Close v. Brady

TITUS, C. J.

This is a motion for a new trial on exceptions ordered to be heard in the first instance at the general term. The facts in the case are undisputed. The American Bit & Brace Company was organized under the act to authorize the formation of corporations for manufacturing and other purposes, being chapter 40 of the Laws of 1848. The capital stock of the company has never been paid in, nor has any certificate thereof been made and recorded, as required by section 11 of that act. From the 2d day of January, 1892, until the 28th day of January, the defendant was the holder of 56 shares of the capital stock of the company, of the par value of $100 each share, and was during that time secretary and treasurer of the company. On the 28th day of January, 1892, the defendant sold 55 shares of his stock, and the same were on that day transferred on the books of the company to the purchaser, and 1 share was sold by him, and transferred on the books of the company, on the 20th day of February, 1892. On the 2d day of January, 1892, the company made two promissory notes, for four and eight months respectively, of $5,000 each, payable to the order of the company. The notes were signed by the treasurer, and countersigned by the president, Mr. Preston, and delivered to him, as the agent of the company, for negotiation and sale. On February 27th the company sold and delivered these notes to Gertrude E. Lee, for full value, who transferred the same to the plaintiff, for value, before maturity. The two notes were subsequently renewed, and the amount of them put in one note of $10,200, which included accrued interest. From January 2d to February 27th, when they were sold to Mrs. Lee, the notes remained in the possession of the company, unsold and undelivered. On the trial the court, on these facts, directed a verdict for the defendant. The only question raised is, is the defendant, under the statute, as stockholder, liable for the debt created, and for which these notes were given? The theory of the counsel for the plaintiff, so far as I am able to gather from his brief, is that the stockholders are liable to the creditors, the same as partners, and that as one partner may bind another, after the dissolution of the firm, by the firm’s paper, if the payee is not chargeable with notice of dissolution of partnership, and is a bona fide holder, so, here, the plaintiff being a bona fide holder, without) notice that the defendant had parted with his stock, he is liable as a partner would be under such circumstances.

It may be assumed, as intimated in some of the cases, that stockholders are liable as partners, but in the cases examined it is expressly held that such liability is limited by statute. But where the statute has created or continued the liability against the stockholders, and limited it, as is done by the act of 1848, it becomes immaterial whether they are liable as partners or not. The question of their liability is to be determined by the statute itself, as construed by the courts; and, as the statute expressly fixes that liability, it would seem only necessary to make reference to it. By section 57 of chapter 564 of the Laws of 1890, which is substantially a re-enactment of section 10 of the act of 1848, it is provided that:

‘"Stockholders shall, jointly and severally, he personally liable to the creditors, to an amount equal to the amount of stock held by them, for all debts and contracts made by the corporation, until the whole amount of its capital stock shall have been paid in, and a certificate thereof signed and filed.”

The language of the statute seems to be clear enough to justify the court, without further authority, in holding that, before the stockholder can be charged with the debts of the corporation, it must appear that he was -such stockholder at the time the debt was created. The question has frequently been before the courts under the act of 1848, as well as other of the corporation laws, and the cases are quite uniform in holding to this construction of the statute. The citation of a few will be sufficient to show the line of reasoning of the courts, and the rules adopted: Moss v. Oakley, 2 Hill, 265; Johnson v. Underhill, 52 N. Y. 203; Tucker v. Gilman, 121 N. Y. 189, 24 N. E. Rep. 302. The construction given by the courts, in these cases, to this statute, fixes the liability of the stockholders who were such at the time of the creation of the debt; and as the defendant was not a stockholder when the note was negotiated, and the debt created, he is not chargeable with the payment of these notes, unless it is by some legal fiction which will make the statute ineffective. It is the claim of the plaintiff’s counsel that the plaintiff is the bona fide holder of the notes, for value, before maturity, and no defense can be interposed by the defendant. The defendant is not the maker of the note. His position, at most, is that of surety for the corporation, by reason of its failure to complete its organization. I do not think the rule is applicable to the facts, as they appear in the case. Before he can be charged as a. stockholder, he must have been such when the dene was created. Moss v. Oakley, supra. In order to charge the defendant, it was incumbent upon the plaintiff to show his relation to the company. The note itself does not show him personally to be the maker of it. Therefore, it requires proof or evidence that he is a stockholder, before any claim can be made against him. It seems to me that the plaintiff’s legal status, as bona fide holder of the note, does not affect the right of the defendant, under such circumstances, to avail himself of the defense authorized by the statute, to enable him to show that he was not a stockholder when the debt was created, and consequently not liable. Bond v. Appleton, 8 Mass. 472. The application of such a rule would put it out of the power of one who had ever been a stockholder in a corporation to set up the defense which the statute inferentially gives him in an action of this character, no matter when the debt was created. Nor do I think the position of the counsel tenable when he claims that the defendant is estopped from defending against his liability as a stockholder because he was treasurer of the corporation at the time the note bears date, and as such signed it. The fact that he was treasurer adds nothing to his statutory liability. His act in signing the note was that of agent. He did not act in his individual capacity, and so that fact alone cannot be urged to create an individual liability against him. It seems to me that the fact that he was not a stockholder when the debt was incurred—when the notes were sold and delivered to Mrs. Lee—must control the decision of this case. The notes, while in the hands of the company, created no debt against it. They were without legal force or incep- - tian. No consideration had been given for the making of the notes, and it was not until the money was received, and the notes delivered by the corporation, that there was an indebtedness created against it. Powell v. Waters, 8 Cow. 687. This is not disputed, but it is claimed that, when they were delivered to Mrs. Lee, they took effect from their date, and that a different date than that specified in the notes cannot be shown. If the action was against the corporation, that would be the rule, but, as a stockholder, the defendant is a stranger to the note. The plaintiff is seeking to charge such a one with the payment of the corporation debt, and it does not seem to me that that rule is applicable to such a case, but that the defendant is at liberty to show the true time of the creation of the debt, and that at such time he was not a stockholder of the corporation. If I am correct in this position, the case was properly disposed of at the trial term. The exceptions, therefore, to the ruling of the trial court, should be overruled, and judgment ordered for the defendant, with costs.