63 N.Y.S. 635 | N.Y. App. Div. | 1900
The plaintiffs are judgment creditors of the corporation defendant, and have brought this action to obtain a judgment sequestrating its property, in pursuance of section 1784 of the Code of Civil Procedure. The contention is that the defendant Schmidt is a debtor of the company to the amount of stock for which he agreed to pay $10,000, and that indebtedness is an asset of the corporation, and chargeable with the payment of its debts. It was not necessary that certificates of stock be issued to Schmidt, to constitute him a shareholder of the corporation. His subscription created that relation. Mor. Priv. Corp. par. 56; Kohlmetz v. Calkins, 16 App. Div. 518, 44 N. Y. Supp. 1031. He accepted the directorship and presidency, acted in these capacities, and assumed duties' in recognition of his connection with the company as stockholder by virtue of his subscription agreement, and he cannot now disclaim the existence of that connection. Wheeler v. Millar, 90
“Subscribers to the stock of a corporation incur a debt which can be enforced by any common-law or equity remedy. The capital stock of a corporation is a fund set apart for the payment of its debts. It is a substitute for the personal liability which subsists in private co-partnerships. The creditors have a lien upon it in equity. Unpaid stock is as much a part of this pledge, and as much a part of the assets of the company, as the cash which has been paid in upon it.”
It is urged on behalf of the defendant that he never was liable for the payment of this stock; that the agreement which accompanied his subscription must be read in connection therewith. That is probably true as to the parties to it, but not as to the creditors of the corporation. His-subscription was an absolute agreement to become a shareholder to the extent of $10,000. The certificate provided for a corporation within the business corporation law, and section 5 requires payment of one-half of the capital stock of such a corporation within one year from its incorporation; and by the Stock Corporation Law, § 41, each subscriber shall pay 10 per cent, of his subscription in cash. A secret agreement by which the shareholders can evade these mandatory statutes is against public policy, and will not be upheld against creditors.
Cook on Stocks & Stockholders says at paragraph 137:
“Neither party is permitted to prove a different contract from that expressed in the written instrument. Under the rule, not even a separate, written, contemporaneous contract is admissible to change the subscription contract.”
See, also, Id. § 191.
The defendant accepted offices and did acts permissible only by a stockholder. If his secret agreement were to be operative, he could receive the honors consequent upon his apparent ownership of one-half of the capital stock of this moneyless corporation, but hoist the agreement to prevent a creditor enforcing any demand against him. Had dividends been declared, his ownership oí capital stock would not have been questioned by him.
It is urged with much plausibility that, even if Schmidt be a stockholder, the remedy adopted by the plaintiff is not the proper one, but his action should have been under section 54 of the stock corporation law; that plaintiff has no better standing than the corporation itself, and, as all the stockholders fathered the private agreement, no action would lie at its instance against Schmidt to recover his stock subscription. As I have already sought to show, the purpose of the statute is more extended than might be inferred from section 1784 of the Code, taken by itself. Beyond the sequestration of the property of the corporation in its custody, the relief reaches out for whatever liability can be acquired. Nor is this restricted to what technically belongs to the corporate entity, but liability “for the payment of the debt” of the creditor is one of the tests for malting a stockholder a party. It is asserted that an action under section 54 of the stock corporation law would have enabled defendant to assail the verity of the judgment. Section 55 of that law makes the recovery of a judgment and the issuance of an execution necessary preliminaries to an action against the stockholder, “and the amount due on such execution shall be the amount recoverable, with costs against the stockholder.” If the judgment is incorrect in amount or collusively obtained, whether the action be pursuant to the Code provisions or to the stock corporation law, an opportunity may be given to test its validity. The plan outlined-in the Code does not in terms make the judgment conclusive against?a stockholder. If such be the fact, however, then, as in the other case, it may be incumbent upon him to apply to reopen the judgment and defend. However, that question does not seem to be-specifically raised in this case. All* the facts appear upon which the defendants’ liability can be established in either case, and the-discussion of what remedy should have been resorted to is somewhat academic, as the relief granted in this suit, in connection with the stipulation, protects the rights of all the parties.
We come now to a question of considerable difficulty in this somewhat intricate case. On the 11th day of May the defendant Schmidt assigned and transferred all his interest arising under his agreement, and that was ratified by the directors of the corporation.
“No transfer of stock shall he valid as against the corporation, its stockholders and creditors, for any purpose, except to render the transferee liable for the debts of the corporation according to the provisions of this chapter, until it shall have been entered in such book as required by this section, by an entry from and to whom transferred. Such latter book shall be presumptive evidence of the facts therein so stated in favor of the plaintiff, in any action or proceeding against such corporation or any of its officers, directors or stockholders.”
The authorities have given full effect to this provision. Johnson v. Underhill, 52 N. Y. 203; Shellington v. Howland, 53 N. Y. 371; Powers v. Knapp, 71 Hun, 371-377, 25 N. Y. Supp. 19; Thomp. Corp. § 3284.
The following is from Shellington v. Howland, 53 N. Y. 371, at page 376:
“An entry upon the books of registry of stockholders is required for the protection of the company and its creditors, and each may hold the stockholders to- their liability as such until they have devested themselves of the title to their shares by a completed transfer as prescribed by law. No secret transfer will avail to release the stockholder from his obligations, or deprive the creditors of the corporation of the right to look to him as the responsible party liable for the debts of the corporation.”
Ho stock was ever issued to the defendant Schmidt, and no stock book was ever kept, and these facts are urged to relieve him from this rule. He was responsible very largely for these conditions. He owned one-half the stock, and was both director and president. The issuing of the stock certificates and the keeping of the stock books in compliance with the corporation law rested with him. He cannot while in control violate the explicit mandates of the statute, and then assert this violation in exoneration of himself from liability. The case differs from Bank v. Colwell, 132 N. Y. 250, 30 N. Y. Supp. 644, as there the defendant was not responsible for the failure to procure the transfer book, and the record in fact was made long before the debt in question was incurred. The whole facts surrounding this transaction tend to cast an imputation upon the good faith of the defendant Schmidt. He subscribed for a large block of this stock, and was vigilant in the management of the company’s affairs. He sought by a secret agreement to obtain the stock substantially as a gratuity. Under his management there were no books from which creditors could obtain any light as to the ownership of
The judgment should be affirmed, with costs. All concur.