World’s Fair Hotel Association was incorporated under the law's of the State of Illinois. In 1893 it became indebted to sundry persons and unable to pay its debts, and thereupon its directors made a voluntary assignment to the plaintiff for the benefit of its creditors. Subsequently suits were brought against certain Illinois stockholders of the association and judgments were obtained against them and executions issued and a small amount of their liability was realized. The County Court of Cook bounty authorized the plaintiff to commence proceedings in this State against the stockholders residing here to recover from them the amount of their unpaid shares of stock or their proportionate share thereof. Plaintiff has brought this action claiming it to be for and in behalf of all the creditors of the corporation. It was alleged [567]*567in the complaint that the creditors exceed 150 in number; and it is alleged that Robertson, one of the creditors, prior to the commencement of the suit by this plaintiff in the Superior Court of Cook county,, obtained a judgment against the corporation in a court of record having jurisdiction thereof in the State of Illinois for the amount of his debt and issued execution thereon to the sheriff of the proper county, which said execution was, after ten days, returried unsatisfied. It is also alleged that the corporation has ceased doing business, leaving debts unpaid, and that the defendants, named as residents of the State of New York, were stockholders of said corporation at the time said judgment was obtained and execution was returned unsatisfied and at .the time said corporation ceased doing business. It is alleged that, under the laws of the State of Illinois, a corporation, organized as was plaintiff’s assignor, has authority and right to make an assignment for the benefit of creditors; and it is averred that, by the laws of the State of Illinois, “ each stockholder shall be liable for the debts of the corporation to the extent of the amount that may be unpaid upon the stock held by him, to be collected in the manner herein provided, and that no assignor of. stock shall be released from any such indebtedness by reason of any assignment of his stock, but shall be, remain liable therefor jointly with the assignee until the said stock be fully paid, and that every assignee or transferee of stock shall be liable to the company for the amount unpaid thereon to the extent and in the same manner as if he ha,d been the original subscriber, and that if any corporation or its .authorized agents shall do, or refrain .from doing, any act which shall subject it to a forfeiture of its charter or corporate powers, or shall allow any execution or decree of any court of record, for a payment of money, after demand made by the officer, to be returned ‘ no property found,’ or to remain unsatisfied for not less than ten days after such demand, or shall dissolve or cease doing business, leaving debts unpaid, suits in equity may be brought against all persons who were stockholders at the time, or liable in any way for the debts of the corporation by joining the corporation in such suit; and each stockholder may be required to pay his fro rata share of such debts or liabilities to the extent of the unpaid portion of his stock after exhausting the assets of such corporation. And if any stockholder [568]*568shall not have property enough to satisfy his portion of such debts or liabilities, then the amount shall be divided equally among all the remaining solvent stockholders.”

. It does not appear by the record before us that the corporation has been served with process in this action. The .statute under which the corporation was organized is referred to in the schedule annexed to the complaint. By that statute (Ill. Rev. Stat, chap. 32) it is provided that the shares shall be personal property, and that “ subscriptions' therefor shall be made payable to the corporation,, and shall be payable in such installments and at such time or times as shall be determined by the directors or managers, and an action may be maintained in the name of the corporation to recover any installment which shall remain due and unpaid for the period of twenty days after the personal demand therefor.”

In the 8th section of the act it is provided that “ each stockholder shall be liable for the debts of the corporation to the extent of the amount that may be unpaid upon the stock held by him, to be collected in the manner herein provided.”

In the 25th section of the act it is provided that if the corporation shall do, or refrain from doing, any act which shall subject it to forfeiture of its charter, “or shall dissolve or cease doing business, leaving debts unpaid, suits in equity may be brought against all persons who were stockholders at the time, or liable in any way for the debts of the corporation, by joining the corporation in such suit, and each stockholder may be required to pay his pro rata share of such debts or liabilities to the extent, of the unpaid portion of his stock", after exhausting the assets of such corporation. And if any stockholder shall not have property enough to satisfy his portion of such debts or liabilities, then the amount shall be divided equally among all the remaining solvent' stockholders. And courts of equity shall have full power, on good cause shown, to dissolve or close up the business of any corporation, to appoint a receiver therefor who shall have authority, by the name of the receiver of such corporation (giving the name), to sue in all courts and do all things necessary to closing up its affairs, as commanded by the decree of such court. Said receiver shall be, in all cases, a resident of the State of Illinois, .and shall be required to enter into bonds, payable to the People of the State of Illinois.”

[569]*569If the plaintiff was permitted to have the relief which he seeks in this action it would seem' that all the creditors should he required to establish their claims, and that it would be necessary to state all the stockholders, and to determine which ones were solvent and which ones were insolvent before the exact liability of any of the defendants could be ascertained ; and it appears that certain of the stockholders are residents of the State of Illinois and have never been made parties to an action, and they are not now made parties to this action in such manner that the court would have jurisdiction over those residing in that State. Upon a corisideration of the provisions of the Illinois statute it seems that a system is provided- for the enforcement of stockholders’ liability, and that that system should be pursued and is exclusive, and, therefore, the assignee ought not te be permitted to maintain this action.

The question which is raised by the demurrer has been very extensively considered in Barnes v. Wheaton (80 Hun, 8, fourth department, 1894), and an exhaustive opinion was delivered for the court by Martin, J.; and that case was followed by the first department in Cleveland, Lorain & Wheeling Ry. Co. v. Kent (87 Hun, 331.) in an opinion delivered by O’Brien, J. (concurred in by Van Brunt, P. J., and Follett, J.), which opinion satisfactorily discusses the essential questions presented by the demurrer in this case. The question has also been discussed in Russell v. Pacific Railroad (113 Cal. 258; S. C., 45 Pac. Rep. 323).

In Marshall v. Sherman (148 N. Y. 9) it was said: “ The general rule is that the statutory liability of stockholders in foreign corporations for debts of the corporation cannot be enforced, except at the domicile of the corporation, when the law of the domicile provides the remedy.”

Dayton v. Borst (31 N. Y. 435) was an action brought by a receiver at law to recover an unpaid subscription, and the question involved in this case ivas not presented in that; and, therefore, we see nothing in the case that aids the contention of the respondent.

Wanderpoel v. Gorman (140 N. Y. 566) was an action brought by an assignee of a corporation to recover from the defendant “ the value of certain property levied on ” by him, and the question involved in this case did not arise there.

[570]*570The foregoing views lead to the conclusion that the interlocutory judgment should be reversed, with costs, and the demurrer sustained.

Adams and Ward, JJ., concurred; Green and Follett, JJ., dissented.

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32 A.D. 565, 53 N.Y.S. 607, 1898 N.Y. App. Div. LEXIS 1795, Counsel Stack Legal Research, https://law.counselstack.com/opinion/stoddard-v-lum-nyappdiv-1898.

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