Bagley & Sewall Co. v. Ehrlicher

The plaintiff is a manufacturing corporation organized under the laws of this State, having its principal office at Watertown, F[. Y., *582In the latter part of 1895, and in the fore part of 1896, the Globe Paper and Fiber Company became indebted to the plaintiff for work and labor done, and merchandise sold and delivered, in the sum of eight hundred fifty-eight dollars and seventy-eight cents ($858.78).

The Globe Paper and Fiber Company was a manufacturing corporation, created under the laws of this State about April 27, 1894, and transacted its business at Brownsville, FT. Y., until February 25, 1896, when it was dissolved as insolvent under a judgment rendered against it in an action by the People of this State, and a permanent receiver was appointed to distribute its assets to those entitled thereto. Such assets would pay about fifty per cent of the unsecured indebtedness of the concern.

The usual injunction in such cases had been granted restraining its creditors from commencing or maintaining actions against it to recover their debts. This injunction was served upon the plaintiff.

There were upwards of one hundred creditors of the Globe Paper and Fiber Company whose claims were unpaid. The capital stock of the concern was fixed and limited at three hundred thousand dollars ($300,000), composed of three thousand shares (3,000) of one hundred dollars each; twenty-two hundred and sixty-nine shares were issued, and a large percentage of the stock issued was not paid up either in part or in whole, and a large portion of the same was issued for ficticious values, no real value having been received therefor by the corporation, and the stock so issued was issued before the incurring of the debt of the plaintiff, or the other debts now outstanding and due from or by the company.

About fifteen creditors have brought separate actions at law against the stockholders to recover their debts, representing the aggregate amount of claims of one hundred thousand dollars. Many more actions are liable to be brought; twenty-nine stockholders hold the twenty-two hundred and sixty-nine shares issued.

There were many transfers of stock during the period when the debt of the plaintiff and other outstanding debts of the company, for which the stockholders have an individual liability, were incurred, and the debts, or parts of debts, were incurred at different times, and the liabilities on stock are in some instances divided as to such debts between two or more stockholders, and some of the stockholders are insolvent.

*583This action is brought on behalf of the plaintiff and all other creditors of the Globe Paper and Fiber Company similarly situated, and who will come in and share the expenses of this action against forty-four defendants, being the said stockholders and the plaintiffs who had brought actions against them at the commencement of this action; and the relief demanded in the complaint is to the effect that an accounting oe had as to the liability of each individual stockholder in the dissolved corporation for the debts thereof in the actions already instituted, and such stockholders as might thereafter be brought in; and that said stockholders shall pay and contribute the amounts respectively which it shall be ascertained they are justly liable for, sufficient to pay the debts of the plaintiff, and all such persons as should join as plaintiffs in this action for an injunction and for further relief.

The learned justice at Special Term directed that the injunction obtained from the county judge of Jefferson county be vacated, with ten dollars ($10) costs of motion, without prejudice to any defendant stockholder to move for an injunction in any proper action or proceeding brought by such stockholder or stockholders.

It will be seen that this is an action in equity to adjudge in one action the rights of the creditors and the liabilities of the stockholders in this dissolved corporation, in order to avoid a multiciplicity of actions and the wasting of the property of the stockholders in a large number of litigations involving a large amount of costs. Owing to the peculiar circumstances indicated by the moving papers, and the complications arising from conflicting interests, it would seem very desirable that the rights, interests and responsibilities of the stockholders and creditors should, if possible, be adjusted in one action.

The power of the court in this action to restrain the actions at law against the stockholders cannot be doubted. Courts of equity have exercised that jurisdiction from time immemorial. The cases in this State sanction it. (The Erie Railway Company v. Ramsey, 45 N. Y. 637; Pfohl v. Simpson, 74 id. 137; Cochran v. American Opera Co., 20 Abb. N. C. 114; National Park Bank v. Goddard, 131 N. Y. 494.)

Pfohl v. Simpson (just cited) was an action brought by a creditor of the People’s Safe Deposit and Savings Institution, organized *584under the act chapter 816, Laws of 1868, in his own behalf and that of other creditors against the stockholders of said company, the assignee in bankruptcy, and such creditors as had brought actions at law to collect of said stockholders the sums for which they were liable under the provisions of sections 13 and 14 of that act, to distribute the same among the creditors and to restrain the prosecution of said actions at law. The action was held to be well brought.

It was further held that the fact that by said provisions the stockholders were made severally liable did not preclude the attaching and exercise of this equitable jurisdiction. This case, in principle, is analagous to the one at bar and affords complete justification for its maintenance, as is also the case of The National Park Bank v. Goddard (supra). The liability of the stockholder for the debts of the corporation under the Stock Corporation Law (Chap. 688 of the Laws of 1892, § 54) is a legal liability, and no reason can be urged why the equitable power of the court, such as is sought in the action at bar, should not be exercised in this, as well as in other legal actions, such as were restrained in the case cited.

The learned justice at Special Term seems to have reached the conclusion that the injunction should have been sustained in the case before us had it been obtained by a stockholder. It is difficult to conceive, if a stockholder is entitled to an injunction, why a creditor is not. In this case none of the stockholders had answered at the time of the dissolution of the injunction. Seven of them had appeared and moved for its dissolution, and the affidavits presented by them, which were embraced in their motion papers, did not materially contradict or vary the case made by the plaintiff’s papers upon which the injunction was obtained, and in the replying affidavit of the plaintiffs attorney, read upon the motion, it appears that since the commencement of this action other creditors than the plaintiff holding undisputed claims against the defendants for upwards of $2,500 have arranged with the plaintiffs attorney to come in as plaintiffs in this action and to share the expenses thereof. That at the time of the making of said affidavit (April 4, 1896) twenty-five actions had already been brought by the creditors of the Globe Paper and Fiber Company against single stockholders of the said company, and among such actions five thereof were brought by the *585Watertown Press Brick Company against five several stockholders of the said company on a claim of ninety dollars and forty cents, and that many other claims sued upon were moderate in amount.

So it appears that between the granting of the injunction, March 24, 1896, at the time of the commencement of this action, when fifteen stockholders were made defendants, and the dissolution of the injunction on the fourth of April following, ten new actions had been instituted against the unfortunate stockholders. The fact that the law permits the creditor of the corporation holding a small claim to bring action against any number of its stockholders individually and separately, and to pursue them until he obtains the satisfaction of his debt out of some one of them, is liable to great abuse, and affords, in a proper case, a strong reason for the exercise of the equitable jurisdiction invoked in this action.

We have reached the conclusion that the order dissolving the injunction herein should be reversed, with ten dollars costs and disbursements of tins appeal.

All concurred.

Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.