Tyng v. Clarke

(dissenting):

This action was instituted to recover against the defendant, as trustee of the Hnited States Submarine and Torpedo Boat Company, the amount of a debt owing from the company to the plaintiff, which was alleged to have accrued in March, 1866. The company was incorporated under the act providing for the formation of manufacturing and other corporations; and the defendant was prosecuted, as one of the trustees, because no report was made of its capital, the proportion paid in, and the amount of its existing debts, either in January, 1870, or January, 1871, as the law required it should be. (2 R. S. [5th ed.], 661, § 35, amended by chap. 657, Laws of 1871, § 3.) When the trial was brought on, the defendant was permitted to show that the plaintiff had pre*274viously prosecuted an action for the same demand against the corporation itself, and that judgment bad been rendered against him and in favor of the corporation, on the merits of the case. The court held that judgment to be a bar to the present suit, and dismissed the plaintiff’s complaint. Whether that was a lawful disposition of the case is the only point now required to be considered and decided by this court.

The statute did not require the prosecution of an action and the recovery of a judgment against the corporation before a suit for this omission could be maintained against its trustees, but it imposed upon them an absolute liability for the debts of the corporation, then existing or afterwards contracted, before the making of such report. The report was required to be made, published and filed in the office of the' clerk of the county in which the business of the company was at the time carried on, and for a default in that respect the trustees were declared liable for these debts. As no suit was first required to be maintained for the recovery of such a debt against the corporation before the trustee could properly be prosecuted for its payment, a judgment against the corporation would have been no evidence against him of its liability. (Miller v. White, 50 N. Y., 137.) The existence of the debt, and the liability of the corporation upon it, would be entirely open to controversy in an action upon it against a trustee, even if a judgment upon it had been first recovered against that body. He would be in no respect bound by such a judgment, for the reason that he was in no legal sense a party to the proceeding. As to him, the judgment would be wholly inoperative. It would be binding only upon the parties to the action, and those standing in privity with them, or allowed by one of them to prosecute or defend the action in his name, or who had, in effect, stipulated to be answerable for the result of the litigation. And the defendant sustained no such relation to the judgment. In Lawrence v. Hunt (10 Wend., 81), it was held that “ the general rule undoubtedly is, that the verdict or judgment must be between the same parties, or those claiming under them, and that a verdict or judgment is not binding upon a third person who has not had an opportunity to make a defense, or to appeal from the judgment, if erroneous. Neither can a stranger give in evidence the verdict or judgment *275against a party to the record, because had such stranger been a party to the former trial the evidence and result might have been entirely different.” (Id., 83; Hasbrouck v. Lounsbury, 26 N. Y., 598; Slauson v. Englehart, 34 Barb., 198.)

In Lansing v. Montgomery (2 Johns., 382), one joint trespasser relied upon a judgment in favor of another joint trespasser, as a defense to the action afterwards prosecuted against himself, and it was held to be no bar, for the reason that “ one who is not bound by cannot take advantage of an estoppel.” (Id., 383.) That case was analogous to the present one, for the liability of the corporation and of the trustee, was of a distinct and several nature, as much as that of joint tort-feasors. (Lawrence v. Campbell, 32 N. Y., 455.) Substantially the same rule was acted upon in Castle v. Brown (14 id., 329), where the judgment was only held binding upon the master, because he actually defended the action in which it' was recovered in the name of his servant. It was there declared that, upon the facts shown, the parties are to be regarded as the same; “ it is by no means true that in order to constitute an estoppel by judgment the parties on the record must be the same. The term has a broader meaning; it includes the real and substantial parties, who, although not upon the record, had a right to control the proceedings and appeal from the judgment.” (Id., 335.) In the present case the defendant could have done neither, in the action prosecuted by the plaintiff against the corporation. “ Under the term parties, in this connection, the law includes all who are directly interested in the subject-matter, and had a right to make defenses, or to control the proceedings and to appeal from the judgment; this right involves also the right to adduce testimony and to cross-examine the witnesses.” “ Persons not having these rights are regarded as strangers to the cause.” (1 Greenl. on Ev. [7th ed.], 654, § 523.) The term parties includes not merely those who are named as such in the action, but it extends to all who stand in privity with them, and that comprehends all who afterwards derive title to the subject-matter of the litigation, from or under one of the parties to the record (id., § 189), but it will not affect, or include an interest acquired previous to the commencement of the action. (Campbell v. Hall, 16 N. Y., 575.) Within this principle, there w^s no such privity between the defendant *276and the corporation as would affect him by a judgment against the latter, and, consequently, he cannot, on any such relation, avail himself of its protection. (Lawrence v. Campbell, 32 N. Y., 455.)

In Douglass v. Howland (24 Wend., 35), it was held by CoweN, J., that “the verdict is not only evidence' against the immediate parties, but against all claiming under them; which very nearly expresses the meaning of the word ‘privy,’ when used to signify those persons off the record who may be affected to the same extent as if they were parties. It means any one who takes the subject-matter of litigation after the suit is determined, or, in some cases, while it is pending. He is either a privy in blood— as an heir on whom the estate in litigation descends, a privy in estate, as one who takes by conveyance, or a privy in law, as one who takes a right of dower. In all these cases the reason is obvious, the heir, purchaser, etc., always comes in subject to any act or default of the predecessor, by which the title may have been affected. But, subject to this exception, the law is extremely jealous of the rights of all who are not actual parties, even though they may appear and be made so.” (Id., 53.) And neither Embury v. Conner (3 Comst., 512), nor Bush v. Knox (2 Hun, 576), or either of the other cases relied upon in support of the ruling made at the Circuit, is in conflict with this principle or sustains the defense of the defendants.

As the defendant was not in legal privity with the corporation, he was not, under the principle applicable to that relation, bound by the judgment. He had in no way stipulated, by any conventional arrangement, for his conclusion by such a result, and did not make himself a constructive party to the action; neither did he sustain the relation of a bailor or bailee to it. Consequently, as he could not avail himself of the judgment, if it had been in his favor, because of either of these relations to the litigation resulting in it, the principles applicable to them does not apply to or sanction this defense. (Thomas v. Hubbell, 15 N. Y., 405; Bridgeport Fire Ins. Co. v. Wilson, 34 id., 275; Konitsky v. Meyer, 49 id., 571; Green v. Clarke, 2 Kernan, 343.) As there was no legal principle under which the defendant would have been bound by the judgment if it had been against the corporation, it follows he cannot avail himself of it by way of defense because it was adverse to the plaintiff. For that reason his liability is still an open question, *277in no way affected or impaired by that adjudication. (Jones v. Barlow, 38 Superior C. R., 142; Deming v. Puleston, 35 id., 309; affirmed, 55 N. Y., 655.)

The verdict should be set aside and a new trial ordered, with costs to abide the event.

Judgment affirmed.

The plaintiff failed in bis action against the company, and the judgment establishes, until reversed, that he has no claim against it arising out of the transactions litigated. The judgment is therefore conclusive against him. Assuming the liability of the defendant as a trustee, he is responsible only for the debts of the company. The plaintiff sues to recover from the defendant his claim against the company, and the answer is: “You have none; the tribunal to which you appealed 1ms so declared.” If the opposite of this proposition be adopted, then the plaintiff has two chances of success on different actions, for the same claims, and in which the results might be conflicting.

It may well be, as shown by Justice Daniels, that the plaintiff was not bound to commence his action against the company before prosecuting his claim against the defendant; but having done so, he cannot iguore the proceeding. The remedy he sought has been denied by a court having jurisdiction to pass upon the claim presented, and the judgment pronounced is conclusive against him as long as it remained.

The judgment should be affirmed.

I concur with Beady, J. The plaintiff in this case could not have two remedies; that is to say, he could not recover of the corporation the full amount of his claim, and recover the same of the defendants also. The moment his claim against the corporation should be extinguished by payment or otherwise, his right to prosecute this action would cease. -A mere recovery against the corporation without satisfaction would not have that effect; but if a recovery with satisfaction should be had against the present defendant, would not the latter, by equitable subrogation, be entitled to the demand against the corporation and to participate in its assets; at least after creditors were fully satisfied ? How then, can plaintiff be permitted to recover a claim which has no existence as between himself and the corporation ?

That is this case. The plaintiff can assert no claim against the company, nor transfer any to another. The highest evidence against the defendant that he has no claim upon the company, is *273tbe record of judgment rendered against bim in bis action against tbe company.

He is bound to establish that at the time of tbe commencement of this action tbe corporation was indebted to bim for tbe sum now demanded. How can be do that in the face of tbe judgment record, which adjudicates finally and conclusively against bim that, there is no such indebtedness ?

It is true the defendant was not a party to tbe record in that action. But he was a, stockholder, and so far as tbe result was to affect his personal liability under tbe statute, he ought to be deemed so far a party in interest, that tbe adjudication in that suit that no debt existed against the company, should be conclusive in his favor, in any subsequent action which might be brought for the same indebtedness. There could, in such a result, be no collusion between the plaintiff and the corporation to the disadvantage of the former. It does not lie in the mouth of the plaintiff to say that the result in the action against the corporation may have been collu-sively obtained; and that fact distinguishes this case from those which hold that a recovery in the suit against the company does not establish the indebtedness against a stockholder subsequently sued.

I think the record was properly admitted in evidence against the plaintiff, and was conclusive; and I concur that the judgment should be affirmed.