Persons v. Gardner

Assuming that the judgment record, to which reference is made in the complaint, fully indicates that the Bank of Commerce was organized under the laws of the state of New York, and authorized to carry on the business of banking at the time of its dissolution, a liability existed against its stockholders-“for all its debts and liabilities of every kind.”

Article 8, § 7, of the constitution provides, viz.:

“The stockholders of every corporation 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.”

That section, with some difference in its language not necessary to be referred to in this case, was introduced into the constitution, of 1849.

When the constitutional provision was adopted, there was no remedy given in it for the enforcement of the liability of the stockholder, and the legislature subsequently prescribed one. “The creditor was therefore necessarily left to the ordinary remedies afforded

“Except as prescribed in the stock corporation law, the stockholders of every such corporation shall be individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of such corporation to the extent of the amount of their stock therein at the par value thereof, in addition to the amount invested in such shares.”

That, act repealed chapter 409 of the Laws of 1882, except sections 68, 69, 312-327, both inclusive.

By chapter 441 of the Laws of 1897, section 52 of the act of 1892 was amended so as to read as follows:

“Except as prescribed in the stock corporation law, the stockholders of every such corporation shall be individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of such corporation, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares. In case any such corporation shall have been or shall be dissolved by final order or judgment of a court having jurisdiction, and a permanent receiver or receivers of the said corporation shall have been or shall be appointed, all actions or proceedings to enforce the liability of stockholders under this section shall be taken and prosecuted only in the name and in behalf of such receiver or receivers, unless such receiver or receivers shall refuse to take such action or proceeding upon proper request in that behalf made by any creditor, and in that event such action or proceeding may be taken by any creditor of the corporation. The term ‘stockholder.’ when used in this chapter, shall apply not only to such persons as appear by the books of the corporation to be stockholders, but also to every owner of stock, legal or equitable, although the same may be on such books in the name of another person, but not to a person who may hold the stock as collateral for security for the payment of a debt.”

Chapter 441 became a law May 17, 1897.

It is now contended in behalf of the appellants that the amendment of 1897 does not apply to and prescribe the manner and method of the enforcement of the liability of the stockholders in the Bank of Commerce. It must be borne in mind that chapter 441 of the Laws of 1897 speaks from the day of its becoming a law, to wit, May 17, 1897, and the language used relates to a class of corporations to which the Bank of Commerce belonged, and relates to the ' stockholders of that kind of a corporation; and then it, in terms, provides:

“In case any such corporation shall have been or shall be dissolved by final order or judgment of a court having jurisdiction, and a permanent receiver or receivers of the said corporation shall have been or shall be appointed, all

actions or proceedings to enforce the liability of stockholders under this section shall be taken and prosecuted only in the name and in behalf of such receiver or receivers, unless such receiver or receivers shall refuse to take such action or proceeding upon proper request in that .behalf made by any creditor, and in that event such action "or proceeding may be taken by any creditor of the corporation.”

The Bank of Commerce had been dissolved by the judgment of a court having jurisdiction, and the plaintiffs had been appointed permanent receivers of that corporation; and the language, therefore, which was used in the statute, to wit, “shall have been or shall be appointed,” appropriately relates to the plaintiffs, as receivers. The statute further provides that such receiver shall have the right to bring “all actions or proceedings to enforce the liability of stockholders”; and it further provides that such actions or proceedings “shall be taken and prosecuted only in the name and in behalf of such receiver or receivers, unless such receiver or receivers shall refuse to take such action or proceeding upon proper request in that behalf made by any creditor, and in that event such action or proceeding may be taken by any creditor of the corporation.” After the adoption of that section, as thus amended, an action was maintainable by the receivers at their election. The legislature was careful to provide that in case the receiver or receivers refuse to take such action, with the view to the enforcement of the liability of stockholders, upon proper request made by any creditor, an action might be taken by any creditor of the corporation. The right of a creditor to proceed in an action to enforce a stockholder’s liability is not taken away, except upon condition that the receivers act. If the receivers, on request, refuse to act, then it is expressly provided that an action or proceeding may be taken by any creditor of the corporation.

Considering the state of the legislation to which reference has been made, it is quite obvious that the legislature, by the act of 1897, intended to provide a method for enforcement of a stockholder’s liability by receivers already appointed, or by receivers thereafter appointed in dissolution proceedings, and by way of greater precaution prescribed that, in the event a receiver should refuse to take such action upon proper request made by any creditor, any creditor of the corporation might proceed to enforce the liability of stockholders. It is to be borne in mind that it is a rule of statutory construction that a statute will be construed to be prospective, unless the intent of the legislature to give it a retroactive effect is expressed in language clear and explicit, so that no reasonable doubt exists in respect thereto. This rule has been laid down in numerous cases. In no sense does the provision destroy the rights of property or rights of action on the part of the creditors of a corporation. On the contrary, it tends to conserve their rights, by providing that actions may be brought by receivers; and, in the event the receiver does not bring the action, the legislature carefully provided the creditor should have such right. In Wood v. Oakley, 11 Paige, 400, it was said, viz.:

“It is a general rule, in the construction of statutes, that they are not to-have a retroactive effect, so as to impair previously acquired rights. Courts.

of justice apply new statutes only to cases which subsequently arise, unless there is something in the nature of the new provisions adopted by the legislature, or in the language of such statutes, which shows that they were intended to have a retrospective operation.”

As we have already observed, the construction which is suggested does not impair the rights of creditors. They are carefully preserved by the power given to receivers to maintain actions against stockholders; and, in case the receivers refuse to act, the right of the creditor is preserved to act for himself in the enforcement of the liability of stockholders. The right of a creditor to maintain an action to enforce the liability created by constitution or by statute against a stockholder was considered by me in preparing the opinion in Pfohl v. Simpson, 50 How. Prac. 341, affirmed in 74 N. Y. 137 . In that case it was maintained that an action in equity might be brought by a creditor, in his own behalf and of all others, against an insolvent corporation and its stockholders, for an accounting to ascertain the debts and assets of the corporation, and to reach the claim against the stockholders arising from their personal liability under the charter. In the course of the opinion in that case it was said:

“The constitution and the act of the legislature having declared that the liability of- the stockholders should exist, and debts having been made by the corporation, ‘the powers incident to the jurisdiction of the court of chancery attached themselves to the new subject;’ ” citing Bangs v. Duckinfield, 18 N. Y. 596 ; In re Canal & Walker St., 12 N. Y. 406 .

It was further said in that case, viz.:

“The statute must be regarded as cumulative, when it provides the same remedy which might have been attained under the general principles of equity, asserted under the general jurisdiction of that court. In some respects the statute restricts the remedy, and in most instances it is the remedy that is affected, modified, or controlled, instead of the right to a remedy, which, as already shown, rests upon the principles of equity antedating the statutes.”

But it is argued that the statute, if held to be retroactive and to apply to a case like the one in hand, is unconstitutional, and it is asserted confidently by the learned counsel for the appellants that it deprives creditors of vested rights. We think otherwise.- The statute only relates to a remedy. It is competent for a legislature to give additional remedies to creditors, and to prescribe that such remedies shall be pursued, and even be exclusive, that do not impair the rights of creditors. As was suggested in Story v. Furman, supra, in the absence of statutory power the creditor was left to pursue the ordinary remedies applicable to the nature of the right to be enforced. It is said in 3 Kent, Comm. p. 470, that there is “a distinction, in the nature of things, between the obligation of a contract, and the remedy to enforce that obligation, and the latter might be modified as the wisdom of the legislature should direct.” In Bronson v. Kinzie, 1 How. 315 , Chief Justice Taney said, “For, undoubtedly, a state may regulate at pleasure the modes of proceeding in its courts in relation to past contracts as well as future.” The doctrine of that case was referred to with approval in Story v. Furman, supra.

“In response to the contention that the possible effect of such a construction of the statute would be to impair the obligation of a contract, and thus violate the provision of section 10 of article 1 of the constitution of the United States, it may be said that the whole scope and object of the statute is remedial only; that is, it furnishes a remedy, and prescribes a method of procedure by which that remedy may be made applicable to every person situated as the plaintiff is. This much it was certainly within the province of the legislature to do without violating any constitutional provision,”—citing Rexford v. Knight, 11 N. Y. 308 ; People v. Turner, 117 N. Y. 227 , 22 N. E. 1022 ; New Orleans Waterworks Co. v. Louisiana Sugar Refining Co., 125 U. S. 18 , 8 Sup. Ct. 741 .

The limitation and restriction of the act of 1890 were carried into the insurance law of 1892 by section 56. The act of 1890 followed immediately upon the decision of the case of Uhlman v. Insurance Co., 109 N. Y. 421 , 17 N. E. 383 ; and, in speaking of the act of 1890, Gray, J., in Swan v. Association, 155 N. Y. 20 , 49 N. E. 261 , says:

“That the act was framed to prevent such an intolerable nuisance as an insurance company would be subjected to, if one or more of its policy holders might maintain such an action, is evident.”

“Nor is the act at all in violation of any constitutional right of the plaintiff, as impairing- the obligation of a contract. It furnishes a remedy, as it was said in the opinion below, and prescribes a method of procedure by which that remedy may be applicable to every person situated as the plaintiff is.”

The decision of the court of appeals was to the effect, viz.:

“The plaintiff has not legal capacity to maintain this action, and it must be brought, if at all, by the attorney general of the state of New York, pursuant to the requirements of chapter 090 of the Laws of 1892, which apply to this action, and prohibit the plaintiff from maintaining it.”

It is not for us to determine what were the motives of the legislature, or the reasons which induced it to provide that actions against stockholders should be brought by receivers of corporations that had become insolvent. It is enough that we declare that the legislature had the power, and that the act of 1897 is constitutional and valid.

In Hirshfeld v. Fitzgerald, 157 N. Y. 166 , 51 N. E. 997 , it was said that section 52 of chapter ,689 of the Laws of 1892 “contemplates a representative action by a creditor on behalf of himself and such other creditors as may come in and share the expense. The plaintiff, in bringing such action, does not become a trustee for the other creditors, so as to require him to carry on the litigation for their interests in opposition to his own, or after he has settled his claim.” Doubtless the legislature of 1897, in the act of that year, provided for a representative action by receivers, without intending to deprive creditors of corporations of any of their just rights against stockholders thereof. In the coursé of the opinion delivered in the Hirshfeld Case, it was said by Haight, J.:

“It was evidently not intended by the provisions of this statute that one creditor should be preferred and paid, to the detriment of other creditors, but that the stockholders should be responsible equally and ratably for all of the debts of the corporation, to the extent of their capital stock at par value. In other-words, they were to contribute equally and ratably for the payment of the whole indebtedness. The object of this statute was undoubtedly to furnish additional security to creditors, and is for the benefit of them all, and should be enforced by or on behalf of all.”

The liability of the stockholders in this ease, when reached, constitutes a fund to which “all the creditors are entitled to resort after the corporate property has been applied on the debts.” Marshall v. Sherman, 148 N. Y. 22 , 42 N. E. 422 . The doctrine of that case is approved in Hirshfeld v. Fitzgerald, supra, in which latter case it was further said:

“It is true that the capital stock of a corporation is a trust fund for the security of the creditors, and the amount recoverable from the stockholders under the statute in addition to the capital stock may he treated as a like security; but, as we have shown, the creditor is not permitted to bring an action in his own behalf alone for a contribution by the stockholders, for in that way he would obtain a preference for himself. He must bring an action for himself, and on behalf, not of all the creditors, but on behalf of those who choose to come in and share the benefits and expenses of the litigation. His relation with the other creditors is one that the law creates. He assumes to prosecute on their behalf only in so far as his personal interests require.”

It may be supposed that the act of 1897 obviates some uncertainties and mischiefs which arose in the case of Hirshfeld v. Fitzgerald,

The presence of the receivers as plaintiffs in this case will enable the court to ascertain and determine how much is required from the stockholders after the application of the assets of the corporation, and how much each creditor is entitled to receive in liquidation of his indebtedness for which the stockholders are declared liable.

Some minor questions have been presented by the several demurrers in this case, which are so satisfactorily considered in the valuable opinion of LAUG-HLIN, J., delivered at special term, that we forbear further comment in respect to them.

The foregoing views lead to the conclusion that the demurrers were properly overruled. See Mahoney v. Bernhardt, 27 Misc. Rep. 339 , 58 N. Y. Supp. 748 .

Interlocutory judgments affirmed, with costs, with leave to the demurrants, severally, to withdraw their demurrers and answer upon payment of the costs of each demurrer, and the costs of this appeal to the respondents against each appellant who appeared in the argument. All concur.