188 A.D. 457 | N.Y. App. Div. | 1919
This action was commenced in January, 1913, by the State Superintendent of Banks under sections 19 and 196 of the Banking Law, as it then existed, against the defendants as shareholders of the insolvent Carnegie Trust Company. (Consol. Laws, chap. 2 [Laws of 1909, chap. 10], § 19, as amd.
“ § 196. Liability of stockholders and directors. If default shall be made in the payment of any debt or liability contracted by any such corporation, the stockholders thereof shall be individually responsible, equally and ratably, for the then existing debts of the corporation, but no stockholder shall be liable for the debts of the corporation to an amount exceeding the par value of the respective shares of stock by him held in such corporation at the time of such default. * * * ” Judgment was rendered at Special Term against the appellants for amounts equivalent to the par value of their respective holdings of stock.
There are many appellants, but all except one have joined in a general brief which raises points relied upon in common. Several appellants have also filed individual briefs dealing with contentions peculiar to their respective cases. The general points will be considered first. The appellant George T. Bogers, who refrained from joining in the general brief, brings the case up for review by a separate appeal. (188 App. Div. 469.)
The main contention of the appellants is that their liability is not controlled by section 196 above quoted. They deny all so-called “ double liability ” as shareholders. They assert that, as shareholders of the Carnegie Trust Company, their position is unique and different from that of shareholders in trust companies generally.
The Carnegie Trust Company was incorporated by a special act of the Legislature under the name Security Assurance Company (Laws of 1898, chap. 599, as amd. by Laws of 1899, chap. 293). Section 7 of the act, as amended, reads as follows:
“ § 7. The rights, powers and privileges herein granted to said corporation shall not be controlled, limited or restricted
The only part of this quotation which needs particular explanation is “ such corporations.” The significance of the word “ such ” is not entirely clear, but a reading of the entire charter act shows that “ such corporations ” means corporations such as the one created thereby. Section 2 of the charter act contains a recital of powers conferred upon the corporation. It is not necessary to enumerate them here. It will suffice to say that they show the corporation to be, in all material respects, a trust company. The accuracy of this view is confirmed by the subsequent change of name from Security Assurance Company to Carnegie Trust Company. (See Laws of 1906, chap. 147, amdg. charter act, § 1.) When the Legislature enacted as above that the said corporation should be subject to, and entitled to the benefits of, all general laws of this State relating to corporations and “ applicable to such corporations,” the intention was that the newly created corporation should be subject to all general laws applicable to trust companies. The charter act itself contains
“ § 163. Powers of specially chartered trust companies.— Every trust company incorporated by a special law shall possess the powers of trust companies incorporated under this chapter and shall be subject to such provisions of this chapter as are not inconsistent with the special laws relating to such specially chartered company.”
There we have an express statutory declaration that the preceding section 162 (renumbered 196) applies to the Carnegie Trust Company, for the reason that there is nothing in the special charter of that company inconsistent with double liability on the part of its shareholders. The charter of the trust company is, in a limited sense, merely the acts of 1898 and 1899; but, in a broader and more proper sense,
The appellants also contend that even if the Carnegie Trust Company was at the time of its creation made subject to the Banking Law, the obligations of the shareholders are to be measured by the provisions of the Banking Law at such time of creation and cannot be changed by subsequent amendment not specifically referring to the charter act. It appears from their argument that what appellants have in mind is chapter 143 of the Laws of 1908, which amended section 18 (renumbered 19 in the year 1909) of the Banking Law of . 1892, and which permits the Superintendent of Banks to enforce the individual liability of shareholders. The appellants say that, prior to the passage of that amendment, it was incumbent upon any one seeking to recover from a shareholder for a debt of the corporation to show, under section 55 of the Stock Coloration Law (Gen. Laws, chap. 36; Laws of 1892, chap. 688), which is now section 59 of the Stock Corporation Law (Consol. Laws, chap. 59; Laws of 1909, chap. 61), that a judgment had been recovered against the corporation and execution returned unsatisfied; that even though the amendment of 1908 altered the rule generally, by rendering it unnecessary first to recover a judgment where the Superintendent is involved, it did not do so in this particular case. The reason assigned is that such alteration would be unconstitutional in seeking to impair the obligation of the contract as contained in the charter act, between the State and the Carnegie Trust Company and its shareholders. There is no merit in this contention. The last sentence of section 7 of the charter act, quoted above, provides: “ The amendment of any' such general laws
The statutory provisions involved in this action must be regarded as simply carrying out the mandate of the State Constitution. Section 7 of article 8 reads as follows: “ The stockholders of every coiporation and joint stock association for banking purposes, shall be individually responsible to the amount of their respective share or shares of stock in any such corporation or association, for all its debts and liabilities of every kind.”
This provision applies to all corporations and associations that engage in banking activities, whether such activities are the sole object of organization or merely incidents to the general business conducted. It is, therefore, not necessary to hold the Carnegie Trust Company to be a bank, in the technical sense, in order to bring the stockholders within the purview of the constitutional provision. An important part of the business of the company involved banking purposes and transactions such as commonly take place in banks. The design of the State was clearly that those undertaking to care for the moneys of others and derive a profit therefrom, in the manner usually followed in the banking business, should be held to the highest accountability, whether they were immediately involved in the performance of the duty or simply stockholders.
It is also claimed, particularly by the appellant Carpenter, that where stockholders have paid to the Carnegie Trust Company an amount in excess of the par value of their stock,
Another contention is that this action should have been brought in the name of the Carnegie Trust Company and not in the name of the Superintendent of Banks. Section 19 of the Banking Law, as it existed when this action was commenced, after reciting various powers and duties of the Superintendent, read in part as follows: “ * * * and may, if necessary to pay the debts of such corporation, enforce the individual liability of the stockholders. For the purpose of executing and performing any of the powers and duties hereby conferred upon him, the Superintendent may, in the name of the delinquent corporation * * *,• prosecute and defend any and all suits and other legal proceedings * * *.”
Undoubtedly it would be proper to have the trust company as the nominal plaintiff, but it does not necessarily follow, under the statute, that the Superintendent cannot maintain the action in his own name. In the cases of Van Tuyl v. Schwab (165 App. Div. 412 — an appeal in the present action) and Van Tuyl v. Scharmann (208 N. Y. 53) the State Superintendent sued in his own name and neither the Court of Appeals nor this court denied relief because of such fact. Inferentially at least, those cases are some authority sustaining the prosecution of this action in its present form. It is also to be noted that in Van Tuyl v. Schwab (172 App. Div. 670), another appeal in the present action, this court has held that the amendments to the Banking Law by chapter 369 of the Laws of 1914 (Consol. Laws, chap. 2) may to some extent be regarded as merely regulative of procedure and, therefore, retroactive. Section 80 now provides specifically
It is also urged that no cause of action is alleged by the plaintiff. The complaint has already been before this court on several occasions and we have uniformly dealt with it on the theory that it is sufficient. In Van Tuyl v. Schwab (165 App. Div. 412) a demurrer was interposed in this action to a defense and counterclaim. The demurrer of course opened up the record, and the decision of this court, sustaining the demurrer and holding the defense and counterclaim bad, is an adjudication that the complaint states a cause of action.
The foregoing covers all the appellants’ general points which have sufficient merit to require consideration, and the plaintiff was entitled to recover judgment against all of the defendants unless there be merit in some of the special points urged and which will now be discussed.
The appellant Phipps contends that her testator was insane at the time he bought his stock and became a shareholder of record and that, because of such insanity, there is no liability. It is expressly conceded that the testator was not.
“We think the rule laid down by these cases is sound and in the interest of those afflicted with disease of the mind. The deed of a lunatic is not void, in the sense of being a nullity, but has force and effect until the option to declare it void is exercised. The right of election implies the right to ratify, and it may be greatly to the advantage of the insane person to have that right. If the deed or contract is void, it binds neither party, and neither can derive any benefit therefrom, but if voidable, the lunatic, upon recovering his reason, can hold on to the bargain if it is good and let go if. it is bad. This option is valuable, for it gives him the power to do as he wishes, and to bind or loose the other party at will.”
So, therefore, in this case, the transfer of stock and the recording thereof in the books of the Carnegie Trust Company are not void but merely voidable. Even if it should be held that the statutory liability would fall if the contract of sale "is avoided as between the executrix and her testator’s vendor, she has failed to show a disaffirmance. It is nowhere alleged that she has, as between herself and the vendor, done anything to effect a rescission. Her position is that she seeks ■to defeat recovery against herself without giving a right of recovery against the vendor. The ruling of the learned trial . court, both as to the non-admissibility of evidence of insanity and as to the appellant’s liability, was proper.
The appellant Alexander relies upon the Statute of Limitations. She was served by publication under an order dated March 6, 1914, and, by special appearance, sought to vacate the order but was unsuccessful. On appeal the action of the lower court was affirmed. (Van Tuyl v. Schwab, 164
The appellants Dickinson state in their brief that their-testator was not a shareholder at the time of his death. As a matter of fact he was at such time the record owner of 460 shares and judgment has accordingly been rendered against his representatives. They seek to avoid the fact of their testator being a record shareholder and the consequent liability (Van Tuyl v. Robin, 160 App. Div. 41; affd., 211 N. Y. 540; Richards v. Robin, 175 App. Div. 296; affd., 225 N. Y. 719) by showing that their testator had sold his shares to certain officials of the Carnegie Trust Company, and by bringing themselves within the rule that where a shareholder does all that can reasonably be required of him to effect the transfer on the books of the corporation, he relieves himself of liability as a shareholder. (Whitney v. Butler, 118 U. S. 655; Richards v. Robin, 178 App. Div. 535, 543.) The trial court, however, found against the appellants on the facts and the evidence sustains the findings and they should not be disturbed.
The judgment should be affirmed, with costs.
Clarke, P. J., Dowling, Smith and Page, JJ7, concurred.
Judgment affirmed, with costs.