Opinion
May Term, 1903.
Frederick Collin and Edward G. Herendeen, for the appellant.
H.H. Rockwell, for the respondent.
By section 54 of the Stock Corporation Law (Laws of 1892, chap. 688, as amd. by Laws of 1901, chap. 354), as it read at the time of the commencement of this action, the holders of capital stock not fully paid in any stock corporation were made personally liable to its creditors to an amount equal to the amount unpaid on the stock held by them for debts of the corporation contracted while such stock was held by them. This liability is wholly statutory and in the nature of a penalty. It is by the statute given to the creditors and not to the corporation, and clearly it does not pass to a trustee in bankruptcy. The plaintiff does not rest his right upon this statute or claim aught therefrom.
The action is brought to recover unpaid subscriptions for stock. These unpaid subscriptions are claimed to be debts belonging to the corporation which the corporation itself could have collected, and therefore, assets of the corporation which pass to the trustee in bankruptcy. This claim seems to be fully supported by the authorities. In Sanger v. Upton ( 91 U.S. 56) the head note in part reads: "As the company might have sued a stockholder for his unpaid subscription at law, the assignee succeeding to all its rights, has the same remedy." In Stoddard v. Lum ( 159 N.Y. 272) the opinion in part reads: "This (unpaid stock subscription) is a contract liability pure and simple, and one that the corporation, if solvent, could have enforced in the courts of this State. This cause of action, in the event of corporate insolvency, vests in the general assignee for the benefit of creditors, or in a receiver duly appointed." In Lang v. Lutz ( 39 Misc. Rep. 4) Justice KENEFICK, at Special Term, in discussing this question, says: "The amount unpaid upon his stock is a debt which the delinquent stockholder owes the corporation and which the corporation or its legal representative can enforce ( Stoddard v. Lum, 159 N.Y. 265) or which could be enforced by a bill in equity filed by a creditor in behalf of all the creditors against the corporation and all the delinquent stockholders."
It is urged on behalf of the respondent that although these unpaid subscriptions be assets of the corporation, they have not become due and payable for the reason that no proper call has been made. By section 43 of the Stock Corporation Law, subscriptions to the capital stock of a corporation are required to be paid at such times and in such installments as the board of directors may by resolution require. It is urged that the complaint does not show any call by the board of directors, nor in the absence of a call by the board of directors any assessment by the court and order directing the collection of the assets as the only legal substitute therefor by which the liability to pay at a certain time can become fixed. To this contention I think there are two answers. By the certificate of incorporation, to which this defendant was a party, this corporation was to commence business with the full amount of capital stock paid in. The complaint shows that the corporation not only commenced business, but had continued until it became bankrupt, and that it had now ceased doing business. It, therefore, appears that the time when these subscriptions were to become payable had long since accrued. In such case no call or demand of the board of directors is required. ( Phœnix Warehousing Co. v. Badger, 67 N.Y. 294.)
But upon insolvency the right to call for unpaid subscriptions passes to the representative in bankruptcy. In such case the directors could not relieve defendants from liability by refusing to issue a call. In Ross-Meehan Brake Shoe Foundry Co. v. Southern Malleable Iron Co. (72 Fed. Rep. 957) it is held that, when a corporation is insolvent and proceedings are pending instituted by creditors to wind up and distribute its assets, no call or assessment is necessary before the institution of suits to collect unpaid balances on subscriptions to its stock. In Hatch v. Dana ( 101 U.S. 215) Justice STRONG, in writing for the court, says: "In bankruptcy an assessment or a call may be made, for the assignee of a bankrupt corporation succeeds to its rights and becomes the legal owner." In Scovill v. Thayer ( 105 U.S. 143) it was held that an action for an unpaid subscription could not be made until an order of the Bankruptcy Court was made " or some authorized demand upon the stockholder to pay the balance due on his stock." In Matter of Crystal Spring Bottling Co. (96 Fed. Rep. 945) an application was made to the Bankruptcy Court for an order directing suit to recover unpaid balances of subscriptions. The expression there used that a call could only be made by a trustee "under direction of the court" does not necessarily mean by order previously made. By section 47 of the Bankruptcy Law (30 U.S. Stat. at Large, 557), trustees are required to collect and reduce to money the property of the estate "under the direction of the court." In Chism v. Bank (5 Am. Bank. Rep. 56) the Supreme Court of Mississippi has held that notwithstanding this provision it was the plain duty of the trustee to collect the debts of the estate without waiting for the specific direction of the court. "He is clothed by his appointment with the legal title to the estate of the bankrupt, and it is his duty to collect by suit if necessary the debts due to it, and his failure to do so would render him liable for any loss incurred thereby. His right to sue is incident to his title and duty in the premises, and it is not necessary for him to obtain an order of the bankrupt court to justify him in maintaining a suit for the protection of the rights of the estate." In Matter of Mersman (7 Am. Bank. Rep. 47) the opinion of HOTCHKISS, Referee, in part reads: "The suggestion is made that trustees in bankruptcy may on their own motion begin actions to set aside alleged fraudulent or preferential transactions of the bankrupt. They may, but it is not to be doubted that the referees in charge, having general power to supervise their acts, have also power to order the withdrawal of suits already begun without leave." (See, also, Rankine v. Elliott, 16 N.Y. 379.)
Nor is it necessary to go into the Bankruptcy Court to ascertain the amount of the indebtedness. By the complaint it appears that the claims allowed against the bankrupt corporation are in excess of the full amount of the unpaid subscriptions sought for in this action, and that all the other subscribers are non-residents and without the jurisdiction of the court. These facts are admitted by the demurrer. Assume for the argument that the trustee in bankruptcy has only the right to collect so much of the unpaid stock subscriptions as is necessary to pay the debts. If the debts were less than the unpaid stock subscription a necessity might well be held to arise for an assessment by the Bankruptcy Court, and such an assessment might well be held to be a condition precedent to the right to proceed against the delinquent stockholder. Where, however, the indebtedness exceeds the amount claimed as an unpaid subscription, it has been held that an assessment is unnecessary before an action may be brought to recover the amount unpaid thereupon. In Citizens Miners' Savings Bank v. Gillespie (115 Penn. St. 564) it is held, "in an action to recover the unpaid subscription on stock by the assignee for the benefit of creditors of an insolvent corporation, there can be no recovery, unless an assessment has first been made or the jury find from the evidence that the whole of the unpaid subscriptions is necessary to pay the creditors of the corporation." Mr. Justice PAXSON, in writing for the court, says: "There being no assessment in evidence, the learned judge left it to the jury to find whether the whole of the unpaid subscription was required to pay the debts of the company. We see no error in this. If all the unpaid subscriptions were required to pay the creditors, no assessment was necessary under the authority of Yeager v. Scranton Trust Co. (14 W.N.C. 296). * * * Upon the insolvency of a corporation a stockholder is liable for only so much of his unpaid subscription as may be required to pay the creditors. Hence he may not be called upon in an arbitrary way to pay any sum that an assignee or creditor may demand. It is, therefore, requisite to ascertain in an orderly manner the extent of a stockholder's liability before proceedings are commenced to enforce it. But the necessity for this does not exist when the whole amount is required to pay the debts. Hence in such cases, as was said in Yeager v. Scranton Bank ( supra), an assessment is not essential. The assignee may sue at once for all is required." (See, also, Swearingen v. Dairy Co., 198 Penn. St. 75.) The admitted fact that the debts exceed the unpaid subscription takes this case out of the rule laid down in Scovill v. Thayer ( supra), and as recognized in Citizens Miners' Savings Bank case just cited, to the effect that a prior assessment is a condition precedent to the right to bring the action.
Yeager v. Scranton Trust Co. Savings Bank.
We think the complaint sufficiently alleges a demand by the trustee of payment of these unpaid subscriptions. It alleges a refusal on the part of the defendants to pay the plaintiff therefor. The allegation that the defendants claim that this amount was paid would of itself excuse a demand, even if a demand were otherwise necessary beyond the actual bringing of the suit, as in such a case a demand would be useless. From the allegation of the claim of payment by defendant may also be inferred a delivery of the stock or a waiver thereof, which would operate as a consideration for the promise.
Without discussing in detail the cases cited by respondent's counsel, it is sufficient to say that decisions which at first glance may seem to be antagonistic to the conclusion here reached are reconciled when found to be in actions brought under section 54 of the Stock Corporation Law ( supra), or under similar statutes. The liability imposed by that section is not in any way inconsistent with, but is clearly in supplement of the contract liability to pay to the corporation the subscriptions made, or so much thereof as may be necessary for the proper conduct of the business of the corporation or for the payment of its debts.
We are of opinion, therefore, that the complaint states a good cause of action, and that the demurrer should have been overruled.
All concurred.
Judgment reversed and demurrer overruled, with usual leave to answer on payment of costs in this court and in the Special Term.