Woodard v. Holland Medicine Co.

39 N.Y. St. Rep. 411, 21 N.Y. Civ. Proc. R. 23

• Court: The Superior Court of New York City
• Decided: June 16, 1891
• Status: Published

Opinion

Titus, J.

—This action is brought by the plaintiff against the defendants, as stockholders of the Holland Medicine Company, to enforce the payment of a judgment obtained by the plaintiff against that corporation.

The plaintiff asks that the property of the defendant, the Holland Medicine Company, be sequestrated and the proceeds thereof be distributed among its fair and honest creditors agreeably to law. The action appears to have been brought under § 1784 of the Code of Civil Procedure. The title in which this section is found and the following one relate to actions to dissolve corporations and to enforce individual liability of the officers and members, with or without a dissolution thereof, and is a substantial re-enactment of the provisions of the Revised Statutes relating to that subject. _ Art. 2, tit. 4, chap. 8, of part 3, Revised Statutes. Section 1784 provides: “ Where final judgment for a sum of money has been rendered against a corporation created by or under the laws of the state, and an execution issued thereupon to the sheriff of the-county where the corporation transacts its general business, or where its principal office is located, has been returned wholly or partly unsatisfied, the judgment creditor may maintain an action to procure a judgment sequestrating the property of the corporation and providing for the distribution thereof as prescribed in § 1793 of this act”

It appears from the complaint that on the 4th day of June, 1890, a judgment was rendered in the superior court of Buffalo-in favor of the plaintiff and against the defendant,- a domestic corporation duly, organized under and by virtue of chap. 40'of the Laws of 1848, and doing business in the city of Buffalo, for the sum of $778.01, damages and costs, for breach of a contract entered into between the plaintiff and said corporation; that the judgment roll was filed in the office of the clerk, and an execution issued to the sheriff of Brie county, where the business of the-corporation was transacted, and by him returned wholly unsatisfied. The plaintiff further alleges that the capital stock of the corporation is $200,000, but that a small portion of the stock of the capital has been paid in by the stockholders, the exact amount remaining unpaid being unknown to the plaintiff, and that the defendants are all stockholders of the corporation.

Thé defendants demur to the complaint, and state several grounds, among others that the plaintiff has improperly united two causes of action, asking for the sequestration of the property, and that the defendants as stockholders of the company be. charged individually with the payment of the judgment set forth in the complaint. The plaintiff does, in fact, demand both reliefs, but the form of the relief demanded in the complaint is by no means controlling as to the character of the action. He may demand any relief he deems himself entitled to, and in an action in equity the court may grant such relief as from the facts he appears to be entitled to, without reference to his demand. Under the form of action stated in the complaint, the plaintiff, if he sustains his allegations with proof, would be entitled to a judgment-of sequestration of the property of the corporation, requiring the ■ defendants who are stockholders to -pay into the fund of the corporation the balance unpaid on the amount of stock held by them respectively. The defendant also claims that the plaintiff’s complaint states no cause of action against the stockholders of the corporation, and his particular objection is that the complaint does not state that the debt for which the judgment was obtained was not one payable within one year from the time it was contracted, and that the action was not brought within the time limited by the statute.

The fact, if it be a fact, that the action was not brought against the defendant corporation within one year is matter which the defendant must plead in his answer. The liability of stockholders is created by § 10 of the manufacturing act of 1848. . Section 24 ■ creates a limitation upon the right of a party to commence an action, but. like other limitations in the commencement of actions, the defendant must plead that fact if he desires to avail himself of it. ■ It is not necessary to allege that a cause of action is not within the statute of limitations, and as the complaint does not show affirmatively that the cause of action is within the limitation of the statute, it is not demurable.

The defendant claims further that there is no allegation in the complaint that the capital stock has not been paid in full. The plaintiff alleges “that as plaintiff is informed and verily believes, only a small portion of said stock has been paid up,” etc.

The criticism which the defendant’s counsel makes to this allegation is that it is not the allegation of a fact, but of the plaintiff’s belief, and that his belief is wholly immaterial. The plaintiff is required by § 481 of the Code to state in his complaint “ a plain and concise statement of the facts constituting each cause of action without unnecessary repetition,” but such facts may be stated upon information and belief. St. John v. Beers, 24 How. Pr., 377; N. Y. M. I. Works v. Smith, 4 Duer, 263.

The criticism of the counsel does not seem to be warranted. The plaintiff does not allege his belief, but the fact “ as he is informed and believes.” It is an allegation in effect upon information and belief, and, as has been stated, such a pleading is permissible. Section 524, Code of Civ. Pro.

The defendant further claims that this action is brought for the plaintiff’s sole benefit, and that such action cannot be maintained without joining other creditors, or stating in substance that the action is brought in behalf of himself and others similarly situated. This is distinctly an equity action to charge upon the defendants a liability existing in behalf of the plaintiff by reason of their failure as stockholders to pay the amount represented by stock and held by them to the company. It does not seem to be absolutely necessary that in an action of this kind all who are interested in the result of the action or in the distribution of the fund should be made parties. The statute under which this action is brought in general gives the court the power to appoint a re-' ceiver of the property of the corporation, and to restrain it, its trustees and managers, from collecting or receiving any debt, and the court may restrain creditors from bringing a multiplicity of actions against either the corporation or its stockholders.

Section 1784 provides that a creditor may bring an action, and by § 1793, it is provided that “a final judgment in an action brought against a corporation, as prescribed in this article, either separately or in conjunction with its stockholders, trustees or other officers, must provide for a just and fair distribution of the property of the corporation, and of the proceeds thereof, among its fair and honest creditors in the order and in the proportions prescribed by law in case of the voluntary dissolution of a corporation.” When a judgment has been obtained, the final decree must provide for a just and fair distribution of the property of the corporation “among its honest creditors, when all will share in the distribution of the property of the 'corporation, while the creditor bringing the action in fact brings it for the benefit of all the creditors of the corporation.

The Code does not require it to state that it is brought for the- , benefit of other creditors, and it was so held in Bartlett v. Drew,, 57 N. Y., 587, Reynolds, J., saying that the plaintiff might, bring in0 all of the creditors, but if the defendant had any of the assets of the corporation an action could be 'maintained against him alone,.without bringing in all of the parties to settle their equities. The final decree in an action by a creditor *is a decree not only for the benefit of the complainant in the suit, but also-for the benefit of all other creditors who may come in and prove their debts under the judgment. The plaintiff may make all of the stockholders parties and compel a contribution from all equal to the amount unpaid on the stock held by them respectively and have it divided among all of the creditors. Morgan v. New York & Albany Railroad Company, 10 Paige, 290.

’And so in Mann v. Pentz, 3 N. Y., 415, it was held that all of the creditors and all of the stockholders could be brought in and the amount owing from the stockholders paid into the fund of the corporation and by the court distributed to the parties entitled to it.

It is the rule in actions of this kind that whenever it becomes necessary to effect a complete settlement of the affairs of the parties interested, the court may at anytime before or after final judgment order such parties brought in, to the end that the whole matter in controversy may be determined. Morgan v. N. Y. & A. R. R. Co., supra; § 1807, Code Civ. Pro.

The plaintiff in this case in no event can recover more than his proportionate share of the assets of the corporation. The fund belongs to all of the creditors, and after judgment the rights of the creditors may be determined, as in case of voluntary bankruptcy. The case of Mathez v. Neidig, 72 N. Y., 100, cited by the defendant’s counsel, was an action at law against a stockholder to enforce individual liability, and the court held that such an action was not proper in that case; that the action should have been in equity against all of the stockholders and for an accounting and distribution of the funds among all of the creditors.

Grffiiths v. Mangan, was an action under the Revised Statutes by a creditor of a corporation against one of the stockholders, to recover a debt due from the corporation upon which judgment had been recovered, execution issued and returned unsatisfied. It' appeared on the trial that other stockholders had not paid their stock, and it was held that the action should have been brought in equity against all of the stockholders.

This is clearly an action brought in equity by the plaintiff for the benefit of all the creditors. While the complaint does not formally state that the action is prosecuted for the benefit of all the creditors similarly situated, the plaintiff in his prayer for relief asks that the property of the corporation be sequestered, and that a fair and just distribution thereof be made among its fair and honest creditors according to law, and to this relief under the statute he is entitled if there are other creditors of "the corporation; whether they have obtained judgments or not, they will be entitled to share in the distribution of the funds of the corporation, and a proper judgment will make suitable provision for the ascertaining and “payment of such creditors. Pfohl v. Simpson, 74 N. Y., 137; 9th Abb. N. C., 162, note; Kerr Bus. Corp., 371; Christensen v. Quintard, 22 W. Dig., 95.

The defendant further insists that irrespective of the foregoing considerations the plaintiff has stated no cause of action against the defendant stockholders. He claims that in addition to setting out the judgment, the issuing and return of the execution, that he should state in his complaint the facts upon which the judgment was obtained, showing that at the time of the commencement of the action he had a cause of action against the corporation. The statute under which the action is brought certainly does not require any such statement. It is that a final judgment shall have been rendered and execution issued to the sheriff of the county where the corporation transacts its general business, and the return by the sheriff of the execution wholly or partly unsatisfied. Then the creditor may maintain an action to procure a judgment sequestering the property of the corporation.

There does not seem to be any reason for stating the facts upon which the case of action arose, as it is a debt of the corporation. The corporation alone is interested in defending the original action. This action is commenced simply to reach the funds of the-corporation in the hands of the corporation.

In Hastings v. Drew, 76 N. Y., 9, the question here considered was fully discussed. The action was brought against the stockholders of the New Jersey Steam Navigation Company, after a judgment had been obtained against it and execution returned unsatisfied, to reach the assets of the company which had been obtained by the defendants by collusion. The court held»that the action was in the nature of a creditor’s bill to reach the property of the corporation in possession of the defendants and liable for its debts; that the judgment obtained against the corporation was conclusive against it and against the stockholders, provided they appropriated the property of the corporation to their own use. “ No reason exists,” says the court, “ why, where the action is brought to reach the property of the corporation which was subject to the lien of the judgment of the plaintiff and to apply the same to its payment and satisfaction, the judgment should not be at least prima facie evidence against the stockholders.”

In Stephens v. Fox, 83 N. Y., 313, the case is quite similar to the one before us. The action was brought by the assignee of a judgment against the New York & Oswego Midland Railroad Company and the defendant, as a stockholder of" the company, to recover an amount alleged to be unpaid upop. his stock. On the trial, to prove the indebtedness, the plaintiff offered in evidence the record of a judgment against the company. The court held, Judge Rapallo writing the opinion, “ that the plaintiff need not allege or prove the original indebtedness; that the action was not to impose a penalty upon the stockholders or any original liability, but simply to confer upon the creditor of the corporation.the right to pursue, for the satisfaction of his claim, the indebtedness of the stockholder to the corporation for his unpaid subscription to the capital. This .liability is not created.or enlarged; it rests upon .his contract with the corporation, and the creditor is simply subrogated to the claim of the corporation against the debtor. He may show such indebtedness by evidence which is binding and conclusive upon the corporation, and the judgment is the highest evidence against the corporation of such indebtedness.”

It seems, that where the action is for the purpose of collecting a debt due the corporation from the stockholder, either by reason of his not having paid the amount of his stock or by appropriation ■of the funds of the company, that the judgment is conclusive upon the stockholder; that it is simply an effort of the corporation through a creditor, to enforce the payment of its debts against its debtors, and it is only sufficient to that end, and to establish the fact that a debt is owing from the stockholder to the corporation.

The learned counsel for the defendant has cited a number of cases, Miller v. White, 50 N. Y., 137; McMahon v. Macy, 51 id., 155, and eases of that character, to establish the proposition claimed by him. From an examination of these cases they do not appear to have any bearing upon the facts of this case. In those cases the action was sought to be maintained against the stockholders for a violation of some statute or the omission of some corporate duty, such as to make and file its annual report, for which the statute imposes upon the stockholder as a penalty the liability to pay the debts of the corporation. In that class of cases it is sought to charge him for an original liability to the stockholder, and not to pay over to the corporation that which he justly owes it.

It is said by Eapallo, J., in Stephens v. Fox, that “ this class of cases depend upon an entirely different principle. The defendant is not pursued as a debtor to the corporation or for any pre-existing liability of his own, but upon an original liability created by the statute, and it is not in the power of the corporation to admit away his case or suffer a recovery which should be binding upon him and create as against him a liability to which he was not previously subject.” In such cases the plaintiff must allege and prove his original cause of action, because, being in the nature of a penalty, he is bound to show his right in all particulars to maintain the action.

This disposes of the questions raised by the defendant except his fifth point, and as that seems to be a logical conclusion from the statement of his other points, it does not seem to be necessary to discuss it, except to say that there is no misjoinder of parties; both the corporation and the stockholders are properly the defendants under the statute, as well as by the authorities which have been cited. It follows that the demurrer should be overruled, with leave to the defendant to answer on payment of costs.

Beckwith, Oh. J., and Hatch, J., concur. ■ ■