Summary
In Van Tuyl v. Scharmann, supra, the similarity of the scheme of the statute to that provided by the United States statutes in connection with the liquidation of national banks was pointed out; and the provisions of the Federal law have been repeatedly sustained by the United States Supreme Court. Kennedy v. Gibson, 75 U.S. (8 Wall.) 498, 505; Casey v. Galli, 94 U.S. 673, 677; Crescent City National Bank v. Case, 99 U.S. 628, 634; Bushnell v. Leland, 164 U.S. 684, 17 Sup. Ct. 209; In re Chetwood, 165 U.S. 443, 458, 17 Sup. Ct. 385.
Summary of this case from Broderick v. McGuireOpinion
Argued February 26, 1913
Decided April 1, 1913
Almet Reed Latson and Ward W. Pickard for appellants. D-Cady Herrick and Frank M. Patterson for respondent.
Counsel for the appellants submits that the complaint fails to allege a cause of action for the reasons: (1) That the superintendent of banks as the representative of the corporation has no cause of action against the stockholders; (2) that section 19 of the Banking Law did not enlarge the liability of stockholders, but the only effect of its enactment was to transfer to the superintendent of banks such cause of action as the creditors themselves might have against the stockholders; (3) that the corporation still exists and that suits against it have not been restrained or rendered impossible; (4) that the creditors might, therefore, have performed the conditions precedent, prescribed by section 59 of the Stock Corporation Law, but, as the plaintiff does not allege that they, or any of them, have done so it fails to show that they have any cause of action against the stockholders, and, (5) the complaint fails to show that the superintendent of banks, as representative of the creditors, has any such cause of action, and the complaint, therefore, is insufficient upon its face.
We are called upon to determine whether the liability of stockholders of the Lafayette Trust Company for the debts of the company may be enforced by the superintendent of banks under the provisions of the Banking Law, or whether such liability is enforceable only after a compliance with the provisions of section 59 of the Stock Corporation Law (Consol. Laws, ch. 59), which is as follows:
"Section 59. Limitation of Stockholders' Liability. No action shall be brought against a stockholder for any debt of the corporation until judgment therefor has been recovered against the corporation, and an execution thereon has been returned unsatisfied in whole or in part, and the amount due on such execution shall be the amount recoverable, with costs against the stockholder. No stockholder shall be personally liable for any debt of the corporation not payable within two years from the time it is contracted, nor unless an action for its collection shall be brought against the corporation within two years after the debt becomes due; and no action shall be brought against a stockholder after he shall have ceased to be a stockholder, * * *."
The Stock Corporation Law enacted in 1890 (Chapter 564) was a revision of the existing laws, particularly of the Manufacturing Corporations Law (Laws of 1848, chapter 40) and the Business Corporations Law (Laws of 1875, chapter 611). By section 57 a joint and several liability was imposed on stockholders of every stock corporation to creditors to an amount equal to the amount of stock held by them respectively for all debts and contracts made by the corporation "until the whole amount of capital stock shall have been paid in, * * *" and for debts due and owing to laborers, etc., substantially the liability imposed by the earlier laws referred to. Section 58 of the law was in effect the same as section 59 quoted. By section 1 of the Stock Corporation Law moneyed corporations were excepted from the provisions thereof.
The Stock Corporation Law was amended in 1892 (Chapter 668) and provided that article one (which did not include the section under consideration) should not apply to moneyed corporations. On May 18th, 1892, the Stock Corporation Law (Laws of 1892, chapter 688) and the Banking Law (Laws of 1892, chapter 689) were approved by the governor.
Prior to the Banking Law of 1892 liability for debts of the corporation had not been imposed upon stockholders of banks, save in certain cases (2 R.S. [1st ed.] 589, section 16, later repealed Laws of 1830, chapter 71), and by the Constitution of 1846 (Article 8, section 7) upon stockholders of banking corporations or associations "issuing bank notes or any kind of paper credits to circulate as money."
Section 52 of the Banking Law (L. 1892, ch. 689) provided:
"§ 52. Individual Liability of Stockholders. Except as prescribed in the Stock Corporation Law, the stockholder 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 Hirshfeld v. Bopp ( 145 N.Y. 84) this court held that the language of the Banking Law "except as prescribed in the Stock Corporation Law" was to be construed as "subject to the limitations" of the Stock Corporation Law; that in an action by a creditor to charge a stockholder, under the Banking Law, it was incumbent on the plaintiff to aver and prove the performance of conditions precedent required by the Stock Corporation Law.
Section 52 of the Banking Law was amended (Laws of 1897, chapter 441) to provide a right of action to enforce the liability of a stockholder under that section by a receiver of a corporation dissolved by a judgment of the court, unless such officer should refuse to take such action, after which action in that behalf could be taken by a creditor, and, as so amended, is now section 71 of the Banking Law.
In 1887 the first general law to provide for the organization of trust companies, for their supervision and for the administration of their affairs (Laws of 1887, chapter 586) was enacted. By section 29 of the act, as amended by Laws of 1889 (Chapter 558) stockholders thereof were made individually responsible, equally and ratably, for the then existing debts of the corporation to an amount equal to the par value of their respective shares of stock held by them in such corporation at the time of such default. That law was repealed by the Banking Law of 1892, and, in lieu thereof, article 4, entitled "Trust Companies," was included in the Banking Law.
Section 162 (which is now section 196) of the Banking Law read as follows:
"Liability of Stockholders and Directors. If default shall be made in the payment of any debt or liability contracted by any such corporation, the stockholders thereof shall be individually responsible, equally and ratably, for the then existing debts of the corporation, but no stockholder shall be liable for the debts of the corporation to an amount exceeding the par value of the respective shares of stock by him held in such corporation at the time of such default. * * *"
By section 17 of the Banking Law of 1892, provision was made authorizing the superintendent of banks to require a corporation subject thereto to make good any deficiency in the impairment of the capital stock, and in the event that the examination of any corporation disclosed that any bank was in an unsafe or unsound condition to do banking business, the superintendent was authorized to forthwith take possession of such bank, its property and business, and retain such possession until the termination of an action or proceeding instituted by the attorney-general. Likewise in the event that any such corporation violated its charter, or was conducting business in an unsafe or unauthorized manner, or it was unsafe for such corporation to continue business, the facts were to be reported to the attorney-general by the superintendent of banks, and the attorney-general was to institute such proceedings against the corporation as were authorized in the case of insolvent corporations. The form of the proceeding instituted by the attorney-general was an action for a dissolution of the franchises of the corporation, the appointment of a receiver and the liquidation of the affairs of the corporation.
That form of procedure continued until the enactment of chapter 143, Laws of 1908, entitled "An act to amend the Banking Law, relative to impairment of capital, supervision, causes for dissolution and proceedings against and liquidation of delinquent corporations and individual bankers." That act amended section 18 of the Banking Law (now section 19, Consolidated Banking Law) so as to provide:
"Whenever it shall appear to the superintendent (of banks) that any corporation * * * to which this chapter is applicable * * * is conducting its business in an unsafe or unauthorized manner, or if the capital of any such corporation * * * is impaired, * * * or if any such corporation * * * shall suspend payment of its obligations, or if from any examination or report provided for by this chapter the superintendent (of banks) shall have reason to conclude that such corporation * * * is in an unsound or unsafe condition to transact the business for which it is organized, or that it is unsafe and inexpedient for it to continue business he * * * may forthwith take possession of the property and business of such corporation * * * and retain such possession until such corporation * * * shall resume business, or its affairs be finally liquidated as herein provided. * * * Upon taking possession of the property and business of such corporation * * * the superintendent is authorized to collect moneys due to such corporation * * * and do such other acts as are necessary to conserve its assets and business, and shall proceed to liquidate the affairs thereof as hereinafter provided. The superintendent shall collect all debts due and claims belonging to it, and upon the order of the Supreme Court may sell or compound all bad or doubtful debts, and on like order may sell all the real and personal property of such corporation * * * on such terms as the court shall direct; and may if necessary to pay the debts of such corporation, enforce the individual liability of the stockholders."
In Matter of Union Bank of Brooklyn ( 204 N.Y. 313, 316) Judge WERNER, construing the act of 1908, wrote: "The events which led to its enactment are familiar history of which we may take judicial notice. The financial depression of 1907, and the resulting embarrassment of many banks, culminated in a series of receiverships in which the demands for commissions and counsel fees were so extravagant as to arouse an instant popular demand for reform. To that end the superintendent of banks was by statute invested with the powers which had previously been exercised by receivers appointed by the courts. * * * The statutory enumeration of the superintendent's duties * * * indicates the legislative intent to transfer to the superintendent the general duties and functions which had theretofore been exercised by receivers."
The statute of 1908 expressly repealed all acts and parts of acts inconsistent therewith, and in unmistakable language conferred authority upon the superintendent of banks, if necessary to pay the debts and liabilities of a trust company, to institute action in his official capacity to enforce the liability imposed upon the stockholders thereof by section 196 of the Banking Law, unhampered by any limitations contained in the Stock Corporation Law or the fact that the charter of the company had not been dissolved by judgment of the court. The scheme of the statute was to provide a procedure for the liquidation of delinquent corporations through a department of the state for the benefit of creditors, which would be economic and speedy. The same general plan prevails in the liquidation of national banks by the comptroller of the currency, and the relief sought by the complaint in this action is similar to the relief which was theretofore obtained in proceedings authorized to be taken against stockholders of bank corporations to enforce the liability imposed upon them by article 8, section 7, Constitution of 1846 (Laws of 1849, chapter 226; Banking Law of 1882, chapter 409, article 6), and which was sustained by this court in Matter of Empire City Bank ( 18 N.Y. 199).
In the examination of the questions involved in this appeal we have not deemed it necessary to refer to the liability imposed upon stockholders by the Constitution of 1894 (Article 8, section 7), neither have we overlooked the decisions of this court, called to our attention by the learned counsel for appellants. The cases upon which stress was laid by him were decided before the passage of the act of 1908.
In reference to the second count of the demurrer, that the Lafayette Trust Company is a necessary party to the action, we conclude that while the company may be a proper party defendant, it is not a necessary party. The views expressed lead to an affirmance of the decision of the Appellate Division.
The first question certified is answered in the affirmative, the second question in the negative.
The order should be affirmed, with costs.
CULLEN, Ch. J., WILLARD BARTLETT, HISCOCK and CHASE, JJ., concur; WERNER, J., concurs in result; COLLIN, J., dissents.
Order affirmed.