Opinion
Argued April 28, 1882
Decided May 30, 1882
A. Loring Cushing for appellant. James W. Treadwell for respondent.
We think that by the true construction of section 24 of the Manufacturing Corporations Act of 1848, it is a condition precedent to maintaining an action against a stockholder, to enforce the liability to creditors imposed by the tenth section, that the creditor should have obtained judgment upon his claim against the company, and that an execution should have been issued thereon and returned unsatisfied. The claim that the last clause of the section applies only to actions against persons who have ceased to be stockholders, makes the provision in the first part of the section which exempts an existing stockholder from liability, unless a suit "for the collection of the debt shall be brought against such company within one year after the debt shall become due," unnecessary and useless. No reason can be perceived for the requirement that a suit shall be first brought against the company as a condition of bringing an action against a stockholder, unless it was also intended that the remedy against the company, by the issuing and return of an execution, should be first exhausted. There is doubtless some obscurity in the section growing out of the arrangement of its several parts. The legislature intended to make a distinction in favor of those who had ceased to be stockholders in the company, by making a short statute of limitations applicable to persons so situated. It was therefore provided that suits against persons who had ceased to be stockholders must be brought within two years thereafter. This provision was interjected into the body of the section, and following it is a specification of a condition in addition to those previously mentioned, "nor until an execution against the company shall have been returned unsatisfied in whole or in part," which we think was intended to apply in all cases. The section plainly treats the corporation as the primary debtor, and the liability of the stockholder as ultimate and subsidiary.
The tenth section makes stockholders, under special circumstances, liable "to creditors of the company" for "debts and contracts" of the company. The twenty-fourth section defines the conditions of enforcing such liability, first, that the debt must be one payable within a year from the time it was contracted; second, that suit against the company must have been brought within a year after the debt became due; third, that execution against the company must have been returned unsatisfied; and, fourth, that suits against persons who have ceased to be stockholders must be brought within two years thereafter. This is not the literal language of the section or the order in which the conditions are stated, but we think the arrangement suggested expresses the real intention of the legislature. Such a construction gives force and meaning to the entire section and is in harmony with the equitable rule that, before resorting to a surety, the creditor should exhaust his legal remedy against the principal when it will not impair the obligation of the creditor's contract or substantially impair his remedy. The construction here given to the section was expressly recognized by this court in Kincaid v. Dwinelle ( 59 N.Y. 548), and it has been adjudged by other courts in well-considered cases. ( Lindsley v. Simonds, 2 Abb. [N.S.] 69; Agate v. Edgar, N.Y. Com. Pleas, not reported; Rocky Mountain Bank v. Bliss, Sup. Ct., 1st Dept., not reported; Dean v. Mace, 19 Hun, 391.) We think the Special Term should have allowed interest only from the time of the commencement of the suit. The General Term should have corrected the judgment in this particular, and this may now be done.
The order of the General Term should be reversed and the judgment of the Special Term affirmed with the proper modification as to interest, without costs in the General Term or in this court.
All concur, except TRACY, J., absent.
Judgment accordingly.