Cochran v. American Opera Co.

Paterson, J.

Upon the argument of this cause the grounds of demurrer were reduced to two. The first is an alleged defect of parties plaintiff. The specification of this ground made in. argument is that the cause is not entitled as one brought in behalf of the plaintiff and all others similarly situated. This is a criticism affecting form rather than substance, for, immediately after the names of parties in the title, and before any substantial averment is made, there appears on the face of the complaint the following: “ The plaintiffs above named (by their attorneys), suing on behalf of themselves and of all other creditors of the American Opera Company (Limited)' who may be similarly situated with these plaintiffs, allege; ” and then follows the statement of facts constituting the cause of action. This I conceive to be sufficient to indicate the distinct character of the suit. Reference was made on the argument, to the summons, and that it does not show that the plaintiffs sue otherwise than solely for themselves; but the summons cannot be before the court on a demurrer. If the complaint does not conform to the summons, there is another and appropriate remedy open to the defendant.

The second ground of demurrer is, that the complaint does not state facts sufficient to constitute a cause of action.

Considering the suit as one brought on behalf of the plaintiffs now named on the record, and all others similarly situated who may come in and adopt it, the complaint contains averments of the existence of two separate classes of stockholders’ liabilities, which may be reached by creditors standing in the same situation as the present plaintiffs do, and from which may be realized a fund for the satisfaction of the demands of such creditors. They are: first, unpaid balances of stock subscriptions; and secondly, liability of stockholders for debts according to the provisions of the act of the Legislature under which the American Opera Company (Limited) was formed. It is further alleged that certain creditors have recovered judgments, and others have commenced suits against stockholders; but who all the stockholders are, and in what amount they are or are claimed to be hable, the plaintiffs do not know, and they pray a discovery as to who are creditors and stockholders, and that they may be made parties (in addition to such as are now known and made parties), and that an injunction may issue against such creditors as have brought suits restraining the prosecution thereof, and against other creditors from bringing suits, and for appropriate relief respecting the adjustment of stockholders’ liabilities and the application of moneys realized thereon to the payment of creditors, and for general relief.

The action is based undoubtedly upon what was decided in Pfohl v. Simpson (74 N. Y. 137). Since that decision, it must be considered as settled that a court of equity has jurisdiction to entertain a suit where it is made to appear that many claims are being prosecuted, or are about to be prosecuted, against a fund liable in equal degree to all those who have so prosecuted, or are about to prosecute, and to others, and that in such an equity suit the court may enjoin actions pending at law, and restrain the bringing of other actions, and that the rights of creditors to the fund may be ascertained and enforced. In the case referred to, the fund was, as here, a liability of stockholders for unpaid subscriptions, and a liability of stockholders for debts of the company under a statute. Erom the enforcement of these two liabilities arises the fund in which the creditors are interested in equal degree.

The strength of the argument in support of the demurrer is in the contention that by allowing an injunction against the defendant Smith, he is cut off from a remedy given to him by law, and which he is entitled to follow, and that no other remedy is afforded him, and that by bringing him into this suit he may lose a large part of his claim, all of which he might realize by the prosecution of his individual action against those made liable to him by the terms of the statute.

It was at one time believed that the liability of shareholders under section 10 of the Manufacturing Act of 1848 (it is conceded that the liability under the act authorizing the formation of the American Opera Company is the same) for the debts of the corporation was to creditors jointly, and the point was not entirely set at rest until the decision of the court of appeals in Weeks v. Love (50 N. Y. 568); aff'g 33 Super. Ct. [J. & S.] 397. It was there held that the' right of a creditor to sue one or more stockholders was several and not joint, but it was also held that “ the personal liability of stockholders under the act may be enforced in an equitable action against all the stockholders.” In Pfohl v. Simpson (supra), Judge Folger, citing Weeks-v. Love, stated what was there decided on the point alluded to, and says : “ When equitable jurisdiction to this extent is declared, then follows the other jurisdiction of equity to restrain separate and individual actions at law in the same or another court, and to bring all proceedings into one suit and all parties into one tribunal.” (Erie Railway Co. v. Ramsey, 45 N. Y. 637).

The authorities above cited furnish a very plain statement of the theory of suits of this character. Equity will take hold of these liabilities of stockholders and administer them'for creditors to produce equality in distribution among creditors ranking in the same degree. The proper way to attain the object is for one or more creditors to bring a suit in which all others of the same class of creditors may join. Stockholders are brought in, that the extent of their liability may be fixed and the amount thereof realized; creditors are brought in that their claims may . be investigated, established and paid, and thus a multiplicity of suits be avoided and wasteful litigation be prevented. The fallacy of the defendant’s contention is in the assumption that the right to sue the stockholder is exclusively that of creditors individually, and that such suits can be brought only by qualified judgment creditors whose remedies against the corporation have been exhausted. If this were so, then the individual creditor . would have a clear right to bring, control and prosecute to the end his individual suit, and a court of equity could not interfere with the enforcement of his plain legal right. But the individual creditor has no such absolute, exclusive right. The liability of stockholders is a fund in equity for all creditors, to be distributed ratably among those who are entitled to participation; and to preserve such fund, the court will enjoin attempts to reach any part of it at law. In this action, all the necessary averments are set forth in the complaint.

The mere fact that some creditors have realized on suits against stockholders cannot affect the right to maintain the action. The fund sought to be reached is what remains unenforced of the stockholders’ liabilities—that is, so far as this branch of the case is concerned.

It was strongly urged in argument that this action is brought in bad faith. There is nothing to indicate it on the face of the complaint, and it cannot now be regarded. If it be true that an attempt is being made on the part of some stockholders who are said to control this action to abuse the process of the court, and to accomplish wrong and oppression under the cloak of seeking equity, the court will, at the proper time, deal with such persons as they deserve; but at present we are passing merely upon a question .of law.

The demurrer is not well taken, and there must bo judgment thereon for the plaintiff, with leave to the defendant Smith to answer within twenty days on payment of costs.