Opinion
No. 42/112.
10-19-1916
McDERMOTT v. WOODHOUSE et al.
James J. McGoogan, of Trenton, for complainant. Vredenburgh, Wall & Carey, of Jersey City, for defendants.
Bill in chancery by Charles M. McDermott receiver of the Lakewood City Development Company, against William Woodhouse, Jr. and others. On defendants' motion to strike the bill for want of jurisdiction. Motion denied.
James J. McGoogan, of Trenton, for complainant. Vredenburgh, Wall & Carey, of Jersey City, for defendants.
BACKES, V. C. This is a motion to strike out a bill for want of jurisdiction. The object of the bill is to recover unpaid stock subscriptions of an insolvent foreign corporation by a receiver appointed by this court. The objection to the bill is that such proceedings can only be taken in the domicile of the corporation and by a receiver there appointed.
The bill discloses this state of facts: The Lakewood City Development Company, a New York corporation, was declared insolvent by this court, and the complainant was appointed receiver. The company was formed under the laws of the state of New York with a capital stock of $150,000, divided into 1,500 shares of the par value of $100 each, for the purpose of conducting a general real estate business, and particularly to acquire and subdivide into building lots about 600 acres of unimproved and barren land near Lakehurst, Ocean county, in this state. One of its promoters sold this land to the company for $184,500, receiving in consideration its promissory note for $35,000 and capital stock of the company amounting to $149,500. 500 of these shares were subsequently returned to the treasury, and the remaining shares were divided between and are held by the defendants. The land conveyed was not worth more than $4,500, although the board of directors of the company appraised it at a valuation of $184,500. Claims to the amount of $54,573.48 have been presented to the receiver, of which $27,586.49 have been allowed, and the balance is disputed. The receiver has collected $363.19, and there are no other available assets except the unpaid stock subscriptions. The pertinent statutes of the state of New York (which are set forth in full in the bill) provide that the shareholders in such a corporation shall be liable to the creditors thereof to an amount equal to the amount unpaid on the stock held by such shareholders for the debts of the corporation contracted while such stock was held by said shareholders; that capital stock may be issued for property purchased by such corporation and, in the absence of fraud in the transaction, the judgment of the board of directors as to the value of the property purchased shall be conclusive; and further that, when a receiver of the assets of such a corporation has been appointed, all unpaid subscriptions to the capital stock of such corporation be paid to such receiver and at such times and in such installments as he or the court appointing him shall direct.
Upon this motion, the allegation of the bill must be taken as true, and upon that assumption it is manifest that the directors of the company perpetrated an actual fraud, and that their contract with the promoters to purchase the land with stock at so grossly inflated figures cannot shield the stockholders from responding to the creditors to the amount of their holdings, sufficient to meet the debts of the company. Easton National Bank v. American Brick, etc., Co., 70 N. J. Eq. 722, 64 Atl. 1095; Holcombe v. Trenton White City Co., 80 N. J. Eq., 122, 82 Atl. 618.
In a going concern, stock subscriptions are collectible by the company only, and in the manner provided by statute or the bylaws of the corporation. Upon insolvency, the incurred obligation passes to the receiver as a fund for the benefit of creditors. The liability is contractual, based upon an express promise, and may be enforced by the company or the receiver in any court of common law having jurisdiction of the person of the debtor. Lewisohn v. Stoddard, 78 Conn. 575, 63 Atl. 621; Flash v. Conn., 109 U. S. 371, 3 Sup. Ct. 263, 27 L. Ed. 966; Whitman v. Oxford National Bank, 176 U. S. 559, 20 Sup. Ct. 477, 44 L. Ed. 587; Stoddard v. Lum, 159 N. Y. 265, 53 N. E. 1108, 45 L. R. A. 551, 70 Am. St. Rep. 541; Howarth v. Angle, 162 N. Y. 179, 56 N. E. 489, 47 L. R. A. 725.
There is a line of authorities holding that when the liability is purely statutory, and the measures to enforce it are prescribed, the remedy provided is exclusive; but this case does not come within the class. Here, the liability is founded in common-law principles, voluntarily incurred under and fixed by a statutory scheme for the formation of corporations, and may be recovered like any other debt in any court of competent jurisdiction. Upon the appointment of the complainant as receiver, these choses in action in this state passed to him as completely as the more tangible assets located here, and his right to sue for the unpaid stock is in no wise dependent upon an adjustment of the equities between the stockholders by the court of the domicile, as claimed by the moving defendant. The equities of the parties will be ascertained upon the hearing and fixed by the final decree—a matter with which we have no concern upon this motion, which presents the single question whether his action will lie.
It may be added as respects the moving defendant, who is a resident of this state, that an action against him in New York would be of no avail. A judgment in personam can only be had upon personal service. Pennoyer v. Neff, 95 U. S. 714, 24 L. Ed. 565.
The motion will be denied, with costs.