Sturges v. . Vanderbilt

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] This action was brought to compel the defendants to apply certain moneys received by them as stockholders of the New Jersey Steam Navigation Company, out of its assets, to the payment of a judgment alleged to have been recovered by the plaintiff's intestate against that corporation in April, 1871, and affirmed by this court in June, 1875 (62 N.Y., 625), upon which judgment, execution has been issued and returned unsatisfied. A decree was rendered in favor of the plaintiff at Special Term, but it was reversed at General Term on the ground that the judgment set up in the complaint was a nullity, having been rendered after the corporation, defendant, had been dissolved by the expiration of the term of its charter, which took place in 1869, and while the action against it was pending.

This court decided in the case of McCulloch v. Norwood (58 N Y, 562) that the dissolution of a corporation terminates an action then pending against it, and that all subsequent proceedings against it are void, unless the action be continued by order of the court, as provided by chapter 295 of the Laws of 1832. There was no such continuance, and therefore, unless there is some special circumstance in the present case to take it out of the operation of the general rule, the judgment in question is clearly void, and this action cannot be maintained as a creditor's suit.

It is claimed on the part of the plaintiff that under the New Jersey statute the corporation after dissolution was not entirely defunct, but was continued in being for the purposes of liquidation and the defense of existing suits, and that it differs in this respect from the statute of this State relating to the liquidation of dissolved corporations. The argument in support of this claim is that by our statute (1 R.S., 600, § 9), upon the dissolution of a corporation, the directors or managers of its affairs at that time, are constituted trustees of the creditors and stockholders of the corporation dissolved; whereas by the statute of New Jersey (Laws of N.J., 1846, Ap. 15, § 29) such directors and managers are in the like case constituted trustees of such corporation, and that this language implies that the corporation still exists as cestui que trust, and is capable of defending in its corporate name. We do not think that the language used has the effect contended for, especially when the corporation, as in this case, has expired by the termination of the period for which it was created, or that its capacity to sue and be sued was intended to be prolonged in any case beyond its own life. For in the same act (section 30) it is provided that the trustees shall have authority to sue by the name of the trustees of such corporation, and shall be sueable by the same name, or in their individual names. The laws of New Jersey provide a method of continuing actions pending against corporations at the time of their dissolution, which would be quite superfluous if the plaintiff is right in supposing that the faculty of defending, after dissolution, in the corporate name was preserved by the statute first cited. It is not material to refer to the New Jersey statute as to the mode of continuing an action, as that is a matter of practice which must be governed by our own laws, and in the present case there was no attempt to continue the action pursuant to the laws of either State.

It is further claimed, that, until a corporation is declared dissolved by judicial decree, creditors may proceed against it by its corporate name, and that it remains in esse until formally adjudged dissolved. All the cases cited in support of this proposition relate to a dissolution in consequence of insolvency or non-user or mis-user of the corporate franchises, or some other cause of forfeiture. In such cases, it is well-settled that the dissolution does not take effect until judicially declared. But the principle upon which that class of cases rests is not applicable to a dissolution by expiration of the charter. The dissolution in such a case is declared by the act of the Legislature itself. The limited time of existence has expired and no judicial determination of that fact is requisite. The corporation is de facto dead. (People v. Walker,17 N Y, 503; Greeley v. Smith, 3 Story C.C.R., 658.) Where the charter of a corporation is annulled by act of the Legislature, the corporation is extinct and no judgment can be rendered against it. (Mumma v. Potomac Co., 8 Pet., 286; Merrill v.Suffolk Bk., 31 Me., 57.) We have been referred to no authority holding a contrary doctrine.

The appellant further claims that the defendants have estopped themselves from setting up the invalidity of the judgment against the corporation, by defending the action, which was tried in 1871, after the dissolution, and by the subsequent appeals, taken in the name of the company from said judgment to the General Term and to this court, which appeals were taken after the dissolution.

A sufficient answer on behalf of the defendant Vanderbilt, who is the only respondent here, is that it does not appear that he took any part in said defense or appeals, or authorized or was in any manner connected with them. It is claimed that he was one of the trustees of the dissolved corporation by virtue of his having been a director at the time of its dissolution, and that is found; but this finding was excepted to, and is not only unsustained by any evidence, but is contrary to the uncontroverted evidence, and to other findings in the case.

It is found that in the month of January, 1864, the defendant Vanderbilt and others were directors, and that no persons other than said defendants were elected after January 1, 1864, either as directors or president of the company; but it is also found that in the month of September, 1864, the defendant Vanderbilt sold and delivered his shares in the stock of the company to the defendant Englis, and ceased to be a stockholder in said company. That subsequently to said sale and delivery, the defendant Vanderbilt attended no meeting of the board of directors, and did not act or assume to act as a director thereof, and did not engage in or have any transaction either as stockholder, director, officer, manager or employee of the company.

By the terms of the charter of the company the directors were to be elected annually for the term of one year. The charter contains no provision as to directors holding over until their successors are elected. Although by the general rule of law directors may so hold over, yet there is no rule which compels them to do so, and where as in this case a director sells out all his stock in a corporation and ceases to take any part in the management of its affairs or the meetings of its directors, he is not bound to see that a successor is elected in his place or to tender any formal resignation. It would be a very arbitrary rule to hold that a director elected for one year, after thus severing all connection with a company, should be responsible for the acts of those who were in its management at the time of its dissolution five years afterwards, and who alone had the charge and custody of the property of the corporation then remaming, and the control of its affairs. Such long continued absence after having parted with all his interest is quite equivalent to a formal resignation, and an unequivocal abandonment of any right to hold over. The acts of the directors who did hold over and become trustees, in defending the action against the corporation, if they did so act, clearly did not estop him from questioning the validity of the judgment. We do not intimate any opinion whether it so operated even against them, as that question is not now before us.

It is apparent from what has been said that this action cannot be maintained as a creditor's suit founded on the alleged judgment to reach the funds of the corporation which were paid out to stockholders before dissolution. It could not be and is not claimed that such an action could be maintained without a valid judgment and execution against the corporation or its successors, or without first exhausting the creditor's remedies against the property remaining in the hands of the corporation, or received by its trustees on its dissolution. It clearly appears by the findings that more than sufficient to pay the plaintiff's claim was possessed by the corporation at the time of its dissolution.

The effort is made, however, to sustain the recovery at Special Term, on the ground that the defendants are liable under the statute of New Jersey, as trustees of the dissolved corporation.

It is difficult to see how this action can be maintained on that ground. The complaint contains no allegation appropriate to such an action, nor does it state the facts necessary to constitute such a cause of action. It neither states that the company ever was dissolved, not that the defendants, or any of them, were directors at the time of the dissolution. It is founded wholly on the judgment and execution, and the right to proceed in equity to compel satisfaction out of property of the corporation which came to the hands of the defendants during its existence. Neither are the facts proved sufficient. The only evidence that the plaintiff's testator ever was a creditor is the alleged judgment. This, as has been shown, was null and void. The facts show that the defendant Vanderbilt was not a director, and had ceased to be such for nearly five years before the dissolution. I can see no right of recovery against him in any form of action on the facts proved or found. The plaintiff had an ample remedy by continuing his action against those directors who continued such at the time of the dissolution as trustees, to follow the property of the corporation into their hands, and after having exhausted that, to resort to any stockholder who had at any time received any portion of the company's funds in excess of lawful dividends. But in this action I can see no ground of recovery against the respondent.

A majority of the court, however, are of opinion that a new trial should be granted, so as to afford the parties an opportunity to apply to the court below for an amendment of the pleadings, and varying the facts by further proof, and therefore the judgment below must be so modified as to grant a new trial, and as modified affirmed, costs to abide the event.

All concur except MILLER, J., who dissents and votes for reversal of judgment of General Term. and affirmance of Special Term; ALLEN, J., absent.

Judgment modified in accordance with opinion.