Shayne v. . Evening Post Publishing Co. , 168 N.Y. 70 ( 1901 )

Plaintiff brought this action to recover damages for alleged libels published in the defendant's newspaper in February, 1899, and when the action came on for trial on the 15th day of May, 1900, the defendant's attorney brought to the attention of the court the fact that the corporate existence of the defendant had terminated on the next preceding first day of January. As the action had abated, the plaintiff thereafter moved the court at Special Term for an order continuing and reviving it against the former directors of the defunct corporation and the motion was granted. The Supreme Court in its Appellate Division, however, reached the conclusion that the death of the corporation operated to destroy the cause of action and so it reversed the order. There was a difference of view in the court, but the majority apparently felt constrained to follow the occasional dicta of judges that in actions of slander, libel, assault and battery, or false imprisonment, the property of the shareholders of the corporation is no more subject to pursuit after the dissolution of the corporation than is the property of an individual after his death. The statute providing for the maintenance of actions against executors or administrators of a wrongdoer, expressly excepts causes of the character last above named from the operation of the statute. (2 R.S. 447.) This statute modified the rule of the common law so as to permit actions to be brought against executors or administrators for wrongs done to property rights or interests of persons; but it does not affect one way or the other causes of action against corporations. Nor is there any statute in this state indicating a legislative policy to prevent the maintenance of actions against a corporation or its trustees after dissolution, whether the cause of action be founded on a wrong or otherwise. Nor are we foreclosed by authority in this court from considering the question on its merits, for neither the diligence of counsel nor patient investigation on our part has brought to light any decision of this court bearing directly upon the question.

For this court to lay down a rule which would cut off causes of action for wrongs against a corporation upon its dissolution would seem to be both arbitrary and unjust, and in some cases it could be taken advantage of by the officers of the corporation by permitting the charter to expire and afterwards reorganizing, instead of renewing the charter before its expiration. In this case there is no question of the good faith of the defendant. Its charter was allowed to expire by an oversight and for a little time it proceeded as if its charter were in full force and effect. But if it be true, as the defendant contends, that the termination of the charter operated of itself to put an end absolutely to all causes of action for wrongs, then it matters not whether the termination be due to oversight or design, for it is the civil death of the corporation, and not the cause of its death that destroys causes of action for wrongs. It hardly need be suggested that if such were the established rule there would be found plenty of persons interested in corporations who would plan to so take advantage of it as that meritorious causes of action might be destroyed with only the temporary embarrassment and expense incident to the organization of a new corporation. Of still further importance, however, is the fact that such a rule would work unjustly in every case to a plaintiff in an action for libel such as this one, assuming as we should that the plaintiff has a meritorious cause of action.

If a recovery be had during the lifetime of the corporation, the moneys required to satisfy the judgment are necessarily taken from assets belonging to the stockholders and reduce the value of their holdings in the amount required to pay the judgment. If a judgment be recovered after the termination of the existence of the corporation the result is the same; for the avails of all the assets of the corporation after payment of all just debts and claims owing by it must be distributed among the stockholders if the corporation be wound up, or if another course be taken and a reorganization be had, the assets of the new corporation are reduced in value in the amount required to pay the judgment. So far as the stockholders, who are the owners of all of the assets of the corporation are concerned, therefore, it matters not whether the judgment be taken before dissolution or afterward, for in any event it is the assets of the corporation which are used in satisfying the demand. In the one case the action is prosecuted to judgment against the corporation, and in the other against the directors, who by force of the statute have become the trustees of the assets of the corporation for the benefit of the stockholders. But this is a difference of form, not of substance, for both the corporation and the trustees represent the assets out of which the judgment must be satisfied and in which the stockholders are alone interested after the satisfaction of all just debts and demands. It is apparent, therefore, that the stockholders have no just ground upon which to predicate a claim that the party who has been wronged by the corporation shall be deprived of his cause of action in the event of the dissolution of the corporation. On the other hand, the plaintiff needs his damages, and in some cases the vindication which an award of damages brings, none the less because, designedly or carelessly, the charter of the corporation is permitted to expire.

If we are right in the view thus expressed as to the merits of the controversy, there can be no doubt what would be the decision of the court were the question one which had never before been up for consideration in the courts of this country or England. It is urged, however, that notwithstanding that the merits appeal strongly in the plaintiff's behalf, and that there is an utter absence of decisions in this state standing in the way of a just determination, we are prevented from making that determination by a rule of the common law of England which concededly would have cut off such a claim as plaintiff's. Inasmuch as the Constitution of 1777 provided that "Such parts of the common law and of the acts of the legislature of the colony of New York as together already form the law of the said colony * * * shall be and continue the law of this state, subject to such alterations as the legislature shall make concerning the same," it is contended that the common law is now in force except so far as it may have been expressly altered by acts of the legislature of this state. This court has interpreted this provision of the Constitution to mean not that all the common law of England was the law of the colony at the time of the making of the Constitution, but only so much of it as was applicable to the circumstances of the colonists and conformable to our institutions. (Cutting v. Cutting, 86 N.Y. 522, 529;Williams v. Williams, 8 N.Y. 525, 541.)

It is at least doubtful, as will be apparent when we come to consider briefly the history of the rule, whether it did become a part of the law of this state; but we prefer to rest our decision on the ground that if such a rule were applicable to this state at the time of the adoption of the Constitution, the effect of subsequent legislation regarding corporations created by and under the laws of this state has been such as to render it wholly inapplicable. This rule had its origin when corporations were either municipal, ecclesiastical, or eleemosynary, and business corporations were unknown. There were no stockholders or natural persons who were entitled to the assets of the deceased corporation and, as in the case of an individual dying without heirs, the personalty went to the king, while to prevent the realty from escheating to the king it was held that it reverted to the donor upon the ground that the grant being made to the corporation for public or charitable uses it was made only for its life. Against those corporations all causes of action whether upon contract or for tort were extinguished, and so, too, were all causes of action which the corporation had against individuals. (Kyd on Corporations — published 1793 — vol. II, page 516; Angell and Ames on Corporations, §§ 779 and 779a; Grant on Corporations, 804.)

Angell and Ames in § 779a say: "The rule of the common law in relation to the effect of dissolution upon the property and debts of a corporation has in fact become obsolete and odious. Practically it has never been applied in England to insolvent or dissolved monied corporations. * * * Indeed, at this day, it may well be doubted whether in the view at least of a court of equity it has any application to other than public and eleemosynary corporations with which it had its origin." It will be observed that the learned authors do not suggest that it was never applied by the courts to other than public and eleemosynary corporations, but that it is no longer applied.

In this state the rule has never been applied to business corporations, and as early as 1811 an act was passed constituting the directors of such corporations, in the event of voluntary dissolution, trustees to settle its affairs and divide the money among the stockholders after paying the debts due and owing by the corporation at the time of its dissolution. This statute, without substantial change, is now to be found in section 30 of the General Corporation Law, and when it is considered in connection with the other provisions of the statute relating to business corporations we find that the ancient rule that the liabilities of the corporations as well as the debts owing to them are extinguished by the dissolution of the corporations, the personalty vesting in the king and the real estate in the donor, has been entirely ignored by the law-making power in this state, which has instead provided a more equitable method for the distribution of the assets, which secures to the stockholders what is left after those are satisfied who have valid claims against the corporation. So if it be technically true that the rule once prevailed in this state because of the language of the Constitution of 1777 — which I doubt — it is no longer in force because of the changed conditions surrounding the creation and dissolution of corporations and the distribution of the assets after dissolution. Ram in his work on Legal Judgments (page 73) states the rule, as it has often been applied by the courts and as we find it our duty to apply it in this case, in these words: "When a rule relates to the nature of things, as such nature existed at a former period, and the reason of the rule corresponds with that nature, then at an after time, if the nature of the things is altered, and by this alteration the rule is become too general, and the reason given for it fails, the rule in a case of this kind is no longer binding. In Davies v. Powell (Willes, 46), WILLES, Ch. J., giving the opinion of the court, says, ``When the nature of things changes, the rules of law must change too.'"

Nor do we think the rule Actio personalis moritur cum persona should be applied. It has long been in force both in England and this country, and in this state has received legislative approval in so far as causes of action for libel, slander and assault and battery are concerned, but our decisions have not extended the rule to the civil death of either persons or corporations. Nor has the language of our statute which authorizes the continuance of certain actions for moneys against the executors and administrators of wrongdoers, but excepts actions for libel, slander, assault and battery and false imprisonment, been held to include the civil death of either individuals or corporations, and it is sufficient for our present purpose to say that such an intent on the part of the legislature cannot be spelled out of the language employed by it. It is said that the rule of the common law, which has not been interfered with by statute so far as actions for libel are concerned, may, by a process of analogical reasoning, be so extended as to include artificial "persons," and death resulting from an act of God to embrace death of a corporation by execution or other operation of law, and, further, that such reasoning has led learned judges to assume it to be the law that the dissolution of a corporation relieves its assets from that which would otherwise constitute a legal burden — that of responding for the damages occasioned to others through the misconduct of its representatives or agents. If it be true that, reasoning by analogy, but a single advance step need be taken in order to support the defendant's position, that step should not be taken, however short it may be, inasmuch as the result reached would be without support in the elements of justice, as we have already attempted to show. It is not a short step, however, for the reason of the rule preventing suit against an executor for the wrongs of his testator is stated to be that as neither the executors of the plaintiff nor those of the defendant have committed in their own personal capacity anymanner of wrong or injury, they should not be prosecuted for torts in actions which were originally designed for the punishment of the wrongdoer. On the other hand, the object of actions excontractu being to reach "the property rather than the person,in which the executors now have the same interest that theirtestator had before," it was decided that they should be revived and continued against the executor. (1 Woerner's Administration, §§ 290, 291, 292, and notes; Phillips v. Homfray, L.R. [24 Ch. Div.] 457; Finlay v. Chirney, L.R. [20 Q.B. Div.] 502-504.)

The remedy of a plaintiff, in an action for libel to recover damages, is against the property of the corporation solely. Whether his judgment be rendered against the corporation or against the trustees after dissolution, he can have satisfaction only out of the assets of the corporation. The object of his action, therefore, is to reach the property of the corporation, and, hence, it is in all respects within the very reason assigned in support of the right of a creditor to bring actions excontractu against the executor.

Our conclusion is that as the plaintiff could have had satisfaction of his claim — if he have one — out of the assets of the defendant corporation had he prosecuted his action to judgment before the termination of the latter's corporate life, so should he now have satisfaction as he has taken no step which either forfeits or affects his right, unless some rule of law stands across the pathway leading to justice for him, and after a careful examination of the subject we have been unable to find any such rule of law in this state.

The question certified to this court by the Appellate Division should be answered in the affirmative, its order reversed and that of the Special Term affirmed, with costs.

BARTLETT, HAIGHT, VANN, LANDON, CULLEN and WERNER, JJ., concur.

Ordered accordingly.