25 N.Y.S. 426 | N.Y. Sup. Ct. | 1893
The complaint alleges the organization as a domestic corporation of the American Loan & Trust Company; pleads the charter, which provides “that every director shall be personally liable for debts incurred by the corporation during his administration to an amount not exceeding $5,000;” avers that defendants, and none others, were the duly-qualified directors for the year 1890; the contracting of the debt by the company to plaintiff during that year; the demand for, and the refusal of payment; the commencement of actions against the company on such indebtedness; the recovery of five judgments thereon; the issuing of executions against the company, and the return thereof wholly unsatisfied; pleads anew the five certificates, which evidence the indebtedness of the company; contains appropriate allegations of presentment and demand and nonpayment; asserts that other creditors are about to commence actions similar to this; that the actual indebtedness contracted by the company during the year 1890, for which defendants are liable, cannot be ascertained without an investigation of the accounts between the company and its directors and the creditors of the company similarly situated as the plaintiff in this suit, where all such directors are made parties, and where such other creditors similarly situated can come in and have their interests protected. The complaint concludes with a prayer for relief, in his own behalf, and in behalf of all other creditors similarly situated, who shall come in and join him, appropriate to the facts alleged, and asking, among other things, whether said defendants, as directors, are liable to pay said debts, or any part thereof; if so, what directors are liable, for what amounts, in what proportions; that the liability of said directors so ascertained and determined be enforced, and that each of the defendants be restrained from paying to any creditor of the American Loan & Trust Company any sum of money whatever as a liability under section 11 of the charter of the company until the determination of the suit.
One of the grounds of demurrer sustained by the trial court is that the complaint does not state facts sufficient to constitute a cause of action against this defendant. The point specially relied on to support such ground of demurrer is that a suit in equity will not He; that by the eleventh section of the charter an action of debt is given to any individual creditor against one who was a director at the time his debt accrued. That such a creditor has a remedy at common law, but can obtain no redress in equity. The provision of the charter is as foHows: “Every director shall be personally liable for debts incurred by the corporation during his administration to an amount not exceeding $5,000.” The charter does not, nor does any other statute, provide a special remedy for the enforcement of the right which it gives the creditors of the -corporation against its directors. The purpose of the provision
The discussion in Pfohl v. Simpson, 74 N. Y. 137, is directly applicable and controlling here. That action was authorized by a statutory provision making stockholders liable for the debts of the corporation in an amount equal to their respective stock holdings. It was conceded that an action would lie by a creditor of a corporation against a stockholder, and the question was whether a suit in equity could be maintained, and the court (probably in answer to a suggestion made in that case, similar to one made here,-—-that the liability created by the statute was special, and not analogous with the cases in which courts of equity have taken jurisdiction) said:
“It matters not whether the .right of action to so many arises from general principles of law or from particular provisions of constitution or of statute. If the right exists, and is likely to be so used as to produce the mischief, the jurisdiction of equity arises and attaches.”
The opinion of Judge Folger in that case also answers another point which is made here,—that the liability of defendants is a several, and not a joint, liability:
“The provision in the charter of the corporation that the stockholders shall be severally liable does not have such reach as that it precludes the attaching and exercjse of this jurisdiction of equity. That provision fills the full scope of the legislative intention-when a stockholder is held liable by any jurisdiction, in any form of action, whether sued alone or brought into court with some or many others in like category, for as much as, and no more than, the facts of his own relation to the corporation and its creditors and co-stockholders demand. He may not in any action be made liable (under provisions like those of this charter) for more than an amount equal to the sum of the stock owned by him individually, in addition to his liability to pay in full the stock subscribed for or bought by him. Though he be sued with others, and at the suit of many, or in a suit for the benefit of many, if he is not cast in judgment for more than the amount above indicated, his several liability is preserved.”
It is clear, therefore, that no harm can result to the directors from bringing them all into court on the equity side, for they cannot in any event be decreed to pay more individually than the liabili ty named in the charter, and assumed by them when they became directors. Indeed, it would seem that such a suit is peculiarly adapted for the protection of directors in such cases from
Having reached the conclusion that a suit in equity wall lie, we come to the consideration of the other grounds of demurrer. The first is, that there is a defect of parties defendant, in that the American Loan & Trust Company was not made a defendant in this action. It may be assumed that the corporation is a proper party to the suit, but demurrer will not lie unless it is a necessary party. In McMahon v. Allen, 12 How. Pr. 39, the phrase, “a complete determination of the controversy,” was held to mean when there are persons, not parties, whose rights must be ascertained and settled, before the rights of the parties to the suit can be determined. This definition was cited with approval in Chapman v. Forbes, 123 N. Y. 532-538, 26 N. E. Rep. 3. In Anderton v. Wolf, 41 Hun, 572, it was held “that, in order to sustain a demurrer for a defect of parties, it must appear that the party demurring has an interest in having the omitted parties joined, or that he is prejudiced by the nonjoinder.” How, applying these rules, we find, first, that the corporation has no rights to be ascertained and settled before the rights of the parties to the suit can be determined. The liability of the directors is not created for the benefit of the corporation, but rather for that of its creditors. It is not an asset of the corporation, and cannot be enforced by it, nor by a receiver of its assets, appointed in an action for a dissolution of the corporation. The liability is to the creditors, and they alone can compel its payment. Cook, Stock & S. § 216; Farnsworth v. Wood, 91 N. Y. 308; Billings v. Robinson, 94 N. Y. 415. These decisions, it is true, were in cases arising under the manufacturing act, but they are equally applicable here.
It is said that the demurrant has an interest in having the corporation made a defendant for the purpose of showing how much its assets can pay on the claim of plaintiff and others similarly situated, who may come in and prosecute the suit, and thus equitably adjust the amount which he is called upon to pay; but that point is not well made, unless it appears upon the face of the
A further ground of demurrer is that there is a defect of parties plaintiff, in that the other creditors for whose benefit the suit is brought are not joined either as parties plaintiff or parties defendant. The Code provides that “when the question is one of a common or joint interest of many parties, * * * one or more may sue or defend for the benefit of all.” Section 448. It sufficiently appears from the complaint, we think, that the question is one of common interest to many persons. If other creditors fail to come in in due course, plaintiff will be entitled to a judgment for the enforcement of such rights as he may have. The interlocutory judgment sustaining the demurrer should be reversed,.with costs, and the demurrer overruled, with leave to answer within 20 days on the payment of $20 costs.
O’BRIEN, J., concurs. FOLLETT, J., not voting.